Sixth Standing Committee on Delegated Legislation
Wednesday 5 April 2000
[Mr. Jonathan Sayeed in the Chair]
Competition Act 1998 (Director's Rules) Order 2000
Mr. Nick Gibb (Bognor Regis and Littlehampton): I beg to move,
That the Committee has considered the Competition Act 1998 (Director's Rules) Order 2000 (S.I., 2000 No. 293).
The statutory instrument has been drawn up by the Director General of Fair Trading under sections 51 and 53 of the Competition Act 1998. By virtue of section 71 of that Act, the order is subject to the negative resolution procedure. The Opposition have prayed against it because we feel strongly that it imposes yet another burden on small and medium-sized businesses. It is one more example of the endless stream of new red tape that is emerging unchecked from the present Administration. That burden has cost business an additional £5 billion a year since the general election.
It is ironic that we should be debating the order on the day after the Secretary of State told the British Chambers of Commerce conference that the Government wanted to keep administrative costs to a minimum. Not surprisingly, Ian Peters, the deputy director general of British Chambers of Commerce said of that speech:
The business community is increasingly sceptical of what the Government says. We heard fine words when Mr. Byers addressed us a year ago. What we really want to see is more positive action.
The editorial in today's Financial Times says:
Business leaders have repeatedly accused the Government recently of failing to match its business-friendly rhetoric with practical actions.
That is a common complaint about every Department. The Government talk about deregulation, yet every day they issue regulations like the order before us.
The order provides the detailed rules for making applications to the Director General of Fair Trading for rulings and guidance about whether particular commercial arrangements fall foul of the provisions of the 1998 Act. In particular, it provides for the charging of fees. Those fees and how they are to be charged are the reasons for our objection.
Hon. Members will recall that, under the Competition Act, abuse of a dominant market position and agreements that restrict competition are prohibited. If a company breaches such a prohibition, it can be fined up to 10 per cent. of its annual turnover. Hon. Members may recall further that, in February, the Government issued a statutory instrument defining turnover as constituting up to three years, thus turning the maximum fine of 10 per cent. of turnover into 30 per cent. of turnover. What was particularly annoying about that instrument was that, when the Competition Act was making its way through Parliament, no indication was given that the Government anticipated imposing such a level of fine.
Those are substantial sums, which could spell catastrophe for companies. For any company, whether it is small or large, a fine of 30 per cent. of the annual turnover would be absolutely catastrophic. Companies will consequently want to take every step possible to ensure that even the most innocent commercial agreement has been cleared with the Director General of Fair Trading under the advanced clearance procedures contained in sections 13, 14, 21 and 22 of the Competition Act.
Under those provisions, companies can seek guidance or request a decision on whether an agreement or behaviour contravenes the Act. The difference between guidance and a decision is, first, the level of reliance that the company can place upon it and, secondly, the amount of information required by the director general. Obviously, more information is required for a decision than for guidance.
There is a difference also in the fees charged. Under the order, the fee charged by the Office of Fair Trading for guidance is £5,000, but for a more formal decision, the fee is £13,000. Therein lies our concern. Those fees, which are set out in annex 2 to the statutory instrument, are flat fees, regardless of the size of the company or the complexity of the agreement or behaviour being assessed by the Office of Fair Trading. For a large multinational they are tiny and will cause no problems, but for small and medium enterprises they are potentially significant and either will be a heavy burden or will deter the company from making an application. Those companies might not enter into commercial arrangements because they cannot afford either to get them cleared or, because of the potential for crippling fines, not to get them cleared. The agreement in question might be innocent, but the threat of the fines would counsel extreme caution. The provisions therefore act as a deterrent to innovation in the small and medium enterprise sector—the very sector that the Government say they are keenest to encourage. That is another example of rhetoric contradicting policy.
While the Competition Bill was in Committee, the Government were still undecided about whether to charge fees. They were still consulting. I am not sure whom they consulted or whether they listened to the responses, but the CBI, whose views I should have expected to carry some weight with the Government, stated:
The CBI does not support the principle of charging for guidance or notifications, noting by comparison that no fees are payable in relation to notifications to the European Commission under Articles 81 and 82. We believe instead that funding for the OFT for the handling of such notifications should come from central funds. Fees if significant may well have the effect of unduly deterring approaches to the OFT which would otherwise be beneficial in achieving the maximum compliance with the new regime.
The power to charge fees is contained in section 53 of the Competition Act 1998, which states that the Director General of Fair Trading
may charge fees, of specified amounts, in connection with the exercise by him of specified functions.
Subsection (2) states
Rules may, in particular, provide—
(a) for the amount of any fee to be calculated by reference to matters which may include—
(i) the turnover of any party to an agreement.
In other words, the Government have the power to charge fees in proportion to the size of the company making the application. They do not have to charge the flat-rate fees in the provision that we are debating.
That brings us to the kernel of the issue. The Opposition are not necessarily against the principle of charging for the clearances. There might be a case for sensible charges proportionate to the work involved in assessing the application, or to the size of the company. We do not object to some of the OFT's costs being recouped in that way. As my right hon. Friend the Member for Wokingham (Mr. Redwood) said in Committee,
It is important that businesses feel that they can turn to the competition authority before they begin a practice, or continue a previously approved practice, to ascertain whether it is all right, likely to be wrong, or, in a limited number of cases, a grey area that requires further probing.—[Official Report, Standing Committee G, 18 June 1998; c.505.]
Our concern is that fees might be set deliberately high, to deter smaller companies from seeking guidance. The Minister, responding to the debate in Committee said:
It was also recognised that fees for giving guidance and a decision may be a way of managing the director general's work load.—[Official Report, Standing Committee G, 18 June 1998; c.507.]
That is almost an admission that the fees will be used to deter a large number of clearance applications.
As the CBI has said,
The introduction of such significant fees may be motivated by a desire on behalf of the OFT to discourage both applications for guidance and notifications, to force businesses towards greater self-assessment of their agreements and practices. However, bearing in mind the fact that the Act is a radical departure from previous UK anti-trust legislation, in the early stages of the Act's existence, businesses should be entitled to seek greater legal security without being subjected to the substantial costs which guidance and/or notification would otherwise entail.
The effect on small and medium-sized businesses is what most concerns industry and the Opposition. The CBI has expressed its concerns on that point, too. It said:
Imposing a flat rate fee on undertaking of whatever size imposes disproportionately heavy burdens on SMEs: it is inappropriate that an SME should have to pay the same level of fee as a FTSE 100 company.
The CBI's view is right. It continues by saying:
Also, along with the fee, an undertaking will also have to bear professional fees and internal costs in order to prepare an application for guidance/notification. The total cost burden would consequently be extremely onerous for an SME, and may well discourage SMEs from fully developing their businesses.
That is the essence of our argument.
The CBI's view is that there should be a different charging regime for smaller companies. If we had been able to table amendments to the statutory instrument, we would have suggested the CBI's proposal—[Interruption.] The Under-Secretary might suggest that it is too late but, as he well knows, it is not possible to table amendments to statutory instruments. That is why we object to so much of the legislation coming from the Government by such a procedure.
The CBI continues:
if fees are to be charged, we favour no or greatly reduced fees for businesses with fewer than 250 employees in their entire group, for both applications for guidance and notifications.
Section 53 of the Competition Act 1998 gives the director general and the Government the power to charge fees proportionate to the size of the business involved. Flat fees, which we believe to be wrong and which will harm our small and medium enterprise sector, will be charged under the order. I therefore urge the Under-Secretary to take the statutory instrument away, to rethink the fee-charging proposals and to bring it back to the House with a set of fees that are proportionate in that way.