The
Committee consisted of the following
Members:
Baron,
Mr. John
(Billericay)
(Con)
Burgon,
Colin
(Elmet)
(Lab)
Burt,
Lorely
(Solihull)
(LD)
Crausby,
Mr. David
(Bolton, North-East)
(Lab)
Djanogly,
Mr. Jonathan
(Huntingdon)
(Con)
Dobbin,
Jim
(Heywood and Middleton)
(Lab/Co-op)
Holloway,
Mr. Adam
(Gravesham)
(Con)
Meale,
Mr. Alan
(Mansfield)
(Lab)
Miller,
Andrew
(Ellesmere Port and Neston)
(Lab)
Penrose,
John
(Weston-super-Mare)
(Con)
Salter,
Martin
(Reading, West)
(Lab)
Smith,
Mr. Andrew
(Oxford, East)
(Lab)
Thomas,
Mr. Gareth
(Minister of State, Department for
International
Development)
Thurso,
John
(Caithness, Sutherland and Easter Ross)
(LD)
Ward,
Claire
(Vice-Chamberlain of Her Majesty's
Household)Young,
Sir George
(North-West Hampshire)
(Con)
Mick Hillyard, Committee
Clerk
attended the
Committee
Second
Delegated Legislation
Committee
Monday 20
October
2008
[Mr.
Greg Pope
in the
Chair]
Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2008
4.30
pm
The
Minister of State, Department for International Development
(Mr. Gareth Thomas): I beg to
move,
That
the Committee has considered the Enterprise Act 2002 (Specification of
Additional Section 58 Consideration) Order 2008 (S.I. 2008, No.
2645).
As
is traditional at the outset, Mr Pope, may I say that I genuinely
welcome the chance to serve under your chairmanship
again?
As
the House knows, merger control in the UK is regulated under the
Enterprise Act 2002 and the European Community merger regulation. The
Office of Fair Trading and the Competition Commission are responsible
for investigating UK mergers on the basis of their impact on
competition in UK markets, which enables the promotion of greater
competition, efficiency and innovation in markets, while helping to
protect the needs of the
consumer.
The
2002 Act provides limited powers for the Secretary of State to
intervene in mergers to protect legitimate public interests. Public
interest considerations are defined under section 58 as national
security and the plurality of media ownership. Section 58 also provides
the Secretary of State with the power to specify additional public
interest considerations as and when necessary to protect the public
interest. The order will give the Secretary of State the power to make
decisions on mergers that raise issues concerning the stability of the
UK financial system alongside competition questions. It will apply only
to mergers in the UK. We are taking separate action to have the
additional consideration recognised as a legitimate public interest
consideration under EU law for all member
states.
Hon.
Members will be aware that the previous Secretary of State for
Business, Enterprise and Regulatory Reform announced on 18 September
that he had issued a merger intervention notice in respect of the
proposed Lloyds TSB group merger with HBOS plc. He also announced that
he would place an order seeking the necessary power to enable him to
take into account the vital public interest issues that surround the
merger. This order specifies the maintenance of the stability of the UK
financial system as a public interest consideration under section 58 of
the Enterprise Act 2002. It will allow the Secretary of State to
intervene in those mergers to make the final decision based on the
vital public interest of financial stability alongside competition
issues.
The
House will recognise that swift, decisive action is needed to give
investors the regulatory certainty that they need and to send a clear
signal to the market about the proposed merger of Lloyds TSB group and
HBOS.
The order will allow us to make careful and urgent consideration of
financial stability a fundamental part of our assessment process and as
a result, it will support our work to help millions of UK businesses
and families get through these difficult times. I commend the order to
the
Committee.
4.33
pm
Mr.
Jonathan Djanogly (Huntingdon) (Con): Given the ongoing
financial crisis and market instability that has characterised recent
weeks, coupled with the threat to Britains largest mortgage
lender, the Conservative party supports the statutory instrument. We
agree with the advice of the Treasury, the Bank of England and the
Financial Services Authority that at a moment like this, financial
stability must take precedence when compared alongside competition
issues. Under normal circumstances, we would not be inclined to support
in such a wholesale fashion the Secretary of States proposals
without a more extensive debate. However, exceptional times call for
exceptional behaviour. There is a need to act quickly and decisively,
and the Conservative party recognises
that.
The
potential domino effect of the failure of a high street bank of the
magnitude of HBOS in the current climate would be widespread and
devastating. It would have repercussions not only in the banking and
financial services sectors of the UK economy, but on the money in
everyones pockets and the lives of every individual in the
country. This is no longer a problem limited to the square mile or
Canary Wharf. It is a problem experienced by every family and business
across the country. Individuals, companies and institutions rely on the
stability of the UK economy and its key players. The Conservative party
is acutely aware of how deeply these entities are engrained in the
fabric of UK
life.
The
consumer group, Which?, has written to me to point out that in creating
a super-bank with this merger, the Government must ensure that the
consumer does not lose out, as the sector is one in which it believes
competitive incentives have already been weakened. Does the Minister
agree with this perspective, and would he explain how the Government
have reviewed the competition aspects of their proposals and tell us
what plans they have for their future review?
Provision is
made in the Enterprise Act 2002 for the Secretary of State to take that
course of action. While the circumstances and the purpose of the
proposals are unusual, their legality cannot be called in to question.
Concerns that would usually be raised to force the Secretary of State
to clarify the need for such an order are of less immediate concern
when viewed in the light of the current problems, but will the Minister
explain what conditions the Government will require of these two banks?
