Trade Competitiveness

Business, Innovation and Skills written question – answered on 26th June 2012.

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Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Innovation and Skills)

To ask the Secretary of State for Business, Innovation and Skills what recent estimate he has made of the contribution to the economy of (a) competition and (b) the competition authorities.

Photo of Norman Lamb Norman Lamb The Parliamentary Under-Secretary of State for Business, Innovation and Skills

holding answer 25 June 2012

Competitive markets ensure that scarce economic resources are put to their most efficient use. Markets that work well provide strong incentives for firms to innovate, improve production methods and lower prices. This in turn results in consumer benefits through lower prices, greater choice, higher quality and improved service offering.

(a) The impact of well-functioning, competitive markets on the economy occurs through several channels. Firstly, effective competition acts as a disciplining mechanism for firms, incentivising firms to become more efficient. Secondly, competition results in the most innovative and productive firms thriving and gaining market share at the expense of those that are not so. Competition also has effects on the broader macro-economic indicators, resulting in lower inflation and higher foreign direct investment. Competitive markets also result in confident and well-informed consumers, who make decisions which best satisfy their requirements.

Notwithstanding these important effects, estimating the impact of competition on the economy is a difficult task given the intangible nature of the impacts.

(b) The OFT assesses the impact of its work on the economy on an annual basis, as part of its performance target of delivering benefits to consumers at least five times the cost of its operations to the taxpayer. The latest available report(1) found that the OFT delivered annual average consumer benefits of £326 million, resulting in a benefit to cost ratio of around 7:1, above the target agreed with the Treasury. The OFT estimated that the competition regime in the UK benefited consumers by almost £689 million in 2010-11.

(1) For the financial year ending March 2011. OFT (2011), 'Positive Impact 10/11: Consumer Benefits from the OFT's work'.

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