Schedule 1 - The Office of Fair Trading

Enterprise Bill – in a Public Bill Committee am 11:45 am ar 16 Ebrill 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 11:45, 16 Ebrill 2002

I beg to move amendment No. 1, in page 182, line 6, at end insert

'of which at least 50 per cent. will be currently active in industry or commerce at the time of their appointment'.

I hope that what we have in mind in amendment No. 1 is clear; it leads directly from our previous debate. I am sure that all members of the Committee are as keen as we are that the new board should have considerable standing. I mention in passing that we broadly share the concerns of the hon. Member for Twickenham, who has tabled a starred amendment on parliamentary scrutiny. He has had his bite of that cherry and made his points well. I will move on rapidly, before I am ruled out of order.

The point of my amendment is that we do not want as appointees to those important positions armchair warriors, retired civil servants, long-retired business men, those with narrow experience or those who are no longer involved in the daily cut and thrust. That is why the amendment states that at least 50 per cent. of appointees should be active in industry or commerce at the time of their appointment. If the Under-Secretary suggests that there may be up to seven such appointees, I will leave it to those who are cleverer than me to work out how the 50 per cent. would work.

The OFT, as it is newly constituted, will have some sweeping powers and responsibilities and is in a position to have a dramatic effect on individual businesses and business sectors throughout the economy. People should therefore be appointed who are, in some measure, engaged in hands-on industrial or commercial activity at the time of their appointment. The other 50 per cent. could be appointed from the categories that I mentioned, or could have competition experience, as the hon. Lady suggested.

The OFT should not be made up wholly of people who represent some narrow consumer or competition interest. There may be some role for one or more academics, but people with hands-on, real world experience are important in this context. Although I hesitate to pray in aid regularly, I do so with the stated views of the former Secretary of State who is now the Secretary of State for Transport, Local Government and the Regions. In May 2000, he stated in a Department of Trade and Industry press release:

''The new Authority will give greater transparency and accountability to the OFT. More board members will give a wider range of expertise to the organisation, rather than executive power resting with one person. This will give businesses and consumers a stronger voice at the heart of the OFT.''

Our amendment merely seeks to put into effect the stated intention of the previous Secretary of State to give businesses—in this instance—

''a stronger voice at the heart of the OFT.''

The Under-Secretary may be about to tell us that the policy has changed in the meantime. If so, I can certainly understand the desire of any Minister to distance themselves from the record of the right hon. Gentleman in any of his previous incarnations. However, his sentiment seems eminently sensible. I understand that Mr. Bridgeman's successor has set up a four-member advisory panel that meets monthly to discuss policy, strategy, research and communication. It includes a former editor of the Financial Times and a leading competition academic and author. The OFT has been at pains to make it clear that the body is strictly advisory. It issued a press release that stated:

''it is not a shadow board or precursor to the statutory board''.

I assume that one can surmise from that that the composition of the board would be different from that of the advisory panel. It would help to have the Under-Secretary's more detailed thinking on that, which is why we tabled the amendment. However, at the end of the day, the amendment should present no difficulties if the hon. Lady still agrees with the views of the previous Secretary of State.

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

I agree with the spirit of the amendment, but I am not sure whether 50 per cent. is necessarily the correct proportion or whether we should define industry and commerce in a narrow sense. I agree with the spirit for two reasons, which have already been given by the hon. Member for Eastbourne. First, the people who sit on the board of the OFT will be powerful people. They will make major decisions that directly affect the lives of tens or hundreds of thousands of people who are affected by merger decisions, as well as millions of consumers. Secondly, it is important that the OFT does not become just a parking place for ex-civil servants. I do not mean any disrespect to ex-civil servants, as they are undoubtedly admirable people, but such a situation would be wrong. I was slightly worried by the tone of the Under-Secretary's reply on clause 1, in which she seemed to emphasise the closeness of the OFT to the spirit and structure of the civil service. If the OFT develops in that way, it will not be right.

