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Lord Sainsbury of Turville: My Lords, I will deal first with the amendment that would raise the turnover threshold to 100 million. We fulfilled the commitment that I gave in Committee to look again at the evidence underpinning our preferred 45 million figure. We shared that second set of analyses with the CBI, which in turn undertook some alternative analysis. We are grateful to the CBI for its contribution to this debate. The letter that I sent earlier this month summarised the data and why we think they showed that the lower threshold is still the right one.

We now have figures based on two independent sets of data. Our original analysis, based on the One Source Database, showed that the number of UK companies with total assets of 70 million or more was 7,473. The number of companies with a turnover of 45 million or more was only 7,057. That would, a priori, seem to suggest that using the turnover test brings slightly fewer companies into the net.

The second analysis carried out by officials over the summer using the Fame database, which holds data relating to company returns made in 2000 and 2001, identified 9,966 UK companies with total assets of 70 million or more but only 7,806 companies with a turnover of 45 million or more. If anything, those findings show that we have pitched the turnover threshold too high rather than too low.

I am not certain that I understand the basis of the noble Lord's alternative figures. I believe that he took the 70 million assets test and indexed that up, but I am

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not sure how he got from assets of 85 million to a turnover figure. One cannot index the asset figure, then add on a bit more to make it a turnover figure.

Lord Hunt of Wirral: My Lords, the figure of 70 million becomes 85 million by indexation. Then applying a ratio of average turnover to gross assets from a sample of more than 500 companies brings one closer to the figure of 100 million.

Lord Sainsbury of Turville: My Lords, the problem with that figure£151;which I believe was the basis of the CBI analysis—is that it is based on measuring the average turnover only of those companies that happen to meet the assets test. Changing the test inevitably means covering a somewhat different range of companies. For example, new technology companies, whose turnover may significantly exceed their asset base, may be covered by the test for the first time—but property companies with the opposite assets-to-turnover ratio may drop out. The calculation is difficult to make, in terms of going from an assets test to turnover. It is by no means clear that ours is a foolproof method but at least it is clear that it simply looks at the number of companies that are caught by the two different tests. The new test, if anything, will catch fewer companies than before.

As I said in Committee, we are dealing essentially with an informed estimate. We remain confident that a figure of 45 million comes closest to our original goal of identifying a turnover threshold that would bring within the scope of the merger regime roughly the same number of companies as are currently covered by the 70 million worldwide assets test. We have built into the new legislation a mechanism for keeping the level of the threshold under review and for adjusting it through secondary legislation in the light of experience. If that shows that we are bringing too many harmless mergers within the scope of the mergers regime, we can adjust the figure.

As to Amendments Nos. 32 and 33, the share of supply test is being retained from the Fair Trading Act 1973 and will apply to mergers that create or enhance a 25 per cent share of supply in the UK or a part of the UK. It ensures that competition authorities can scrutinise those mergers that do not necessarily involve the biggest companies but can nonetheless narrow the market—for example, in a region. That definition covers the two broad types of sector—goods and services. If the share of supply test did not cover services, only the turnover test would be applicable to those companies. We consider that that may leave an unacceptably large hole in the merger regime. For example, broadcasting businesses such as regional radio stations may not meet the turnover threshold. Further, it is not always clear cut whether a business provides goods or a service. The current drafting allows the OFT the discretion to allow for that reality.

When we debated a proposal identical to Amendment No. 33 in Committee, I set out why the share of supply test is the better one to use as a jurisdictional threshold. It has several advantages.

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First, it is a straightforward test. Compared with the more complex market share test, it is easy to apply. Secondly, we are wary of introducing the more substantive market share test at this point because of the potential burden that would entail for businesses. They are less likely to know whether their merger would qualify on market share grounds and may feel pressed to employ economic advisers at an early stage in an investigation. There would be additional burdens for the OFT, whose workload would increase for similar reasons.

The share of supply test is a commonsense threshold that complements the turnover threshold. Together, they provide a sound jurisdictional structure for the competition authorities, which has worked well over the years.

