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7.51 pm

Mr. Andrew Lansley (South Cambridgeshire): I am grateful for the opportunity to contribute to the debate. I come to it, I confess, with a strong recollection of the passage of the Competition Act 1998, on whose Standing Committee I served. Starting from that point, I want to explore why some parts of the legislation are being introduced in this form and the Government's justification for introducing the Bill now.

The Secretary of State talked earlier about the damage that cartels can do and the theoretical calculation of the extent to which cartels could increase prices to the detriment of consumers. All that is true. However, four years ago, the Secretary of State's predecessor, now the Secretary of State for Environment, Food and Rural Affairs, the right hon. Member for Derby, South (Margaret Beckett), said on Second Reading of the Competition Bill [Lords]:

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In concluding the debate, the then Minister of State, Department of Trade and Industry—now the Minister for Pensions, the right hon. Member for Makerfield (Mr. McCartney)—said that the Bill would

Just four years ago—two years ago, considering that the legislation came into force in March 2000—the Government believed that they were taking the necessary powers to identify and act against cartels with an effective deterrent. Only two years down the line and the Government have clearly concluded that they did not have effective powers for that purpose and do not have an effective deterrent against hard-core cartels. However, we do not have the evidence.

The simple proposition that I put to the Secretary of State was that she might tell us on how many occasions the Director General of Fair Trading has brought actions for infringement of the chapter 1 prohibition so that we could examine it. The right hon. Lady does not seem to know. She refers to 25 cartel investigations, but an investigation is not an analysis of whether a cartel exists. We heard evidence from the hon. Member for Twickenham (Dr. Cable) and others that the Director General of Fair Trading, quite rightly in some cases, investigates and acts on complaints, but that is not the same as determining that cartels exist.

The simple question that should start any examination of the legislation is: what is the evidence of the mischief to which the Bill is a necessary remedy? At no point did the Secretary of State justify the Bill or examine where the mischief that has to be remedied in this way lies. That leads me to the same conclusion reached by my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley). This is a demonstration of the Chancellor of the Exchequer's macho approach to policy making. The time has come for an Enterprise Bill and he wants to account for not having achieved what he set out to do in terms of relative productivity increases in this country compared with our main competitors. He wants to show that something will be done about it.

I share the view of colleagues who have made it clear that the Chancellor and the Secretary of State have not addressed themselves to the issues that are of most importance to industry in dealing with the relative productivity gap between ourselves and our competitors—skills, capital intensity and the use of capital equipment in manufacturing, the relative impact of regulation and the complexity of the tax system. Such matters are at the heart of our productivity and our relationship with our competitors. It is clear, in both a theoretical and a practical sense, that if the competitive intensity of our industry can be improved, it will improve our economic performance. However, I suspect that it would be hard to demonstrate—it has not been demonstrated in the evidence that I have seen so far—that there is a substantial gap in the competitive intensity of economic activity in the United Kingdom compared with France and Germany, yet there is a substantial productivity gap between ourselves and France and Germany. It has not been narrowed since the

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Government came to office in 1997 and if one were to look to a time when it was being narrowed, the evidence probably best supports the period in the late 1980s and early 1990s. That was to do with labour market reforms and the ability to employ more effectively in this country than in continental European countries, and that difference is being substantially reversed by the Government.

The Secretary of State talks about narrowing the productivity gap with competitors, but that is not at the heart of the Bill. It is about competition and insolvency, and I want to confine most of my remarks to whether it is a sensible measure in terms of competition. Of course, the Bill should probably have been called the competition and insolvency Bill.

As far as competition is concerned, I confess that I am not wholly opposed to the legislation. It contains some good aspects and some about which I have questions. However, I am surprised by the nature of this approach compared with what the Government were insisting on only four years ago. Ministers at the Department of Trade and Industry were then insisting on the necessity of bringing ourselves wholly into line with European Union legislation. It was all about bringing articles 85 and 86 straight into UK domestic legislation so that companies would not have to deal with two different types of competition law.

In relation to the criminalisation of the cartel offence, we are to be presented with something different. The UK approach to the treatment of hard-core cartels will be different from the EU legislation. I admit that some EU countries have criminal sanctions available, but they are rarely enforced. If the Government believed that criminal sanctions were necessary, it strikes me that as a matter of policy it would have been better to bring forward evidence after a longer period of seeking to implement the penalties and sanctions in the 1998 Act. They could also have worked alongside the European Commission to ensure that by 2004, when the EU competition regime is modernised, if criminalisation is seen as a necessary sanction, it can be introduced on an EU basis rather than on a UK basis alone.

The second point relates to structure. The Government consulted on two possible structures for the cartel offence. One related directly to the chapter 1 prohibition and the other to an offence of dishonesty. The Government have chosen the latter structure. That may well be easier to justify and to implement and enforce in the UK courts, and it will narrow and focus the nature of the criminal offence that is to be created, but it moves away from the effects-based regime that was at the heart of the 1998 Act. It looks at intention rather than effects, whereas previous competition legislation looked at effects.

I do not want to go on too long as other hon. Members wish to contribute and probably have more and better things to say than I do. Leaving aside those general points of principle, the question is whether the Bill will in practice promote enterprise. With regard to the Bill's overall structure, the Government must recognise that there is a threat—I hope that they will try to reduce it in Committee—of a chilling effect upon enterprise because of the extent of regulatory intervention that will be undertaken using the powers in the Bill.

