Clause 1 - The Office of Fair Trading

Enterprise Bill – in a Public Bill Committee am 11:00 am ar 16 Ebrill 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

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

The clause will create a new body corporate to be known as the Office of Fair Trading, or the OFT. The organisation currently known as the OFT is not a statutory body, but simply the administrative support that has grown around the Director General of Fair Trading—the DGFT—to support him in the exercise of his statutory functions. The office of DGFT is abolished in clause 2.

The OFT name has traditionally been used when publicising and explaining the work of the DGFT. However, references in the Bill to the OFT are purely to the new corporate authority proposed in the clause. The new OFT will consist of a board, headed by a chairman. The board will include non-executive members and people with a range of skills, expertise and abilities relevant to competition or consumer protection. It will widen the expertise involved in decision making and will strengthen the link between competition and consumer protection. It will also depersonalise regulation in this important area.

The DGFT currently has a wide range of functions in the areas of competition and consumer protection, many of which are being reformed in the Bill. The Government believe that in the light of the reforms, it is no longer appropriate for all those powers to be vested in one individual. John Vickers, the current DGFT, supports the proposals. He has worked closely with me on taking this forward and I value his support.

The new OFT will be independent, encompass a broad mix of interests and skills in the decision-making process, will be fully accountable through working arrangements that are open and clear, and will be able to act swiftly and effectively.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

Like my hon. Friend the Member for Huntingdon, I, too, declare an interest, although I am not convinced that it needs to be declared. I refer the Committee to my entry in the Register of Members' Interests. I am a solicitor practising in commercial law in the City, now and again.

The debate on clause 1, although it is relatively uncontroversial, will be useful because it sets the tone for the consumer protection aspects of the Bill and it is worth a nod at its historical context. As the Under-Secretary said, the Office of Fair Trading already has a virtual existence, although it is not formally established, and we welcome the fact that it is to be set up. The hon. Lady stated that it is the trend, rather than having one individual, that there should be a corporate approach to regulation. She said, too, that a range of skills was needed and we will have a short debate on the board later. It is important that there should be a wide range of skills, if possible.

Understandably, most Governments never seem to make consumer protection legislation a high political priority. Like Halley's comet, it comes around about once every 30 years. I can testify to that, as at the time of the fair trading legislation in the early 1970s I was a

research assistant to Sally Oppenheim-Barnes, who was the hon. Member for Gloucester and is now in another place. We did a great deal of work on consumer protection issues. The first section of the Fair Trading Act 1973 relates to setting up the office of the Director General of Fair Trading.

In 1972, a Conservative political centre published a pamphlet called ''Square Deal for Consumers'', which makes interesting reading. The noble Lady Oppenheim-Barnes was a contributor and a luminary, as was the late Nicholas Ridley. The pamphlet also mentions an obscure young researcher called Nigel Waterson, who turned into an obscure middle-aged Front-Bench spokesman. Such is life. Thirty years have passed, and here we are, revisiting the same issues. The pamphlet is actually rather interesting and I am prepared to lend it, as I have a whole box of them at home in the attic. It is amazing what one writes when one is young.

The pamphlet echoes some of the issues that are covered in the Bill: consumer advice and its availability to ordinary consumers; local authority responsibilities and their organisation; proposals for a national structure for consumer protection and for legislation in the aftermath of the 1971 Crowther report on consumer credit; the Sale of Goods Act 1979 and exclusion clauses, which were also matters for legislation; unit pricing; metrication, which was a novel concept at the time; shop hours; servicing of products; product safety; and—surprise, surprise—package tours, although timeshare probably takes their place as the more modern equivalent of an ever popular rip-off on consumers. The date-stamping of food is also featured. Nowadays, one can barely see what food one is buying because of the date stamps and ''best before'' dates. At the time, however, the proposal was new. The pamphlet also refers grandly to,

''The implications of common market entry.''

That golden age of consumerism followed on from the successes of people such as Ralph Nader in the United States. I am sure that the Under-Secretary will give due credit to the fact that the Government were Conservative and that they faced many other more major issues in their relatively short life. They took it upon themselves to propose and take through the fair trading legislation. As I said, the first section dealt with the Director General of Fair Trading, as does the first clause of the Bill.

On Second Reading of the legislation on 13 December 1972, the then Sir Geoffrey Howe said:

''The Bill has two principal purposes—first, the promotion of increased economic efficiency and, secondly, the protection of the consumer against unfair trading practices.''

He went on to make a point that has been a philosophical strand in the approach of successive Governments ever since:

''these two purposes are complementary to each other.

