Enterprise Bill

[back to previous text]

Mr. Field: I might support that application in theory. In practice, however–I refer to one of our main concerns with the failing firm ideal–a failing firm is likely to lose staff and customers rapidly in the run-up, probably, to bankruptcy. It is therefore crucial to take decisions quickly. Will the Minister provide more guidance about the process that will be brought into play by the competition authorities? The test must be flexible to avoid the real risk of putting an overly complex procedure in place. A failing firm might in practice go under, with the resultant loss of jobs and opportunities.

Miss Johnson: I have already undertaken to write to the hon. Member for Eastbourne about the areas in which guidance might be called for. We intend to share initial drafts with the Committee to help clarify what will remain for the OFT or Competition Commission to tackle. I acknowledge the hon. Gentleman's point, but I add another that relates to a later part of the Bill. We hope that the new administration procedures will encourage firms to come forward before they reach the brink of failure. Fewer firms will get to the brink.

Mr. Djanogly: My hon. Friend the Member for Cities of London and Westminster (Mr. Field) made a good point and I shall raise a further one about timing. An exclusion poses no timing issue, but the Minister's proposal would lead to a time delay between a company going to the OFT to request quick clearance to stop it from going under and the requisite action taking place. The Under-Secretary has not told us how long that period might be in those extreme circumstances. Many companies would feel more comfortable if they knew that such appeals would be dealt with quickly. Can the Minister provide any comfort?

Miss Johnson: I can certainly provide the comfort that the OFT could clear a merger quickly if it were convinced that no substantial lessening of competition would follow. If it is not convinced, the same parameters of timing apply to failing companies as now. If I can secure more helpful information, I shall set it out in my letter to the hon. Member for Eastbourne.

Mr. Djanogly: Is the Under-Secretary saying that if there were a substantial lessening of competition, it would be irrelevant that the company was going to the wall?

Miss Johnson: No, I did not say that. I said that the OFT would have further issues to consider if it thought that competition might be reduced. As I said, I shall provide more information in my response to the hon. Member for Eastbourne.

I conclude with a couple of brief points. We believe that the provisions will ensure clarity for business. That is why clause 102 requires the OFT and the Competition Commission to produce guidance, to which I referred earlier.

Column Number: 311

The hon. Member for South Cambridgeshire made a point about assets. The substantial lessening of competition tests is sufficiently flexible to take account of the assets from the market in a merger consideration. I commend the Government amendments to the Committee, and trust that the other amendments will be withdrawn.

4.15 pm

Mr. Waterson: I am grateful for the Under-Secretary's explanations. We agree with her comments about the Government amendments, which seem minor and make things clearer, if they have any effect at all.

We will reconsider the failing firm defence. The Under-Secretary assured us that it was not necessary to include it in the Bill, as it will be open to the authorities to take it into account. However, the Opposition, especially my hon. Friend the Member for Huntingdon (Mr. Djanogly), exposed some practical difficulties that may need further thought. It is an open question whether it is a matter for the pre-guidance or the Bill. We will read carefully what the Under-Secretary has said. Any further comments that she would like to make in correspondence would be welcome. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 176, in page 11, line 2, after 'outweigh' insert:

    'the substantial lessening of competition concerned and'.–[Miss Melanie Johnson.]

Question proposed, That the clause, as amended, stand part of the Bill.

The Chairman: Before we begin the debate, the public interest argument for a reference to the Competition Commission and the compatibility of the legislation with European legislation have been fully covered in the debate. It would be mere repetition to cover those points, and I ask hon. Members to restrict their comments to matters of principle that have not already been adequately covered.

Mr. Waterson: I am grateful for that guidance, Mr. Beard. I am in your hands, but it might make more sense to have a full-blown debate on the principles behind the clause, thereby saving a lot of time later in dealing with specific issues, although it may not appear so at the time. This is a set piece debate on the Government's proposals, and it might be more sensible for the Under-Secretary to speak first and set everything in context by explaining what we are trying to achieve, as that there is little political controversy. I do not know whether the Under-Secretary agrees with me.

The Chairman: The hon. Gentleman has been called, so I suggest that he continues.

Mr. Waterson: I gave the Under-Secretary that opportunity, but we will do as you suggest, Mr. Beard.

The changes have been long expected and widely discussed, although that is not true of all parts of the Bill. There has been wide consultation on the proposals with industry and anyone else who takes

Column Number: 312

an interest in these matters. As we discussed, the current three-legged system is widely perceived as less effective than it should be and probably not designed for the needs of a modern merger regime. It is cumbrous and unnecessarily slow: I think that an average procedure typically takes at least six months.