The purpose of competition legislation is to remedy market failure, not to have an actor out in markets trying to impose a competitive regime by the determinations of

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bureaucrats rather than by the actions of markets themselves. As the hon. Member for Twickenham rightly said, there is a risk that, if there are too many regulatory activities and too many investigations, the regulator will move from being focused on genuine market failure with substantive evidence into becoming—himself or herself, or the board collectively—an actor in those markets so that the markets respond to regulatory signals more than to market signals. Market signals must be at the heart of this.

I shall not dwell on insolvency. Clearly, if the Bill fosters a sense of responsible risk taking, that will be to the good rather than to the ill. In respect of risk, Lord Hanson, who was—and still is—quite a business man, once told me that his approach was to say, "Look at the downside risk on a deal. If you can live with the downside, start to look at the upside." We need to think about that. This legislation is based around the idea of the greater the risk, the better, but the matter is not as simple as that. Business men should look for asymmetric risk where there is a limited downside with which they can cope and a greater upside benefit. Those probabilities have to be worked out. It is not a case of simply saying the more risk, the better. We do not want a risky culture, but an enterprise culture, and that means getting the risks right.

My hon. Friend the Member for Maldon and East Chelmsford (Mr. Whittingdale) talked about the implementation of the Tebbit doctrine. Further to the points made by my hon. Friend and the hon. Member for Twickenham, I have two points to make on mergers and changes in the merger regime. First, we should think not just about the competition test—the Bill is structured in this way—but also, where a substantial lessening of competition occurs, about whether, in the Bill's terminology, a relevant customer benefit can be demonstrated. Transparently, that would mean that the lessening of competition implied by a merger in the context of that particular market makes it justifiable.

The Tebbit doctrine was always based around competition as the primary consideration, but we are not trying to create a perfect market by applying the competition test because the perfect market would mean that the greater the number of actors in the market—the greater the number of enterprises in a given market—the greater the competition. However, we cannot necessarily legislate for that. There will be a degree of concentration in markets and we must be prepared for that, but we should look for the customer benefits to be transparent, and for them to be customer benefits not benefits to the political system, which is essentially what has sometimes intruded in the form of other public interest considerations.

The other point that I am prompted to make by the comments of the hon. Member for Twickenham is that if we go down this path—the Government, probably rightly, are choosing to go down the path of independent competition authorities looking at mergers on the basis of the competition effects and the customer benefits—why do the Government not have a parallel consideration in relation to market investigations and anti-competitive actions? Why do the Government create a structure in the legislation that allows not only the Government to make references in relation to market investigations, but to make references even in circumstances where the Office of Fair Trading would have said that it does not see a case for such a reference? There is a strange lack of

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complementarity between the Government's approach to independence in the merger regime and the direct power, untrammelled as far as I can see, for Ministers to intervene where market investigations are concerned. It will be good for the Government to think hard about that.

If some of those matters are remedied in the legislation, perhaps we can hope for a Bill that is generally supportive of enterprise rather than otherwise. It will be if the effect of things such as super-complaints and the application of the new regime are geared to examining substantial examples of market failure that have significant anti-competitive effects. It will not be if the market investigations are lengthy and costly. Some serious thought must be given to timetabling market investigations so that they do not become politically motivated and are not arbitrary, too lengthy or too costly. We cannot have super-complainants acting on the basis of press and public agitation rather than of evidence. We must look carefully to make sure that the super- complainants and the consumer bodies themselves are not represented directly in the Office of Fair Trading. There must be a separation there if they have the power to make complaints.

With regard to the criminalisation of cartels, I have substantial reservations not just about the principle in relation to EU legislation but about how it will work in practice. The Government consulted about, for example, whether prior EU findings that are based on civil proceedings in the EU would be admissible evidence in criminal prosecutions in Britain. They have concluded on the basis of those consultations that they should not be. That begins to demonstrate precisely the problems to which the Government referred in the consultation—that the OFT will therefore have to secure evidence to a criminal standard before trying to bring a criminal prosecution and will have all the procedural difficulties associated with that as well as possibly trying to pursue a criminal prosecution in the UK at the same time as there may be civil proceedings in the UK or the EEC. Those two matters operating side by side can clearly give rise to difficulties.

If some of those points could be ironed out of the legislation, there is no reason why we should not end up with a Bill which, on balance, is capable of supporting enterprise rather than constraining it. However, whoever is called upon to do that task in Committee will have to do a lot of work in an unreasonably short period. The Competition Bill had 74 clauses and 14 schedules and at the time I did not think that it was examined at any exaggerated length in the course of 17 sittings in Committee. The Enterprise Bill is more than three times that size. It has 11 parts rather than four and 269 clauses rather than 74. Yet, so far as I can see, the Government propose to deal with it in pretty much the same number of sittings—perhaps 18 rather than 17. Therefore, on the basis of my experience, the Government are giving the Committee about a third of the time necessary—perhaps, to be generous, a half—to do the job.

The Competition Bill had first been considered in another place and came here afterwards. The Enterprise Bill has started its passage here and will go elsewhere for revision. The Government should think again about the Bill's timetable and be prepared to be flexible in Committee in response to the arguments that are presented. I hope that the Bill will be amended in Committee so that it can deliver the principle that is intended—to support enterprise.

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