Clause 4 - Annual and other reports

Enterprise Bill – in a Public Bill Committee am 12:15 pm ar 16 Ebrill 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 12:15, 16 Ebrill 2002

I beg to move amendment No. 3, in page 2, line 24, at end insert—

'(c) a detailed summary of OFT decisions and investigations over the preceding year'.

Photo of Derek Conway Derek Conway Ceidwadwyr, Old Bexley and Sidcup

With this we may take the following amendments: No. 4, in page 2, line 24, at end insert—

'(d) an assessment of the additional costs to business of the exercise of its functions.'.

No. 2, in page 2, line 26, at end insert—

'(3A) The Government will arrange a debate in each House of Parliament on the annual report within three months of its publication'.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

We are really steaming through the Bill, Mr. Conway. I hope that the amendments' intent is obvious, but for the avoidance of doubt I shall go through them in a little more detail.

We welcome the production of annual reports by the OFT, including the annual report, but there should be more prescription of what it should contain. Amendment No. 3 specifies that it should include a summary of OFT decisions and investigations in the preceding year; that, for all I know, is the intention, anyway. As the OFT builds up a catalogue of past decisions and investigations, it helps to have such a record, as it tells people in the outside world how it approaches certain situations and about its powers and functions. I hope that such matters will be part of the report.

Amendment No. 4 makes the point, wholly unexceptionally, that the report should contain an assessment of any additional burdens on business because of the exercise of the functions. Again, I shall come back to that in a moment.

I said on Second Reading—I have not changed my mind since—that it stretches credulity that the regulatory impact assessment report on the competition and consumer protection measures in the Bill suggests that there will be no extra cost to business. In any event, the Bill should oblige the OFT in its ongoing work to apply its mind, at least annually—I would hope that it would do so every day or week—to the effect, burden and cost on business that its activities, particularly investigations, will cause. Again, we will return to that theme.

Amendment No. 2 concerns the theme of transparency. The Under-Secretary has said that the Government's aim is to have transparency and openness and we welcome those aspirations. Indeed, we welcome them so much that we intend to do our best to ensure that they are cemented into the final version of the Bill. It is right that there should be an annual report and that, as detailed in subsection (3), a copy should be laid before Parliament and arrangements made for it to be published. Amendment No. 2 asks only why, having had the report produced, laid before Parliament and then published, the Government should not also be under an obligation to arrange a debate. It seems sensible for the House to make time for a debate once a year on

the work of the OFT, particularly in its early life, and I hope that the Government will readily accede to that.

I return now in slightly more detail to amendments Nos. 3 and 4. It is important for there to be an annual survey of the decisions and investigations of the OFT, first of all by way of precedent. As it goes along, the OFT will be setting precedents and we all know that in the field in which it will be engaged precedents can be important in saving time and legal costs.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead 12:30, 16 Ebrill 2002

Does the hon. Gentleman envisage the report containing details of the investigations that have occurred even if no decisions have been made—in other words, incomplete investigations? That would be volatile and could put a company in the embarrassing situation of being reported as being investigated when no one has decided whether the grounds for the investigation are substantial.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

In the real world, the fact that a company or section of industry was being investigated would come out anyway. It is difficult to keep such matters quiet. I promise the hon. Gentleman that we will come to that matter later, and the potential effect that it would have on share prices will also have to be examined.

There may be scope for movement and we are not in the business of prescribing every last detail. We hope that the people involved will be serious, well qualified and able to sort out their own procedures to a large extent. It may not be necessary to name individual companies, but it is important that people who have dealings or fear that they may have dealings with the OFT can look at how it has approached matters. As the OFT goes on, a growing body of precedent will grow up. The report should also show how the OFT is approaching the slightly dry tasks that we are assigning to them in this legislation. Perhaps above all, the report should show, I hope, a thread of consistency throughout its approach to different situations.

Those are all concerns that have been raised, in particular by the Confederation of British Industry in a briefing. The briefing starts by saying that it warmly welcomes clause 4 but thinks that the Government should go a step further in requiring a detailed summary of the decisions and investigations, as I have suggested. It makes the point that the European Commission's annual competition reports provide useful summaries of recent cases and that that model should be adopted here. It thinks that there is potential for the OFT's reports to be too broad and general in form and therefore not much help to businesses and their advisers. I would rely on the example of the European Commission's competition reports for that purpose. I have never practised in that area of law, but the issue is clearly one that people will study in advising companies about the situations already covered by the Director General of Fair Trading or by the European arrangements.

