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Lord Kingsland: I am most grateful for the noble Lord's extremely full reply. He referred to consultation papers in 1999 but that was long before the Airtours decision—at a time when we believed that the European Commission's pursuit of the idea of collective dominance would not be halted, temporarily or otherwise, by the European Court. At the time, we had no reason to believe that the test which the Government are now seeking to adopt would be more effective than the collective dominance test as applied by the European Commission. It is only now that we have Airtours that a real distinction between the two tests has opened up.

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Airtours may or may not survive an appeal to the European Court of Justice—because as I understand it, that decision is by the court of first instance. If the case is appealed and the CFI decision is reversed, the collective dominance doctrine will be re-established in the EU. In my submission, that doctrine is at least as effective as that which the Government are seeking to adopt.

My second point is directed at the Minister but encompasses the distinguished intervention by the noble Lord, Lord Borrie. Part 3 ought to be read with Part 4. The noble Lord's concern about the Airtours CFI decision is that oligopolies will be incapable of proper control by the EU authorities. But that will not be true in the case of the UK because the Bill allows the Competition Commission to examine a range of market imperfections, including oligopolistic practices. The UK legislation will fill the gap that the noble Lord fears will open up in the European context.

One treats with enormous respect any intervention by the noble Lord, Lord Borrie, because he is far and away the most experienced member of the Committee in competition matters. However, I hope that the noble Lord accepts that the UK authorities will not be stuck with the mergers section of the Bill for dealing with oligopolistic situations but will have other arrows in their quiver.

Lord Borrie: The noble Lord has been unduly kind to me, so I hesitate to intervene. However, there is a world of difference between preventing a merger that is undesirable because it may have a seriously adverse effect on competition and undertaking an investigation after the event—when it is difficult to go back to square one.

Lord Kingsland: I entirely accept that distinction but it encapsulates an appropriate approach. If dominance is not identified before the merger, a priori the merger should be allowed to proceed. If the merged company's subsequent conduct in the market is unattractively oligopolistic, the competition authorities can draw on other parts of the Bill to redress the anti-competitive feature. The Bill has the answer without introducing the new test.

I can reasonably assume from the Minister's remarks about the undesirability of consistency for consistency's sake that the Government's philosophy in respect of this Bill is very different from their philosophy in respect of the Competition Act 1998—when the idea of a consistent regime providing more certainty for business was central to the Government's approach to competition matters. I have now concluded that that is no longer the case.

I shall reflect very carefully on what the Minister said. I hope that he will accept that this is a very important matter and that he will forgive me if I return to it on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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6.30 p.m.

The Deputy Chairman of Committees: Before moving on to the next group of amendments, it may be for the convenience of the Committee if I advise it that Amendment No. 118 in the name of the noble Baroness, Lady Turner of Camden, has been decoupled from that group and will be moved separately.

Lord Hunt of Wirral moved Amendment No. 111:

Page 10, line 40, at end insert "for which the annual output exceeds £500 million"

The noble Lord said: I rise to move the amendment in the absence of my noble friend Lord Hodgson of Astley Abbots. The amendment would insert words at the end of Clause 21(1)(b) so that the paragraph would read:

"the creation of [the relevant merger situation] has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services for which the annual output exceeds £500 million".

It is linked to further amendments in the names of my noble friend Lord Kingsland, myself and my noble friend Lady Miller of Hendon. Those amendments recognise that the Government propose to remove the assets test in the Fair Trading Act 1973 and replace it with a turnover test; namely, as one can see from Clause 22(1)(b), that,

"the value of the turnover in the United Kingdom of the enterprise being [acquired] exceeds £45 million".

The purpose of this group of amendments is to allow the Committee to consider whether or not the system will become clogged up through the Office of Fair Trading having to review transactions which are comparatively unimportant in competition terms; hence the wish on the part of my noble friend Lord Hodgson to insert an annual output test and the wish in Amendment No. 113 to increase the turnover test from £45 million to £70 million.

