Enterprise Bill

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The Chairman: Order. I asked hon. Members to limit their remarks to matters other than those that had already been covered. The history is most interesting but it returns to similar themes and I ask the hon. Gentleman to deal with principles that have not already been well rehearsed.

Mr. Waterson: I shall follow your guidance, Mr. Beard, although I am not sure whether the issue has been developed. I was trying, probably clumsily, to put in context the lack of political involvement in the process. It is worth in passing referring to the fact that there is to be a debate on the issue of national security that will allow us to look back at the way in which different Secretaries of State have taken different approaches to those decisions.

The main thrust of the provision has been widely welcomed. It is difficult to think of anyone who has not welcomed it. The Consumers Association described it as a welcome step and the Institute of Chartered Accountants believes that it will

    ''assist in the consistent application of competition law in all circumstances.''

Allen & Overy, a major solicitors involved in this kind of work, said that it will eliminate a layer of political risk from the investigations process.

Mr. Lansley: My hon. Friend referred to the welcome that various people have given to parts of the Bill. Does he recall that on Second Reading the Secretary of State for Trade and Industry referred to several people who had welcomed the Bill? She referred twice to the Director General of the Association of British Chambers of Commerce, Mr. David Lennan. It was the mark of Cain on Mr. Lennan, as he lasted only eight days after the Secretary of State had commended him so highly.

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Mr. Waterson: Mr. Lennan does seem to have fallen through a metaphorical trap door. I cannot comment on whether that was connected with the Secretary of State's remarks.

Organisations such as the National Consumer Council have also expressed support. Public perception is an important dimension, too. Whatever we may say, and whatever the briefing may tell us, there is unease among the public that politicians might be involved in such decisions. If a system can evolve in which the matter is seen to be independent of political influence, which is the reality already, the public and the business community will have more confidence in it.

We have already dealt with some of the principal concerns of business organisations such as the Confederation of British Industry and the test to be applied–the substantial lessening of competition or the failing company defence–to which we shall probably return. Some of the remaining issues will

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be dealt with in the guidance. It is a pity that draft guidance is not available because it would enable us to consider more closely how the system will work in practice.

Another point that was not covered in the debate about the test to be applied was raised in response to the White Paper by the Institute of Chartered Accountants in England and Wales. In a nutshell, the institute's point was that the Bill should not require the authorities to focus exclusively on domestic economic concerns. It said:

    ''Competition issues should be considered in the context of the market in which the particular product is traded. UK firms acting in an international arena should not be prejudiced by competition authorities whose remit is inappropriately limited to consideration of the UK market. Retention of a national champion can be in the interests of the maintenance of competition on a global basis even where this may not be apparent if considered on a UK basis alone.''

That is an important point, which is not covered in the Bill as drafted.

One problem of speaking in this debate before the Under-Secretary is that I do not know her thinking on the matter. I shall be interested to hear the Government's position when she replies to the debate and to know where we stand on wanting a national champion. There could be a conflict between the laudable aim of ensuring that mergers or proposed mergers are not detrimental to consumers, other companies and competitors generally, and being sidelined to the second or third division in international competition. A national champion, almost by definition, must have the muscle, size and power to compete on at least equal terms with the big companies from other countries in the international market. Those are some of the major issues. The matter of the public interest exception and other more specific issues that arise can wait until we deal with the later provisions.

I stress that the Opposition welcome the clarification of the non-political nature of the mergers regime, the reform of the 1973 Act and the aim of absolute transparency in all that will happen to mergers in the future. We have a few small quibbles here and there, to which we have yet to come, but broadly we welcome the measure.

Mr. Field: I shall speak briefly as the proposals have been discussed in great detail in previous debates. Without associating myself with the hard left of the Labour party, I have sympathy with the view expressed by my hon. Friend the Member for Eastbourne that merger control should have a political element. It is arguable that a political doctrine should play its part. Although I appreciate that it has certain advantages, I do not entirely agree with the way in which things have developed in the past decade or so towards the ideal paradigm of politicians being kept out of mergers.

I am concerned not least that there is likely to be plenty of opportunity under not just clause 20 but many of the succeeding clauses for political interference, albeit slightly beneath the surface, as I said in respect of the role of the Office of Fair Trading. If the OFT has little discretion, there is an opportunity

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for politicians to play their part in discreet, or less than discreet, lobbying.

I want to make a few comments on the consistency, certainty and predictability issues concerning merger control that have been highlighted by the Government in proposing this Bill. In later clauses, such as clause 40–we will perhaps canter through them at a greater speed than we have clause 20–there seems to be an open-ended power in the hands of the Secretary of State and other Ministers to intervene in public interest cases. They do not quite address the public interest matters that the hon. Member for North-East Derbyshire envisaged, but there is clearly a public interest test. We will consider, too, the issue of relevant customer benefits under clause 28. They may also be able to outweigh the SLC–substantial lessening of competition–test.

There is a disadvantage for business in a more straightforward competition test in considering consistency, certainty and predictability at the forefront of the proposed changes. There is not least the risk of a more long-winded and costly OFT examination, which may be to the good of professional advisers but will not enhance business in the way that has been heralded in the Bill. I also fear the creeping introduction of non-competition issues which will undermine the twin goals of consistency and certainty.

