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CMA hits back against criticism of MS-Activision decision
Q: Do you consider the implications of your decisions on the UK’s international reputation as a place to do business?
This is a clear reference to Microsoft president Brad Smith’s claim that the CMA’s decision to block the Activision deal was “bad for Britain”, and that the EU was a better place to start a business.
Sarah Cardell says the CMA absolutely committed to support competitive markets in a way that is “absolutely good” for the UK and its economy.
The CMA’s chief executive explains to the Business and Trade committee that:
Competition is a keystone, an absolutely foundational block of UK competitiveness.
You want to have strong competition in markets, it promotes growth and promotes innovation.
Q: Everyone’s in favour of competition in markets… do you consider our international reputation at all in your decisions, and whether the UK looks ‘open to business’?
Individual cases need to be decided on their merits, Cardell insists. But ‘absolutely, the CMA thinks about the impact of its decisions when it considers its role strategically.
Cardell hits back against the claim that the CMA has undermined the UK’s reputation, saying:
I believe that strong competition is a very positive signal for the UK’s reputation externally.
CMA chair Marcus Bokkerink wades in to support this point.
Bokkerink tells MPs that all businesses know that there’s a big difference between building a business, or investing in a start-up, and buying an already well-established firm with established positions.
The two are not the same, Bokkerink points out, saying:
The UK has always encouraged, and it’s the CMA’s duty to support and encourage, open and competitive markets.
Bokkerink questions whether confidence in the UK will be helped by “turning a blind eye to anti-competitive mergers”.
Key events
Canadian inflation picks up
Inflation in Canada has picked up for the first time in nearly a year, a handy reminder that the road out of the cost of living crisis isn’t smooth.
The Canadian consumer prices index rose by 4.4% in the year to April, up from 4.3% in the year to March, lifted by highe rent prices and mortgage interest costs.
This was the first acceleration in headline consumer inflation since June 2022.
The annual inflation rate in Canada rose to 4.4% in April of 2023 from the 19-month low of 4.3% in the previous month, well above expectations of 4.1% to halt the 10-month streak of slower inflation. pic.twitter.com/krwn06NhlO
— Bertin Balouki SIMYELI (@B_bakouki) May 16, 2023
Gasoline prices rose by 6.3% in April compared with March, the largest monthly increase since October 2022, after the Opec group cut its output at the start of April, driving up crude prices.
The 0.4% month-on-month rebound in US retail sales in April indicates that higher interest rates and tightening lending standards are yet to deal a major blow to consumers, says Andrew Hunter, deputy chief US economist at Capital Economics.
Huntet adds:
That said, with the April gain coming after two months of declines, real consumption growth is still likely to slow quite sharply in the second quarter.
US retail sales miss expectations
US consumer spending was weaker than forecast last month, new economic data shows.
US retail sales rose by 0.4% in April, missing forecasts of a 0.8% rise, after a 0.7% drop in March.
Online spending (at non-store retailers) rose 1.2% month-on-month, and was 0.9% higher at health and personal care stores.
But spending deteriorated at furniture and home furnishing outlets (down 0.7%), and at electronics and appliance stores (-0.5%) and at sporting goods, hobby, musical instrument and book stores (-3.3%).
Department stores saw a 1.1% drop in spending.
IMF warns Germany’s economic growth will remain muted in near term
The German economy has shown resilience over the last year thanks to a strong policy response and a mild winter, but economic growth will remain muted in the near term, the International Monetary Fund (IMF) said today.
Tighter financial conditions and the energy price shock have begun to weigh on near-term growth, the IMF warned in its country report for Germany.
It forecast growth in Germany’s gross domestic product (GDP) to stay near zero in 2023, before gradually strengthening to between 1% and 2% in the period of 2024 to 2026.
Over the longer term, average GDP growth is expected to fall back below 1% as the population ages and with no significant accelerations in productivity or labour supply foreseen.
Although headline inflation is falling steadily, core inflation is proving stickier, according to the report, which warned:
“A top priority in the near term is thus to support disinflation with a moderate tightening of the fiscal instance in 2023.”
The CBI has appointed a Chief People Officer to lead cultural change at the organisation, following a series of sexual misconduct allegations reported by the Guardian.
