Enterprise Bill

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The Chairman: Before we canter through any more clauses, I must mention that when we come to the raft of amendments that have been debated, Government amendments will be put formally, but I do not intend

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to call other amendments for a Division unless the hon. Members in whose name they were tabled have indicated to the Clerk that they want a Division.

Clauses 24 and 25 ordered to stand part of the Bill.

Clause 26

Turnover test

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

Mr. Waterson: I rise briefly to make a point about clauses 26 and clause 30 and I may make the same point later on clause 50 in the context of draft regulations. In some of the Under-Secretary's more helpful correspondence, she explained where we are in terms of the regulations, guidance and so on. On clauses 26 and 30, will she be a little more specific about the position with draft regulations? The Bill is hefty in anyone's money and many clauses will require further regulation or guidance in due course. It would be helpful to have that information because issues may arise from those regulations in due course, especially under clause 26.

Miss Johnson: I am not sure that I can help the hon. Gentleman further. I set out in my letter on necessary consultation as regards several aspects of the Bill the exact position that we expect to arise—that is, where guidance or consultation will take place and what we envisage will happen next within the time frame. I am not sure that I can be more helpful to the hon. Gentleman. Can he explain what further information he is interested in?

Mr. Waterson: It is difficult to know how to answer that question without knowing what is in the draft regulations. When we have seen them, we shall know what important matters are included and, perhaps more importantly, what important matters have been left out. I appreciate that this is a moving target and I do not want to put the Under-Secretary on the spot. However, I am trying to be helpful, even if it does not sound like it, and my argument is relevant to a number of the provisions that we are cantering through. It would be sad if draft regulations that were almost available, albeit it in early draft, and could be made available for our debates did not become available until the Committee had moved on. However, I appreciate that the Under-Secretary cannot produce great rafts of regulations if they are not ready.

Miss Johnson: Things are being done in stages, as the hon. Gentleman appreciates, and some are more advanced than others. I have suggested the information that we hope to share with the Committee in more detail before Report. It will be possible to produce the information for some aspects of the Bill, but not all. We intend to produce draft regulations in good time before commencement and, obviously, all the regulations will go through the normal consultation period and time frames that the hon. Gentleman expects and which are the normal practice for the Government today.

Question put and agreed to.

Clause 26 ordered to stand part of the Bill.

Clause 27 ordered to stand part of the Bill.

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Clause 28

Relevant customer benefits

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

5 pm

Mr. Waterson: Again, I will be brief. The provision on ''relevant customer benefits'' is valuable and, contrary to what I said a moment ago about another issue, it is helpful that the clause sets out those benefits in detail. However, I want to draw the Under-Secretary out a little more in terms of the sort of investigation that she envisages under the clause and the practical considerations.

There are two groups of benefit, the first of which is fairly obvious:

    ''lower prices, higher quality or greater choice of goods or services''

in subsection (1)(a)(i). One is tempted to take the view that most mergers would involve less choice rather than more, so it would be interesting to hear more about the reasoning behind that sub-paragraph.

To return to some points made by my hon. Friend the Member for Huntingdon during a previous debate on dentistry—it seems aeons ago and I am glad that we have not heard much about it recently—I am pleased that the Under-Secretary is not taking the same route that one or two consumer organisations misguidedly took by expecting prices to be the same for the same services. I hope that she is, by definition, in the clause accepting that prices may vary enormously for the same goods or services.

I want to draw the Under-Secretary out further on subsection (1)(a)(ii) which refers to ''greater innovation''. I presume that that means greater technological innovation in the delivery of services—for example, by internet and so on—and in the sort of product available. It would be helpful to have a sketch of the sort of innovation that she envisages, bearing in mind that the provision applies to ''future customers'', according to the last line of the clause, as much as to current customers, and how the judgment will be made so that the relevant customer benefits exception comes into force.

Mr. Field: Without wishing to introduce too many references to dentistry, I also want to get my teeth into something and ask the Under-Secretary to do likewise. The underlying purpose of the Bill is to encourage certainty, consistency and predictability. How does she balance customer benefits, about which the clause goes into admirable detail, with substantial lessening of competition, to which the key clause 20 refers? How can the uncertainty that will be brought about possibly be in keeping with the raison d'être of the Bill?

Mr. Ken Purchase (Wolverhampton, North-East): I am worried that we seem to be writing get-out clauses. I draw the attention of my hon. Friend the Under-Secretary to subsection 1(a)(i) and ask in a friendly but probing way, ''Lower prices, for how long? Higher quality, what if it falls?'' Those questions can be addressed, but I am worried that the provision may provide the opportunity to continue with a merger when, in truth, consumers will benefit not at all.

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I also draw to my hon. Friend's attention subsection (2)(a), which refers to ''a reasonable period'', whatever that might mean in terms of the process of a merger. Will she deal with timing and say whether those escape clauses do a disservice to consumers when the onus should be on the merging companies to prove that they will bring positive benefits?

Miss Johnson: Two situations might be relevant and could affect the decision of the competition authorities in relation to consumer benefits. In the first situation, one of the circumstances in which the OFT might decide not to refer is where it expects customer benefits to outweigh the competition concerns. The second situation relates to a reference. If a merger is referred, the Competition Commission has the task of deciding whether a merger will result in a substantial lessening of competition. The Competition Commission can have regard to customer benefits and will have discretion to apply lesser competition remedies than would otherwise be the case in that second scenario. The discretion would extend from the Competition Commission clearing the merger without applying any competition remedies, if it decided that nothing could be done about competition problems without eliminating the relevant customer benefit, to taking those remedies into consideration.

The challenge in identifying the framework, as the hon. Member for Cities of London and Westminster (Mr. Field) remarked in his contribution, was to identify a framework that would allow such benefits to be taken into account without undermining the central importance of the competition analysis. That is certainly true and we believe that we have such a structure. At stage one, the OFT can choose not to refer a merger where it believes that the customer benefits outweigh the competition concerns, but to reach such a belief, we expect that the benefits will have to be significant and certain. To some degree that deals with the question of my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase), but not entirely. I accept that the certainty is important, as it covers time as well as existence.

Where there are doubts, a reference would always be made so that the issues could be studied in depth. At stage two, the Competition Commission will always have to reach a decision on the substantial lessening of competition test. It will have to take into account customer benefits at the relevant stage of setting remedies.

The hon. Member for Eastbourne asked for examples. I have quite a few. I will not detain the Committee long in giving them; I will just run through a couple. For example, a network benefit in mobile telecommunications is that the more users who join a particular mobile network, the more valuable the network becomes to those users—they can contact more people, in more locations, at lower cost as the network increases in size. In the case of large economies of scale, where the effect of scale economies on prices is sufficient to outweigh that of a substantial lessening of competition, such circumstances could lead to an overall reduction in prices—provided that the authorities were satisfied

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that the economies of scale would be realised in spite of a significant reduction in competition and prices after the merger would remain lower than they were pre-merger.

My hon. Friend the Member for Wolverhampton, North-East made a point about ''reasonable time''. That can be interpreted by lawyers, who will decide whether the OFT or the Competition Commission are doing things properly. My third example is that of a merger producing more innovation through research and development benefits. The hon. Member for Eastbourne mentioned that in his remarks. Investment in research and development often involves large fixed costs and there may be circumstances where critical mass is needed—in terms of research expertise or capital or both. Under those circumstances, that can be secured only through a merger, although substantial benefits may be gained from that.

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