Enterprise Bill

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Mr. Carmichael: In the interest of completeness, I am inclined to support the two Conservative amendments that are grouped with amendment No. 155, which stands in my name and the names of my hon. Friends the Members for Twickenham (Dr. Cable) and for Southport (Dr. Pugh), in addition to several Conservative members of the Committee.

To put it bluntly, our worry about the clause and the mischief that we want to remedy with the amendment is the broad nature of the powers that are given. One can imagine that a proactive Director General of Fair Trading could become a competition tsar who runs around looking for cases or causes to take up. The Minister may say that there are other restraints on the DGFT and no doubt that is the case. My experience shows, however, that if there is the possibility of a person abusing a power, eventually, the power will almost inevitably be abused.

There is a further argument about imbalance of resources. Costs to the Office of Fair Trading are borne by the taxpayer. Those resources would not be available to businesses investigated under the Bill. Investigations will be highly involved and complex and will require much management time and many legal

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and accounting resources. It is fair and proper that without trying to diminish the force of the investigations, which I welcome in broad terms, a direct link should be established between the conduct of an enterprise that is the subject of an investigation in which it must account for its actions, and the effect on the market.

The amendment would leave the OFT with substantial power, but it would redress the balance that is presently out of kilter.

Mr. Alexander: First, I shall deal with resources, which seem to underpin the thought behind the three amendments. The Government said in the White Paper that we want a strong and proactive OFT that will scrutinise markets throughout the economy to assess whether competition is working well. If it were not working well, the OFT would take appropriate action. That is why the OFT has the new markets and policy initiatives division, which will give it a stronger platform to tackle markets that are not working well for consumers.

However, I add the following caveat: action on markets does not necessarily mean referring a market to the Competition Commission for further inquiry. The right action may mean that the OFT is sharing information with consumers, that it is making recommendations to the Government about regulations that impede competition, or it could mean no action at all.

The amendments would limit the scope of the market investigations regime by restricting the basis on which references can be made about the conduct of firms and their customers. Amendment No. 155 would insert the word ''substantially'' into the reference criteria before

    ''prevents, restricts or distorts competition''.

They would also limit the scope of the regime by restricting the basis on which references can be made by requiring the OFT to have reasonable grounds for believing that one or more features of the market is or are preventing, restricting or distorting competition before it could make a market investigation reference or by requiring the OFT to have identified a significant or substantial impact on competition.

5.30 pm

I shall now deal with the issue of belief and amendment No. 298. As it stands, subsection (1) requires the OFT to have reasonable grounds for suspecting such activities. The amendment would make the criteria that the OFT must satisfy before making a reference slightly more demanding—as identified by the hon. Member for Eastbourne. When formulating the reference criteria, we considered whether the OFT should be required to have a reasonable suspicion or a belief that a feature or features of the market is or are preventing, restricting or distorting competition.

I shall explain why we have chosen suspicion, not belief. Is it not appropriate that the OFT should be more, rather than less, certain that problems in a market merit investigation by the Competition Commission? There are two main reasons why we

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did not choose belief as the test. In some cases, the OFT will have enough evidence to justify more than a reasonable suspicion that there are competition problems in a market. We certainly hope that the OFT will always ground its reference decisions in as strong an evidential base as is available to it.

However, there may be cases when the OFT has enough evidence to justify a reasonable suspicion, but not enough to justify a reasonable belief. The only way in which to obtain the extra evidence that it would need to satisfy the higher threshold is with the co-operation of companies in the market that are under investigation. In such circumstances, it does not seem right that, by not co-operating with the OFT to provide the extra information, companies could prevent it from making a reference decision.

Belief can be a tricky concept to pin down. Sometimes, if there is enough evidence to justify a reasonable suspicion that something is the case, there is probably enough—or nearly enough—evidence to justify a belief that it is the case. In other words, replacing ''suspecting'' with ''belief'' would make little difference. At other times, however, by the time there is enough evidence to justify a reasonable belief that something is the case, it will be virtually certain that it is so. Clearly, we do not expect certainty—or as close as economists can get to certainty—at the OFT stage of the investigations. If we did, there would be no purpose in the bipartite model of the OFT conducting a preliminary investigation, followed by a more thorough, determinative investigation by the Competition Commission.

