House of Commons Hansard Debates for 6 Jul 1995

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their service. The system is also more democratic. Local communities will have a greater say about the functions that were determined by county councils some distance away and unitary authorities will be more responsive, with local elected councillors better placed than the more remote county councillors. The authorities will be more efficient and, perhaps, more stable. We are discussing large, urban, focused authorities, which all have a strong local identity and an average population of more than 187, 000. Five are major cities--my hon. Friends the Members for Derbyshire, North-East (Mr. Barnes) and for Southampton, Itchen (Mr. Denham) made a strong case for their cities. Eight of the 11 authorities that will be created once had county borough status and, therefore, will have powers and responsibilities restored to them. Nine of the 11 are larger than the smallest unitary authorities in London and the smallest metropolitan authorities. Most have different

characteristics from the remainder of the county area. We heard, for example, from my hon. Friend the Member for Itchen about the difference between that city and the structure of the county in which it is based.

All the authorities are urban, which will allow the remaining county authorities to concentrate on the rural needs of the county. Each authority will have self-governance restored and, as I said, each is capable of providing a full range of services.

All the authorities have public support. Hon. Members made that clear and the local knowledge of hon. Members is better evidence than MORI polls, to which the hon. Member for Newbury (Mr. Rendel) referred at some length. There is strong support for both the principle of unitary authorities and the specific proposals. On costs and savings, the Local Government Commission estimated that the changes will be cost neutral, but there will be transitional costs of between £3 million and £5 million per authority, which will be funded through borrowing.

One matter on which I can agree with the hon. Member for Newbury is the concern expressed, especially by the ACC, about the continuing costs to county authorities where services are transferred to unitary authorities. For example, the hon. Member for Bedfordshire, South-West mentioned the county-wide library service, which is based in Luton. Bedfordshire believes that the service will involve it in some costs.

The ACC also believes that counties will be restricted when applying for supplementary credit approvals. Perhaps the Minister will comment on whether it will be difficult for the counties to obtain such finance.

There are also concerns that the commission's estimates might be on the low side, judging from the experience of the other newly created authorities in Avon, Cleveland and Humberside.

I share the concerns that have been expressed on standard spending assessments. I have always believed them to be unrepresentative and unrealistic and they are badly in need of reform. The Government should ensure that the SSAs for the new unitary authorities are calculated properly and assess their needs, to enable them to get a fair start.

We believe that the orders should be passed tonight and we will not divide the House on any of them. We hope that the new authorities will prosper and be successful. For many, it is a return to the situation before 1974, when they were county boroughs, and we wish them every success.

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8.25 pm

The Minister for the Environment and Countryside (Mr. Robert B. Jones): First, I must thank my hon. Friends for their kind commentsof congratulation, which I very much appreciated, particularly those of my hon. Friend the Member for Bedfordshire, South-West (Sir D. Madel), because he is my constituent and I always like it when my constituents are pleased about something that their Member of Parliament does.

As the hon. Member for Barnsley, Central (Mr. Illsley) said, this has been a good-humoured debate and there has been much to unite both sides of the House. I welcome that fact. Hon. Members had matters that they wanted to raise in response to the situations in their areas, and some common themes ran through the debate, with which I hope to deal in my response.

In some ways, the debate reminded me of a series of maiden speeches. Pretty well every hon. Member took the opportunity to describe the glories of the areas that they represent and good for them, because that is one of the great joys of our electoral system. We are there to take a pride in our constituencies and not simply to be numbers in a manipulative game, as the hon. Member for Newbury (Mr. Rendel) would like. We would not then have such a relationship with our constituents.

My right hon. Friend the Member for Hove (Sir T. Sainsbury) made the first general point, which concerned names, in an intervention on my hon. Friend the Minister for Local Government, Housing and Urban Regeneration. Central Government do not have powers to determine what the names should be and I do not believe that we should. The names in the orders reflect the commission's recommendations. In the case of my right hon. Friend, the recommendation was for Brighton and Hove and it is up to the elected members of that authority to decide whether they are content with that name or want another. Plenty of authorities have changed their names since the reorganisation in 1973-74, but a change requires a two- thirds majority of council members and I do not know the figures in Brighton and Hove. My strong suspicion is that Brighton alone would not have sufficient weight to dump the name Hove and I think that politicians from the Brighton end would be well advised to bear in mind the fact that a balance in an authority's name is as appropriate as it is in any other aspect of the authority. If I were my right hon. Friend, I would not worry. Similarly, my hon. Friend the Member for Swindon (Mr. Coombs) asked about the position in Thamesdown. For the same reason, we could not declare the name to be Swindon, but if the newly elected authority votes by the right majority, it will be able to change it. I rather suspect that that might be the pattern. Having described the appropriateness of naming the football team Swindon and having said that there was no Thamesdown football team, he spoke about Queens Park Rangers. We do not propose, in the orders before us or any future orders, to name any local authority Queens Park Rangers. The name must be what the local authority wants.

