Enterprise Bill

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Mr. Djanogly: Am I to take it that the hon. Gentleman will not support the Government's provision that provides for a plea-bargaining process?

Mr. Purchase: The hon. Gentleman will see me vote in favour of the clause, which provides for criminal proceedings to be brought against cartels. I had the pleasure—not quite—of intervening on my hon. Friend the Member for Hemel Hempstead when he talked about bus companies. We must stand foursquare behind the clause, as we have to send out the appropriate messages. That is how we create a culture. We do not say that it does not matter if someone wants to take such a case to a civil court. We must state our belief that theft on such a scale is wrong and must be dealt with in the same way in which any other theft is dealt with. That is why criminal proceedings must be brought.

There is a plaque in Westminster Hall commemorating the famous Catholic, Sir Thomas More, who said that he would give the benefit of the doubt to the devil himself for his own safety. All the measures are in place to ensure that the man or woman accused of theft while engaged in the activity concerned has the benefit of the doubt and the

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opportunity to defend themselves properly. The hon. Member for Huntingdon says almost nonchalantly that the burden of proof is lower in a civil court. It certainly is, because a civil offence is less serious. If an offence is criminal, the burden of proof must be beyond reasonable doubt.

Nothing is perfect, and we must stand foursquare behind the clause if we want a decent society. We recognise that capitalism must be regulated. I am not opposed to capitalism; it is a way forward to a more civilised society. We can see around the world that civilisation advances to higher and better forms where capitalism develops. I am saying merely that if we want a civilised society, we must regulate capitalism and ensure that unfairness is ironed out. Ultimately, people have to understand that if they do not play by the rules, society will not only frown on that, but will act to prevent it from happening.

Miss Johnson: In responding to this lengthy and detailed debate, I can best help hon. Members if I talk about the provision initially and then deal with individual points. I fear that we shall troop backwards and forwards otherwise. If hon. Members allow me, I shall group my remarks by topic, and not by those hon. Members who have spoken.

It is important to be clear at the outset that, unlike the existing civil competition law, this offence targets individuals, not undertakings. That point is being lost in many contributions. We all agree that cartels do real harm to consumers, other businesses and the wider economy. The criminal offence is intended to discourage individuals who might be otherwise tempted to become involved in such activity. I shall return to deterrence later, because it is a key element of what I have to say.

The offence targets individuals who reach agreements that, if implemented by their undertakings in the way the individuals intended, would result in certain forms of serious anti-competitive activity. I shall describe those for the sake of clarity. An offence will have been committed whether or not the agreement reached between the individuals is implemented by the undertakings as the individuals intended. As I have said, the offence targets individuals who reach agreements. That would be undermined by a need to prove that implementation took place.

The first form of serious anti-competitive activity to which the intended agreement must relate is price-fixing. I think that the hon. Member for Orkney and Shetland (Mr. Carmichael) asked what exactly was meant by the phrase ''hard-core cartels'', and it relates to these areas. Price-fixing means agreements whereby undertakings that would otherwise be competitors at the same level in the market agree the selling price of certain of their products or services. Direct and indirect price-fixing are covered. Indirect price-fixing might include arrangements such as relative prices, discounts and rebates that achieve the same anti-competitive effect as a direct agreement to sell the products or services at a certain price.

The second form of serious anti-competitive activity is limitation of production or supply. Those

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agreements restrict or stop completely the production or supply of certain goods or services. Typically, one undertaking would restrict the production or supply of one product or service, in return for another undertaking doing the same for another product or service.

The third form is market-sharing. That refers to agreements under which two or more undertakings agree which of them will supply products or services to a certain market or customers.

Mr. Field: In this exhaustive list of what amounts to hard-core cartels, will the Under-Secretary say what would amount to a non-hard-core cartel and therefore be outside the ambit of the Bill?

Miss Johnson: I have not finished describing what constitutes hard-core cartels. In addition, the hon. Gentleman's point is addressed through the Competition Act 1998 and a range of measures under European Union and competition law. Those measures cover a wide range of offences that might loosely be described as soft-core cartels. I am talking about practices that need to be prohibited under competition policy, but which are not covered by the phrase ''hard-core cartel''; perhaps I should not use the word ''cartel'' in that context.

When the hon. Gentleman interrupted me, I was giving an example of market-sharing. A manufacturer might agree not to sell its products in the north of England in return for another not selling in the south. Two food manufacturers might agree which supermarket chains each would supply, or which products they would offer to a specific supermarket chain. All those situations allow the producers or the suppliers to increase the price by reducing competition. Obviously, there can be cartels of every size and scale of operation. Hon. Members have made assumptions about their being large or small, but a cartel can cover any scale of operation that fits with the criteria.