As Interim Chief People Officer, Elizabeth Wallace will start the process of implementing the 35 recommendations put forward by law firm Fox Williams, which held an independent investigation into allegations of misconduct at the business lobby group.
Rain Newton-Smith, the CBI’s new director general, said:
“I am so pleased to welcome Elizabeth on board as Chief People Officer.
Her role will be integral in reforming our people strategy- defining our shared values as we collectively recover from the challenges of recent weeks. With over two decades’ worth of experience, I’m confident that her guidance will accelerate our efforts to effect meaningful change across the CBI.”
Earlier this month the CBI appointed business ethics consultancy Principia Advisory to help overhaul its operations. It has scheduled an extraordinary general meeting for midday on 6 June, after more than 50 large businesses, including John Lewis and NatWest, suspended or cancelled their membership following allegations of sexual misconduct/
Elizabeth Wallace has previously worked as Head of Portfolio Talent at private equity group Hg and Director of Executive Search at investment group BlackRock.
Wallace says she will “lead the way on cultural transformation” at the CBI, adding:
Making sure the newly created Chief People Officer role becomes a permanent part of the CBI’s DNA will be front of mind, as I work with people across the organisation to strengthen our employee experience offering.”
The MPs also heard about the CMA’s concerns about the high profit margins at petrol retailers, particularly supermarkets:
🟡 Cardell flags rising retail margins in petrol and says this is “particularly” prominent in supermarkets.
🟡 She says “what troubles us is that we are not seeing that competitive response” from other supermarkets when one retailer increased internal targets— Helen Cahill (@HelCahill) May 16, 2023
Sarah Cardell told MPs on the Business and Trade Committee.
“Supermarkets have historically been the cheapest suppliers by and large at the retail level,”
“And I should say that it remains the case that many of the factors driving up petrol and diesel prices are external factors, including obviously the impact of Russia’s invasion of Ukraine.
“But nonetheless, what our evidence is showing us is that the rise in margins doesn’t appear to be entirely due to factors outside of retailers’ control.
“What we appear to see is evidence that at least one of the supermarkets has increased its own internal targets for margins, we’re not seeing a strong competitive response from the other supermarkets there.”
CMA chief executive Sarah Cardell then declined to give a view on the possible merger of Vodafone and Three, CK Hutchison’s UK businesses, as a deal hasn’t been formally agreed.
She told MPs:
“The situation that we’re in is, because we don’t yet have that as a merger to review, we can’t give, in a sense, a view now.”
If a deal is reached, then a merger of Vodafone and Three would cut the number of UK mobile phone networks from 4 to 3.
Q: How much does the CMA discuss and co-ordinate with regulators in other juristictions when examining a deal, and specifically with the Microsoft-Activision deal.
Sarah Cardell explains that the CMA is looking at significantly more deals following Brexit.
Of course, the competition is ‘highly mindful’ of the need to ensure the continuity and integrity of analysis, but it’s the CMA’s role is to consider competition in the UK.
She explains that the CMA was given a ‘waiver’ by the parties in the MS-Activision deal, so its staff could hold discussions with the European Commission.
But towards the end of its discussions, it did not have a waiver to allow detailed discussions with the US FTC, so there was only limited discussions.
Cardell insists the CMA does not do the bidding of other authorities, following some speculation that the FTC had put pressure on the UK regulators.
MP insists to know more about interactions between CMA and FTC, but Cardell points to confidentiality restrictions.
The longer this takes, the more it looks like Activision’s CEO may have had a point about an alleged Khan-Cardell conspiracy to block the deal in the UK.
🧵17/X
— Florian Mueller (@FOSSpatents) May 16, 2023
CMA hits back against criticism of MS-Activision decision
Q: Do you consider the implications of your decisions on the UK’s international reputation as a place to do business?
This is a clear reference to Microsoft president Brad Smith’s claim that the CMA’s decision to block the Activision deal was “bad for Britain”, and that the EU was a better place to start a business.
Sarah Cardell says the CMA absolutely committed to support competitive markets in a way that is “absolutely good” for the UK and its economy.
The CMA’s chief executive explains to the Business and Trade committee that:
Competition is a keystone, an absolutely foundational block of UK competitiveness.
