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Lord Kingsland moved Amendment No. 156:

The noble Lord said: Amendment No. 156 is a probing amendment to try to tease out what is intended under Clause 126(2)(b). Without this change, conduct outside the market concerned could be grounds for making a reference. Is that what the Government intend?

Lord Sainsbury of Turville: This is quite a complicated issue, so let me go into the matter. We need the words "whether or not" in subsection (2)(b) because it is sometimes the case that one or more firms operating in a particular market can have an adverse effect on competition in that market by virtue of their conduct in another market.

I shall give some examples. Competition problems of this kind may be found in industries where there is much vertical integration, so that the same firms are active both in the manufacture and distribution or wholesaling and retailing of products, either because they own many of the retail outlets or because they have contractual or other means of influencing the behaviour of retailers.

When the Monopolies and Mergers Commission, as it then was, looked at the supply of beer some years ago, it found that brewers' ownership of pubs and their agreements with pub landlords were distorting competition in upstream—for example, wholesale beer—markets, because they were taking steps to ensure that their pubs sold their own brands of beer, cider and soft drinks. In such circumstances, the

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conduct of firms on upstream markets may easily influence what happens on the downstream markets, or vice versa.

A second category of cases that is relevant in this context is where two groups of products are complementary to each other, such as computer printers and the ink cartridges which go inside them. Printers and cartridges are clearly not part of the same economic market, but equally clearly neither is much use without the other. But suppose that a firm which manufacturers both printers and cartridges prices its printers very competitively but designs them in such a way that they will only work with its own brand of cartridges. In such circumstances, it is clearly possible that the conduct of one or more of the manufacturers in the printer market could have a significant effect on competition in the cartridge market.

There is thus a range of circumstances in which the conduct of firms in one market can lead to competition problems in another. There would be a serious gap in the market investigations regime if either the OFT were not able to use evidence of such conduct when making a reference, or the Competition Commission were unable to reach a finding of adverse effects in respect of such conduct. I mention the Competition Commission because the definition of "conduct" in subsection (2)(b) applies both for the purposes of the Competition Commission's analysis under Clause 129 and for the purposes of the OFT's decision to make a market investigation reference. The words "whether or not" play an equally important part in both contexts.

In short, the amendment would in some cases increase the burdens on business to no useful purpose and it would reduce the flexibility with which the OFT and the Competition Commission could perform their statutory functions. I would therefore ask the noble Lord to withdraw the amendment.

Lord Kingsland: I am grateful to the Minister for his most helpful explanation of that expression. I shall reflect on what he has said and return to the point if necessary in the autumn. It was a particularly helpful explanation. I really am most grateful. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 126 agreed to.

Clause 127 [Ministerial power to make references]:

On Question, Whether Clause 127 shall stand part of the Bill?

Lord Hunt of Wirral: I was genuinely astonished when I read Clause 127. Perhaps I had paid too much attention to the many press releases emanating from the Minister's department which spoke eloquently of removing politicians from the process and enabling the Office of Fair Trading and the Competition Commission to make key decisions without political interference. So the clause may well be an aberration. Perhaps it has been retained from some previous draft assembled before the press releases were issued. It is headed:

    "Ministerial power to make references".

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Subsection (1) refers to the circumstances in which the ministerial power will be exercised, which is where:

    "the appropriate minister is not satisfied with a decision of the OFT not to make a reference under section 126".

The Minister can hardly expect to get away with this one without a detailed explanation. What a comfort it is to see a rather detailed brief in front of him, because he is undoubtedly now about to give a succinct explanation.

My questions are simple. Why is that power in the Bill? Why it is it not described as a reserve power? Will that power be subject to parliamentary accountability? Will the Minister be held to account in some way? There is no provision in the clause for Parliament by resolution to approve the reference that the Minister decides to make. The Minister can by appropriate ministerial fiat make such a reference if he is dissatisfied with the Office of Fair Trading. So the old regime lingers on.

Will the Minister be subject to the same reference criteria as the Office of Fair Trading? Will the Minister's reference be subject to review by the competition appeal tribunal? If the reference follows a market investigation that has already been authorised by the Office of Fair Trading, but which then concludes, will the Minister be able to say that he requires further investigation?

