Enterprise Bill

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Mr. Tony McWalter (Hemel Hempstead): This feels a bit like old ground. Why did the hon.

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Gentleman not consider an amendment related to the substantial lessening of competition test, which I thought Conservative Members had accepted?

Mr. Waterson: The hon. Gentleman is making a bid to be a substitute Chairman of the Committee. I am happy to take interventions on the meat of the Bill, but I am not prepared to take interventions from Government Back Benchers on how we choose to conduct matters. The amendment was tabled to this clause and has been selected, so I cannot help the hon. Gentleman any further. I made the point on the previous amendment that we do not want again to get into a debate about the dominant position—that has not gone away; we still think that it is a good idea—but if the Government think that they have a monopoly on good ideas, that is a matter for them, as long as they have a majority.

Mr. Jonathan Djanogly (Huntingdon): Presumably, the dominance test was put in as a test, but the point would be no less well made if another type of test were used, particularly the lessening of competition.

Mr. Waterson: My hon. Friend has put it better than I did. That was exactly the point that I was fumbling towards making. Let me assure the hon. Member for Hemel Hempstead (Mr. McWalter) that the dominance issue is there for historic reasons—perhaps he is here for historic reasons—but has nothing to do with the central issue raised by the amendment. The penalties that can be imposed on someone are pretty harsh even when there has not been a full review of the situation. That is the point, and I am interested to hear what the Minister has to say.

Mr. Alexander: Given that this morning is the first time that I have addressed the Committee, I shall leave aside the contentious subject of history or old ground and start with the amendment's intention.

As I understand it, the amendment would limit the OFT's power to make an order in cases where it has become apparent that the parties concerned are not complying with an undertaking in lieu or have provided materially false or misleading information to the OFT before the undertaking was accepted. From the terms of the amendment and the remarks of the hon. Member for Eastbourne (Mr. Waterson), I understand that the particular purpose is to prevent the OFT replacing a behavioural undertaking in lieu with a divestment order.

Any order made under the clause may be different from the undertakings that it replaces. That is the same degree of flexibility that is available to the Secretary of State under the Fair Trading Act 1973. The hon. Gentleman's comments reflected the fact that it is necessary to allow the OFT to impose a different remedy if that is warranted, for example, by a different analysis that emerges after false or misleading information comes to light. However, on the substantive point of seriousness or harshness, as the hon. Gentleman described it, I remind the Committee that the OFT will be required to act in a

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reasonable manner in replacing an undertaking with an order. Therefore, any new remedy will have to be justified in the circumstances of the case. If the OFT did not act reasonably, the parties would, of course, have recourse to an appeal to the competition appeal tribunal.

I further remind hon. Members that enforcement actions are very rarely necessary in respect of undertakings given by parties at any stage.

Mr. Andrew Lansley (South Cambridgeshire): I should like to clarify what reasonableness will mean in that context. The OFT, when making such an order, should have the flexibility to try to establish through it what was originally intended by way of undertakings or would otherwise be justified in trying to avoid a substantial lessening of competition. Will the Minister confirm, however, that there should be no element of punitive action in any order made?

Mr. Alexander: My understanding is that the provision is specifically to address cases in which misleading or false information has been provided. Therefore, the remedy appropriate in the circumstances will reflect the particular causes of the initial orders that have been established.

I reinforce the point that instances in which the OFT has had to operate over such matters have proved very rare. If the parties do not follow the guidance provided by the OFT in the first action, the OFT's likely response will be to encourage the companies to comply with the terms of the original undertakings. That cannot be punitive in the terms in which the hon. Gentleman asked his question, but aims to address the problem that the undertakings were originally directed towards addressing.

I hope that that has offered sufficient comfort to the Committee and that, in the light of the undertakings that I have given, the hon. Member for Eastbourne will be able to withdraw the amendment.

Mr. Waterson: I am grateful to the Minister. As he has rightly pointed out, we are talking, on any view, about rare instances, and there is a back-up of reasonableness and the prospect of an appeal to the tribunal, which is fine. The issue was worth raising, but I shall not press the amendment to a vote. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 71 ordered to stand part of the Bill.

Clause 72 ordered to stand part of the Bill.

Clause 73

Restrictions on certain dealings: completed mergers

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

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Mr. Waterson: This clause calls out for a modest stand part debate. We tabled an amendment, which is probably surplus to requirements, that it be deleted altogether. As it stands, it provides for certain automatic restrictions on dealings related to a completed merger that has been referred for investigation. In effect, companies are prevented under the provision from taking any further steps without the consent of the Competition Commission.

That has caused concern, not least for the CBI, which thinks, I think rightly, that it would be preferable to see the authorities rely on clauses 76 and 77, which already give them the power to offer undertakings or make orders, but without this automatic prohibition on a wide range of activities.

