What does UK’s Reeves’ removal of a competition regulator mean for growth?
2025.01.22 10:26
LONDON (Reuters) – British finance minister Rachel Reeves has forced out the chairman of the country’s competition watchdog, saying he did not agree with her views on how to speed up the country’s slow-moving economy.
Here is an explanation of the decision to remove Marcus Bokkerink from the Competition and Markets Authority and replace him on an interim basis with Amazon (NASDAQ:)’s former boss in Britain, Doug Gurr.
WHY HAS REEVES FORCED OUT THE CHAIRMAN OF THE CMA?
Reeves, under pressure to meet Prime Minister Keir Starmer’s 2024 election promise of faster economic growth, last week told Britain’s regulators they must come up with policies that do not place too big a burden on companies.
Competition lawyers said her move to replace the CMA chair told U.S. tech firms and other investors that Britain was willing to approve big takeover deals that might previously have been rejected, a push that has been given new urgency by U.S. President Donald Trump’s purge of rules for business.
In 2023, the CMA blocked Microsoft (NASDAQ:)’s $69 billion purchase of video game company Activision Blizzard (NASDAQ:). Microsoft President Brad Smith said Britain was “bad for business”, before the regulator backed down and approved the deal.
HOW DOES COMPETITION POLICY AFFECT ECONOMIC GROWTH?
The role of competition watchdogs does not directly affect economic growth in the short term, which is more influenced by factors such as consumers’ purchasing power and government spending.
But the decisions of regulators on mergers and ensuring competition in sectors such as technology, pharmaceuticals and retail send important signals to investors about the ease of doing business in an individual country and its attractiveness for investment, priorities for Britain’s government.
WHAT ARE THE ECONOMIC RISKS FROM ALLOWING MORE DEALS?
Without takeover restrictions, some markets are likely to have too few businesses for effective competition, pushing up prices and reducing incentives for innovation.
The CMA has estimated that its merger decisions – for example, blocking a tie-up of supermarkets Sainsbury (LON:)’s and Asda – saved British consumers an average of 685 million pounds ($846 million) a year over the past three years.
Innovation is less likely when it is hard for smaller players to compete, though the CMA says highly fragmented markets make it harder for firms to finance investment too.
Sectors that rely on one or two suppliers can also lead to fragile supply chains, as shown by the 2021 shortage of chips used in the car industry.
WHAT ELSE IS THE GOVERNMENT DOING TO BOOST GROWTH?
Prime Minister Keir Starmer promised voters his government would deliver the fastest economic growth in the Group of Seven rich economies. Just four days after July’s election, Reeves set out plans to streamline planning rules that have slowed house building and infrastructure projects.
She also intends to increase public investment compared with the previous government’s plans and has pressured financial regulators to do more to encourage growth.
However, a more than 25 billion pound tax increase for businesses announced in her Oct. 30 budget appears to have weighed on the economy, in the short term at least, with firms scaling back their hiring and investment plans.