As I read the Bill, the only control on the Minister is that he cannot make the reference where undertakings have been made and accepted by the Office of Fair Trading. That is provided by subsection (4), which states:

    "No reference shall be made under this section if the making of the reference is prevented by section 151(1)".

The only inhibition in Section 151(1) is that,

    "No market investigation reference shall be made by the OFT or the appropriate Minister . . . if . . . the OFT has accepted an undertaking"—

some further provisions relating to such undertakings follow. So there is no fetter on the Minister, apart from in that limited circumstance.

We then subject Clause 127 to closer scrutiny. Subsection (2) provides the condition that,

    "the appropriate Minister . . . is not satisfied that the OFT will decide within such period as the appropriate Minister considers to be reasonable, whether to make such a reference".

So the provision does not only apply where the OFT has decided not to make a reference; the Minister can suddenly intervene if he feels that the OFT are taking too much time. Why? Why, in that new regime of no ministerial interference, is that power being retained?

From the wording of subsection (3), that power appears to be wide. It states:

    "The appropriate Minister may . . . make a reference to the Commission if he has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom".

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The Minister owes us an explanation. That is why, at the moment, my noble friends and I intend to oppose the Question that Clause 127 stand part of the Bill.

Lord Sainsbury of Turville: The noble Lord may regret the remark that he made about the fat brief in front of me, when he was talking about the succinct answer that he would get.

Clause 127 provides the appropriate Minister with a reserve power to make market investigation references in certain circumstances. Subsection (5) defines the appropriate Minister for those purposes as,

    "the Secretary of State; or

    (b) the Secretary of State and one or more than one other Minister of the Crown acting jointly".

The noble Lord asked whether the clause was not outwith the general spirit of the Bill. The prime aim of the Bill is to take Ministers out of the final decision-making process in competition cases. With the exception of public interest intervention cases, we have done that for merger and market investigations. Here, we are concerned not with final decisions but with the decision whether the Competition Commission should investigate particular markets. Ministers are being given the power to ask—not determine—questions.

I shall first describe how we envisage the clause working in practice and then say why it will make a positive contribution to the overall effectiveness of the market investigations regime. In order for a reference to be made, two conditions must be satisfied. The first condition is set out in subsection (3) and is identical in substance to the reference test that the OFT must satisfy when making a reference under Clause 126. The appropriate Minister must have reasonable grounds for suspecting that one or more structural or behavioural features of a market are preventing, restricting or distorting competition in the supply or acquisition of specified goods or services. The second condition is that, exceptionally, the OFT disagrees with the Minister's view that, in the circumstances of the case, a reference should be made.

We must consider first what Ministers should do when they find themselves in possession of evidence that there may be significant competition problems in a market. There are all sorts of ways in which Ministers may acquire information that would lead them to suspect that a reference would be justified, thus fulfilling the first condition for making a ministerial reference. Ministers may sometimes acquire such information before the OFT does, or they may have information that is unavailable to the OFT. However, we do not want Ministers making market investigation references as soon as they reach a view that the reference criteria are satisfied. In many cases, Ministers may not want to consider the evidence in enough detail to reach a firm view as to whether or not the criteria are satisfied, rather than considering that the matter is worth some further investigation.

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We take the view that, as under the monopoly provisions of the Fair Trading Act 1973, the primary responsibility for making market investigation references should rest with the OFT. The first reaction of Ministers should always be to bring the OFT's attention to information that they consider to be relevant to the making of a possible reference under subsection (2)(a). Further investigation by the OFT may result in the OFT making a market investigation reference. It may result in the OFT taking some other form of competition enforcement action—for example, action under the Competition Act 1998—that Ministers cannot take. It may result in the OFT carrying out a market study under its general functions. It may result in the OFT deciding that no action should be taken and, in particular, that no market investigation reference should be made.

The clause is designed primarily to deal with a subset of that last outcome, the situation in which the OFT has decided not to make a market investigation reference and the Minister is not satisfied with its decision. We are talking about a very small number of cases, as we are confident that it will nearly always be the case that Ministers will be satisfied with the OFT's decision not to make a reference. If that is not the case, it is right that Ministers should be able to go on to make a reference.

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