For example, will they impose restrictions on retail deposits and the
closing of branches, which the Minister will appreciate will have a
distinct impact on competition in the marketplace?
We appreciate
that the use of the national interest provisions under the Enterprise
Act, which allow the Secretary of State to intercede on behalf of
mergers that may otherwise fall foul of the UK Competition Commission,
is not completely unprecedented. Since the legislation came into force,
the power has been used on various occasions, so the power provides the
Government
with an effective tool to help them deal with the immediate Lloyds-HBOS
merger problem. Of course, given the respective prices of those banks
and the implications of the Governments bail-out scheme,
questions could certainly be raised about the financial implications
and economic viability of the merger itself, but that is not a
discussion for
today.
4.37
pm
John
Thurso (Caithness, Sutherland and Easter Ross) (LD): It is
a pleasure, Mr. Pope, to serve under your chairmanship. As
the Minister said, the powers that are required by the Secretary of
State stem directly from the problems in the banking sector and it is
quite right that financial stability should be a matter of public
interest. However, we should be in no doubt that we would not be here
today were it not for the fact that a merger had been proposed between
Lloyds TSB and HBOS.
First, there
are legitimate concerns about whether that merger needs to go ahead in
the light of the very changed circumstances, bearing in mind that it
was first mooted because of the weakness of HBOS. None of us suspected
that the entire banking system would need to be supported to the degree
that it has been by the Government. There are also concerns about what
happens if the merger goes ahead, and about the impact on both
consumers and depositors. What steps have been taken thoroughly to
scrutinise the proposal and ensure that the competition aspects are
properly covered? From my work on the Treasury Committee, I know of the
lack of competition that has been apparent in the past in banking,
particularly with regard to overpriced charging, overdraft rates and
various other things. HBOS was one of the leaders in driving down
prices, so the merger is likely to have a negative impact on
high-street banking
pricing.
What
measures will be taken to scrutinise this properly? Furthermore, when
we come out the current times of turbulence, what will be done to
ensure that there is proper and sufficient competition on the high
street? Stability is of the utmost importance at this time, and it is
at the top of the decision tree. If the merger is still required as a
matter of financial stability, that case needs to be made. After all, a
considerable amount of Government money is being put into both banks.
However, according to a letter I have had from Lloyds TSB, the
Government will not go ahead with funding HBOS if the merger does not
go ahead. That seems to be a condition precedent that requires some
explanation.
My
second point concerns competition. We should not lightly set aside the
plurality in our markets, so we need assurances as to how that will be
dealt with in future. My third point is about depositor protection.
Some banks operate on the basis that each brand in its portfolio has a
separate licence, so each individual banking brand is protected. That
is not the case with all banks. This super-bank will operate some 11
different brands. Will the Government consider requiring them, as part
of the funding protocol, to ensure that each of those brands has a
separate licence, as the Royal Bank of Scotland does for all of its
brands, so that there
would be proper protection for people who would have their
£50,000 protection with each brands, not simply one for the
entire super-bank? Notwithstanding my very real concerns, I believe
that it is important that the order should go through. I hope that the
Minister will have some answers to those
questions.
4.40
pm
Mr.
Thomas: Let me try to deal with the questions raised by
the hon. Members for Huntingdon, and for Caithness, Sutherland and
Easter Ross. We are obviously grateful for the support of both hon.
Gentlemen. Which? and Consumer Focus have written to the Government
raising the perfectly legitimate consumer interest, and expressing
concern about competition on the high street in the banking sector as a
result of the merger. There are a series of powers and bodies that can
investigate whether there has been an abuse of market power and whether
action needs to be taken by public authorities.
The hon.
Member for Caithness, Sutherland and Easter Ross referred to a number
of issues that have been debated in the public domain and have been
investigated by bodies such as the Office of Fair Trading. It has
considerable powers available to it to investigate market abuses and to
insist on action being taken to prevent that abuse being perpetuated.
Similarly, there is the Competition Commission, as the hon. Gentleman
will be aware. Both Which? and Consumer Focus have indicated that they
will watch the merger and its impact on the high street in the coming
months. Consumer Focus is particularly important, because it has the
power to lodge a super-complaint if it believes there are substantial
consumer concerns which can trigger an OFT investigation. Certainly, it
will trigger debate and substantial
questions.
As
for future competition, I believe that we have the regulatory scrutiny
that we require available to us. Most people will recognise that the
OFT and the Competition Commission have done a good job in challenging
previous practices which have been an abuse of competition and
therefore unacceptable. On the specifics of the merger, scrutiny to
date and the various conditions that might be added, let me clear about
the process. If the House, as I hope it will, endorses this statutory
instrument, we are simply granting the power to the Secretary of State
to allow financial stability to be considered alongside competition
questions. A decision on whether to allow the merger has not been
made.
The Secretary
of State has to receive a report from the OFT, which has been promised
for 24 October. He will consider that report and other issues which the
OFT might want to provide to him. I cannot therefore speculate about
the different types of conditions that could be attached until the
Secretary of State has seen the OFT report. There will clearly be
opportunities for the Select Committee to scrutinise the decision that
the Secretary of State takes in the usual way. I hope that both hon.
Gentlemen will understand that I cannot at this stage speculate on what
conditions might be
made.
Question
put and agreed
to.
Committee
rose at sixteen minutes to Five
oclock.