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Standing Committee B
Tuesday 16 April 2002
(Afternoon)
[Mr. Nigel Beard in the Chair]
Clause 4
Annual and other reports
Amendment proposed [this day]: No. 3, in page 2, line 24, at end insert–
'(c) a detailed summary of OFT decisions and investigations over the preceding year'.–[Mr. Waterson.]
4.30 pm
Question again proposed, That the amendment be made.
The Chairman: I remind the Committee that with this we may take the following amendments: No. 4, in page 2, line 24, at end insert–
'(d) an assessment of the additional costs to business of the exercise of its functions.'.
No. 2, in page 2, line 26, at end insert–
'(3A) The Government will arrange a debate in each House of Parliament on the annual report within three months of its publication'.
Mr. Nigel Waterson (Eastbourne): On a point of order, Mr. Beard. I welcome you to the Chair. It would be appropriate at this early stage to ask the Under-Secretary for some guidance. As with many such Bills, there are provisions under which significant regulations will be made. It was helpful to have the stop now orders guidance from the Office of Fair Trading on Second Reading. Can the Under Secretary say now, or let us know later, when draft regulations may be available for the different stages of the Bill? There is little point in receiving them on the day of the debate.
The Chairman: Would the Under-Secretary like to reply?
The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson): Thank you, Mr. Beard. I join the hon. Gentleman in welcoming you to the Chair. I appeared before you more often when you were a member of the Treasury Committee, so it is pleasant to see you in the Chair of this Standing Committee.
I shall reflect on the answer to the hon. Gentleman's question, as many things might be affected by it. There are matters that need to go to Committees in the other place and we shall consider what the time scales might be. I am minded to help the Committee as far as I can to get information to hon. Members in advance of the debate, rather than on the day that it takes places, as that is next to useless to members of the Committee. It would be useful to know if there was anything that hon. Members wanted to see in advance, although I cannot promise that I shall be able to respond to their requests. However, I will at least know what hon. Members think would be useful to have in advance of our discussions.
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Mr. Waterson: Further to that point of order, I am grateful for the Under-Secretary's invitation. An obvious, and major, example is clause 202, which, under the new programme, we will reach quite quickly. There is much speculation by consumer organisations about the regulations that will be made in that clause, which we will probably debate at our next sitting on Thursday or on the following Tuesday. We need to have the information in good time for the debate but it would be useful if it could be circulated to the bodies that are intimately involved in the Bill.
The Chairman: The Minister has taken note of the hon. Gentleman's request.
Miss Johnson: Further to your remarks, Mr. Beard, and those of the hon. Member for Eastbourne, work in relation to clause 202 is in preparation and it might be possible to lay that before the Committee by the end of the week. I hope that that will help hon. Members, and not prejudice the speed with which the Committee moves.
The Chairman: When the Committee adjourned this morning, Mr. Djanogly had the floor.
Mr. Jonathan Djanogly (Huntingdon): As I was saying this morning, concern for costs is imperative; sometimes it is a life-and-death issue for small companies. In the example that I gave, a small company, together with a couple of larger companies, started trading in a new market. A letter was received from the Department of Trade and Industry maintaining that the trade was against the public interest and, effectively, threatening to wind up the company and prosecute the directors. The directors naturally went to a solicitor who took them to a leading counsel, whose opinion was that the company was not trading against the public interest and that if they took the matter through the judicial process, the directors would have a very good chance of trading on.
There was a problem, however. The director concerned could not afford to go through the process that would have been required to clear the company. The matter never went to court because the director settled with the DTI, the company was wound up and various other measures were taken.
If there had been a judicial process, the director might have lost his case. No one can say for sure what the outcome would have been, but what is sure is that any rational business man in his situation would have followed the same course. He had the choice of going through a judicial process that would have taken years and probably bankrupted him as well as the company, or of taking the easy option of agreeing with the DTI, initiating a settlement, getting out of the business and starting a new one.
Let us be frank; that is how most business men think. They do not have time to spend years instructing lawyers. They do not want, or have time, to argue against Government; they want to get on and earn a living. In this debate, we are often talking about the rights of consumers, but it is important to realise that tens, if not hundreds, of thousands of small business men are daily trying to make a living as best they can, free from regulation. When the Government
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are oppressive, that can kill their business without the matter ever going to court, because of the cost. That is why I have used this example.
