Examination of Witnesses (Questions 100-118)
OFFICE OF
FAIR TRADING
18 JANUARY 2006
Q100 Mr Bacon: Stratify it in the
usual way. That would be excellent.
Mr Fingleton: Yes[2].
Q101 Mr Bacon: I am very concerned about
this question of the length of the cases. It says in paragraph
3.16 "There are a large number of cases that have been open
for at least two to three years (20 out of 37 cases)". I
am just wondering, notwithstanding that these can be complex matters,
what it is that can make something drag on for several years,
for three years? Businesses are created in that time, make huge
profits and people sell out. Businesses that were doing very well
go bankrupt in that period. How can something take this long?
Mr Fingleton: Any one of a number
of factors. One can be that we underestimate at the outset exactly
how much work is going to be involved and that is something that
we did do at the outset of some of these investigations. We took
on more than we probably had the resources to do and we have learned
that lesson. The second thing that can go wrong with them is that
two or three key staff on a case could leave and we have to get
people to be skilled up on it and that also happened in the past
and we are taking measures to reduce our vulnerability to that.
Q102 Mr Bacon: How are you reducing
the likelihood of staff leaving?
Mr Fingleton: A number of factors.
One is that we shall have more broadly based teams, so they will
be less vulnerable to one or two key individuals leaving. The
second is that reduced timescales and having a broader team working
on a particular case faster will also help with that, make it
less vulnerable. Another reason why they can take longer is because
we have to have regard to developments in EU law that the parties
arguing to us are relevant and, in fact, on many of our cases,
we get letters like that every month saying that there is a new
case from the Court of Justice that we must consider. In other
cases, we stay proceedings pending another case which is relevant,
in agreement with the parties. In other cases there are delays
because the parties are unable to meet an information request
on time.
Q103 Mr Bacon: And in still other
cases there are all the reasons given in paragraph 3.17 to which
Mr Clark referred earlier. Is that right?
Mr Collins: That is right. May
I just come in there and point out that the following sentence
says "Other competition authorities also face similar difficulties
with long timescales".
Q104 Mr Bacon: Yes, Mr Fingleton
referred to America.
Mr Collins: Yes, and it is important.
I have worked with a number of competition authorities on the
other side. This is a characteristic feature of these cases.
Q105 Mr Bacon: I am sorry. When you
say "on the other side", do you mean on the other side
of cases?
Mr Collins: On the other side
representing parties before cases. You do see that many cases
will take two, three, four, five years, for all the reasons that
John Fingleton has given. What we are saying is that those are
the result of internal review carried out pre-NAO Report and as
a result of this Report we are making every effort we can to speed
up those timescales and, particularly, this is important, averages
can be very misleading. It is very important that you try to engage
with parties or those parties who are willing to engage with you,
and some are not, to try to agree realistic timescales so that
business knows and so that we know the kind of stages in which
a case will progress.
Q106 Mr Bacon: Mr Collins, may I
stop you there because I want to come back to you on another point
in a second, but just one further question to Mr Fingleton concerning
figure 15 on page 23 and these different businesses here, for
example, Harwood Crematorium. What is the turnover of Harwood
Crematorium? How economically important an actor in the UK economy
is Harwood Crematorium?
Mr Fingleton: Harwood Crematorium
is not an important actor and in that case, if I am not mistaken—
Q107 Mr Bacon: What about West Midlands
Roofing?
Mr Fingleton: West Midlands Roofing
is not a significantly large player, but I did make the point
earlier that many of the markets which we look at are local markets
with local competition, where, if we took the argument that there
should be a de minimis, so anybody below a certain size
would be excluded from the scope of competition law, the vast
majority of markets in the UK in the services sector—
Q108 Mr Bacon: Is it possible to
write to the Committee with the turnover of each of those businesses
referred to in figure 15?
Mr Fingleton: Yes[3].
Q109 Mr Bacon: It would be quite interesting
to know and a two or three sentence summary about what it is that
makes the case interesting or significant or why you have investigated
it. If you could do that, I should be very grateful.[4].
Mr Fingleton: There may be some
cases of that kind where we closed an investigation, a complainant
appealed to the Competition Appeals Tribunal and we were forced
by the Competition Appeals Tribunal to carry out a much longer
investigation into that matter, although we wished to close it.
Some of them are of that character.
Q110 Mr Bacon: If you would just
write to us to explain, I should be grateful. Mr Collins, I notice
that you are chairman of the OFT and you were appointed last October
for a four-year term. You have experience in competition law in
the City at Lovells. That is the old Lovell, White . . . is it?
Mr Collins: Yes.
Q111 Mr Bacon: What else do you do?
You are a part-time chairman, are you not?
Mr Collins: I am a part-time chairman.
I took on the job on the basis that I would do it half time, that
is between two and three days a week. I also undertook to be available
for up to another 40 days during the first year, particularly
in view of the issues surrounding the Hampton Report and the CTSA.