A second general argument that was made was a ceremonial one by the hon. Member for Southampton, Itchen (Mr. Denham). We want to resolve that matter so that everything works smoothly. There are some issues to be tackled. Hampshire is unlikely to be a problem, as the two cities there have historically been in the Hampshire area, but that is not always the case. We have had a tricky

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position in Cleveland, where one of the districts comprises parts of the former Durham and parts of the former North Yorkshire. As my hon. Friends the Members for Bournemouth, East (Mr. Atkinson) and for Bournemouth, West (Mr. Butterfill) will acknowledge, there is also an issue about the boundary, in ceremonial terms, between Dorset and Hampshire. We shall try to resolve that as speedily as possible, and I hope with common sense. Obviously, that depends on the representations that we receive.

My hon. Friend the Member for Aylesbury (Mr. Lidington) mentioned parishes. The policy of the Government until now has been as described in a circular, the number of which I cannot remember, which relates to populations and so on. We feel that that was too rigid an approach. Obviously, it is difficult to have a parish council in a local authority area where that parish council might, for example, cover 80 per cent. or 90 per cent. of the population, as is the case in one district where that has been considered. At the other end of the scale, it is a bit silly to rule out an area having a parish council simply because it has 21,000 residents as opposed to 20,000. Therefore we are considering in some detail the policy and the way in which it will apply, but we shall obviously consider all the areas on their merits.

There is, however, another rub to that, in that the commission has not recommended, or even considered, the parishes in every area. Therefore we need to decide at some stage whether it would be appropriate to ask the commission to consider a specific area in the parish context. We shall bear all that in mind before announcing our decisions, although I hope that that will be soon because I know that the issue rouses considerable interest in the places affected. My hon. Friend's focus on parishes reminded us how easy it is for us to speak about the two-tier system. We should be aware of the fact that it is a three-tier system, and that parish councils and town councils are very important organisations.

It is hardly surprising that finance was an important theme running throughout the debate. We shall consider all types of matters. We want to have a careful look at the transitional costs, and at the supplementary credit approvals for which local authorities apply. We must achieve the right balance between ensuring that the transition runs smoothly and not fuelling an expansionist mode by some local authorities, which was associated to some degree with the reforms of the early 1970s. It is not easy to get that right, and we must judge the SCA applications of each authority on the merits of the case that it makes. That will relate to things such as software, hardware and offices as well as other issues.

On SSAs, hon. Members have made two sets of arguments, one relating to the SSA system in general and the other relating to the way in which SSAs would be affected by reorganisation. On SSAs in general, we try to ride the two horses, which have two ends, like most animals. [Interruption.] I shall tell the hon. Member for Itchen what I mean, because they are very different from one another. Local authorities want to have both a fair system, which implies complexity, and a simple system. They want to have a system that changes in response to different circumstances and they want continuity and no

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turbulence. It is very difficult to ride both those horses at the same time. It means that we must steadily overhaul the system to ensure that we take into account the representations that are made, but we must not keep shaking the system up to such an extent that it becomes difficult for local authorities to live in it.

The hon. Member for Stoke-on-Trent, South (Mr. Stevenson) made a specific argument about the area cost adjustment. Another hon. Member mentioned that, and it is being considered. It is not discriminatory in the sense that the hon. Gentleman means it. It is certainly distinctive, but it reflects real evidence that costs are different in the places that receive it. I do not know of anyone who has suggested that that is not the case. However, people may believe that the costs are not as great or that they are greater, and we must consider that before making any changes.