Following the line of argument of the hon. Member for Eastbourne, OFT members will need to be wide in their capabilities and several qualifications strike me as necessary. They must have some understanding of the real world, and I hope that when the hon. Gentleman specified including 50 per cent. from industry, he was not talking only about those from the employers' side. Ex-trades unionists with experience of industry may have something to contribute and if he meant to include them, I would be much closer to his point of view. People who have an understanding of industrial and commercial issues from direct experience would be desirable. One should not be unduly prescriptive about that, and financial and economic journalists are often some of the best-qualified people to make such judgments. Therefore, a first requirement should be an understanding of the world of commerce and industry.

However, that is not all. Members of the OFT will have to have a good understanding of industrial economics, which is a highly technical subject. It is important to follow what has happened in the United States Department of Justice and the European Commission. Some thinking has become very sophisticated, in terms of both legal and economic principles. I shall not bore the Committee with an hour-long dissertation on the Hirschman index and other hot topics in the competition policy world, but members of the OFT will have to be familiar with demanding literature on such subjects. They must be familiar with business and understand industrial economics.

OFT members must also have a political feel—they must be not politicians, but people who understand that when a merger decision is taken it affects many people down the supply chain. Even though the terms of reference will be narrowly drawn to encompass the competitive effects rather than the wider national interest, OFT members must be sensitive to the problem. They also need to understand the way in which decisions will affect financial markets, so we are talking about people who are qualified in a wide variety of subjects.

The amendment is useful because it flags up the fact that the OFT members are important and must be able to understand both the academic and practical aspects of complex business decisions. They are unlikely to be found in great numbers in the civil service machinery, although some extremely able civil servants may well come forward. I support the amendment in principle, but I am open to suggestions about how it could be couched in slightly different language if that helps.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

The hon. Member for Twickenham rehearsed the arguments as to why we should not put off the amendment. This is the age-old problem of seeking people to serve on such bodies who have a sufficiently wide experience and knowledge to make a significant contribution. I have long given up the notion that there is a body of independent people who can express a value-free opinion without let or hindrance and put aside all other interests to arrive at a fair and proper decision. My experience is that such people are in exceedingly short supply and it is chasing an illusion to believe that we could people a body with such super-beings, who do not exist.

The hon. Gentleman also gave us reason to recognise that his own amendment, which would mean that such a person would be interrogated by the Trade and Industry Committee, would also be a bad idea. You wisely did not select the amendment, Mr. Conway. The hon. Gentleman has told us from his wide experience and knowledge of the matter exactly what would happen. It would be worse than an interrogation. People would be put off being on the committee if they had to face the barrage of questions that the hon. Gentleman would ask as a member of the Select Committee.

There is no ready formula by which to appoint people to these important bodies. When the chairman or chairwoman is chosen, after a quite exhaustive procedure, not just a dusting down of the great and the good names that might appear from time to time, that person must be given some credit. He or she must be able to choose and to liaise with the Secretary of State to get a balanced and proper set of people to serve on the committee. The idea that 50 per cent. should represent one interest seems perfectly reasonable on the surface. Of course, we need people who understand what they are doing and have a background in the areas in which they are expected to make important decisions. They will not come with an independence of mind, however. Like most of us in this Room, they will come with bags and baggage that will preoccupy them and affect their decisions.

It is best left to the Secretary of State and the chairman or chairwoman of this committee to decide who may serve, recognising that we all have our own interests to serve, that we can call upon expert opinion, that we can ask for written submissions and that the body involved can take evidence from as wide a range of people as it wishes in examining any issue that is referred to it. We should therefore reject the amendment on the grounds that we could never satisfy all the different sectors that would want to be represented at this level, but should leave it to the common sense and good judgment of whoever is appointed as chair, in liaison with the Secretary of State.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I certainly support the amendment, although I should like to turn it around and ask, if the Government are minded to turn this down—I know that this will not happen—what would their policy be for appointing candidates to the board? It is worth speaking frankly. The concern is that this will become another way of appointing cronies. The Labour Government have packed the other place with cronies and they have packed quangos with cronies, so why should they not pack this board with them? It is a straightforward suggestion, but we deserve an indication from the Under-Secretary of the basis on which appointments will be made.

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

Perhaps the hon. Member for Eastbourne and the Under-Secretary could explain this to me. The amendment refers to those

''currently active in industry or commerce''.