Mr. Field: This strikes me as a rather simplistic approach. Take, for example, agricultural produce, which is likely to rot quickly. Two companies might have an arrangement to ensure that, on certain days, one company delivered its goods to a particular supermarket and the other company delivered later on in the week. Clearly, from what the Under-Secretary said, that would be seen as a cartel and would come under the auspices of the Bill. Common sense suggests that consumers would not be put to any disadvantage in that regard and it may in their interests to ensure that choice remains relatively high.

Miss Johnson: That does not go to the core of the clause. It is about the criminalisation of cartels. It is not about what constitutes cartels except in relation to their criminalisation. It is not about the areas that are currently covered by anti-competitive measures, such as the anti-competitive activities that the hon. Member for Eastbourne mentioned, such as vertical agreements, the crisis cartels that are authorised to save a failing industry or other arrangements for research and development. There is no reason why honest co-operative arrangements that do not fall foul of the measures should not continue to exist. Only

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dishonest activities fall under the provision. I trust that the hon. Gentleman accepts that it is important that these measures are addressed. The offence will bite only on the most serious of those arrangements.

Mr. Waterson: Will the Under-Secretary give way?

Miss Johnson: I can see that I will make most points by answering interventions.

Mr. Waterson: In my eternal quest to be helpful, I wanted to ask the Under-Secretary to confirm whether the exemption for vertical agreements will be ended. If so, when and how?

Miss Johnson: I will come back to that later. I will finish on the fourth point because we are losing the thread of the debate. Bid-rigging means agreements between parties who are responding to a tender for goods or services, so that either one party does not bid, or one or more parties bids at a price agreed with the others. Typically, one party would withdraw from one tender or enter a high bid, in return for being given a clear run in another. The whole purpose of a competitive tender is undermined, to the detriment of the tendering organisation.

The clause has been drafted to cover not just the obvious cases—where, for example, two parties fix the price for a particular product—but other permutations. It covers agreements between more than two parties, as is common in cartels and agreements that include more than one of the four activities I have described. It covers the type of agreement whereby one party withdraws from the production of a certain product, in return for the other party withdrawing from the production of another product. It also provides for a variant of this example, whereby one or both parties agrees not to enter into production of a product that is currently produced by the other. The offence does not extend to forms of anti-competitive activity other than those I have described. For instance, it does not extend to vertical agreements. The offence is targeted at the most serious forms of anti-competitive activity, which do real damage and which deserve severe penalties.

I will return to the point about the links with the EC regime in a minute. The criminal offence is separate from and compatible with the EC civil regime. The UK criminal offence targets individuals; the EC civil regime covers broader competition breaches committed by undertakings. Some hon. Members suggested that we should await the outcome of the EC modernisation proposals before we introduce the criminal offence for cartels. However, we do not know when those proposals will be brought into force and there is no reason to delay the introduction of the offence in the meantime. I trust that that sets the scene.

12.15 pm

On the specific matters raised in the debate, first, may I correct the impression given by the hon. Member for Eastbourne that there were eight ongoing cartel investigations? There are 10 such investigations in which the Director General of Fair Trading has reasonable grounds to suspect an

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infringement of the Competition Act, one of which involves a so-called multiple cartel. Three of the 10 investigations came to the OFT'S attention as a consequence of leniency applications and some involve major companies.

It is insufficient simply to target companies. Therefore, it is necessary to target the individual. I will come to the relationship between the company and the individual in a moment. However, there is not enough of a deterrent effect as a result of the 1998 Act. Opposition Members may say that it has been in force for only a relatively short period, but it has been around for considerably longer—about three to four years. There has been a lot of time for people to respond to the fact that that legislation is on the statute book, and to know that what they are doing is unacceptable and illegitimate. The number of cartels and the investigations being carried out suggest that there is an ongoing problem that is not being addressed. Part of that problem is the relationship between the individual and the company—hence the move to criminalise cartel agreements and to prosecute the individual.

It is true that the only pure cartel offence so far has been the Arriva and First Group market-sharing cartel—in shorthand, the case of the Leeds bus company. However, substantial fines have been imposed recently on companies such as NAPP Pharmaceutical Group, whose fine was set after appeal at £2.2 million. NAPP had abused its dominant position by supplying sustained-release morphine to patients in the community at excessively high prices. The prosecution has resulted in an estimated saving to the national health service of £2 million a year.

Aberdeen Journals abused its dominant position by engaging in predatory pricing with a view to eliminating a competitor from the local newspaper market and was fined £1.3 million. That decision was recently set aside on procedural grounds by the Competition Commission appeal tribunal, but none the less the prosecution went forward. In addition, the OFT accepted informal interim assurances from Robert Wiseman Dairies and negotiated amendments from the Film Distributors Association. I am citing only recent cases in the United Kingdom, but if hon. Gentlemen tempt me, I could cite a set of case studies from the European Union and the United States, and lots of information about the prosecution of cartels.

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