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Public Bill Committee Debates

Enterprise Act 2002 (Specification of Additional Section 58 Consideration) Order 2008



The Committee consisted of the following Members:

Chairman: Mr. Greg Pope
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 Britain’s 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 State’s 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 everyone’s 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 Government’s 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 o’clock.
 
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