On the effect of reorganisation on SSAs, there will have to be disaggregation. We shall speak to the individual local authorities about the way in which we envisage that occurring, to try to resolve the difficulties. If necessary, we shall have to consider whether some transitional scheme should be put in place. We shall do that on the basis of the evidence submitted to us as we go along, which is the only fair way to go about it because there is not a great deal of evidence at the moment. We have done some preliminary studies with different local authorities, but I do not claim that those are perfect, and we must await what emerges from further work. Budget setting was mentioned from opposite points of view by the hon. Member for Stoke-on-Trent, South and my hon. Friend the Member for Aylesbury. It would be wrong, for reasons of accountability, for members who represent an area that will not be in the residual county to have a strong say in the setting of budgets after it has disappeared, but there are problems. Therefore we have formulated a consultative document about that. We shall make a decision, taking into account the representations that are made by local authorities and the arguments of the hon. Member for Stoke-on-Trent, South and others during the debate.

The hon. Member for Stoke-on-Trent, Central (Mr. Fisher) made an argument about city versus country. It is not as simple as that, because authorities do not simply consist of big cities and rural counties. Those rural counties often consist of suburban areas or largish towns in their own right, or mining villages, which are not necessarily the same as agricultural areas because they are different economically.

It is inevitable that there will be a debate in individual authorities about the balance of expenditure in one part or another. For goodness sake, we were reminded of that recently in the Monklands context, in what Professor Black said about Coatbridge and Airdrie. There is nothing that central Government could or should do to determine the way in which an authority spreads its spending across its area. That is rightly a matter of local accountability. However, we wish to ensure that in the reorganisation there is a fair balance between the authorities that come about as a result of those orders, and no doubt others to come.

Co-operation is much more important than conflict in that regard, and I welcome what several hon. Members have said about the way in which local authorities are getting on with the job. The hon. Member for Darlington (Mr. Milburn) made that argument in respect of Durham county council. He fairly paid tribute to the council for

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the work that it has done over the years. There have always been tensions in the system, as we all know, but that does not mean that those tensions must be all-enveloping. I hope very much that there will not be big rows about that and that all will be resolved satisfactorily, but we must wait and see.

Staff are one of the most important elements of local government. They provide the service and, by and large, they do a pretty good job. We believe that we have achieved the right balance in what we have done, but we must monitor the way in which it works out in practice--such as whether local authorities are fair in their interview procedures--and we stand by to take appropriate action if necessary.

That brings me to the speech of the hon. Member for Newbury. I thought that he was pretty well sunk by my hon. Friend the Member for Bournemouth, West, but he was wallowing in the water when there was another broadside from the hon. Member from Stoke-on-Trent, Central. I never like to interfere in spats between old Etonians; as a player, I would rather let the gentlemen get on with it. But both my hon. Friend the Member for Bournemouth, West and the hon. Member for Stoke-on-Trent, Central made a vital point about how we reach our conclusions: it is real people and weighing opinions that count, not opinion polls.

I have no desire to end up in the position of my right hon. Friend the Member for Loughborough (Mr. Dorrell) in being asked about the films that he likes or dislikes, but I shall recommend one film to the hon. Member for Newbury. It is a Peter Cook film called "The Rise and Rise of Michael Rimmer", about the ruthless way in which that gentleman sought to get to the top in politics using opinion polls. In that film, the opinion poll system of working out what people thought and did not think was completely shipwrecked by employing large numbers of people to go to the city of Coventry and say when asked that they were Buddhists. The opinion poll then came up with the result that 95 per cent. of the citizens were Buddhists, which wrecked the credibility of the opinion poll.

Mr. Rendel: Is the Minister suggesting that the Local Government Commission, which his party set up, was so foolish as to use opinion polls, the results of which were fraudulent on the ground that somebody, presumably the Local Government Commission, set people up to give the right answers?

Mr. Jones: The hon. Gentleman takes himself too seriously. I simply point out that opinion polls are not the be-all and end-all and that I prefer to make decisions on the basis of evidence submitted and the balance of opinion. It is not a black or white issue. We all know that there are splits in political parties on this matter. We all know that county councillors and district councillors in the same area will express different views and adduce evidence to support views that they consider overwhelming. In many cases, however, it is a balance of argument and not an easy matter.

I am only pleased that, ultimately, we have succeeded in presenting orders to the House this evening which have commanded the general approval of hon. Members who have spoken. My hon. Friends the Members for Bournemouth, East and for Bournemouth, West welcomed what was being done in their area. My hon. Friends the Members for Swindon, for Aylesbury, for Bedfordshire, South-West and for Luton, North (Mr.

