Merger control and FDI under the new UK government | Brunswick Group

Merger control and FDI under the new UK government

In recent years the UK has become a bigger regulatory risk factor in global M&A, with the Competition and Markets Authority (CMA) taking on a much more significant role post-Brexit and the passage of a powerful new National Security and Investment Act (NSIA).

What does the election of a new Labour government mean for dealmaking? Will there be more intervention to protect UK consumers, more openness to foreign investment or a combination of the two?

 

How can the government influence the CMA?

The CMA was set up as an independent ‘non-ministerial government department’ so that it would be free from political interference. But politicians still have several levers of influence:

Legislation: The last two changes of government (in 1997 and 2010) led to new legislation changing the structure and powers of the UK competition authorities.

Guidance: The government can issue a new strategic steer to the CMA and under the Digital Markets, Competition and Consumer Act (DMCCA) it is responsible for approving the DMU’s guidance on how it will use its powers.

Board appointments: CMA Chair Marcus Bokkerink’s four-year term is up for renewal in September 2026. The term of Martin Coleman, Chair of the CMA Panel, ends in the same month. CEO Sarah Cardell’s five- year term runs until December 2027.

Funding: The CMA receives most of its funding from the Treasury. Its budget is set out in the Treasury Spending Review, the last of which was announced in 2021 and lapses before the end of this year.

Scrutiny: Parliamentary select committees can summon the CMA leadership to give evidence and make recommendations to them, though the CMA is not obliged to follow them.

 

What the Labour manifesto says

A pro-business and pro-growth regulatory framework

"We will ensure a pro-business environment, with a competition and regulatory framework, that supports innovation, investment, and high-quality jobs."

"Labour will ensure economic regulation supports growth and investment, promotes competition, works for consumers, and enables innovation."

 

Faster, joined-up regulation

"Regulators are currently ill-equipped to deal with the dramatic development of new technologies, which often cut across traditional industries and sectors. Labour will create a new Regulatory Innovation Office, bringing together existing functions across government. This office will help regulators update regulation, speed up approval timelines, and co-ordinate issues that span. existing boundaries."

 

Protecting national security

"To ensure the UK is fully prepared to deal with these interconnected threats, Labour will conduct a Strategic Defence Review within our first year in government."

 

On AI, promoting innovation but also protecting consumers

"We will ensure our industrial strategy supports the development of the Artificial Intelligence (AI) sector, removes planning barriers to new datacentres."

"Labour will ensure the safe development and use of AI models by introducing binding regulation on the handful of companies developing the most powerful AI models and by banning the creation of sexually explicit deepfakes."

 

Encouraging foreign investment

"Britain is a proud trading nation and flourishing international business is a vital part of our plan for growth. Openness to trade allows our firms to grow and delivers greater choice and value for consumers."

 

In other areas, the manifesto signals tougher regulation to protect consumers

Including in energy, water, private rental sector, building safety, children’s social care, further and higher education, gambling.

What to expect from Labour on public interest and the National Security and Investment Act

Although ministers do not have powers to intervene in most merger cases, they can intervene on transactions by issuing a Public Interest Intervention Notice (PIIN) on one of the following grounds (i) financial stability (ii) media plurality (iii) to combat or mitigate the effects of a healthcare emergency.

Alongside this, the NSIA confers expansive powers to intervene to prohibit or impose conditions on transactions where there is a national security issue. Recent guidance has clarified that this could extend to outward as well as inbound investment.

Following 14 years out of government, it will take time for Labour to familiarise themselves with the new regime and the international co-operation and persuasion that happens behind closed doors. For those hoping to do transactions in strategic sectors, not limited to the 17 sensitive sectors set out in the NSIA, ensuring you have a robust public affairs strategy will help to alleviate against the inevitable grit in the machine that comes with a new government.

The NSIA confers expansive powers to intervene to prohibit or impose conditions on transactions where there is a national security issue.

 

Any areas the new government might change?

The outgoing government had said that it would launch a formal public consultation this summer to update the list of the 17 sensitive areas of the economy that are subject to the NSIA’s mandatory notification requirements. Although the incoming government has not yet confirmed its position, a paper on 'National Securonomics' by the Labour Together think tank agreed that "more areas or sub-divisions of the existing 17 [sectors] may need to be added to over time". The paper further argued for an annual assessment of developments in the 17 sectors, which would feed into government’s assessment of when to use existing powers of the NSIA. Additionally, it argued that a Labour government could be more active in areas like AI, data infrastructure and advanced materials, with new "people and capabilities".