They are both founded on the Government's firm belief that competition provides a means of diffusing power and responsibility throughout the community and of continually widening the area of freedom and opportunity. Competition provides spurs to efficiency and incentives to seek out and supply the varied wants of the consumer''.

He also talked about the role played by

''the army of traders, entrepreneurs and retailers . . . By serving themselves, all these people serve the wider community as well'',

We should remember that during the passage of this Bill.

It is also interesting to note that Sir Geoffrey said

''competition is not an automatic panacea''.—[Official Report, 13 December 1972; Vol. 337, c. 453–454.]

That was during the era of Selsdon man, an early version of what became Thatcherism, but even then there was no concept of unbridled competition red in tooth and claw. There was then a firm commitment by the Conservative Government, as there is by the current Conservative Opposition, to introduce regulation where appropriate, encourage competition and remove bars to proper consumer protection. Sir Geoffrey went on to talk about the sovereignty of the consumer, which he said should not be taken for granted, and about the need for consumers to be adequately informed and protected against unfair or misleading marketing techniques.

Sir Geoffrey said that fair trading is good business and I would echo that now. He noted that the first institutional innovation proposed in the legislation was the appointment of a Director General of Fair Trading and went on to draw parallels with other countries. In part, the proposals were based on the federal cartel office in West Germany. At the time, most people would have agreed that the model chosen was probably the most appropriate. Broadly speaking, the office of Director General of Fair Trading has served us well during the years. There is no political argument about that in Committee, but we, the Government and consumer organisations share the view that that legislation needs revisiting. We must take the opportunity and I am pleased that we are doing so now.

The new Office of Fair Trading should be properly established in a corporate sense, with properly set out responsibilities and duties. It should be accountable and its board should cover a wide range of skills, interests and backgrounds.

There are three broad themes to which we shall keep returning. The first is effectiveness: to what extent the Government proposals are not mere rhetoric but will make a real difference to people's lives. Secondly, we will consider closely whether there are unjustifiable burdens on business. Thirdly, we will ask whether resources are available to back up some of the new powers. That applies as much to the Office of Fair Trading—as it will continue to be called—as to the trading standards departments of individual local councils.

We welcome the clause. It is eminently sensibly and seems to be supported by all sections of opinion in the consumer world.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

As the hon. Member for Eastbourne suggested, this is an appropriate time to raise some broad themes about the Bill and I will pick up a couple of phrases that the Under-Secretary used in emphasising what she saw as important: the depersonalisation of decisions and the independence

of the OFT. That independence in day-to-day decisions is probably the most important change that the Bill will bring about. I will comment on that, particularly on how independence can and should be entrenched through political accountability. We could have that debate now or on schedule 1 stand part, but this time seems as appropriate as any.

As I said on Second Reading, the Government are right to move in the direction of independence. Otherwise, there would always be a conflict between a Minister's party role and role as a member of the Government, in which he or she must consider the broader interest. There have been several cases in which such a conflict has occurred. None the less, we should not be too modest or humble when debating whether politically sensitive decisions should always be handed over to quangos that are politically independent. There are dangers in that route too. We must strike exactly the right balance.

The system that has operated until now has a lot to commend it. No one would ever suggest that there is anything remotely corrupt in the British system under this Government, or their predecessor. It is a very honest system. Ministers have no personal interests in the decisions that they make. Equally, Government intervention in merger decisions in recent years has been minimal. Ministers have used their powers sparingly, such as the Under-Secretary's predecessor but two in the case of the takeover of regional electricity companies. Important political issues needed to be addressed and Ministers were right to use their political role in that capacity.

We need something in the Bill that retains political accountability, even though it makes the OFT independent of political direction on a day-to-day basis. We must be careful not to throw out the baby of accountability with the bathwater of unnecessary interference. Achieving that balance will be difficult. We could produce a situation that is worse than the present one if the OFT simply becomes a politically unaccountable quango in which people are appointed by Ministers and feel that they have little accountability to Parliament.