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Carlisle) did likewise. Although my hon. Friend the Member for Eastbourne (Mr. Waterson) was disappointed, that was inevitable unless we are to look at every area again. On the other side of the House, the hon. Members for Stoke-on-Trent, Central, for Stoke-on- Trent, South, for Darlington, for Derbyshire, North-East (Mr. Barnes) and for Itchen spoke for their areas.

On that basis, I think that this is a pretty good package and I commend it to the House.

Question put and agreed to .

Resolved,

That the draft Wiltshire (Borough of Thamesdown) (Structural Change) Order 1995, which was laid before this House on 15th June, be approved.

Resolved,

That the draft Staffordshire (City of Stoke-on-Trent) (Structural and Boundary Changes) Order 1995, which was laid before this House on 15th June, be approved.-- [Mr. Bates.]

Resolved,

That the draft Durham (Borough of Darlington) (Structural Change) Order 1995, which was laid before this House on 15th June, be approved.-- [Mr. Bates.]

Resolved,

That the draft Derbyshire (City of Derby) (Structural Change) Order 1995, which was laid before this House on 15th June, be approved.-- [Mr. Bates.]

Resolved,

That the draft Bedfordshire (Borough of Luton) (Structural Change) Order 1995, which was laid before this House on 15th June, be approved.-- [Mr. Bates.]

Resolved,

That the draft Buckinghamshire (Borough of Milton Keynes) (Structural Change) Order 1995, which was laid before this House on 20th June, be approved.-- [Mr. Bates.]

Resolved,

That the draft Dorset (Boroughs of Poole and Bournemouth) (Structural Change) Order 1995, which was laid before this House on 22nd June, be approved.-- [Mr. Bates.]

Resolved,

That the draft East Sussex (Boroughs of Brighton and Hove) (Structural Change) Order 1995, which was laid before this House on 22nd June, be approved.-- [Mr. Bates.]

Resolved,

That the draft Hampshire (Cities of Portsmouth and Southampton) (Structural Change) Order 1995, which was laid before this House on 22nd June, be approved.-- [Mr. Bates.]

EUROPEAN COMMUNITY DOCUMENTS

Motion made, and Question put forthwith pursuant to Standing Order No. 102(9) (European Standing Committees),

Cinema and Television Films

That this House takes note of European Community DocumentNo. 6398/94, the Commission's Green Paper on strategy options to strengthen the European programme industry in the context of the audiovisual policy of the European Union, and supports the Government's overall approach towards fostering a competitive and healthy audiovisual sector; and of European Community Document No. COM (94) 523, relating to two draft Council decisions on the implementation of the MEDIA II programme on training for audiovisual professionals and on the development and distribution of audiovisual works; takes note of the outcome of the negotiations in the Culture/Audiovisual Council of 21st June, at which a common position was reached on both decisions; and supports the Government's approach to these and subsequent negotiations.-- [Mr. Bates.]

Question agreed to.

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Motor Industry Block Exemption Scheme

Motion made, and Question proposed, That this House do now adjourn.-- [Mr. Bates.]

8.43 pm

Mr. Stuart Randall (Kingston upon Hull, West): The relationship between motor manufacturers and their dealer networks is determined by an arrangement called the block exemption scheme. The scheme is defined by the European Commission under procedures that result in the European Parliament having limited opportunities to intervene and influence. Although the Commission has just produced a new version of the block exemption scheme, which comes into operation in October, the principles on which it is based remain the same. That means that there is no free market in the operation of the relationship between manufacturers and dealers. On the contrary, the block exemption scheme is skewed very much in favour of manufacturers, which gives them considerable powers over dealers.

My main reason for initiating this debate tonight is to present to the House and the public details of the abuse of those powers by certain car manufacturers, particularly Fiat UK Ltd. Fiat has been attempting to rationalise its dealer network, which seems a perfectly reasonable thing to do. After all, it is in the business of making cars and must make a profit. So nobody would argue with that. What is unacceptable, however, are the unscrupulous and highly discriminatory methods that it uses to control its dealer network.

Fiat has terminated franchise agreements with some of its smaller dealers just because they are small. The fact that they have been loyal dealers for 20 or 30 years and have performed excellently is not relevant to Fiat. When Fiat decides to terminate a franchise, it generally does so in a way that results in the total destruction of the dealership concerned. The businesses often go into liquidation and the owners, who may have spent their lives building up the businesses, are often ruined. The result is also the loss of jobs and livelihoods for employees. All that adds up to an abuse of power by manufacturers through the block exemption scheme. Because no free market is in operation, dealers do not have freedom of action to protect their interests.