I envisage the reports being of similar benefit. They should not be the dry, glossy reports that Members of Parliament often receive, which are immediately consigned to the wastepaper bin or to a corner of the

office, never to be seen again. They should be real, living documents that companies, individuals and their legal and other advisers thumb through regularly. The CBI takes the view in its briefing document that a calculation of the costs should be imposed on business by OFT investigations over the preceding year. It states that such investigations

''often impose huge costs and other burdens on business, both in terms of professional fees and also distraction of senior management from their core activities.''

It goes on to point out that that is why the Government are now obliged to produce regulatory impact assessments to look into the likely extra burdens of proposed legislation on business. I fail to see why the OFT should be treated any differently.

In a nutshell, we are saying that the OFT should do its own annual regulatory impact assessment because in the long run that is healthy for its relationship with business and commerce. If the OFT starts out with an antagonistic attitude towards companies or some of the consumer situations in which it will be involved, that will not benefit the consumer, business or the OFT itself.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

Does not the hon. Gentleman agree that while companies might sometimes have to incur expenditure to comply with the legislation, they may also gain immensely from the existence of fair trading, as unfair traders will be forced to amend their nefarious ways? To comply with the spirit of the hon. Gentleman's amendment would require not only an indication of the costs of compliance but of the benefits that accrue to companies as a result of fair competition.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

Human nature being what it is, it would be surprising if the OFT's annual report did not trumpet its achievements—or perceived achievements. I am sure that that will happen. As has happened recently, we will embark on investigations that do not come to anything. Business ultimately has to carry the can and to pick up the costs. It is an issue that worries the CBI and its members; as it says in its briefing, it is a question of not just the direct costs of hiring lawyers or accountants but of the indirect costs of management time being spent on something not related to the company's core business. All that should be considered.

I do not know of it, but there may be some vast body of guidance that could be made available to the Committee on the rules for preparing regulatory impact assessments. I have expressed my scepticism about the guidance prepared for the Bill. It stretches credulity to say that it will place no extra burden on business. I would love to know how the Government reached that conclusion.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport

No one doubts that the clause is laudable, but I have a residual doubt about how practical and realistic the amendment is. Much of what the hon. Gentleman has spoken about touches on the opportunity cost to business, which is notoriously difficult to assess. Part of that cost would involve answering questions from the OFT about how much it

had cost it in the first place, which would be another complication. Will the hon. Gentleman explain what method of assessment he favours? There is no point in tabling an amendment if it is not practical and realistic.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

That has put me on the spot. The short answer is no. The long answer is that it is not my task to produce criteria. I threw the Minister a lifeline: there must be a vast amount of guidance on how the regulatory impact assessments are produced for Bills such as this. It still amazes me that such a conclusion has been reached with regard to the Bill, but that is another issue. Something similar could be used as a guideline for the OFT. I hope and expect that the amendment will be accepted. If it is, I expect the OFT to set out its own guidelines. Rather than reinventing the wheel, however, it would be well advised to reach for that large tome, which must exist for the purposes of legislation. I suspect that even now it is working its way down Victoria street towards us.

I reinforce what the Department of Trade and Industry says about the extra costs at all levels of the proposed legislation. Burdens on business have risen almost exponentially under the Government. It is estimated that an extra £15 billion of costs has been placed on business. In January, the Ernst and Young survey concluded that the UK economy does not aid entrepreneurial endeavour. Few of us have the findings of the 2001 UK Global Entrepreneurship Monitor far from our bedside table. It concludes that the UK continues to lag behind countries such as the United States, Australia and Mexico in overall entrepreneurial activity.

The British Chambers of Commerce produced the figure of £15 billion of red tape. I suspect that that is already out of date, as was reported in the Financial Times on 25 March. Even that figure does not include the financial cost of the national minimum wage, which I notice went up yesterday or today. The Institute of Directors has attacked the Government's promise to cut red tape and, in a survey, 93 per cent. of its members believed that the problem of excess bureaucracy had got worse.