You want to have strong competition in markets, it promotes growth and promotes innovation.
Q: Everyone’s in favour of competition in markets… do you consider our international reputation at all in your decisions, and whether the UK looks ‘open to business’?
Individual cases need to be decided on their merits, Cardell insists. But ‘absolutely, the CMA thinks about the impact of its decisions when it considers its role strategically.
Cardell hits back against the claim that the CMA has undermined the UK’s reputation, saying:
I believe that strong competition is a very positive signal for the UK’s reputation externally.
CMA chair Marcus Bokkerink wades in to support this point.
Bokkerink tells MPs that all businesses know that there’s a big difference between building a business, or investing in a start-up, and buying an already well-established firm with established positions.
The two are not the same, Bokkerink points out, saying:
The UK has always encouraged, and it’s the CMA’s duty to support and encourage, open and competitive markets.
Bokkerink questions whether confidence in the UK will be helped by “turning a blind eye to anti-competitive mergers”.
CMA: not in hostile environment with tech
Q: It’s been reported that tech companies have been recruiting lots of lobbyists and persuaders to affect the work of the CMA – is that a concern?
CMA CEO Sarah Cardell says the overall experience of engagement with the tech industry has been ‘very positive’.
She meets regularly with senior representatives of tech companies and the industry.
This is a sector where we want to work together, and create the best conditions for competition, Cardell explains.
Of course, there will be individual decisions where we disagree, she adds, but:
I don’t find that we are operating in a hostile environment.
She cites a case against Google’s privacy sandbox, which was resolved constructively with a solution that’s now being rolled out worldwide.
Q: So why did the EC feel differently about Microsoft’s remedy than the CMA?
CMA CEO Sarah Cardell says we don’t have the detail behind Brussels’ decision yesterday to approve the deal.
But the question for the CMA is whether, or not, the remedies would allow a market to continue with the same competitive dynamics as if the deal had not happened.
The cloud gaming market is in early gestation, we want competition to flourish, Cardell declares, adding:
There was a real concern on the part of the [CMA] group that if you accept the proposal that was tabled by Microsoft, it would constrain the way the market would evolve going forward.
It would not replicate the conditions of full and fair competition that we would see in the absense of the merger.
Reminder, the Commission said yesterday that Microsoft had made this commitment:
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A free license to consumers in the EEA that would allow them to stream, via any cloud game streaming services of their choice, all current and future Activision Blizzard PC and console games for which they have a license.
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A corresponding free license to cloud game streaming service providers to allow EEA-based gamers to stream any Activision Blizzard’s PC and console games.
CMA defends blocking MS-Activision deal
Sarah Cardell, chief executive of the Competition and Markets Authority, begins today’s session by explaining why the CMA is opposing Microsoft’s takeover of Activision Blizzard.
Q”: Where are we with the Microsoft-Activision deal?
CMA CEO Sarah Cardell explains that the CMA’s decided at the end of April to prohibit the deal, due to concerns that competition in the cloud gaming market would suffer.
Microsoft has a leading position in cloud, due to its cloud infrastructure, its Xbox gaming console and Windows.
The CMA was concerned about Microsoft’s ability to take that position and combine it with Activision, and its significant portfolio of games (such as Call of Duty), Cardell explaines.
It would lead to a lessening of competition, the CMA feared, as it would prevent other cloud gaming providers from competing effectively as the market develops.
The CMA considered the proposed remedy from Microsoft “very carefully”, Cardell insists, but concluded it would not be a comprehensive and effective remedy.
Microsoft, she says, offered a licencing deal that would set the terms of trade for the market for the next 10 years; determining the terms in which other cloud computing providers would get access to those games.
This is a very important, evolving market, and the CMA wants to ensure it can evolve unincombered by regulatory constraints.
The CMA has decided that the deal needs to be prohibited.
The EC, though, decided yesterday to approve the deal.
Cardell says the Commission did conclude there are competition concerns from the deal – so there is no difference between the EC and the CMA on that point.
However, the Commission accepted Microsoft’s proposed remedy.
Cardell adds:
We remain of the view, from a UK perspecive, that it was not appropriate to accept that remedy.