Before I became a Member of Parliament, I spent 25 years in business, including a spell in the motor industry for three and a half years. As a result, I strongly believe that when an organisation such as a big multinational car manufacturer is given powers via the block exemption scheme, it should take on certain responsibilities. Fiat has shown a disgraceful lack of responsibility and is bringing considerable discredit to the motor industry. A key complaint against Fiat--I have had an unbelievable number of complaints--is that it deliberately pursues a policy of undermining small dealers by terminating their franchises for no cause other than to replace them with larger groups. Moreover, it does so without offering compensation.

All dealer agreements contain a provision for termination, which, at this point in time, is usually 12 months, although that will change. However, under domestic law, Fiat has the right to terminate at will, and it certainly does. What disappoints me is that, under the revised block exemption scheme, the power to terminate in that way will remain. That means that a manufacturer

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can terminate a franchise at any moment without giving a reason. Termination should at least be based on breach of contract or objectively valid grounds, and we are far from that in the motor industry. Instead, there is no legal base in the block exemption scheme for challenging termination.

EU law provides for equal treatment by manufacturers of their dealers, regardless of size. In practice, that means that the terms of trading should not be conducted in a way that discriminates against a dealer purely on grounds of size. Fiat, however, ruthlessly ignores those laws and resorts to large-scale discrimination in a disgraceful way. For example, it has supplied cars at a greater discount to large dealers, set unrealistic targets for small dealers and set minimum sales levels in circumstances where a much larger discount has been given to larger rivals. The European Commission should not allow Fiat to get away with such dirty tricks. Does the Minister condemn the breaking of EC law in that way?

Dealerships devote their own time and money to develop expertise in Fiat products to meet the conditions of their franchise agreements, only to find the rug pulled from under their feet by the policy operated by Fiat. In terms of fairness and reasonableness, the actions of Fiat are extreme and without moral justification. Fiat's directors, especially Ian Rowlands, have sought to justify their actions by reference to their rights under the dealer agreement. He told me that Fiat has powers under the block exemption scheme which it intends to use in its commercial interest with no reasonable regard to the dealers' interest and well-being. Many dealers have worked for Fiat all their working lives.

Lancia, which is owned by Fiat, is terminating all of its dealer agreements and withdrawing from the United Kingdom. Most Lancia dealers are also Fiat dealers. Termination of the Lancia franchise came as a complete surprise to most dealers. The reputation of Fiat has suffered as a result. No compensation has been offered to those dealers. In addition, Fiat lied by suggesting to various companies that Lancia was in Britain to stay.

What prompted me to initiate this debate was the dreadful treatment that a company in my constituency, AB Motor Company of Hull, received from Fiat UK. It was established in 1919 and is the oldest established motor company in Hull. It had a very successful track record for 75 years, right up to the time when the franchise was terminated by Fiat. It has had that Fiat franchise since 1971 and the agreement was renewed in 1986.

When the agreement was renewed, Mr. Trevor Good, who was the proprietor of AB Motors in Hull, was advised by his lawyers not to sign the agreement as it offered no protection to the dealership. However, if Mr. Good refused to sign, he would no longer be a dealer and his business would have to close down. He had no option but to sign the franchise agreement, which was so stacked against him. Fiat terminated the franchise without giving reasons and then undermined the company during the notice period. While AB Motors still held the franchise, Fiat released all of the fleet listings, which are the lists of customers, to a competitor. The revenue of AB Motors completely collapsed. Fiat also encouraged discriminatory advertising in the local press during the termination period by another Fiat dealer, which damaged AB Motors by suggesting that it was no longer a Fiat dealer even though that was not true. That had a massive impact on the revenue stream, which dropped immediately by 40 per cent.

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This may sound strong but I have a long list of other cases, which, clearly, I cannot go into during the debate. However, I would like to touch on one or two so that the House realises that there is a lot of beef behind what I am saying. Mr. Christopher Keeley, chairman of Datchet Green Motors, had a Toyota dealership. He had just invested £80,000--the points that I am making are the allegations of the people concerned--in the business on the understanding that Fiat would continue the dealership. When the termination threat came, no compensation was offered.

Mr. S. Davies of Altrincham said that the problem with the block exemption scheme, whatever its terms, in negotiating new agreements, is that it cannot work for the dealers unless there is a forum for presenting termination grievances in which they can be dealt with expeditiously. That does not exist.