Those of us who have been in Whitehall know how the system operates. The permanent secretary has a draw, which may not be specifically labelled, containing a list of the great and good. When a big public appointment needs to be made, it is got out and dusted. The familiar suspects appear and the usual compliments, such as ''safe pair of hands'', ''doesn't ruffle feathers'', ''is well liked in the City'' are available. Assuming those qualifications are met, the suitable appointment is made. There was a wonderful example yesterday, with the appointment to look at corporate governance, which was a typical quango appointment.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 11:15, 16 Ebrill 2002

The hon. Gentleman will be able to confirm that the Government offered that bed of nails to several people with substantial corporate backgrounds before the final appointment was made.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Indeed. It was a somewhat embarrassing episode. They may have ended up with someone who satisfies no one, certainly not the small investors. That example demonstrates the difficulty of appointments to quangos. One can satisfy the Nolan conditions—they may be people of total probity—but it is hard to get people who are technically competent, with experience of the real world, yet also politically sensitive enough, although not in a party way, to understand the impact of their decisions on real people. That is why we need to have measures in parallel with the Bill that build in political accountability.

I should like to take the Under-Secretary back to the question that I asked on Second Reading. She did not answer it then but she was pressed to answer many questions in her summing up. Do the Government have it in mind to introduce in parallel with this legislation, measures to strengthen political accountability, comparable to those that applied in the Bank of England Act 1998. I sat on the Standing Committee that considered that measure when I first came into the House. The Act reflected great credit on the Government, particularly on the Chancellor. It is one of their big success stories. It said nothing about political independence or accountability. During its passage, the Chancellor made a statement in the House to the effect that he would try to ensure, by writing to the chairman of the Treasury Select Committee, that appointments to the Bank of England Monetary Policy Committee would be interviewed after he had nominated them and that they would regularly appear before the Select Committee to give an account of their work. He subsequently wrote a letter to Lord Radice explaining what he wanted to secure. There was all-party agreement that it was a good way to proceed and that system was highly successful. Will the Under-Secretary confirm whether she and the Secretary of State envisage something comparable, which I would find enormously reassuring? It is not a party point; as I said earlier, it is one of the Government's success stories from the previous Parliament, on which they should try to build.

Reflecting on that successful experience, it is clear that having members of the Monetary Policy Committee—in this case, members of the OFT—subject to confirmatory hearings in the House has many advantages. Responding to Members rather than just Ministers entrenches their sense of independence. Sir Edward George is perceived very differently from Mr. Bridgeman, who was fired in dubious circumstances by the Secretary of State's predecessor. The fact that Sir Edward is accountable to the House has strengthened his position, conferred credibility and made his independence much more real.

The fact that members of the Monetary Policy Committee—and, I hope, of the OFT—are subject to that scrutiny toughens them up. Hon. Members gave some members of the MPC a real going over. I recall Sushil Wadhwani being roundly criticised for plagiarising his statement to the Select Committee. Probably in response, he subsequently proved himself to be an exceptionally independent and hardworking member of the MPC who has cut swathes through the

policy debate. Having people on the OFT publicly exposed, identified and criticised in that way would add greatly to its status. I hope that the Government does not view the OFT as a quango that can be packed with people whom Ministers regard as safe and comfortable rather than with people of real standing who can stand up in public and be accountable to this House. The latter approach would do wonders for the Government's credibility.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport

My hon. Friend tabled an amendment that was not selected. Does he agree that, as the OFT will take difficult and controversial decisions in future, the Under-Secretary should explain why she is not interested in having the protection that prior scrutiny will give to her or any future Minister's name?

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Yes, my hon. Friend makes a helpful point in highlighting one of two ways of resolving the problem. The first—the amendment that I tabled on the subject was late, so I am not criticising the selection process—could be brought up again later. It is to entrench in the Bill a provision that mandates the prior scrutiny of OFT members. The Treasury Select Committee argues that its own powers should be entrenched in legislation. The other way would be for the Under-Secretary to state, today or later, that the Government want to learn from good experiences with the Bank of England legislation and try to introduce something comparable to that model—on a voluntary basis as negotiated with the Chairman of the Select Committee. I view that as a less satisfactory solution, but it would still be a big step forward. I hope that the hon. Lady will provide us with some hope that the Government are thinking along those lines.

Photo of Mr Harry Barnes Mr Harry Barnes Llafur, North East Derbyshire

My main and major contact with the Director General of Fair Trading in the current OFT came about because of a merger that led to a loss of 700 jobs in my constituency. I was trying to encourage the director general and the Secretary of State to refer the matter to the Competition Commission. It was a major issue, so I had relatively easy access to the Secretary of State, the Government Office for the East Midlands, the Office of Fair Trading and its director. It was difficult because the merger took place during the summer recess, but eventually it could be pursued through the avenues of the House.

My interest is in a Back Bencher's avenues of access to the board proposed in the Bill. The issues of accountability raised by the hon. Member for Twickenham are also relevant and important.