The hon. Member for Twickenham assumed that that would include trade unionists and people on the shop floor. While it might cover those who are working and employed in industry and commerce, would it cover trade union officials who were negotiating on behalf of those people and might have some expertise in those areas but were not on the payroll?

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

Does the hon. Gentleman regard a full-time shop steward who has spent the past 15 years as a political agitator as someone who is currently and actively involved in industry and commerce?

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

That is a question for the hon. Member for Eastbourne. He should clarify exactly who is covered.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

When I drafted the provision I was not thinking directly of trade unionists. As my hon. Friend the Member for Cities of London and Westminster suggests, one may stretch the phrase

''currently active in industry and commerce''

a little too far. We do not want a quota system under which different groups have a certain number of positions. I am merely trying to underline the fact that the people involved should have real experience of the burdens on business that legislation can bring about, sometimes unintentionally.

Photo of Mr Harry Barnes Mr Harry Barnes Llafur, North East Derbyshire 12:00, 16 Ebrill 2002

An active shop steward working in a firm who represents people well is likely to have considerable useful experience to draw on. I do not know whether the Minister believes that that example

is covered by the definition in the Bill. I was worried that the provision might be an effort to turn the appointments procedure into a gaffer's charter.

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

Of course, I greatly hope that strong business candidates will apply to the OFT board because their experience and insight could be valuable. We shall run a fair and open competition to appoint members through Nolan procedures. We are hoping to recruit people with a range of skills, expertise and abilities that are relevant to competition or consumer protection. I do not want to be drawn into the debate among hon. Members on both sides of the Committee about the exact backgrounds from which people will be drawn. I accept all the arguments about the wide skills that are necessary for this important job. A relevant set of skills and abilities will need to be deployed on behalf of the OFT—not least common sense and good judgment, the rarest of qualities in my experience and often difficult to obtain.

At this stage, it cannot be right to appoint half from one background and half from another, thereby imposing a quota. Opposition Members, particularly the hon. Member for Eastbourne, are opposed to the imposition of quotas. We shall appoint the best people through the recruitment process, and I assure the Committee that we want to secure people with business experience. I share the overall thrust of the amendment—though not the 50 per cent.—but, for precisely the reasons mentioned by the hon. Member for Twickenham when he listed all the potentially relevant skills, it is not the best way to achieve the objective. We shall leave it to those appointed to secure the right balance and appoint people of high quality.

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

May I clarify one point that is not clear from the debate so far? Does the Minister agree that the role of the board is to provide a strategic overview, which will then guide the director general, or will individual board members vote on specific executive decisions on mergers? Can she better define the nature of the job so that we can better judge what sort of representative would be most appropriate?

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

We certainly envisage the board looking at strategic functions—a key element of the way in which the board should operate. I can confirm that the advisory panel arrangements are a precursor and that members remain no more than advisory at present. They will contribute to the OFT role through the new arrangements. Some members may join the new board, but the panel will conclude its arrangements when the board comes into being.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I want to be clear about this matter. The Minister described the advisory panel, perhaps not wholly accurately, as a precursor. The quotation that I read out seemed to suggest that the director general was making a clear distinction between the role of the advisory panel and the likely future role of the board. Perhaps I was reading too much into it, but that suggests to me that a different sort of person from those currently on the advisory panel would be considered to sit on the board. Will the Minister please clarify the matter?

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

It depends in what sense I mean the word ''precursor''. We can disagree about what that word means, but the panel is an advisory panel that acts in an advisory capacity on policy matters. It might help if I run through the sort of decisions that we envisage the board will take. We are talking not about day-to-day decisions but about high-level decisions, market studies and cases of strategic significance; about approving the annual plan, the annual report, financial statements, the budget, negotiating strategy, matters such as the service delivery agreement and major or unusual capital projects; about considering the OFT's communications strategy and approving the OFT pay and human resources issues, all at a high strategic level. The board will not be involved in operational, day-to-day matters.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I am grateful to the Minister for that explanation. As she guessed, this is a probing amendment. I am still not wholly clear about whether the advisory panel will continue in parallel with the board or be subsumed in it.