I have not taken on any other additional appointments, partly
because I recognise the challenge of this job.
Q112 Mr Bacon: Are you remaining
a partner in Lovells?
Mr Collins: No, I am not. I have
completely retired from practice.
Q113 Mr Bacon: You are completely
retired; you have no other job apart from this one and this one
is part time.
Mr Collins: No, and this job is
very important.
Q114 Mr Bacon: Yes; indeed. It is
a central principle in English law that you have the right to
know the case against you. I was very interested in what you said
earlier about trying to find out information without giving away
to the person being complained of and who it is who is doing the
complaining. At what point in that process do you, if at all,
let the firm which is being complained of know the full case against
them, including who it is who is complaining?
Mr Collins: You make the case,
you make that information available at the time of the statement
of objections. As I was explaining earlier on to Mrs Goodman,
it is very important to manage the obtaining of the evidence in
a way which does not compromise the commercial interests of the
complainant. You are absolutely right that it is a fundamental
principle in English law that you have to know the case against
you and that is the dichotomy we face when we are trying on the
one hand to pursue complaints and collect evidence and on the
other hand trying to make sure we comply with the law.
Q115 Chairman: Anybody who represents
a rural seat knows that this issue of farmers' incomes is an absolutely
massive issue, particularly the pressure they feel from supermarkets.
I asked the NAO what you were doing and they told me the OFT are
considering referring the convenience store sector to the Competition
Commission under the Enterprise Act. This relates to the move
by supermarkets into the corner shop market. OFT also approved
the supermarkets' code of practice on purchasing. Presumably that
is right, but I should have expected a massive high profile investigation
of this issue by you over the last five years.
Mr Fingleton: There has been a
very high profile attached to the work we are currently doing
on whether to refer the supermarket and convenience sector or
aspects of it to the Competition Commission. We have undertaken
to have a draft out for consultation at the beginning of March
and a decision at the end of April on that. In that context, that
is not about allegations of breaches of Competition Act 1998 and
chapter one or chapter two. I cannot comment on any investigations
which might be ongoing against any party in that sector at the
moment, but they would be separate issues. We are looking at all
aspects of competition in that sector at the moment and we just
received on time all of the information we requested of the parties
earlier this week.
Q116 Greg Clark: The OFT is clearly
in a state of flux at the moment. I wonder whether it might be
possible, through you, to ask Sir John whether perhaps in a year
or 18 months' time we might have a note updating us on what has
happened to these deadlines, the lengthy investigations and in
particular whether the powers which are available under the Competition
Act have been used.
Sir John Bourn: I should be glad
to do that.
Q117 Mr Curry: Do you think there
is a distinction between a short-term and a longer-term consumer
interest?
Mr Fingleton: In predatory pricing
cases that is one of the most difficult aspects of evaluating
harm and liability. Predatory pricing cases have the feature that
short term there is a very substantial gain to consumers, but
longer term consumers will face higher prices once the rival is
eliminated. There is a great deal of international best practice
about what timescales one should use and what quality of evidence
one wants in those cases and it is a controversial area of practice
in competition policy. I do not know whether it was the first
in the world but certainly the Office of Fair Trading was the
first in the European Union to publish guidance on abusive dominance
and on questions like this. The European Commission has now followed
with draft guidance for European competition law which is very
much along the lines our previous Chairman John Vickers had overseen
at the OFT.
Q118 Mr Curry: Would you think that
you might apply a similar logic on issues which arise about restructuring
or rationalisation within industries? Whereas you might think
in the first instance perhaps that mergers might diminish competition,
but put in a wider international context the alternative to those
mergers might be sustained vulnerability right across a sector
with companies disappearing and perhaps overseas companies themselves,
based on a much more monopolistic position in their home markets,
dominating this market.
Mr Fingleton: Yes, in the particular
context of mergers the Enterprise Act allows for us to take efficiencies
into account. We are also allowed under the Enterprise Act to
balance cost to consumers in one market in a merger against efficiencies
gained in another market. We are able to look at consumer welfare
in the round, but over time and across markets, as a result of
the new features in the Enterprise Act.
Chairman: In conclusion, Mr Fingleton,
I stand by what I said at the time the NAO brought out this Report.
I said that the OFT has been too slow and too cautious. It is
no longer acceptable that a body like the OFT carries out its
work without proving its value to the consumer, to the taxpayer
and to Parliament. My own personal conclusion as a result of this
hearing is that you have not yet achieved your potential in terms
of value for money, because it takes too long to investigate cases
and you only reach a small number of decisions each year. You
need to improve your project management, your staff policy and
your performance measurement. You are new in your job and I shall
be requesting the Comptroller and Auditor General to investigate
you again before the end of the Parliament. Whether he does or
not is of course his prerogative, but I am sure he may well want
to and we shall see how you have performed. Thank you.
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