Clause 2 transfers the functions of the director general to the new OFT. Clauses 5 onwards deal with ''General functions of OFT''. Several points are presented, but they do not connect with the mergers rule because we have not yet reached the mergers section of the Bill. Presumably, those matters are also transferred in accordance with clause 2. I am trying to find my way around this highly complex Bill. Later on, it becomes clear that one section can be understood only with reference to another, which then refers us to yet another. It would be helpful to have some clarity from the start.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I welcome the board and the new balance of power that it represents for decision taking. Hopefully, a wider range of expertise will be brought into play. It is certainly an improvement on the position whereby power rests in the hands of one individual, the director general.

Legitimate questions arise. The hon. Member for Twickenham anticipated my approach, although I look at it from a slightly different angle. It boils down to questions of accountability. I shall not deal with the specifics of schedule 1 until later, but I want to speak about the nature of the board. The Bill does not mention—I will be corrected if I am wrong—the concept of a board. I do not know why and look forward to hearing the Under-Secretary's explanation. It might be because the provisions refer to the investigations that the full board or committees of the board can undertake, so the term ''OFT'' is used. On the other hand, it could be due to the Government's approach to corporate governance and accountability.

The Bill presents standard quango-type arrangements rather than a board with more corporate-governance-type arrangements. I wonder whether we might be missing an opportunity to merge the best in the fast-moving field of corporate governance and best practice with modern governmental practice. The Government have clearly opted for the old quango approach, as will become clear in various ways as we proceed through the Bill. I shall go through the specifics later, but we are missing an opportunity. I shall argue for greater transparency through better and more effective corporate governance. The bottom line is that the OFT is not a company, but a statutory corporation, so it will be a non-ministerial department staffed by civil servants.

To that extent, there will, I believe, be a requirement for parliamentary political accountability. That point was picked up by the CBI, which has called for parliamentary approval by the Trade and Industry Committee of appointments to the board. I know that this issue relates to starred amendments and will not be debated specifically, but I should be interested to hear where the Government stand on that power being attributed to that Select Committee. I believe that other Committees are discussing this sort of issue.

There could be an opportunity for a company-type corporate governance system, with the Trade and Industry Committee or, indeed, the Government being able to call in specific issues. That would turn the way in which the system works on its head. The current position is that the Government will make the appointments, and the Chairman, I think, can have a say in some cases, or there is a need to refer to him. However, the OFT could be allowed to run itself, with others—whether they be the Trade and Industry Committee or the Government—having the right to call in decisions or decisions on appointments. Those are a few thoughts on the wider issues, and I should be interested to hear the Government's opinion.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport 11:30, 16 Ebrill 2002

Four ministerial appointments are certainly better than one, but the whole character of the Bill will necessarily lead to more decisions and more activity by the OFT, and more controversy, on which will hinge appreciable amounts of finance.

It has been suggested that prior scrutiny by the Trade and Industry Committee would be a good thing, and everyone can see that that would have merits. If such scrutiny were included in the legislation, what would be the downside? As far as I can see, there would only be an upside. When controversial decisions that gave rise to public disquiet or allegations of financial impropriety were made, any future Minister could always answer that the appointment was made not by them, but by a House of Commons Select Committee, or at any rate was confirmed by the Committee. That would be a defence for any Minister at any time in future. I simply repeat my question; what would be the downside?

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster

Like the hon. Member for Southport (Dr. Pugh), I have concerns about the controversy that is likely to arise, and I should like to have a general assurance from the Under-Secretary. The Government have made a big song and dance about the Bill and the idea that it is somehow out of the realms of party politics. My concern is that, although that is the aim, there is a real risk that by appointing figures who are controversial or who have had links with particular political parties, businesses or interest groups, there will be even more controversy, even though there will not be as strong a direct link. In fact, issues may come into play that show that there are strong links.

It has been said that the current system works fairly well. I should like to have some guidance as to why the Government believe it so important to move away from that system—which places more direct accountability on the shoulders of particular DTI Ministers—and why it is desirable to move away from the political input that the DTI has had in this area.

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

I welcome the contributions that hon. Members have made to the debate, and the support that has been expressed for various aspects of the provision, including the establishment on new terms of the Office of Fair Trading and the institution of a board. It was suggested that the OFT board should have four or five members. It might be helpful if I specify that we are looking at five to seven members.