The British Chambers of Commerce have produced their own burdens barometer, which contains a long and detailed list of all the legislation and regulation introduced by the Government that they say cause extra burdens on businesses. There is not only red tape, but extra taxes. The CBI has just come up with its latest figure on business tax under the Labour Government, which it says has risen by £5.8 billion a year. That is a considerable increase on the CBI's previous figure of £5 billion. The list of red tape measures goes on and on: trade union recognition; maternity leave; additional maternity leave; parental leave; time off for domestic grievance; the right to be accompanied in such matters; the part-time workers' directive; the minimum wage; stakeholder pensions; the Welfare Reform and Pensions Act 1999; and the working time directive.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

Is the hon. Gentleman saying that he would end all those provisions?

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

That is a game that two can play: in this case, one Government Minister and one Opposition spokesman. We always get such a reply from as elevated a figure as the Prime Minister downwards. However, that is not the point. It is not for us to pick out individual provisions that we do not want or that we want to reverse. Ministers must accept the cumulative effect of all those measures. I regularly talk to the CBI and the Institute of Directors and they often have no quibbles with individual measures, such as those contained in the recent Employment Bill.

The problem occurs when one adds them all up. If a company employs more than a handful of people, it quickly arrives at the position where it must employ an extra person simply to keep abreast of all the forms, red tape and regulation. That is the cry of British business, both large and small, and it is why we must be careful not to allow the Bill to heap more burdens on business. We have to navigate between the proverbial American rock and the hard place—between the good of improving competition and helping consumers and the bad of harming business and indirectly harming consumers who, after all, are either employed by them or consume their products at a particular price. We must be careful and it is no good Ministers pooh-poohing over-regulation. All they need to do is talk to business organisations up and down the country.

I make no apology for again quoting The Independent—hardly an organ of the Conservative party—on the Bill:

''these are largely candy floss measures which fail to address the main problem facing Britain's enterprise economy—namely the growing burden of regulation, especially as it concerns the labour force . . . the Government's pro-business agenda is at odds with its social objectives, for business will always do best if the Government simply gets out of its way.''

Photo of David Borrow David Borrow Llafur, South Ribble

I am puzzled and would be grateful for clarification. I understand the hon. Gentleman's argument that a provision should be inserted into the Bill to make details of costs incurred by businesses available in the annual report. That may be useful information to have in the public arena, but I am unclear about the policy objectives of publishing it. Is it to add to the burdens of business in having to produce the information in the first place, or to discourage the OFT from being thorough and rigorous in its work on fair trading in the UK? I would be grateful for the hon. Gentleman's clarification.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

The hon. Gentleman offers me a choice, which I happily decline. The purpose is certainly not putting information into the public domain merely for the sake of it, nor is it to stop the OFT being ''thorough and rigorous''. Rather, it is intended to tell the outside world—perhaps more importantly the OFT—the effects of its actions in the real world. OFT people will operate not in a vacuum, but in the world of business and industry. They must appreciate the sheer cost—dramatic examples exist from recent years—of major investigations either into a particular sector or into a specific company. They must be made to realise those costs. They may be wholly unaffected and unimpressed, believing that it is a matter that they do not need to take into account.

We say that they should take it into account. As legislators we cannot wave goodbye to an Act and forget about it. It is our job—and the Government of the day's job—to ensure that it does not work to people's detriment. We hope that this Government and their successor Conservative Government will examine the annual reports closely. If the OFT is causing massive costs to business with no particular benefit to consumers, I hope that Governments will look again and perhaps amend the legislation. The Opposition inevitably have limited ambitions in this context. We simply want to make it a requirement to put the information into annual reports. If the OFT, Ministers and everyone else, including the hon. Member for South Ribble, ignores it, we can do little about it. We should focus on the issue and it should be built into the Bill.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I certainly support amendment No. 3 and others grouped with it. The annual plan is an excellent idea that should improve accountability and transparency. As always, questions surround these matters. Will the report include figures for the costs of running the OFT as well as the costs of individual investigations?