Under the Fair Trading Act 1973, there are narrower provisions that call for restrictions on share dealings. One can certainly see the wisdom of that, without too much thought. Restrictions on share dealings are the most likely restrictions that we would be talking about in such circumstances. That is already in the legislation. It is generally accepted that that is needed in the armoury. It would be preserved under clause 74 on that basis.

It is difficult to see why further restrictions should automatically kick in when there has merely been a reference for investigation. That puts an awfully large lock on many activities in which companies, even in that situation, may want to be engaged. There is a worry, which is why we have tabled a probing amendment.

Mr. Djanogly: I fully support what my hon. Friend has said. The concept of automatic prohibition seems strange in some ways, particularly because it is automatic in so far as there may be circumstances when it is appropriate for the merger to go ahead, such as not upsetting companies that may be in a difficult position, or to save jobs when they are at risk unless particular action is taken immediately.

Undertakings may be required under other provisions and companies will carefully assess what the position is. They may come to the overall opinion that they have a certain percentage chance of divestiture coming out of the investigation. However, balancing that with the need to keep their businesses intact and not lose jobs, they may decide to go ahead with the merger. Therefore, the absolute prohibition that the clause would provide seems strange and I would be interested to hear the Minister's opinion as to why that is justified in all situations.

Mr. Mark Field (Cities of London and Westminster): I also have grave philosophical concerns about clause 73. It is wrong for the commission to have an overriding power. The Minister will no doubt tease out one or two examples of why it is important to have that power in place.

My hon. Friend the Member for Huntingdon (Mr. Djanogly) has already touched on sensitive

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mergers that have taken place when there is a jobs issue vis-aĻ-vis international trade. In that case, there may be some mileage in putting certain restrictions in place. Surely the onus should be on the commission to justify the idea that certain restrictions should be put in place in what I suspect will be a relatively small number of circumstances.

The commission should be able to make its case in relation to those particular mergers. It should not be the other way around. It would be a difficult job for a company to ensure that it should not be subject to any great restrictions over time. Given that the raison d'e&circumflex;tre of the Bill is to favour enterprise and competition, it seems somewhat odd that the commission has that strong power.

Mr. Djanogly: Is my hon. Friend not making the case that we are moving from a situation in which companies can take their own decisions, appreciating the possible consequences, to one in which they are shackled?

Mr. Field: My hon. Friend put that far more eloquently than I could have done. I was nanoseconds from the end of my contribution anyway. I look forward to hearing what the Minister has to say.

Mr. Lansley: I do not want to deal with the philosophy behind the clause, but I have one question on subsection (7). I wonder whether the Minister could offer some guidance. I understand that the Bill is constructed around UK rather than European Commission merger control. If a merger is essentially trans-national, it will be dealt with on an EC rather than a UK basis. Is there a loophole? I am looking for reassurance from the Minister that there is not. The merger situation could be UK-based, so far as the enterprises are concerned, the control could be a UK control and the orders of that kind could refer to UK nationals, and so forth, but if the company were listed on the New York stock exchange, the connected persons trading in those shares could, in effect, undertake transactions that might be prejudicial to the merger reference and this order would not necessarily bite on them.

11 am

Mr. Alexander: Clause 73 introduces an automatic restriction on the parties to a completed merger, as we have discussed, once it has been referred. That will prevent them from any further integration without the consent of the Competition Commission. Further integration could prejudice the Competition Commission's ability to take remedial action following its inquiry. I am sure that that is widely accepted on both sides of the Committee. The hon. Member for Eastbourne mentioned share dealing. If a merged entity makes staff redundant, sells off assets, integrates computer systems or takes any other similar action, it could be very difficult for the commission to effect a divestment of the merger businesses thereafter.

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In the past, the authorities have sought to prevent such further integration by seeking voluntary undertakings from the parties or by imposing an interim order. It is clearer, simpler and more efficient to create a new prohibition that applies to all

completed mergers that are referred. In answer to the question about how that advances our objective of enterprise, the degree of certainty provided by the clause will avoid a huge amount of work having to be undertaken by the authorities and the company, in terms of discussions and preparation of interim orders. People will be able to be certain, at the outset of the merger, that such a step will be taken.

Mr. Field: I accept the ingenious argument on certainty, but surely the provision is not intended to apply to many cases. Or, is it the Minister's contention that this will be an automatic power, which will come into play in every single merger situation? What proportion of cases that come before the commission does the Minister envisage being subject to the provisions in the clause?

Mr. Alexander: I do not think that I can answer the question as directly as the hon. Gentleman wishes, with an exact proportion. What I can say is that we are trying to make the provisions that already exist more effective. Helpfully, however, I have just been passed a note with an exact proportion on it: it is only completed mergers, which are roughly 30 per cent. I anticipate that that figure will be ongoing. The clause does not intend to widen that scope significantly, but to make real and effective the available powers, consistent with an obligation to which we hold ourselves—to give a degree of certainty to the businesses involved.


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