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Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister, in particular for his assurance that the information required would not be asked for in a form which is so prescriptive that firms would find it hard to comply. With that assurance I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Sainsbury of Turville moved Amendments Nos. 35 and 36:



    Page 15, line 15, leave out from "Kingdom" to end of line 16.

On Question, amendments agreed to.

Clause 27 [Turnover test]:

Lord Sainsbury of Turville moved Amendment No. 37:


    Page 17, line 24, at end insert—


"(3A) An order under subsection (2) may, in particular, make provision enabling the decision-making authority to determine matters of a description specified in the order (including any of the matters mentioned in paragraphs (a) to (c) of subsection (3))."

On Question, amendment agreed to.

Clause 32 [Duty to make references in relation to anticipated mergers]:

Lord Sainsbury of Turville moved Amendment No. 38:


    Page 21, line 5, leave out paragraph (e) and insert—


"(e) the European Commission is considering a request made, in relation to the matter concerned, by the United Kingdom (whether alone or with others) under article 22(3) of the European Merger Regulations, is proceeding with the matter in pursuance of such a request or has dealt with the matter in pursuance of such a request."

On Question, amendment agreed to.

Clause 34 [Questions to be decided in relation to completed mergers]:

Lord Hodgson of Astley Abbotts moved Amendment No. 39:


    Page 21, line 31, at end insert "for which the annual output exceeds 500 million"

The noble Lord said: My Lords, Amendments Nos. 39 and 40 concern questions to be decided in relation to completed mergers and parallel a discussion held in

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Committee. I am grateful to my noble friend Lord Hunt for having moved the amendments then. Unfortunately, I was unable to be present on that day. I have read carefully the debate and agree with my noble friend's comments on clogging the system.

However, I am anxious that we should reconsider an issue which I raised at Second Reading, which is of a different order. I raised then the desirability of having based in Britain as many world class companies as possible. At Second Reading the Minister chided me about that. He seemed to think that "world class" and "national champion" are the same phrase. It may be in his mind, but it is not in mine. The "national champion" concept implies a laying on of hands by the Government on a particular firm. It is a proactive selection of a company. I agree with the Minister that it is bound to fail; it has failed and will continue to do so.

"World class" means creating a supportive environment in which business can prosper so that businesses grow of their own volition to be world competitors. It is an enabling, permissive approach focused on the overall environment, not on single firms.

It is a commonplace that the United Kingdom is a tiny market by world standards. If UK firms are to compete in the new technologies within the European Union, let alone in the wider world, they need to achieve scale. The tests are the 45 million turnover test that we discussed under Clause 22(1)(b) and the 25 per cent of a market test under Clause 22(3) which, if exceeded, leads to a "relevant merger situation".

In an infant industry such as biotechnology, a sector of the UK market might have an assumed value of no more than 250 million—tiny by world standards, but fairly large in a UK context. The Minister may correct me, but as I understand it a UK company in this sector with a turnover of over 65 million; that is, more than a quarter of the market, could not make any acquisition without creating a "relevant merger situation". That is unnecessarily prescriptive.

An overseas firm could make such an acquisition. In this case the Bill actively disadvantages UK companies in achieving the scale that would enable them to compete on the world stage. My amendment—I do not suggest that it is perfectly drawn—seeks to exclude from consideration UK markets worth less than 500 million; that is, half a billion pounds. That would allow single firms to dominate markets, but only those that are so small as to be insignificant in the overall economy; certainly in the world economy. It would create an environment in which UK-based high-tech companies could compete more effectively on the world stage.

When the Minister replied in Committee he drew attention to Clause 21(2), where the OFT has,


    "a discretion not to refer a merger where the market or markets concerned are not of sufficient importance to justify making a reference".—[Official Report, 18/7/02; col. 1453.]

I accept that as a way out, but the issue is whether such a fundamental choice, which might radically affect the UK's world competitive position in a particular

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industry, should be left with the OFT. I think not. Flexibility has its attractions but there is a danger that the OFT will come down on the side of caution and not use its wider discretionary powers under Clause 21(2). I beg to move.

Lord Sainsbury of Turville: My Lords, in the previous debate I tried to point out that world class today is not created by reducing competition. All the evidence shows that where world class companies have been created—this is true of America as much as Japan—it is because there is intense national competition. Companies grow and become world competitors on that basis.

Any world class biotech company of such a size will be considering operating on a world scale and will probably already have offices in America and parts of Europe. World class companies are those that have already broken out of looking only at the UK market.

Amendments Nos. 39 and 40 would prevent the Competition Commission from taking any remedial action against mergers which are expected to result in a substantial lessening of competition, but where the market concerned has an annual output of less than 500 million.

We think that this is the wrong approach. A merger that results in a substantial lessening of competition will have a serious impact on consumers and other businesses flowing from the fact that the merged business is now in a position to exercise market power. It does not matter whether the market is small or large—the impact on the consumers affected will be the same.

We are cautious about de minimis thresholds because markets are dynamic and not static. They are all at different stages of economic development. As I said in Committee when similar issues were raised, the current size of a market might not be a reliable indicator of its economic importance. Some markets, for example, might be large but declining and about to be superseded by new technology. Conversely, a small market in an emerging technology may have considerably greater longer-term significance, such that remedial action might very well be justified. This is an area where we think it would be unwise to make hard and fast rules for the competition authorities.

I should stress, however, that the new mergers regime does allow for, and in places makes extra provisions allowing the size or importance of markets to be taken into account. First, we have the basic jurisdictional tests—in other words, the turnover threshold and the share of supply test. These provide a rough and ready assessment of size and importance. We have, of course, taken powers in the Bill to adjust these basic jurisdictional thresholds in the light of experience.

As the noble Lord also said, once through the jurisdictional gateway, there is an express discretion in Clause 21(2)(a) for the OFT to decide not to refer a merger if it believes that the market concerned is not of sufficient importance to justify one. This discretion will ensure that trivial mergers are not given any

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further attention. Once a merger is referred, there is no further specific reference to the size or importance of the merger in the tasks that the Competition Commission has to perform. However, the commission is required only to take the remedial action that it considers "reasonable and practicable". In certain rare cases, therefore, the commission would have scope to apply no or lesser remedies if it felt that remedies would be unreasonable because, for example, the costs would be disproportionate to the size of the markets concerned. That should ensure that the duties are exercised sensibly and only in an appropriate case.

I hope that I have persuaded the noble Lord, Lord Hodgson, that it is unnecessary to make further express provision for factoring in the size and importance of markets and that this is a matter where it is sensible to leave the commission and the OFT with a limited, but none the less real discretion to make their judgments. I urge the noble Lord to withdraw the amendment.

9.15 p.m.

Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister. He has prayed in aid the example of the United States and the extreme competition there as producing benefits for the consumer. He is absolutely right. But in an economy that is 10 times the size of ours, the eleventh largest US firm will, ipso facto, probably be larger than the largest UK firm. Therefore, they have advantages of scale—to a lesser extent, the same applies in the Japanese markets—which will enable them to outgun, in terms of research and development and their power base, UK firms.

My amendment seeks to make sure that UK firms are not disadvantaged if they want to agglomerate to try to reach that level of scale in order to compete more evenly.

I do not suspect that I shall convince the Minister of my point of view today. We shall have to rely on the discretion of the OFT under Clause 21(2). I therefore seek leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 40 not moved.]

Clause 41 [Intervention by Secretary of State in certain public interest cases]:


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