Separately, we would expect further collaboration between the ‘Five Eyes’ partners on additional ways to mitigate the threat from hostile states and to ensure strategic advantage across sensitive technology areas.

What to expect from Labour on competition

Competition policy did not feature as an issue during the election campaign and the Labour manifesto contained no pledges to reform it. In practice, it is likely to rise up the political agenda over time and the government may face pressures in two different directions.

An important Labour attack line against the Conservatives was that they had failed to respect the UK’s independent economic institutions or to abide by established processes and conventions, especially under the Boris Johnson and Liz Truss premierships. Early interference with an independent CMA would sit oddly with that argument.

In addition, Labour has supported much of the CMA’s active approach in consumer-facing markets such as food, fuel and housing; and it has backed the new powers for the CMA in the DMCCA.

On the other hand, Labour has declared its number one mission to be to kickstart economic growth, but it has few policy levers to pull in order to achieve it and so it will be heavily reliant on the private sector.

In addition, Keir Starmer and Rachel Reeves have both displayed a firm commitment to partnering with businesses and to removing barriers to investment, jobs and growth in the UK. What happens, then, when businesses come to the government complaining that investment in the UK could be jeopardized by the approach being taken by the CMA or other regulators?

What early signals to look out for

  • There are a few potentially significant merger cases underway or coming down the line. If the CMA takes a tough stance, will incoming Ministers be drawn into controversy or will they stay above the fray?
  • At the start of each parliament, Government provides a non-binding ‘strategic steer’ to the CMA, highlighting the areas it thinks the CMA should focus on. Labour will need to provide a clear steer to the CMA on how they should prioritise and make the tradeoffs between its different objectives. Without that clarity, regulators tend to resolve these tradeoffs using their own discretion, and that can become a source of tension with government.
  • The CMA is currently consulting on its proposed guidance on how the new digital markets competition regime will operate. Once this consultation is finished and the CMA has made any amendments, the CMA has to submit its proposed guidance to the Secretary of State for approval – which means this will be one of the first competition-related decisions that come directly to ministers in the new government.
  • The US presidential election may well have a bigger impact on the CMA than the UK If Donald Trump wins and appoints a new Chair of the Federal Trade Commission (FTC) and a new Assistant Attorney-General for Antitrust at the Department of Justice, it could signal a shift in the US agencies’ enforcement stance. If they take a softer approach than FTC Chair Lina Khan (which is not a given), it could make it riskier for the CMA to block global mergers because there is a greater chance they may appear isolated internationally.

Key players

Rachel Reeves
Chancellor of the Exchequer

Reeves is the most powerful member of the Cabinet other than the Prime Minister. A trained economist with a background at the Bank of England, the British Embassy in Washington and HBOS, Reeves has made economic growth the new government’s top priority. She has set out her vision of an active role for government in her speech on ‘securonomics’ and her Mais lecture. The need for growth will be the prism through which she sees competition policy.

 

Peter Kyle
Secretary of State for Science, Innovation, and Technology Secretary

Kyle has placed a strong emphasis on innovation as part of Labour’s growth agenda, reiterating that the party’s proposed Regulatory Innovation Office would ensure that regulations do not hinder innovation in AI and other technologies and that regulations align with Labour’s broader industrial strategy. He has also shown interest in SMEs, arguing that “the drivers of growth are the smaller enterprises that inject our economy with creativity and energy”.

 

Johnathan Reynolds
Secretary of State for Business and Trade

Reynolds heads the Department for Business and Trade, which is the CMA’s ‘sponsor’ department and has policy responsibility for competition. He has been a vocal advocate for a new industrial strategy, focused on building a more strategic approach to international trade, while ensuring secure and resilient supply chains. To achieve this, Reynolds has argued that the UK should retain the current NSIA intervention powers, without paring them back, and approach states like China with caution. He maintains a strong relationship with the business community, stemming from his tenure as shadow City Minister and his current role in leading Labour’s business relations.

 

Pat McFadden
Chancellor of the Duchy of Lancaster

As Chief Secretary to the Treasury before the 2023 reshuffle, McFadden had prominent influence over the party’s spending commitments, seeking to enforce fiscal discipline alongside Rachel Reeves. His strong centre-right influence within the party, combined with his former role as a key adviser to Tony Blair, make him likely to be an important figure in a future Labour government. If he takes on the same portfolio as the outgoing Chancellor of the Duchy of Lancaster, Oliver Dowden, this would mean McFadden becomes the decision-maker on NSIA cases – but at the time of writing, this is not confirmed.

To continue the conversation on merger control and FDI under the new UK government, please contact Brunswick Group’s Global Regulatory Lead: 

[email protected]