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

Neither will occur. The panel will cease to exist on the institution of the board arrangements, or possibly prior to that. The advisory panel will not continue when the board is established.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I am grateful to the Minister for that clarification and for the clear indication that business will have a voice on the board. As I said in response to the hon. Member for North-East Derbyshire, I do not want a quota system. I merely wanted to flag up the fact that business wants to be represented and to know that people on the board have a good business track record and have had to wrestle with some of the issues from the other side of the equation. If the OFT is to work, it must carry out its complex new tasks and duties effectively and successfully. It must be sensitive to the needs of business and earn its respect and support, or it will not be as successful as it should be.

Whether or not the provision is part of a gaffer's charter in the eyes of the hon. Member for North-East Derbyshire—he is irredeemably and lovably old Labour on these occasions—we shall keep returning to the major theme that we are eager that the Bill should not heap extra burdens on business, even if that is unintentional.

I am happy that business is to be represented. I read in my newspaper today that Mr. Bernie Ecclestone is considering making further contributions to the Labour party. Given the roaring success of his last contribution, which got him everything he wanted and the contribution returned, I do not entirely blame him. He might be the sort of business man with a major track record who could be considered for a shortlist.

I beg to ask to leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That this schedule be the First schedule to the Bill.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I want to speak in this debate as there are questions relating to specific provisions to which I want the Minister to reply.

First, the Bill refers to there being

''no fewer than four . . . members''

of the board. Where did that number come from? Why not have a higher number—10, for example? That may seem a strange request, but as members of the board are to be political appointments, the fewer the members, the greater the possibility of political influence. That is why I was surprised by the low number. The chairman is to be consulted only on appointments, which means that, depending on the nature of the chairman chosen, there is room for political input. We should completely remove the Government from the appointment process.

In his starred amendment, to which we shall come, the hon. Member for Twickenham proposes prior scrutiny by the Trade and Industry Committee. I disagree with that approach. Why should anyone get involved in the first place? There should instead be a right of recall. In other words, if the Government or the Trade and Industry Committee disagreed with a proposal from the board, they could call it in. With that exception, why not let the OFT rule itself, free from maximum political interference? I suggest a system like that of corporate governance, with an executive and a non-executive board, where the non-executives have the right to nominate suggestions but not to make appointments, which would be considered and voted on by the whole board, subject perhaps to veto by the Government or Select Committee.

There is talk of a maximum five-year term but no minimum term. I understand the practicalities of that, although I would be interested to know the minimum period that the Government are considering. Again, there is concern that many short-term appointments would increase the Government's leverage on members' replacement, re-adoption and terms of employment. Although I would not speak against a term of five years, I would want to be reassured that short-term appointments to the board would not habitually be made.

The committees in the schedule also need to be considered. For example, can they be given the authority to make decisions or only recommendations to the main board? Would decision making by the board require consultation with the Secretary of State? Paragraph 11 would, effectively, enable the OFT to allow a committee to do anything that the main board can do, so clarification is required on how much power the committees will have. How important does an issue have to be before it needs to be considered by the whole board rather than a committee of the board? If committees can make decisions rather than recommendations to the main board, how will the main board supervise the operations of the committee? That is particularly important because the schedule provides for non-members of the main board to be appointed to committees, which leads to questions such as how appointments to committees are to be made. The issue of committees having the same power as the main board is surely just as important as how appointments to the main board are made—yet the schedule does not address it. I would be grateful for the Minister's consideration of those points.

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

Perhaps it would be helpful, in answer to some of the points made by the hon.

Member for Huntingdon, if I set out how we see the schedule. I will also pick up some of the other points that were made.

The schedule sets out fundamental terms by which the OFT must operate in order to ensure the accountability and transparency of this public body. The schedule stipulates that the OFT shall consist of a chairman and, as the hon. Gentleman said, a board of at least four other members. As I said earlier, our thinking is in the order of five to seven members. My right hon. Friend the Secretary of State will appoint the chairman and, in consultation with the chairman, the board members. That process will be conducted according to the principles of open competition and the Nolan procedures.