Perhaps I may make it clear immediately to the Minister and to Members of the Committee that I believe it is right to remove the assets test from the scope of the UK's merger regime because assets are not the best measure of the market strength, or otherwise, of a company. As the Government acknowledged, I believe, in 1999, when the reforms were first floated, asset structures are changing. Consequently, it is now recognised that the assets test is outdated and no longer relevant to the modern world of mergers and acquisitions. However, if the Government are to replace the assets limb of the test with a turnover test, my contention is that a figure of £70 million would be a more appropriate level than £45 million.

I am not sure how the Government arrived at the figure of £45 million. The Minister may well be able to take us through the thought processes which resulted in that surprisingly exact figure. I hope that the Government will accept that, in order to avoid the imposition of excessive burdens on both business and the Office of Fair Trading, it is important that the system does not become clogged up in the way that I described. Therefore, while it is right that a de minimis

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threshold is vital to the process of the competition regime, I believe that most outside observers will consider the figure of £45 million to be too small.

Other countries where regimes similar to the one under discussion are in place have far higher figures than the equivalent of £45 million. I believe that it is the view of the Confederation of British Industry that the figure should, indeed, be raised to £70 million.

Amendment No. 114 also appears in this group. That amendment seeks to replace the share of supply test with a market share test. The amendment would at page 12, line 11 of the Bill leave out subsections (3) to (7) and insert:

"The condition mentioned in this subsection is that the merger would create or strengthen a share of 25 per cent or more in any relevant market in the United Kingdom or a substantial part of the United Kingdom".

As my noble friend has just been considering, the test for deciding whether to make a reference is now to be based on whether there is, or is likely to be, a substantial lessening of competition. We have agreed to consider carefully the points raised by the Minister in that respect.

However, if we were to accept that there should be a substantial lessening of competition, any such test would necessarily involve at least a preliminary assessment of markets and market share. The subsection, as drafted, would require the Office of Fair Trading to apply two tests: to look at markets for the substantive decision on a reference and the concept of the supply of goods or services of a similar description for establishing a jurisdiction.

We believe that the subsection drafted by the Government will be unnecessarily confusing as it combines a market definition, which is an economic test, with the subjectivity of the authorities under the old FTA regime in looking at aspects of the supply of goods or services. While the subjective approach may be acceptable in a regime where there is a wide discretion not to refer, surely it is unacceptable unless the changes which increase the discretion of the OFT in relation to Clauses 21 and 22 are incorporated.

In summary, I suppose that the core of the difficulty here is that the Government have bolted a new test on to the regime and the two do not marry well. If the share of supply test remains, there is a risk of the description being narrowly drawn. In the absence of a discretion on the part of the OFT, that would result in a larger number of references.

I turn to Amendment No. 115, which seeks to insert at the end of line 9 on page 13 of the Bill:

"Notwithstanding the above, a relevant merger situation shall not be deemed to have arisen for the purposes of this Part if the transaction in question has no effects (either actual or potential) in the United Kingdom or any part of it".

Perhaps I may explain to the Minister that this is very much a probing amendment. Even if a share of supply test were not brought to bear, the turnover test would remain at the fairly high level of £45 million. Therefore, to prevent an excessive regulatory burden on UK business, surely it is right to ensure that the OFT does not have the opportunity or, indeed, does

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not have placed upon it the obligation, to spend the time and valuable resources involved in reviewing mergers that have no impact in the United Kingdom.

The asset test of £70 million and the turnover test of £45 million apply to world-wide turnover. Therefore, in some cases there may be no impact whatever in the UK. Thus, the purpose of Amendment No. 115 is to ensure that the companies involved would not find themselves falling foul of an immediate and automatic OFT inquiry. Therefore surely such transactions need not be notified in the same way.

To summarise, a relevant merger situation will be deemed to have arisen if either the new turnover test or the share of supply test is satisfied. However, in order to prevent business from having excessive regulatory burdens and to remove the need for the OFT to expend time and resources by reviewing mergers with no impact on the UK such transactions should be excluded from the jurisdiction of the OFT. I beg to move.

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