Several hon. Members raised the issue of accountability; we agree that it is probably the most important issue. Accountability is necessary, not least from the point of view of the House. The OFT will be accountable to the Secretary of State, Parliament and the public. The chairman of the OFT could be summoned by Select Committees. Indeed, I am delighted that the Trade and Industry Committee already takes an active role in scrutinising the work of the OFT and the Competition Commission. Its report on the OFT's consumer work in 2000 influenced the OFT's consequent work on consumer credit, for example. I understand that the Trade and Industry Committee will talk to the OFT and the Competition Commission on 23 April.

On the wider points about accountability, we believe that the OFT should follow the general principles of good governance of all bodies corporate. The working arrangements are for the OFT board to agree but we expect them to fit into the general thrust of transparency, openness and accountability set out in the Bill. We will talk a lot about transparency, openness and accountability because those qualities are vital. Indeed, we believe that making the changes will enhance rather than detract from them.

Clauses 3 and 4 require the publication of an annual plan for the year ahead, as well as an annual report. The OFT must consult when preparing its annual plan which, with the annual report, are to be laid in Parliament. The OFT's performance will be monitored against objectives, both by Parliament and the public. The OFT needs to keep the public informed of its work and, under clause 4, to publish other reports of its work.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Will the Minister clarify her definition of accountability? She has acknowledged the role of the Trade and Industry Committee. Why should not the Committee have the same scrutiny role on appointments that the Treasury Committee and the Monetary Policy Committee have, as requested by the Chancellor?

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

Unlike the Monetary Policy Committee, the OFT is and will remain a Department; indeed, it is part of the Executive. It is not normal practice for members of the Executive branch to be appointed or approved by Parliament. I cannot think of precedents for that and it would be an unusual step for us to take. However, as I said, we welcome the interest taken by the Trade and Industry Committee. The chairman of the OFT will be called to give an account of its work and to discuss regularly such matters as the annual plan and the annual report with the Trade and Industry Committee. Those are vital elements in the process. I understand the point of the hon. Member for Twickenham on possible parallels with the Monetary Policy Committee, but I hope that he appreciates that there are also significant differences with that Committee.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

On the OFT being part of the Executive, surely the Minister appreciates that we are talking about individuals who are pulled out of business and various walks of life. We are talking about calling to account not Ministers, but a very different kettle of fish.

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

The hon. Gentleman is right; we hope to draw board members from business and to bring with them a range of valuable outside experience and perspective. The board will be an important part of the function of the OFT. However, there are not parallels between members of an organisation or board acting in that capacity in relation, in an executive function, to other parallel parts of Government, effectively Government Departments; there is no read-across where Select Committees vet, have hearings on or appoint members of other parallel board arrangements—

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

Before I call the hon. Gentleman, I remind the Committee that schedule 1 deals in considerable detail with the waters we are now getting into. It would be helpful if hon. Members did not stray into the next matter for consideration.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport

Is not there a paradox, in that the Bill sets up a board that is intended to be independent of the Secretary of State, but cannot be scrutinised because it is part of the Executive? Surely it cannot be both a truly substantial body, by itself independent of the Secretary of State, and not subject to scrutiny because it is under the Secretary of State.

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

I am grateful to the hon. Gentleman for making that point. The board's independence is very important so that the OFT can regulate its own procedures—quorum, voting, committees and so on—and have flexible arrangements enabling it to take quick decisions when necessary. It is important, too, that there is no question of political interference. I am grateful for the remarks made by the hon. Member for Twickenham about the standing of the OFT and the fact that there is no question of it being interfered with. As the hon. Gentleman said, it is an honest system that has been sparingly used. None the less, there are risks in having a political dimension.

Taking the step of distancing politicians from the decisions that need to be made about competition on competition grounds is important; we would lose a lot were we to argue our way out of it. I appreciate that there is a desire in the House, and the Committee, to maintain accountability, which is why I stressed that the measures that deliver enhance accountability over the existing arrangements. I hope that what I have said will reassure my hon. Friend the Member for North-East Derbyshire (Mr. Barnes) about the avenues of access, many of which will remain. There will be discussions with the Department on such issues and greater scope for parliamentary engagement. As in the past, there will be the usual scope for Members of Parliament to contact the Office of Fair Trading to raise issues and take matters forward on behalf of their constituents.

On the body corporate and the statutory board, it is a matter of terminology; there will be a board and it will be a legal entity. The OFT and the board are one and the same entity, so the reference to a board is unnecessary in the Bill.

I welcome the focus of the hon. Member for Eastbourne on important issues such as effectiveness, the burdens on business and the resources available. I look forward to further opportunities to debate those matters in the Bill.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.