Enterprise Bill

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Mr. Lansley: I do not want to add much on amendment No. 211, which was moved by my hon. Friend the Member for Eastbourne, because he spoke admirably on it. I want to comment a little on the amendments of the hon. Member for North-East Derbyshire and to ask something about them. Committee members clearly cannot know the Biwater case as well as the hon. Gentleman, but his argument did not leave me with the conclusion that it was therefore necessarily right to reintroduce the public interest test and that that would remedy the problems that he envisages.

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If it is the hon. Gentleman's contention that, regardless of the effects on competition and, by extension, on consumers, the jobs of the workers at the Biwater plant should have been protected and retained, he should say so. He did not quite say that. If it is his contention that UK production should in such circumstances be protected against the possibility of sourcing from imported, overseas sources rather than UK sources, he should say so. He did not quite say that either.

Essentially, what I understood the hon. Gentleman to suggest—he may be right for all I know—was that the competition test had not been properly applied in that case and that the benefits of competition were not flowing through. He suggested that a large, perhaps even dominant, supplier—we shall come to dominance in a moment—was able, by virtue of the merger and in ways not disclosed in the original decision, to reduce the sources of supply in the United Kingdom and that, hence, there was a substantial lessening of competition. On the face of it, he might as well have argued that the substantial lessening of competition test would have been perfectly appropriate in that case, had it been applied accurately.

Mr. Barnes: There might need to be a combination of factors. A firm could simply fail to meet the competition criteria. However, there are other public interest factors such as employment, the distribution of industry in an area and export markets, which switch the matter in the other direction so that there are grounds for the matter to be referred to the Competition Commission. I grant that I was arguing that competition grounds alone were enough for a reference to the Competition Commission, but the addition of the other considerations could have tipped the decision over.

Mr. Lansley: I am grateful to the hon. Gentleman. His argument that those further factors should be taken into account is what I imagined. His case does not illustrate the argument well. I would contend that if a substantial lessening of competition test is properly applied, and proper account of consumer benefits over a reasonable period is taken, the test will have substantial regard to the location of sources of supply, and their number and efficiency. The way in which a large supply can create a position of dominance may well outweigh that.

If the competition test in a particular instance of the sort described by the hon. Gentleman is properly applied, and if competition is sustained and there is no substantial reduction of competition as a consequence, is it the responsibility of the legislation to protect employment and allocate industry around the country, protecting United Kingdom production against overseas production at the expense of competition? That is what we would be doing, because if the merger does not reduce competition, it will have the effect of promoting it. The competitive intensity of industry means that management is not able to rest behind protective barriers. Under such circumstances, should we allow it to? My contention is that we should not.

All the evidence is that if we try to protect jobs through legislative measures, we protect them in the short run, but destroy them—and probably more—in

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the long run. To protect British industry by setting up barriers to mergers would be contrary not only to the single market, but to our long-term economic interests. If we go down the path of distributing business throughout the country in recognition of a regional development policy that is borne not of spatial incentives and infrastructure, but of efforts to try to preserve jobs in a particular location rather than promote competition and see where jobs go as a result, we will destroy those jobs in the long run. Unfortunately, that is the lesson that experience of industrial policy and protectionist policy has always taught us.

As the hon. Member for Twickenham suggested, we have to look to both planks of the argument. If we go down the road of a public interest test in the terms proposed by the hon. Member for North-East Derbyshire, we would explicitly bring back into the equation tests that are anti-competitive, which in the long run are likely to lead to substantial consumer detriment because they will undermine the long-term competitiveness of British industry and competitive intensity in our marketplace.

Mr. Alistair Carmichael (Orkney and Shetland): I am not without sympathy for what the hon. Gentleman is saying, particularly in relation to manufacturing, but he must surely accept that an awful lot more falls under the clause than merely manufacturing. In particular, the provision of services might be involved.

The issue that springs to my mind is the provision of regional air services, which is of great importance to people in my neck of the woods. British Airways, for example, may try to merge with small, individual carriers that are in competition with it regionally. If merely left to competition, that would leave people living in communities such as those that I represent substantially disadvantaged, as they would be left without any competition on the service. Without the introduction of a public interest element, there would be no means by which that could be considered by the Competition Commission.