The intention behind the amendment is no doubt to safeguard the interests of competitive businesses from unjustified investigation and, as we have heard, from the costs that will be consequent thereon. However, to the extent that it would make any difference at all, I fear that it would be more likely to provide shelter for uncompetitive businesses. It would sometimes require the OFT to carry out investigations almost as thorough as those of the Competition Commission to meet its thresholds, rather than achieving its purpose, which is to alleviate the burdens of businesses where possible.

Amendments Nos. 299 and 155 would introduce a formal requirement for the OFT to have reasonable grounds to suspect that one or more features of a market was ''significantly'' or ''substantially'' preventing, restricting or distorting competition before it could make a reference. I agree with the sentiment behind that: market investigatory powers should come into play only when the person making the reference has identified potentially serious competition problems in a market. I am not convinced, however, that it is necessary or desirable to introduce the proposed change of wording to prevent the making of unjustified or unnecessary references.

The power to make market investigation references is discretionary. We trust the OFT not to abuse its discretion by referring markets when it does not think that there are potentially serious competition problems. There are several reasons for that. While the OFT's budget is being increased to take account of

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all its new functions—as set out in the White Paper—its resources will always be finite and it will naturally want to concentrate them on the most serious cases.

If the OFT makes references when the competition problems are trivial, or the Competition Commission finds that the imposition of a remedy is not justified by any adverse effects on competition that it can discern, the OFT's reputation and credibility will suffer.

Mr. Waterson: The Minister describes an ideal world, and although I am sure that one exists out there somewhere, I rarely encountered one as a lawyer. The problem was graphically described by the hon. Member for Orkney and Shetland when he said that the OFT, flushed with new powers and functions, will be keen to make its mark. No matter how responsible, experienced and able are the people running the OFT at the most senior levels, there will be a double adrenalin rush of extra resources and extra powers.

Great pressure will be placed on those at the OFT, by Ministers as well as everyone else, to prove their mettle. Inevitably, they will not be able to divorce themselves from higher-profile campaigns in the tabloid press or the business pages of the more responsible papers. The Minister cannot simply hope that that will not happen. Matters will be pursued that may not come to anything in the end. However, in the meantime enormous costs will be run up—in terms of experts, lawyers and so forth—and damage will have been done to the businesses under investigation.

Mr. Alexander: The hon. Gentleman raises an important point, but I am not predicating my support for the Bill as drafted on a hope or aspiration but on the fact that the reference power is not a new power for the OFT and that there are constraints under which it is clearly working. It must exercise its power reasonably, and if it does not, it will of course be open to review by the Competition Appeal Tribunal, regardless of the resource base for the OFT. The constraints on its operation and the expectation of how it must conduct itself continue to be in place.

The flexibility of having a power rather than a duty to refer also encourages the OFT to consider other ways of dealing with less serious competition problems that might technically meet the market investigation reference criteria—by reporting on its general duties, for example. At the risk of repeating myself, the current Fair Trading Act's monopoly reference criteria are pitched more or less as ''low'' as the proposed market investigation reference criteria in the Bill, but in only one of the last 12 cases did the Competition Commission not find adverse effects. Again, if we wish to anticipate future conduct by the OFT, acknowledging the points made by the hon. Gentleman concerning the additional resources and power outlined in the White Paper and the Bill, to recognise how the powers have operated in the past is a useful check on us.

In short, we do not expect that the new regime's reference criteria will lead to there being many more market investigations than there have been monopoly inquiries in recent years. Any increase in the number of

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references is likely to result from increased OFT resources, not from changes introduced by the Bill.

On the comments made by Lord Simon of Highbury in the other place in relation to the Competition Act, it may not come as a complete surprise to the Committee to hear that I do not have the exact words of my erstwhile ministerial colleague in front of me, but I will try to offer what comfort I can about the thinking behind this part of the Act. In general, we would expect the OFT to use the Competition Act in cases in which it suspects that the Act's prohibitions on anti-competitive agreements or abuse of dominance are being infringed, and market investigation powers in cases in which the Act is not applicable. Whenever the choice is less straightforward, the decision about which powers to use will be at the OFT's discretion, on examination of all of the facts of the case in question. I do not wish anything that I say today to be taken as an attempt to tie the OFT's hands in terms of the discretion that it can exercise.

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