On 22 April 2009, the Chancellor of the Exchequer presented the 2009 Budget. The Budget Report contains several announcements of interest to competition and regulatory lawyers. In particular, it sets out the Government's next steps in relation to the introduction of competition in the water sector and the Government's commitment to pursue universal service in broadband in 2012. In addition, it explains measures that the Government intends to take in relation to financial services markets, and announces a review of the powers and duties of the Office of Communications.Close speedread
The 2009 Budget Report contains the following announcements which might be of particular relevance to competition and regulatory lawyers:
State support for financial markets. The Budget Report sets out the UK and international policy response to the financial and economic crisis, including the UK measures which have received state aid clearance (see Legal updates, Commission approves prolongation of UK banking support scheme (www.practicallaw.com/3-385-7795), Commission approves UK scheme to support bank lending (www.practicallaw.com/4-385-3914), Commission approves UK Homeowners Mortgage Support Scheme (www.practicallaw.com/3-385-6512) and Commission approves UK Asset-Backed Securities Guarantee Scheme (www.practicallaw.com/8-385-6604)). It reviews the impact of the Government intervention in the financial markets, which the Government considers have been successful in preventing the collapse of the financial system and ensuring that no retail depositors in UK banks or building societies lost money. It considers that its interventions have supported the wider economy, and they are helping individuals and businesses. The Government states that it will continue to do whatever it takes to maintain financial stability through its objectives to ensure stability and restore confidence in the financial system, protect retail depositors' money and safeguard the interests of taxpayers
Renewing financial markets for the future. The Budget Report announces that the Government intends to take a range of actions to restore and renew the future viability of the financial services markets. It intends to take action to renew financial regulation, to reduce the impact of the failure of financial firms, to protect and support consumers and to strengthen regulators (by increasing the powers of the Financial Services Authority) and the international regulatory framework.
In addition, the Government intends to take measures to improve efficiency and competition. In particular, it will:
Continue to work closely with the G20 and the EU to ensure a co-ordinated reduction of state involvement in the financial sector, while reducing the risk of market distortions.
Building on the Office of Fair Trading's financial services strategy, the Government will consider how best to encourage new entrants to the financial services market, in the context of the strengthening of financial regulation and consolidation in the sector (see Legal update, OFT consults on financial services strategy (www.practicallaw.com/8-385-6835)).
Put forward proposals to encourage a diversity of ownership structures of financial institutions, in particular encouraging mutuals.
Water competition. The Government notes that maintaining a regulatory system that allows companies access to appropriate finance at affordable prices is a key priority for the Government. The Government welcomes the final report of the Cave review on competition and innovation in water markets (also published on 22 April 2009 (see Legal update, Final report of Cave review of competition and innovation in water markets published (www.practicallaw.com/6-385-8294)). It will take forward the recommendations made in England. In particular, the Government will consult on:
The legal separation of large companies' retail operations to drive competition and deliver efficiencies in the supply of water to business users. Ofwat will conduct further work to establish whether it would be appropriate to introduce a threshold below which the Government would not mandate small companies to separate and, if so, the level at which this should be set.
A package of further reforms to the upstream water supply licensing regime, including replacing the cost principle for supplies to incumbents, retailers, or large customers with a criteria to be determined by Ofwat.
Reforming the special mergers regime for water.
Reforming the inset appointments regime.
The Government will also discuss with stakeholders recommendations to improve innovation in the water sector.
The Government agrees with the conclusions of the Cave review that there is not currently a convincing case for extending competition to households. The decision to extend retail competition will remain with the UK and Welsh Assembly Governments, on the basis of advice from Ofwat and industry stakeholders. However, the Government notes that up to 26,600 businesses will benefit from the reforms by enabling them to switch supplier, which will result in downward pressure on prices, increased service levels and the better use of water.
The Department for Environment, Food and Rural Affairs will, before the summer recess, issue a consultation on the retail competition package in its entirety so that its outcome can be included in the final Floods and Water Management Bill (see Legal update, Draft Flood and Water Management Bill published (www.practicallaw.com/2-385-6602)). It will also set out in detail how the Government intends to take forward the rest of the recommendations in the Cave final report.
Digital Britain. The Budget Report notes that the ongoing Digital Britain project has identified further challenges that need to be addressed now in order to ensure an even stronger platform for the future (see Legal update, BERR and DCMS publish Digital Britain interim report (www.practicallaw.com/2-384-8099)). The Government has announced a commitment to pursue Universal Service in broadband, at a speed of 2 Megabits per second, by no later than 2012. This will be complemented with further support to improve basic digital skills and promote broadband take-up. Details will be set out in the Final Digital Britain Report.
The Budget also approves "Digital Region", a £100 million project led by Yorkshire Forward, which will roll out next generation broadband across the South Yorkshire region, stimulating economic activity through high-speed connectivity.
Review of Ofcom's powers. The Government states that it recognises the important role that next-generation broadband can play in developing the UK's digital communications infrastructure. It announces that, in advance of the Digital Britain final report, the Government will review the powers and duties of the Office of Communications (Ofcom) to ensure it can "strike the right balance between delivering competition and encouraging investment in the communications infrastructure".
Public procurement. The Government intends to introduce a series of reforms by the end of 2009 to improve access to Government contracts for SMEs. These include the measurement of SME spend, flagging SME-friendly contracts, guidance and tools for simplified pre-qualification procedures, and training for procurers and SMEs. A single, free of charge, opportunities portal will be delivered by December 2010 (see also Legal update, Competition and regulation in 2008 Pre-Budget Report (www.practicallaw.com/7-384-2085)).
Energy. The Budget Report sets out a range of measures to promote energy efficiency, to support low carbon energy and to support renewable generation (there is a target to generate 15% of energy from renewable sources by 2020 and to reduce carbon emissions by 34% by 2020) (see PLC Environment, Legal update, Budget 2009: environmental announcements (www.practicallaw.com/2-385-8253)).
The Government considers that a competitive and efficient energy market has an important role to play in keeping energy prices low. It has committed to ensure that consumers benefit from lower prices and that their interests, particularly those of the vulnerable, are protected. In particular, it wants consumers to benefit from the significant falls in wholesale energy prices from their peaks in 2008. It notes that all of the six major supply companies have now announced some price reductions. The Government welcomes the publication of Ofgem's first Quarterly Wholesale/Retail Price Report, which it was asked to produce in the 2008 Pre-Budget Report (see Legal update, Ofgem publishes quarterly report on wholesale and retail energy prices (www.practicallaw.com/1-385-1515)).
The Government states that it supports strong regulation in the energy sector. It notes Ofgem's consultation on proposals to prevent abuse of market power (see Ofgem consults on proposals for addressing market power concerns in electricity wholesale sector (www.practicallaw.com/5-385-5205)) and its consultation on licence changes to prevent unfair price discrimination and to help consumers engage more effectively in the market (see Legal updates, Ofgem consults on proposed Energy Supply Probe retail market remedies (www.practicallaw.com/3-385-6362) and Ofgem consults on final proposals for addressing undue discrimination (www.practicallaw.com/6-385-7845)). The Government states that it stands ready to consult on legislation to tackle unfair pricing differentials between different methods of payment for energy if there is not a speedy and satisfactory resolution of these issues.
For full coverage of the 2009 Budget see PLC Tax Legal update, 2009 Budget: key tax announcements (www.practicallaw.com/2-385-7946).