Mr. Lansley: I am slightly surprised by the hon. Gentleman's argument, because he seems to be interpreting the competition test as a market test. The test is not what unrestrained markets would deliver. Unrestrained markets may deliver concentration of industry, or oligopoly or monopoly. Our purpose is to deliver competition, which is not the automatic outcome of unrestrained markets.

Markets must operate within a highly pro-competitive legal framework. I am not qualified to debate the case of regional air services. However, on the basis of the case that the hon. Gentleman puts, a reduction in competition to the disadvantage of his constituents as a result of that hypothetical merger activity would be a perfectly valid reason to present it as a substantial lessening of competition without any compensating consumer benefits.

If we go down the path of reintroducing a public interest test, we create unpredictability. It is not just a

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question of exports, spatial allocation of industry or employment prospects. As my hon. Friend the Member for Eastbourne suggested, if we were to discuss clause stand part later, we might get on to a whole range of issues that have previously bedevilled the application of competition policy, even where the primacy of competition has been asserted. All those things have been available and have often been cited as reasons to subvert what would actually be a pro-competitive decision.

I entirely take my hon. Friend's point, and that was why I offered my ha'p'orth on the Competition Act 1998. I found it interesting. It was true in relation to the cartel offence, and it is true in this instance. In 1998, the Government took the view that for reasons of predictability—again—and consistency, it was entirely desirable that the structure of UK law should wholly reflect the structure of European Community law. That has a range of benefits, not least that even though one might be reasonably confident that one's activity is regulated by UK competition authorities, UK competition authorities in making decisions must have regard to EC decisions. In the case against NAPP Pharmaceuticals, it is clear that the competition appeal tribunal carefully considered precedent and case law from the European Court of Justice in order to arrive at its decision on a UK case under the chapter II prohibition and the Competition Act.

The issue then becomes whether the dominance test is better because it is the same as the European Community's test and whether we should again pursue consistency. There are good arguments to say that we should. It is not simply that some mergers may not necessarily be UK or European Community mergers, but that there may be a degree of uncertainty about precisely where mergers are to be handled. If we have a different regime in this country from that which applies at EC level, there may be perverse incentives for companies to create merger situations that are dealt with by the Commission rather than by UK competition authorities, and that would not necessarily be in the UK interest.

If I recollect correctly—the Under-Secretary will, no doubt, correct me if I am wrong—the acquisition of London Electricity by Electricité de France was handled by the European Commission, under its competition and merger regime, and was not patriated to the United Kingdom, although such patriation was sought. There are reasons to suppose that we might have looked at that merger and, if not necessarily come to a different conclusion, applied tests that were not precisely the same.

There is a certain undesirability in a distinct regime that draws businesses to seek to be considered by the Commission even in mainly or substantially UK merger cases. It would be far better for us to go down the path of having a greater number of substantially UK merger cases considered by UK competition authorities. That is much more likely to happen if we operate directly under a regime that reflects the EC merger regime.

The Under-Secretary might tell us that the European Community's merger regime may change,

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but I imagine that she does not know precisely how that will happen. There is a small argument for going for the stronger, more pro-competitive regime in the UK and hoping to draw the European Community with us so that, over time, the regimes might become consistent. Unfortunately, I do not think that the Under-Secretary is in a position to offer that at the moment, although I shall be delighted if she can.

My final argument is this: leaving aside the problems, the discontinuity and the fact that European Community decisions and interpretations that might be applied here might not directly mesh with UK law and so lead to some conflict, and leaving aside the fact that companies might be led to go to the European competition authorities more often than would otherwise be the case, should we go down the path of a substantial lessening of competition test here anyway, for the simple reason that it is a stronger test? Even though we are in a single market, if we, the UK, can find ways, compatible with our treaty obligations, of creating greater competitive intensity in the United Kingdom than that in other European jurisdictions, should we not do so?

The Under-Secretary might reach into the Department's collective memory and say that, although the Government have been inconsistent, I too argued from time to time in 1998 for a regime that was a little tougher, a little clearer and a little more suited to our circumstances. I did do that. On balance, I would probably say the same again, but before I conclude, I shall give way to my hon. Friend the Member for Cities of London and Westminster, who is manoeuvring in front of me.

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