Examination of Witnesses (Questions 40-59)
OFFICE OF
FAIR TRADING
18 JANUARY 2006
Q40 Sarah McCarthy-Fry: I must say,
it does sound a little muddled to me. We are either focusing on
areas or we are not, or we are focusing on complaints or we are
not. I am not surprised at the NAO finding on paragraph 2.3, that
communication of your five priorities' plan to your operational
level staff was unclear and your staff were unclear how these
priorities were supposed to apply to the work they were doing.
Is that a fair comment?
Mr Fingleton: Yes.
Q41 Sarah McCarthy-Fry: What are
you doing about it?
Mr Fingleton: Our staff are unclear
about it. We face a huge number of possible areas we could investigate
and setting these priority areas is a way of giving our staff
a way of applying some of the criteria in terms of thinking about
what types of cases they should be bringing. Faced with the large
number they could bring and faced with a number of cases that
would have a similar impact on consumers and similar evidential
value, if there were one in construction or one in healthcare,
then we would certainly take that forward rather than one of the
others.
Mr Collins: It is also important
to understand that the choice of the priority areas did not take
place at the outset of the new regime; it took place only after
several years of experience. What it was trying to do was, as
the system bedded down, to give more focus to prioritisation.
Now we are moving on from that to enhance prioritisation in the
Office and it may well be that in year three or beyond we should
change the priorities, we should refine them, but you do have
to put some markers down to try to guide you along the path, particularly
in a new regime.
Q42 Sarah McCarthy-Fry: Are you happy
now that your staff understand your strategy?
Mr Fingleton: Yes, I think they
understand it much better and one of the difficulties we have
is moving from the system where staff understandably are more
responsive to complainants who come in with very difficult stories
than to one which does not lead our investigations in quite the
same way. The establishment of a preliminary investigation unit
and other measures that we are taking following the NAO recommendations
are designed to assist our staff in applying these priority areas
and our criteria in a more consistent way.
Q43 Sarah McCarthy-Fry: May I move
you on to page 15, figure eight, where it says the OFT is yet
to fully explore making better use of the complaints and intelligence
you have. It says "The OFT could use intelligence from several
complaints to build evidence and invest in a searchable database
for intelligence". Is that right? Do you not have an electronic
searchable database in order to cross refer, which presumably
would help reduce the time and expense?
Mr Fingleton: Yes, that is something
we plan to develop.
Q44 Sarah McCarthy-Fry: Were you
planning to develop it before it went in the NAO Report or are
you planning to develop it because of the NAO Report?
Mr Smith: Our IT is constantly
being updated, as you would expect. A database of this kind is
difficult to build because the historical data is not actually
in an electronic format necessarily. Nevertheless, we are proposing
to build something shortly, within the next year or so.
Q45 Sarah McCarthy-Fry: And what
are you doing to prepare the data you have now so you can put
it in an electronic format? Or are you only going to start from
the . . .
Mr Fingleton: In my experience
it is only very recently, because of the many security issues
and other issues, that law firms have begun to use data in electronic
form. If parties choose to give us everything in written form,
we can do a certain amount to encourage an electronic form but
ultimately it may be their choice that that is what they prefer
to do. Increasingly over the last three or four years of my work,
I have seen a shift from a tiny percentage of material coming
in in electronic form to the vast majority now and that would
be of enormous assistance to us in practical implementing.
Mr Collins: There is also a big
issue here in terms of intelligence gathering nationally. Of course
we are looking at a moving target here and one of the important
issues we have to look at in relation to our work on the consumer
side and working with Trading Standards is how to pull together
the huge amount of information that is available about particular
practices in the market nationally, so things that come to us
and things that go to other bodies. There has to be a project
which will look at the whole way in which we use intelligence,
both within the OFT and between the OFT and other enforcement
authorities.
Q46 Sarah McCarthy-Fry: Is this plan
to get this database part of how you are going to increase the
amount of benefit money to the consumer and to the country compared
with the amount of money you spend?
Mr Fingleton: It is one element
of that: having better intelligence, better data, Consumer Direct
will supply that, Trading Standards; we think we could make much
more of what is out there in terms of data. The second stage is
converting data to intelligence and that is expensive and time
consuming, but IT is a huge tool in doing that. I should say we
already have huge amounts of intelligence at the OFT and part
of the problem is not just that we do not have the intelligence,
but also that we have been in the past overly responsive to complainants
and perhaps not proactive enough, so that will make a big difference
as well in terms of prioritising our investigative work around
the areas of greatest impact.
Q47 Sarah McCarthy-Fry: I just want
to bring up one point and it is about the expense that is involved
in these investigations. Page 20, paragraph 3.5 says that you
will close a case if you are " . . . unable to reach a definitive
view without incurring disproportionate expenses". Would
it be possible for a major investigation to be dropped if you
thought it was going to cost too much? At what point do you make
that decision on cost effectiveness?
Mr Fingleton: Obviously, we are
very attentive to the likely benefit or magnitude of the turnover
in a market in terms of the cost of an investigation, both in
terms of value for money and in terms of the impact on the business.
