UK Chancellor Set to Reform Merger Rules to Attract More Business Investment

On Monday, Chancellor Rachel Reeves is set to announce her plans to reform UK competition law in a move designed to reduce regulatory burdens and spur economic growth. According to government officials familiar with the details, Reeves will introduce legislation that will reshape the two key tests used by the Competition and Markets Authority (CMA) to determine whether it should investigate a merger. The proposed changes are intended to streamline investigations, making them faster, more predictable, and less intrusive, as part of a broader effort to ease business regulation.

One of the main tests under scrutiny is the “share of supply” test, which currently allows the CMA to investigate mergers that would result in a company controlling 25% of the supply of goods and services in a particular market. The other key test, known as “material influence,” gives the CMA authority over acquisitions of significant stakes in businesses, even if those stakes do not result in full control. Reeves’ proposed reforms aim to narrow the scope of these tests, limiting the conditions under which the CMA can intervene in mergers.

This announcement comes as part of a broader initiative by Reeves to reduce red tape and encourage economic growth. Per the Financial Times, the Chancellor will present a “radical action plan” on Monday, which includes significant cuts to regulatory barriers and aims to make the UK a more attractive destination for business investment.

Related: UK Competition Watchdog Opens Consultation on Merger Remedies

According to sources, Reeves intends to tighten and limit the circumstances under which mergers are subject to scrutiny by the CMA, responding to concerns from the business community that the regulator’s aggressive approach has been stifling investment. The CMA, which has faced increasing criticism for its perceived interventionist stance, has already indicated that it would reduce the length of merger investigations. However, Reeves’ pledge to legislate changes would ensure that these adjustments are made permanent.

The move to overhaul the CMA’s approach comes in the wake of mounting frustrations from business leaders. The regulator’s broad powers, which its former chair Sarah Cardell described as “unusually broad” by international standards, have been seen by some as a barrier to investment. In January, the UK government replaced the CMA’s chair, appointing Doug Gurr, former head of Amazon UK, as interim chair with a mandate to attract greater business investment. Not long after, the CMA cleared American Express Global Business Travel’s $570 million acquisition of rival CWT, marking an unexpected reversal of an earlier decision.

As part of ongoing efforts to reassess the CMA’s approach, the agency has launched a broader review into merger remedies. The CMA has opened a call for evidence, inviting input from businesses and stakeholders until May. The regulator, according to a recent statement, emphasized its ongoing collaboration with the government to ensure that the UK’s merger control regime remains both effective and proportionate.

In addition to the merger reforms, Reeves is expected to discuss a range of regulatory changes with key watchdogs on Monday, including the Financial Conduct Authority and the Prudential Regulation Authority. As per the Financial Times, one of the key aspects of her agenda is to reduce the administrative cost of regulation by 25%, a move she argues will “free businesses from the shackles of regulation” and provide a more business-friendly environment.

Source: The Financial Times