Enterprise Bill

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Mr. David Borrow (South Ribble): I am puzzled and would be grateful for clarification. I understand the hon. Gentleman's argument that a provision should be inserted into the Bill to make details of costs incurred by businesses available in the annual report. That may be useful information to have in the public arena, but I am unclear about the policy objectives of publishing it. Is it to add to the burdens of business in having to produce the information in the first place, or to discourage the OFT from being thorough and rigorous in its work on fair trading in the UK? I would be grateful for the hon. Gentleman's clarification.

Mr. Waterson: The hon. Gentleman offers me a choice, which I happily decline. The purpose is certainly not putting information into the public domain merely for the sake of it, nor is it to stop the OFT being ''thorough and rigorous''. Rather, it is intended to tell the outside world—perhaps more importantly the OFT—the effects of its actions in the real world. OFT people will operate not in a vacuum, but in the world of business and industry. They must appreciate the sheer cost—dramatic examples exist from recent years—of major investigations either into a particular sector or into a specific company. They must be made to realise those costs. They may be wholly unaffected and unimpressed, believing that it is a matter that they do not need to take into account.

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We say that they should take it into account. As legislators we cannot wave goodbye to an Act and forget about it. It is our job—and the Government of the day's job—to ensure that it does not work to people's detriment. We hope that this Government and their successor Conservative Government will examine the annual reports closely. If the OFT is causing massive costs to business with no particular benefit to consumers, I hope that Governments will look again and perhaps amend the legislation. The Opposition inevitably have limited ambitions in this context. We simply want to make it a requirement to put the information into annual reports. If the OFT, Ministers and everyone else, including the hon. Member for South Ribble, ignores it, we can do little about it. We should focus on the issue and it should be built into the Bill.

Mr. Djanogly: I certainly support amendment No. 3 and others grouped with it. The annual plan is an excellent idea that should improve accountability and transparency. As always, questions surround these matters. Will the report include figures for the costs of running the OFT as well as the costs of individual investigations?

It is important that individual taxpayers appreciate the cost of regulation. To spend £50 million of taxpayers' money on an investigation that uncovers business irregularities that deprive consumers of £1 million or £2 million may technically be in the public interest, but I am sure that the vast majority of taxpayers—depending on the circumstances and every circumstance will be different—will say that it would be best to save the £50 million. I do not give a specific example, but clearly matters must be judged on a case-by-case basis. The report should be transparent so that it gives the public the opportunity to take a view on whether the position is right or wrong.

Mr. McWalter: I am not sure that I quite follow the hon. Gentleman's argument. If such an investigation extirpated a practice so that it was no longer carried out by other companies and rendered companies that were performing fairly financially stable, the benefits would go well beyond the particular action that he describes. Sometimes, actions have beneficial consequences that go well beyond the particular cases that are being dealt with.

Mr. Djanogly: I do not disagree with the hon. Gentleman. In certain circumstances he may be absolutely right, but in others, on a straight cost-benefit analysis, it would not be appropriate to spend the amount of money involved in the investigation.

We have an opportunity to provide people with the information on which to take a decision. The information should be presented in the report in such a format that people can take that decision about particular investigations, especially major investigations where the costs will be more significant. The question of the independence of the OFT is important here. It leads on to what is an inappropriate use of taxpayers' money.

On amendment No. 4, it is important at every stage of the Bill that we consider how its provisions will affect enterprise. That was discussed at some length on

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Second Reading, but a balance must always be struck between the good that it does enterprise and the possible bad that certain provisions will do, because of extra regulations for business and so on. Amendment No. 3 deals with the costs to the taxpayer, but to encourage enterprise it is vital also to have regard to the costs of regulation on companies, with which amendment No. 4 deals. As much as the costs themselves, companies may fear that unnecessary meddling and investigation by Government can hurt them or in some cases destroy them. It could be argued that the notion that companies are fearful of DTI or OFT investigations or heavy-handedness is mere bluff on the part of companies. But that concern is very relevant for many of them. It is sometimes hard for people to understand how bureaucracy can affect a company, unless they have been there at the sharp end. I shall recount two examples that I have heard from companies of their dealings with the Department of Trade and Industry.

The first example is from a few years ago and concerns a company listed on the London stock exchange. It operated a technology support business of a type that had existed for at least 20 years. One day a letter from the DTI arrived at the company and with all its market competitors, stating that although the multi-national and multi-billion pound sector had always described itself in a certain way, it was the preliminary view of the DTI that it was another sort of business altogether. That different business required regulatory approval, the costs of which would have destroyed the sector overnight.

Some 18 months later, after an enormous sum of money had been spent on lawyers, and directors and shareholders had had an enormous amount of worry, the companies in the sector finally received notice from the DTI that, to use a colloquial expression, it looked like an elephant and was actually an elephant even though the DTI had being saying that it was not.

The fact that the companies nearly lost their business and that the country would have been worse off because of that, was presumably not high in the minds of the people responsible at the DTI. Neither were the facts that it cost the businesses tens of thousands of pounds in fees to prove their point, that their market reputations were hurt and that they had to disclose the investigation in their public accounts.

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Mr. Waterson: To return to a point made by the hon. Member for Hemel Hempstead (Mr. McWalter), does my hon. Friend, as an expert on such matters, believe that a company would have to disclose in its annual accounts if it was the subject of an OFT investigation?

Mr. Djanogly: It would depend on the circumstances, but an OFT investigation would probably be a public issue anyway, so the company would want to consider its response. If a leak of information from the investigation affected the company's share price, it might have to make an announcement on the back of that. There are many different ways in which confidential information coming out of the company could lead to it being damaged, although that is the subject of later amendments.

Mr. Waterson: Did my hon. Friend notice, as I did, the widespread and detailed media coverage of some recent dawn raids by the Serious Fraud Office on pharmaceutical companies and others that were alleged to be involved in a cartel? Does he share my puzzlement about how so much detail about the investigation and its immediate aftermath found its way into the media?

Mr. Djanogly: I agree absolutely with my hon. Friend, and we will have to discuss the subject carefully later. At the moment, the investigatory powers lie with the DTI, so the only examples that we can give relate to DTI powers. However, the OFT powers will be increased by the Bill.

I explained how an investigation's atmosphere caused dramatic problems for all the companies in one particular sector. At least the companies had the funds with which to defend themselves against the deep pockets of the state. Unfortunately, 85 per cent. of companies in this country are not listed, have fewer than 10 employees and have shallow pockets. The problem is that even if they were in the right, they could not survive the cost of the investigations.

My second example comes from a few years ago. In this case, the company, together with a handful of other companies, hit on a new idea and effectively created a new market. The letter came in—

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.

The following Members attended the Committee:
Conway, Mr. Derek (Chairman)
Atkins, Charlotte
Barnes, Mr. Harry
Borrow, Mr.
Burnham, Andy
Cable, Dr.
Campbell, Mrs. Anne
Djanogly, Mr.
Field, Mr. Mark
Hendry, Mr.
Irranca-Davies, Huw
Johnson, Miss Melanie
McWalter, Mr.
Pearson, Mr.
Pugh, Dr.
Purchase, Mr.
Thomas, Mr. Gareth R.
Waterson, Mr.

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