John Vickers, the current Director General of Fair Trading, will be the first OFT chairman for the remainder of his term, in line with what was agreed when he was appointed. The terms of appointment will be for a maximum of five years, as the hon. Gentleman said, and are renewable. I do not think that we should stipulate a minimum term in legislation. That would provide too little flexibility, and judging by the hon. Gentleman's remarks, I think that he understands the need for flexibility. Indeed, it is sometimes attractive—especially initially, when one is making a number of appointments—not to appoint everyone for the same time frame, simply to ensure that not all future appointments are made at the same time and that there is continuity in the organisation. It would be unfortunate if we stated a minimum time in legislation.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster 12:15, 16 Ebrill 2002

We have talked about a minimum term, and paragraph 3(1) of the schedule sets out the maximum term of five years. Has the Minister thought about reappointment for second or subsequent terms?

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

The terms of appointment are certainly renewable. We have not put a limit on appointment, although various guidelines about the operation of Nolan appointments may put a ceiling on it. At the moment, however, nothing in the Bill does that, and we envisage that the terms of appointment will be renewable.

It is fair to say that the presumption will be for people to serve a full term. With initial appointments, however, there may be different reasons for considering the terms of appointment. For example, if a brilliant candidate were prepared to accept only a term of three years, which might well be the case, we might want to have flexibility built in. That would ensure that we could harness the skills of someone who was entirely appropriate and had much to offer the organisation and operations of the OFT, but who would not necessarily want to commit to a full five-year term and would be uncomfortable if that were the only possibility.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport

My question is on a small matter of detail that has not been covered in the Minister's remarks. Is it expected that board members, as opposed to the chairman, will be involved in executive decisions on major mergers, or is their job purely strategic?

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

Their job is strategic, but all the powers exist formally at board level and will be delegated for operational purposes to the committees and the rest of the structure, to which the hon. Member for Huntingdon referred. Safeguarding OFT independence has also been raised, and it is important to note that, once appointed, members can be removed only by the Secretary of State on specific grounds of incapacity or misbehaviour. There would be no other reason for which board members could be removed, once appointed.

The staff will be civil servants working in a non-ministerial Government Department that is a Crown body. The number of civil servants, and their terms and conditions of service, will need to be approved by my right hon. Friend the Prime Minister, the Minister for the Civil Service. The schedule allows for the OFT to establish committees and advisory bodies, and to regulate its own ways of working. It must, however, consult the Secretary of State on its procedures for dealing with conflicts of interest—clearly a difficult and important area—so that Ministers can ensure that proper procedures are in place. Indeed, a general problem as a result of potential conflicts of interest concerns the ability to appoint people who will be able to operate in key areas.

In line with the independence principle, the schedule gives the OFT a general power to do anything that will facilitate or assist the performance of its functions. Obviously, that is constrained elsewhere in the Bill.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

We have not touched on decision making. Would decisions be taken on the basis of a majority vote by the full board?

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

As I said, it is for the OFT to regulate its own procedures, such as quorum voting arrangements and committees, in line with its independence. We do not want to interfere in those matters, and it would not be appropriate for the House or the Committee to do so for the reason that I gave; it is important that those arrangements reflect what the OFT needs in order to function effectively. I know that hon. Members are concerned about that.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

When the OFT publicises its decision, will dissenting opinions be laid out specifically, with reasons given as to why the dissenter is dissenting, as in a court judgment?

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

That also is a matter for the OFT. I will take the hon. Gentleman's question away and consider whether I want to comment on it further. However, I believe at this stage that that is a matter for the OFT to consider under the arrangements that I have outlined this morning. As I said, the OFT will be constrained by other Acts and laws. Within the restrictions, however, the OFT is allowed to act as it needs to in order to fulfil its functions.

Finally, the schedule lays down that the OFT, as an authority, may be subject to investigation under the Parliamentary Commissioner Act 1967, which specifies that its members are barred from sitting in this House or the Northern Ireland Assembly. Hon. Members therefore need not apply. The schedule sets out the framework within which the OFT will operate. It also sets important boundaries and confers equally

important powers and freedoms on the new organisation. That is in line with an authority that is an independent, but still accountable, transparent public body.

Question put and agreed to.

Schedule 1 agreed to.