Mr. J. P. Vilton, managing director of Vilton Cars, Cannon Hill, London, entered a franchise agreement in 1990 to sell Lancia cars. Five months later, Fiat ran down the Lancia operation and failed to maintain previous levels of support. The impact was so disastrous that the business is no longer viable.

Mr. Chris Horrock, of Page Motors, Essex, had a Lada and Citroen dealership. His dealer agreement was terminated, after he had made a big investment. His database of customer listings was given to other companies. Again, there was discriminatory advertising. His chief salesman was headhunted.

Mr. Malcolm Fitch was given 90 days' termination notice by Fiat, which took his parts computer. He alleges that Fiat owes him money and will not pay.

Mr. Tony Stillwell's dealer agreement was terminated at roughly the same time. Fiat insisted that he invested and would not take parts back when the termination notice ended. Fiat offered him an alternative Lancia dealership only for him to find that four months later it had wound it up. That is discreditable behaviour. That is only a tiny fraction of the horror list that I have. AB Motors--the company in my constituency--is planning legal action against Fiat to obtain compensation for the losses that it incurred as a result of Fiat's actions. It is being supported with legal services and costs by the Retail Motor Industry Federation, RMI, which regards this as an important test case and is to be commended for its continued support.

I have also tried to operate as an intermediary. I arranged for AB Motors and Fiat to meet in a country house away from telephones to resolve the dispute by means of a compensation package without recourse to the courts. Although there seemed to be some goodwill in the beginning, Fiat showed its true colours when one of the directors, Ian Rowlands, said that it was not interested in the merits of the case because Fiat was bigger, had more power and money and would win. That was its attitude. It would just crush the smaller company. Fiat representatives at that meeting went on to say that Fiat believes that the liquidation of dealerships is an inevitable consequence of termination. Statistics show that once terminated, dealerships are dead.

Many of the organisations that I have talked to about this matter, including RMI and certain manufacturers, believe that the block exemption scheme is still deficient. It still allows unscrupulous manufacturers to abuse the considerable powers that it gives them over their dealers,

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especially in respect of termination. I regret that the Commission, in carrying out its review of the block exemption scheme, did not use the opportunity to prevent abuse by certain manufacturers, which has resulted in the breaking of EU law through discrimination against small companies.

In this debate, I have attempted to speak up for small companies, which are generally good performers. They are loyal to their manufacturers, but they have been hammered because they tend to be on the small side. The Commission could have restored a sensible and realistic balance between dealers and manufacturers by introducing a form of compensation to dealers when their franchise was terminated. That would not be an unreasonable burden on manufacturers and it could provide the opportunity for dealers to remain in business, providing jobs and economic prosperity locally, or to adopt an alternative business strategy.

Another key benefit of the compensation argument is that it would encourage manufacturers to move towards fewer and larger dealerships. The possible efficiency improvements were outlined in the Monopolies and Mergers Commission report called "New Motor Cars", which was produced in February 1992. We must all recognise that there has to be a move towards efficiency improvements and we must encourage that. What is at issue is the way in which the manufacturers have gone about it. Perhaps the Minister could tell the House what the Government's position is on the MMC report. So far, no action has been taken and we would be pleased to hear about the Government's view.

Mr. Piara S. Khabra (Ealing, Southall): I apologise; I should have been here earlier in the debate but, unfortunately, I could not be. I believe that my hon. Friend knows that one of the dealers concerned lives in my constituency. Under the block exemption scheme, he has been given notice by Fiat that it is terminating its deal with him. My constituent has been in business with the company for the past 12 years. He had invested money, he was successful and he gave business to Fiat, but he is now about to be bankrupted. Does my hon. Friend agree that the block exemption scheme is a disaster and that the House should take action to deal with it?

Mr. Randall: I suspect that my hon. Friend is talking about First County Garages in Norwood Green.

Mr. Khabra: Yes.

Mr. Randall: That was one of the companies to which I did not refer and I appreciate the fact that my hon. Friend has raised the case. I spoke to the managing director of the company. The threat to the company arose after massive investment; the gentleman who owns the company put everything into it to try to meet Fiat's needs. Even after that, he has been kicked hard by Fiat. It should have come clean with him and said that he was not suitable or that his expansion plans were not good enough. To lead people up the garden path, to encourage them to invest and then to take such actions is a disgrace and I appreciate the fact that my hon. Friend has raised the point.