There may be instances where the cost of the investigation would
be large relative to the size of the market, but where the precedential
effect of the case, or the deterrent effect on others because
it was a small market but with many, many such small markets across
the UK, makes it worthwhile to go ahead with that case. Yes, we
always try to balance that very finely.
Q48 Sarah McCarthy-Fry: And presumably
as you build your database of intelligence, that tips the balance
the other way towards effectiveness rather than cost.
Mr Fingleton: Yes, indeed and
one of the other things we shall be doing better after implementing
these recommendations is retrospectively looking at what cases
cost and even talking to the parties afterwards to get a sense
of it. We get a good idea of the cost data if there is an appeal;
we probably do not get such a good idea if it is not appealed.
There are innovative things we could think about doing which do
go beyond what is in the NAO Report, but are very much in keeping
with the spirit of the recommendations to try to go even further
than has been recommended here.
Q49 Greg Clark: As Kitty Ussher was
saying, the Competition Act is of huge importance to the economy
and Parliament clearly took a decision in passing the Act that
a much more robust and rigorous system of competition law was
to be enacted. In particular, it gave your organisation the powers
to compel evidence, to mount dawn raids, to fine people 10% of
turnover. So a very clear signal there and we expect that you
will make use of those powers rigorously. May I ask you about
your standards? Paragraph 3.17 and footnote 37 on page 23 of the
Report point to official standards, that you will complete 75%
of anti-competitive practice investigations within six months
and 75% of cartel investigations within a year. What is your latest
performance against your standards?
Mr Fingleton: I am going to pass
this particular question to Vincent. I do know that, as a result
of our implementation of these recommendations, we believe that
we can take at least six—
Q50 Greg Clark: I am sorry, may I
stop you there? I am surprised that as chief executive of the
organisation, you were not aware of the standards you have to
meet.
Mr Fingleton: I am aware of the
standards and we expect to take at least six months off the time
of an average investigation as a result of these recommendations.
We expect to bring the time between opening a formal investigation
to the statement of rejection—
Q51 Greg Clark: May I just stop you
there? I think you misunderstood the question. What is your current
performance against the standards? What percentage of ACP investigations
is completed within six months? It is a question for the chief
executive; I assumed you would know where you are against your
own standards.
Mr Fingleton: I do not know the
percentage of our current investigations against our standard.
Mr Smith: None of our investigations
are fully completed within six months.
Q52 Greg Clark: None. Not a single
one of your investigations meets your published standard.
Mr Smith: Not after we have started
a formal investigation.
Q53 Greg Clark: This is extraordinary.
Mr Fingleton said a few moments ago in answer to an earlier question
that the Office of Fair Trading offers fantastic value for money.
Not a single case meets the published standard that 75% of investigations
be completed within six months. How could you possibly say this
is fantastic value for money? My question is to Mr Fingleton.
Mr Fingleton: We are revising
the standard; we have removed our standard from our website since
the NAO Report.
Q54 Greg Clark: That does not give
us much comfort.
Mr Fingleton: We shall be publishing
retrospective timescales on all our investigations from later
this year so as to give guidance to business on the timescales
which can be expected.
Q55 Greg Clark: But the point about
standards, Mr Fingleton, is not just about guidance to businesses.
It is important that as a public body you should be held to account
so that if you publish standards, the idea that you meet them
not at all is frankly scandalous. In terms of the revision of
these standards, I was looking at your website this morning which
says that you are currently reviewing the timescales for competition
case work and you expect to publish amended benchmarks by April
2007. April 2007 to give a revised benchmark. Why does it take
so long to come up with a standard that you feel able to adopt?
Mr Fingleton: As the NAO Report
says, the timescales vary hugely by the type of case. We feel
that if we gave a single standard, a standard we aspired to have—
Q56 Greg Clark: That is not my question.
My question is: why does it take until April 2007? We are now
January 2006. Why is it going to take you well over a year to
adopt a new standard?
Mr Fingleton: Because we should
like that standard to be the standard that takes account of all
the changes we are implementing.
Q57 Greg Clark: Of course, but does
it take 14 months to come up with that standard?
Mr Fingleton: We shall see whether
we can do that much faster.
Q58 Greg Clark: Clearly it does.
It is revealing of the state of lethargy in the organisation.
The Chairman's question noted the length of some of these investigations,
some of them going on for five years. Can you turn to page 23,
paragraph 3.17? The NAO asked your staff what the reasons were
for these long investigations and the Report says, which is agreed,
" . . . many respondents identified reasons such as change
in priorities, turnover in personnel, internal processes and delays
in getting information back from third parties". You, Mr
Fingleton, mentioned complexity, but changing priorities is a
symptom of organisational chaos. It does not represent value for
money if investigations take many years because of the changing
priorities within your own Office. You would accept that I assume?
Mr Fingleton: Yes and that is
something we have already begun to address.
Q59 Greg Clark: How have you begun
to address it?
Mr Fingleton: We are establishing
a preliminary investigation unit which will deliver results on
90% of cases within 30 days or complaints within 30 days. That
will help us with our prioritisation of cases. We intend to have
more senior involvement in prioritisation. I personally have decided
that I am going to be involved in all decisions to open formal
investigations from now on.
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