Of course, such examples directly concern the DTI, but what is there in the Bill to show that a new, further empowered OFT will be any better than the DTI can be? I shall return to that theme in various ways as we go through the Bill, because all too often in its provisions we see regulation at a cost to the public purse and without adequate accountability. We see regulation adding to the cost of companies, but that cost is not revealed and they are not allowed to have redress against what an overbearing Government might do in certain circumstances.
We must also realise that in this modern age, the age of the media, newspapers are often looking for stories, and there is always the threat that stories or, worse, bits of information will get out to the press, particularly with regard to consumer issues. We will increasingly face the syndrome of trial by media, and the costs to companies may be even more stratospheric. For all those reasons, the amendment is worthy.
Mr. Mark Field (Cities of London and Westminster): I entirely agree with my hon. Friend the Member for Huntingdon (Mr. Djanogly) about trial by media. Such issues will no doubt play an important part in later discussions, particularly on clause 11.
Before entering this place, I had a brief, meteoric career as a corporate lawyer. I am certainly nowhere near as accomplished as my hon. Friends the Members for Eastbourne and for Huntingdon. In fact, for the last eight years before I became a Member of Parliament, I ran my own small business; I am thankful that at no stage did the OFT investigate us.
I have an important point to make, as someone who has experience of the paralysing effect on business of investigations by the OFT and other regulators. Such investigations are unlikely to affect companies with a dozen or so employees. My concern is that a large investigation may have a paralysing effect especially in specialist sectors that may be subject to an OFT type of inquiry. Such companies will not be much larger; they may have 30 or 40 employees, but will not have the massive infrastructure of many of the international companies who doubtless will have been in direct touch with the Ministry and who will have the protection of that infrastructure, with large regulatory and personnel departments and an enormous number of internal auditors.
The amendment deals with the costs involved in such investigations. Not only is such an investigation costly, it has an affect on the recruitment of new staff across the board. The company cannot take advantage of potential opportunities in its own marketplace for several months. There is increasing step-by-step regulation under this Government, and I ask them to step back occasionally to consider the amount of regulation that they are imposing on companies.
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There are often invisible costs, in addition to the large-scale visible ones. Specialist lawyers and financial PR companies are often needed to minimise financial or economic losses because of the increasing trial by media to which my hon. Friend the Member for Huntingdon referred. How can those costs be assuaged? Does the Under-Secretary also recognise that the sheer inconvenience to businesses of OFT or other regulatory inquiries should be minimised as far as possible?
Dr. John Pugh (Southport): I want to make a negative point about the amendments, although no one can object to amendment No. 3 and the concept of OFT decisions and investigations being paraded for all to see. If that were done correctly, it might make amendment No. 4 unnecessary. A good and accurate list of the work of the OFT will be one of two things; a list of successful remedies applied and rights wronged, or a list that shows several futile and time-consuming investigations. If it is the latter, it is a waste of Government as well as business funds and demands urgent remedy. If it is the former, the cost to business is not a convincing argument.
As I said, it will be difficult to assess true business costs where the OFT is investigating businesses with rigour or is investigating consumer affairs on behalf of the consumer. It is acknowledged that many of the costs are opportunity costs. It is not like the minimum wage, where one can say fairly, accurately and briefly what the cost to business will be. Although there are mechanisms for regulatory assessment, I am not convinced that the mechanism will be uncontestable and easily agreed between the OFT and the businesses concerned. Neither am I convinced that there is an easy way of assessing the costs.
Any method that will accurately establish the cost to business of being correctly observed and investigated by the OFT will be time-consuming. Some of that time will be spent by firms answering questions put to them by the OFT about the investigations that the OFT has conducted. There can be nothing more irritating for a firm that has been investigated with some rigour than to have to fill in another form asking, ''How was it for you?'' and requesting evidence over many pages about how the arrangement went and what it cost. There is no argument in principle against assessing what the business costs will be, but there is a caution about the practice. It would be nice in general, and a good thing in principle, to have some idea of the business costs.
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