From the information that I have, I believe--this is strong--that Fiat UK Ltd. is behaving like a serial killer. It is wiping out lots of viable businesses with superb track records, with obvious consequences for jobs. I hope very much that Fiat will review its policy and that that will be the case for other companies that are abusing the block

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exemption scheme. I hope that the companies will provide compensation, because that is the way out and would provide a balance. I hope that the Commission will recognise that the changes that it has just introduced to the block exemption scheme will still leave it deficient and open to abuse.

9.3 pm

The Parliamentary Under-Secretary of State for Corporate and Consumer Affairs (Mr. Jonathan Evans): I thank the hon. Member for Kingston upon Hull, West (Mr. Randall) for his speech. It is well known in the House that he has wide experience, especially of the motor trade. His speech is timely because, as he said, the negotiations on the new block exemption scheme have recently been concluded. I am pleased to report that the aims of the United Kingdom have been broadly met in the negotiations. Later, I shall deal in detail with many of the points that the hon. Gentleman raised. It would be helpful for me to explain the background to the block exemption scheme before turning to the Government's policy. Paragraph 1 of article 85 of the treaty of Rome prohibits agreements between undertakings that affect trade between member states and which have as their objective, or effect, a distortion of competition. However, there are occasions when such agreements may have positive benefits that outweigh those negative effects. Paragraph 3 of article 85 of the treaty therefore provides that agreements may in fact be granted an exemption in such circumstances.

To gain an exemption, such agreements must provide benefits to the Community, and consumers must receive a fair share of those benefits. The restriction on competition to be permitted must, however, be no greater than that which is necessary to deliver those benefits. In essence, that is what the structure of EU competition policy is, and the way in which an exemption can be applied for.

Agreements that satisfy those criteria must be notified to the Commission for individual exemption, and it is then for the Commission to decide whether they do indeed merit exemption, or whether the negative effects are so great as to outweigh any of the benefits that may arise. There are, of course, occasions when there is likely to be a large number of similar agreements that qualify for exemption, and in such cases the Commission will often grant a block exemption. Agreements that satisfy the terms of a block exemption do not need to be individually notified to the Commission; they will be valid without there being any specific authorisation.

In the European Community, most manufacturers of motor vehicles distribute their new cars using a system known as selective and exclusive distribution. Selective distribution allows the manufacturer to select dealers who meet certain standards. Exclusive distribution means that the manufacturer will grant each dealer an exclusive territory in which to operate. In return, the dealer undertakes to sell only that manufacturer's cars in that territory. That system, though, can and does restrict competition. It may also have an effect on trade between member states. Not everyone is allowed to sell new cars, as manufacturers choose their dealers and expect them to maintain high standards. They also ensure that there is

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only one dealer for each brand in any given area. Furthermore, dealers are restricted to selling only the manufacturer's brand of car. That system is permitted because it also provides a number of positive benefits for the consumer.

As we know, cars are technically complex machines and require a high degree of expertise, both before they are sold, to ensure that they are safe to use, and after sale, to ensure that they stay that way. The hon. Gentleman knows that from his wide experience at the highest levels in the motor industry.

Furthermore, a consumer rightly expects to be able to buy his car, perhaps in one part of the country, and, if need be, have it serviced in another part of the country. For those reasons, it is necessary for a manufacturer to maintain a national network of high-quality sales and service facilities. Selective and exclusive distribution is one way of ensuring that the manufacturer is able to do that, and encourages high standards through specialisation.

The selective and exclusive distribution system is therefore exempted from EC competition rules by a block exemption, which initially came into force in July 1985. The exemption on that occasion was to last for 10 years and would expire on 30 June 1995. One will see from that how timely the debate is.

Mr. Randall: I am grateful to the Minister for outlining these points, particularly on competition, but many of the points to which he referred are in the recommendations of the MMC report. What the MMC was saying in its investigation into the industry in 1992 was that the block exemption scheme is stifling competition and that we need to change it to ensure that the dealers have more flexibility to be able to compete.

Mr. Evans: I certainly accept that. I shall come to the context of the MMC report, because it is important to set the context of these matters. There was the block exemption for a period of 10 years, the MMC report and the negotiations. It is important, within the context of the pertinent remarks that have been raised by the hon. Gentleman, to set the matters in context. I assure him that I will come to the MMC report, because it has been the agenda for subsequent negotiations over the adjustments to the block exemption to which he referred.

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