It is important that individual taxpayers appreciate the cost of regulation. To spend £50 million of taxpayers' money on an investigation that uncovers business irregularities that deprive consumers of £1 million or £2 million may technically be in the public interest, but I am sure that the vast majority of taxpayers—depending on the circumstances and every circumstance will be different—will say that it would be best to save the £50 million. I do not give a specific example, but clearly matters must be judged on a case-by-case basis. The report should be transparent so that it gives the public the opportunity to take a view on whether the position is right or wrong.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

I am not sure that I quite follow the hon. Gentleman's argument. If such an investigation extirpated a practice so that it was no longer carried out by other companies and rendered companies that were performing fairly financially stable, the benefits would go well beyond the particular action that he describes. Sometimes, actions have beneficial consequences that go well beyond the particular cases that are being dealt with.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I do not disagree with the hon. Gentleman. In certain circumstances he may be absolutely right, but in others, on a straight cost-benefit analysis, it would not be appropriate to spend the amount of money involved in the investigation.

We have an opportunity to provide people with the information on which to take a decision. The information should be presented in the report in such a format that people can take that decision about particular investigations, especially major investigations where the costs will be more significant. The question of the independence of the OFT is important here. It leads on to what is an inappropriate use of taxpayers' money.

On amendment No. 4, it is important at every stage of the Bill that we consider how its provisions will affect enterprise. That was discussed at some length on

Second Reading, but a balance must always be struck between the good that it does enterprise and the possible bad that certain provisions will do, because of extra regulations for business and so on. Amendment No. 3 deals with the costs to the taxpayer, but to encourage enterprise it is vital also to have regard to the costs of regulation on companies, with which amendment No. 4 deals. As much as the costs themselves, companies may fear that unnecessary meddling and investigation by Government can hurt them or in some cases destroy them. It could be argued that the notion that companies are fearful of DTI or OFT investigations or heavy-handedness is mere bluff on the part of companies. But that concern is very relevant for many of them. It is sometimes hard for people to understand how bureaucracy can affect a company, unless they have been there at the sharp end. I shall recount two examples that I have heard from companies of their dealings with the Department of Trade and Industry.

The first example is from a few years ago and concerns a company listed on the London stock exchange. It operated a technology support business of a type that had existed for at least 20 years. One day a letter from the DTI arrived at the company and with all its market competitors, stating that although the multi-national and multi-billion pound sector had always described itself in a certain way, it was the preliminary view of the DTI that it was another sort of business altogether. That different business required regulatory approval, the costs of which would have destroyed the sector overnight.

Some 18 months later, after an enormous sum of money had been spent on lawyers, and directors and shareholders had had an enormous amount of worry, the companies in the sector finally received notice from the DTI that, to use a colloquial expression, it looked like an elephant and was actually an elephant even though the DTI had being saying that it was not.

The fact that the companies nearly lost their business and that the country would have been worse off because of that, was presumably not high in the minds of the people responsible at the DTI. Neither were the facts that it cost the businesses tens of thousands of pounds in fees to prove their point, that their market reputations were hurt and that they had to disclose the investigation in their public accounts.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

To return to a point made by the hon. Member for Hemel Hempstead (Mr. McWalter), does my hon. Friend, as an expert on such matters, believe that a company would have to disclose in its annual accounts if it was the subject of an OFT investigation?

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

It would depend on the circumstances, but an OFT investigation would probably be a public issue anyway, so the company would want to consider its response. If a leak of information from the investigation affected the company's share price, it might have to make an announcement on the back of that. There are many different ways in which confidential information coming out of the company could lead to it being damaged, although that is the subject of later amendments.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

Did my hon. Friend notice, as I did, the widespread and detailed media coverage of some recent dawn raids by the Serious Fraud Office on pharmaceutical companies and others that were alleged to be involved in a cartel? Does he share my puzzlement about how so much detail about the investigation and its immediate aftermath found its way into the media?

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I agree absolutely with my hon. Friend, and we will have to discuss the subject carefully later. At the moment, the investigatory powers lie with the DTI, so the only examples that we can give relate to DTI powers. However, the OFT powers will be increased by the Bill.

I explained how an investigation's atmosphere caused dramatic problems for all the companies in one particular sector. At least the companies had the funds with which to defend themselves against the deep pockets of the state. Unfortunately, 85 per cent. of companies in this country are not listed, have fewer than 10 employees and have shallow pockets. The problem is that even if they were in the right, they could not survive the cost of the investigations.

My second example comes from a few years ago. In this case, the company, together with a handful of other companies, hit on a new idea and effectively created a new market. The letter came in—

It being One o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Four o'clock.