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Is it a happy birthday, Enterprise Act?


It's the 10th year of the Enterprise Act, has it achieved all that was promised?

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Well, that's a relief. The Office of Fair Trading has prevented a potentially dangerous cartel of Christmas pudding makers hiking their seasonal prices this coming winter.

The defeat of the plum duff profiteers could be seen as another triumph for the Enterprise Act 2002 which celebrates its 10th anniversary this year. At the time, the Act was billed as a major innovation in Britain's competition landscape.

Among its many provisions, it made the Office of Fair Trading independent of government, toughened the law on cartels – with up to five years in prison for directors who transgressed – and reformed the insolvency rules to create a "rescue culture" and encourage entrepreneurs.

Since the Act came into force, more than 1,000 mergers, including the proposed purchase of R F Brookes and Avana Bakeries, two Premier Foods' businesses, by Boparan Holdings – the Christmas pudding case – have been investigated. The OFT calculates that it saved consumers £270 million net last year, after deducting its £55 million budget, by preventing anti-competitive practices.

But after 10 years, can the Enterprise Act celebrate a happy birthday confident in the knowledge that it has achieved all that was promised?

The verdict of experts who work with it is "partly". "I think the Enterprise Act has been successful in creating a rescue culture," says Frances Coulson, the retiring president of R3, the association of business recovery professionals.

"To encourage a thriving enterprise culture, you have to allow people to fail. But do you prevent them from trying again when it's for the good of the economy that we encourage entrepreneurs?"

Morten Hviid, director of the ESCR Centre for Competition Policy at the University of East Anglia, believes the Act has done well for controlling mergers and market investigations.

"On the whole, it's taken the politics out of the process and made the system clearer and more predictable. Reports from the Competition Commission are systematic and easy to read and there is more transparency and clarity about the law."

Successful market investigations by the Competition Commission have resulted in the sale of three airports previously owned by the British Airports Authority and changes in the application of competition law to land law following an investigation into supermarket grocery sales, among other landmark cases.

Coherent approach

Yet despite a sharper and more coherent approach to mergers and market investigations, not everything that the Act's architects planned has panned out as well as they hoped.

"The criminal cartel offence has hit home, making businesses take notice of the increased penalties for breaching competition law," notes Bal Dhillion, head of competition at LexisPSL, which provides specialist guidance to lawyers.

But he points out that there has only been one successful prosecution under the cartel offence – and that was the result of a plea bargain concluded in the US. The most high profile cartel case – British Airways and Virgin – collapsed.

The government recently concluded a consultation process which found that the competition regime was too complicated and contains too much duplication. In March, Norman Lamb, the business minister, announced plans to merge the Competition Commission and the competition functions of the OFT into a new Competition and Markets Authority (CMA).

The CMA will be responsible for merger regulation, market investigations, cartel and anti-trust cases as well as a package of other functions. Lamb believes this will produce a more streamlined approach. Hviid agrees there are some benefits from the new approach. He points out that as the new regime maintains the two-stage approach – at present the OFT refers matters for investigation to the Competition Commission – it could be more challenging to ensure that each stage of an investigation is kept separate inside a single organisation.

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Is it a happy birthday, Enterprise Act?
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