Government Amendments Nos. 83, 84 and 88 relate to the share of supply test. Amendment No. 83 would give the Secretary of State the power to alter the share of supply test by affirmative resolution. As I explained earlier, the share of supply test has served us well over time. Business is used to it and the test has been effective in capturing cases where enterprises will have a substantial share of supply following a merger.

The amendment is designed to ensure that we can keep the threshold accurately targeted on the mergers that we wish to scrutinise, by being responsive to changes in the economic environment. It complements the power to make changes to the other jurisdictional test—the turnover test—in light of experience. The power obliges the Secretary of State, in consultation with the OFT and the Competition Commission, to consider in particular the desirability of ensuring that any amended or new condition continues to operate by reference to the degree of commercial strength that results from the merger.

Amendments Nos. 84 and 88 are consequential on the introduction of the new power. Amendment No. 37 is a minor amendment to the turnover test clause. The amendment is in the same spirit of ensuring that these thresholds are relevant and practical. It allows us to ensure that the competition authorities have a degree of discretion in making the calculation, within the boundaries of the provisions mentioned in draft legislation. I beg to move.

9 p.m.

Lord Hunt of Wirral: My Lords, the Minister and I obviously beg to differ, particularly over Amendment No. 33, where I believe that the share of supply test is an anachronism. That is probably a polite way of describing it. It is a classic example of the old formalistic approach, which has never been adopted in any other jurisdiction. However, I shall consider carefully the Minister's comments, in particular regarding Amendment No. 31. I shall reflect on some of the figures he put forward and consult those who put forward the alternative figures. I believe that we are moving ahead with the same objective; the important thing is to get there. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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[Amendments No. 32 and 33 not moved.]

Clause 24 [Extension of time-limits]:

Lord Hodgson of Astley Abbotts moved Amendment No. 34:

    Page 14, line 27, after "to" insert "take reasonable steps to"

The noble Lord said: My Lords, Amendment No. 34 also deals with relevant merger situations. In the relevant subsections in Clause 23 we come across time limits and prior notice. However, Clause 24 carries the weasel words "extension of time-limits". That is an issue about which people have written to me expressing their concern.

Under subsection (2) the OFT has the right to extend the time limit if the person has,

    "failed to provide, within the period stated in a notice under section 30 and in the manner authorised or required, information requested of him in that notice".

It has been suggested to me that that wording is particularly inflexible and prescriptive and could be used in future by asking for information to be provided in a manner with which it was not possible to comply as precisely as is laid down. That issue has given rise to a number of concerns and letters addressed to me. The Minister will say that that will never happen, that the OFT will be perfectly reasonable, that it will use a format which is fair, under which such information could always be supplied.

My amendment seeks to insert the words "take reasonable steps", so that if a firm involved takes reasonable steps to provide reasonable information, even if it cannot be done in precisely the format or manner authorised or required, it will have complied with the provision and therefore there will not be an extension to the time limit. It must be in all our interests that these relevant merger situations are resolved as quickly as possible. Without that, the period of uncertainty for the firms, their suppliers, creditors and employees, would be unduly elongated. I believe that the words "take reasonable steps" would meet the concerns that have been expressed. I beg to move.

Lord Sainsbury of Turville: My Lords, Amendment No. 34 relates to the power of the OFT to extend the deadlines for its investigation pre-reference where requested information has not been supplied. The amendment proposes that no extension should be possible where the relevant person has taken reasonable steps to provide the information.

However, in this case it is important to draw a distinction between the power to extend the timetable for reference and any punitive action, such as is available to the Competition Commission in the form of monetary penalties. The powers to extend timetables have been introduced to ensure that the regime works effectively. Where the OFT does not have adequate information to conclude that a merger will not result in a substantial lessening of competition, it will be faced with no option but to refer the merger unless it has this power to extend the timetable for reference.

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In this case there is a community of interest between the OFT, which requires the information, and is therefore looking for an extension, and the provider of the information, who would like the decision to be made by the OFT on a proper basis of information. If it is not, there is always the danger that the OFT will say, "We are coming up against a deadline and in those circumstances we shall have to refer". I am totally behind the idea that we must ensure that that is not used as an excuse for delay. However, if the power to extend the deadline is removed, we could fall into a situation where the information is not provided and the OFT would have to refer. That would not be desirable from anyone's point of view.

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