The Government have set out some clear goals in the Bill and are heralding the day that politicians move away from merger control, which will be in the hands of the OFT. My fear–it is why we have spoken at such length on the matter–is that the Bill must be seen as workable. I am worried that it will fail in its goal.

Mr. Lansley: My hon. Friend the Member for Eastbourne has referred to my half interest in the matter on several occasions. I suspect that, as he has covered some of the history of the merger-control process during the past 20 years, there is little benefit in my doing the same.

The Chairman: That is correct.

Mr. Lansley: But I will, Mr. Beard, if I may, pick up two issues that were not covered in our earlier discussions on the amendments.

I endorse the view that the purpose of the legislation should be to introduce a competition test as the basis of our merger-control regime. I entirely support the view that it should be conducted independently from Ministers, and should, therefore, be reasonably predictable. The Under-Secretary was right to refer in our previous debate to the desirability of a regime that is both predictable and flexible. However, that is a difficult thing to come by, which is why it is important to have the guidance to which my hon. Friend the Member for Eastbourne referred, as well as our proceedings, which will inform the process in due course. Perhaps most important are the Under-Secretary's replies, on which to some extent the authorities, and the appeal tribunal if necessary, would rest. I do not envy her job of getting the information absolutely right.

There are two aspects of the history of merger control that we have not entirely dealt with. I gave the

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Minister due warning of one–the question of whether a fit and proper person is seeking to acquire control of an entity. I cited one particular instance–that of the Co-op and Andrew Regan–although I do not know enough about it to talk about it great length. I was surprised that it had not featured in discussions among Labour Members.

Mr. Field: Might I also point out that aspects of that case are still sub judice, so it is probably wise not to go into any great detail?

Mr. Lansley: My hon. Friend helps me in my determination not to go down that path.

Another case, with which I am more familiar, is much older and cannot possibly still be sub judice. It concerns the House of Fraser, and illustrates the difficulties that ensue when one goes down the path of a competition regime. In order to have such a regime and to support predictability, one must be prepared to face the considerable political difficulties that might ensue. I will not dwell on the subject at length, suffice it to say that hon. Members will recall the competing proposals in late 1984 or early 1985 from the Lonrho group and Mr. Al Fayed for the acquisition of the House of Fraser, which still included Harrods at that time. The question was whether the takeover of the House of Fraser by Mr. Al Fayed should be blocked by Secretary of State Tebbit, as he then was. Various arguments were put forward. Essentially, the Lonrho group argued that Mr. Al Fayed was not a fit and proper person–he was not who he claimed to be, was not using his own money and would not be able to fulfil all the commitments that he was seeking to take on in relation to House of Fraser.

For my sins, I sat and took notes on the various occasions when the principal parties met and took evidence and so forth. Although the matter occurred before Norman Tebbit had enunciated his competition doctrine, it steeled him in the necessity of doing so. Had he used the public interest test in the flexible way in which it was pressed on him at the time, he would effectively have stopped the merger. He would have said, ''There are too many public interest criteria. We must examine this in detail and find out what is going on, which will take some time. All of it will come out at a later stage.'' He determined not to do that, because as far as he was aware, most of the things that he was asked to consider may have been interesting to the public, but had no impact on competition in that marketplace. Mr. Al Fayed had the money; whether it was his to own was secondary. He was determined to exploit the Harrods brand in the way that he had planned, and to make the divestments.

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Mr. Al Fayed did what he said he was going to do. Competition in that marketplace was not constrained. There is a separate question of whether Ministers are prepared for the fact that the fitness of someone to become the acquirer of a company in a merger is an issue of competition. That was highlighted by the way in which the Department went about subsequent inquiries into the fitness of directors. It is an issue of

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competition only if someone is so inappropriate to take over a company that they would not be able to sustain that company's position in the marketplace and keep competition going. We cannot know what circumstances will arise. They could be invited to get involved, hand the matter back to the competition authorities and be asked to go to court.

My hon. Friend the Member for Eastbourne referred to the consequence of the Lilley doctrine, and to national champions. I do not want to go down the route of national champions, as in an ideal world we would not be using the process just to try to find another route for industrial policy through competition policy. If we want industrial policy, we have to justify it on its own terms. Competition policy should be used for competition, not for a spurious restructuring of industry. However, there is a real issue here.

I referred earlier to the takeover of London Electricity by Electricité de France. Even though we are in a single market, not all the markets of the European Union have complementary competition regimes. France does not have the same competition regime in energy and electricity as the United Kingdom. That will remain true for some time. At the time of the takeover, Electricité de France would arguably have been in a contrary position according to the Lilley doctrine. The doctrine said in essence that, having secured benefits from privatising British industry, we should not allow those companies to be taken over by state-owned enterprises that would not take fully commercial, profit-maximising approaches.

More importantly, we should not allow foreign companies to acquire ownership in the UK in circumstances in which they could exercise market power to the extent that they can undermine the relative competitiveness of British companies in that and other markets. Is the Under-Secretary prepared for the fact that when the next Al-Fayed case comes along, Ministers will say that it is not their job and will not interfere? It is vital that we achieve more on competition in the European Union, especially in markets that currently are not fully open to competition. It difficult for us to open up our markets to full competition, as there is a risk that market power in the single market can be exercised in a way that damages the United Kingdom. The energy market and the power that state-owned enterprises enjoy in the domestic electricity market are examples of that.

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