She reminds MPs that the US Department of Justice is also suing to block the deal.
MPs hold hearing with CMA
Over in parliament, MPs on the Business and Trade Committee have begun a hearing on “The work of the Competition and Markets Authority”.
Up before them, we have CMA chair Marcus Bokkerink, and chief executive Sarah Cardell.
Here’s a piece from earlier this month, about the CMA’s global ambitions – which have included blocking Microsoft’s takeover of Activision Blizzard, and taking a look at the underlying systems – or foundation models – behind AI tools.
🟡 CMA chair Marcus Bokkerink and CEO Sarah Cardell are in front of the business and trade ctte this morning
🟡 The session is on tech takeovers and there’s plenty of M&A drama to talk about
https://t.co/g7o5du0KPY— Helen Cahill (@HelCahill) May 16, 2023
Analysis: UK interest rate rises are taking the labour market off the boil
Phillip Inman
There are signs the Bank of England’s interest rate rises are making businesses think twice about hiring staff, bringing down the number of vacancies, my colleague Phillip Inman writes.
Pushing in the same direction, the high cost of living is driving more people back into the workforce.
The effect shows up in the latest labour figures from the Office for National Statistics (ONS) as a fall of 55,000 in the number of vacancies in the three months to April and a 156,000 drop in the number of inactive workers.
Separate HMRC figures showed a 136,000 fall in PAYE employees between March and April – the first reduction since February 2021.
Put together, these figures tell us the UK’s pressure-cooker labour market – with lots of advertised jobs and too few workers to fill them – has begun to come off the boil.
When the Bank of England’s main concern relates to the tightness of the labour market, which is reflected in a high vacancy rate, then these trends will be welcomed by anyone who wants interest rates to fall and growth to pick up….
More here:
The IFS have published a handy thread explaining how more workers will be dragged into paying higher rate income tax over the next few years:
The six-year freeze to income tax allowances & thresholds is set to add 2.5m more people onto higher tax rates by 2027.
This would make it the single biggest tax-raising measure since Geoffrey Howe doubled VAT in 1979.
What will this mean? THREAD: [1/6] pic.twitter.com/5mcYX2jRAu
— Institute for Fiscal Studies (@TheIFS) May 16, 2023
In 1991, just 1.6 million people in the UK were paying higher rates of income tax (40% and above), equivalent to 3.5% of UK adults.
By 2027, it will be 7.8 million people (14% of UK adults).
[2/6] pic.twitter.com/qmQCjzWuem
— Institute for Fiscal Studies (@TheIFS) May 16, 2023
The higher-rate threshold is currently £50,270.
For the same fraction of people to be paying the 40% higher rate in 2027 as were paying it in 1991 (3.5% of UK adults), the higher-rate threshold would need to be nearly £100,000.
[3/6]
— Institute for Fiscal Studies (@TheIFS) May 16, 2023
Higher rates of income tax used to only impact those on the very highest incomes.
Now it impacts a much more substantial share of the population: one in four teachers and one in eight nurses will be higher-rate taxpayers by 2027–28.
[4/6] pic.twitter.com/vERj3r7x4T
— Institute for Fiscal Studies (@TheIFS) May 16, 2023
This freeze will compound the challenges facing workers, whose earnings have not been keeping up with inflation.
One third of the expected record fall in household incomes this year is likely to be a result of this tax rise.
[5/6]
— Institute for Fiscal Studies (@TheIFS) May 16, 2023
German investor morale tumbles as recession fears rise
German investor sentiment fell more than expected in May, suggesting that Europe’s largest economy is deteriorating and could fall into recession this year.
The ZEW economic research institute’s gauge of investor morale in Germany has tumbled to -10.7 points, down from 4.1 points in April.
Economists polled by Reuters had expected a smaller drop, to -5.3.
This brought the ZEW indicator back into negative territory for the first time since December 2022.
ZEW president Achim Wambach said.
“As a result, the German economy could slip into a recession, albeit a mild one.”
Wambach said that fears of further interest rate hikes by the European Central Bank weighed on morale, adding that the US debt ceiling deadlock was another factor:
A possible default by the United States in the next few weeks also increases the uncertainty with regard to international economic development.
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