In theory, but not necessarily in practice, as we heard, the system gives the Secretary of State a central role in the decision making. Again, in theory, that has left the procedure open to political pressure, which some people regard as not a good idea, but which is an obvious attraction for the hon. Member for North-East Derbyshire. He seems to have had something of a brush-off in his attempts to spark ministerial interest in his problem under the current regime–c'est la vie, I suppose.

The hon. Gentleman argued, with some passion and conviction, for a return to what he regards as the good old days. The trouble is that most people who have to operate in the system regard them as the bad old days. Indeed, the whole concept of political involvement in mergers has come to be accepted–except in some remote vastnesses of the Labour party–as not the way to proceed in the 21st century. However, that system is present in other respects: the college of Commissioners makes important EC merger decisions, and there are states that do not have a competition authority that is independent of their economics ministry or equivalent. The practice that has grown up is that Secretaries of State take a view on the basis of the advice that they are given, although there are some dramatic exceptions, which I shall address in a moment.

While I am giving an overview, another issue is the test. We discussed that in some depth, and I do not want to trespass on your patience too much, Mr. Beard, but in many ways it is a recognition of the practice that has existed since the time of the Tebbit doctrine. I am sure that my hon. Friend the Member for South Cambridgeshire had a great deal to do with that before he left being a gamekeeper and turned poacher by joining us politicians. Although one can understand the salesmanship involved in the Government's trumpeting of the change, it is fair to say that the change to a pure competition test is less dramatic than it appears. I do not intend to go back over the different tests or the dominance test versus the competition test; there are good arguments on both sides of the equation. We also discussed the European dimension, so I need not cover that.

We shall have a more focused debate on consumer benefits. Most people would say that that introduces a welcome amount of flexibility into investigations. The concept is adopted from article 81, which allows the Commission to exempt anti-competitive agreements if they confer special efficiency benefits. I believe that that is called the efficiency defence. We welcome the provision, although we shall have comments to make on it later.

To put all that in context, it is worth considering some of the very good points in the Library brief. The first important point is that, whatever mechanism is made, merger decisions, and certainly references of potential mergers, can have widespread effects

Column Number: 313

commercially. They can affect share prices and the business of particular companies in a dramatic way.

Interestingly, a Mr. Wilks has carried out an analysis of the way in which the existing powers have been applied in recent years. Curiously–this will interest the hon. Member for North-East Derbyshire–political differences do not appear to have had a major impact on the number of references that have been made, although there has been quite a significant variation depending on the individual Secretary of State.

Until 1997, the Secretary of State rejected the advice of the director general in 23 cases, refused to refer cases in 14 instances and in nine referred to them in spite of advice not to do so. What was called the Heseltine doctrine grew up around that time, to be replaced by the Lilley doctrine–or, for purists, the Lilley-Redwood doctrine–which was announced in January 1990 and which resulted in a spate of five references, three made against the advice of the Director General of Fair Trading. The commission cleared four of them and the fifth was found to be against the public interest on conventional analysis. That spelt the end of that policy and is trumpeted, according to Mr. Wilks, as an example of the independence of the Monopolies and Mergers Commission.

As I have said, there is no real evidence of party political patterns in the way in which the references are dealt with. For anyone who is that interested, there is a helpful schedule on how the various major decisions have been approached since 1979. I asked the Under-Secretary on how many occasions since 1997 the Secretary of State or her predecessors had overruled the advice of the Director General of Fair Trading. The answer that I received, on 12 December last year, was eight occasions on mergers and three occasions on monopoly reports.

It is interesting to look at the history of the occasions on which the Secretary of State overruled advice; the mergers between the National Express Group, ScotRail and Central Trains are major examples. In 1997 the then Secretary of State referred a bid by PacifiCorp for electricity supplier Energy Group. The OFT had recommended that the merger be cleared if certain assurances could be secured from the bidder but the Secretary of State based her decision to refer on the implications for what was the first large merger in an economically important sector. What she said in her press release was interesting:

    ''My general policy continues to be that I will refer mergers primarily on competition grounds''

–I imagine that that was a reference to the Tebbit guidelines. She continued:

    ''However, I shall continue to examine mergers on a case by case basis and where, as here, I believe that as part of a wider public interest scrutiny, important regulatory issues are raised, I may decide that a reference is warranted.''

All that led to the then Secretary of State being given the unfortunate nickname of Mrs. Blockit,

Column Number: 314

something she clearly bridled at because she said in a statement in June 1998:

    ''You may be wondering whether this is a second case of Dr. Jekyll and Mr. Hyde: that while Mrs. Beckett may have an encouraging message for companies, her alter-ego Mrs. Blockit will still put a stop to all their plans.''

Previous Contents Continue

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2002
Prepared 25 April 2002