Clause 40 - Intervention by Secretary of State

Enterprise Bill – in a Public Bill Committee am 5:30 pm ar 30 Ebrill 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 5:30, 30 Ebrill 2002

I beg to move amendment No. 66, in page 26, line 7, leave out from ''56'' to end of line 8.

The amendment is quite important and it raises two issues. One is of principle and the other of uncertainty.

The amendment was raised by the joint committee of the Law Society and the Bar, which was examining the legislation, and it raises wider concerns. As one can tell at a glance, subsection (3) refers to a ''public interest consideration''. Our next major debate—with your acquiescence, Mr. Conway—will be under clause 56, which is a convenient place to tackle the issues of principle relating to public interest.

The narrow point is in the words following ''section 56'' in subsection (3):

''or is not so specified but, in the opinion of the Secretary of State, ought to be so specified.''

As a matter of principle, we think that it is quite wrong to pass primary legislation that leaves a door wide open for the Secretary of State, should he experience esprit de l'escalier later, to think of some other basis to intervene. If such a door is left even ajar, it would make nonsensical the care that we lavish on Bills in these Committees. In this case, one could drive the proverbial coach and horses through it, if one were so minded.

It is wrong in principle to say that the Secretary of State should have the power to consider public interest considerations that are not listed in the legislation. Given the care and work that has been directed at drafting the Bill, and the extra care that must be attached to anything that has the phrase ''public interest'' in it, I would be surprised if the draftsmen had not already thought of other possible situations that could have been included. However, as it stands, the Secretary of State will be able to add a new public interest consideration, and will be able to do so in response to a specific or proposed merger, which brings me to my second area of concern.

In essence, a merger could be referred on new grounds that did not exist when the merger was conceived. That is the point about uncertainty. Companies in all good faith will start negotiations to merge their companies and spend a lot of time and money doing so without being sure that the goalposts will not be moved at some subsequent date by the Secretary of State. In other words, they could agree to merge on the basis of the provisions in the clause but, after expending a great deal of time, money and effort, discover that the Secretary of State has said that there will be an intervention on public interest grounds on the basis of something not set out in legislation.

I do not want to be repetitive, so I will not get into the definitions of public interest involved—we will come to that under clause 56. We think that the power is a dangerous one to give any Secretary of State, and that such uncertainty is bound to cause problems in the business community. The Under-Secretary has said more than once, in a number of different contexts and quite justifiably, that we need certainty in the way that the provisions are applied. The clause leaves an enormous lacuna in the legislation that can be filled at any time by any Secretary of State, possibly part of the way through a merger. We feel strongly about the provision, and for us to be satisfied, the Under-Secretary is going to need a pretty good justification for it.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

I want to support my hon. Friend the Member for Eastbourne. The amendment will help us to establish the Government's intentions and explain how clause 40 is intended to work. It may be helpful if I explain why there might be a problem with clause 40(3). To explain the amendment, I must refer ahead to clause 56, on which I will not dwell because we will come to it later.

National security interests are specified in clause 56. It is clearly intended that the Secretary of State will be able to add to such a consideration, which might give rise to an intervention notice. That would, however, have to be done by order. In doing so, the Secretary of State would not be confined to cases that were about to be considered by the OFT or the Competition Commission. Cases that were already under consideration could be looked into. There is no sense in which the absence of such a consideration already being specified by order under clause 56 would mean that the Secretary of State could not act when presented with a merger situation if he or she felt that a public interest, which had not previously been considered and that we had not put in the legislation, were brought to bear.

As we will discuss later under clause 51, the Secretary of State will be able to wait for up to 24 weeks before finalising a consideration. In that context, finalising means making the order necessary to amend clause 56. That is a problem because if there were a relevant merger situation and the Secretary of State held the opinion under clause 40(3) that a consideration ought to be specified under clause 56, he or she would have 24 weeks in which to decide whether to make an order, which, as we have previously heard, happens to be exactly the same 24 weeks during which the Competition Commission would consider the case under the time limit.

The Secretary of State would have the luxury of having an opinion on whether a consideration ought to be in clause 56. The OFT and the Competition Commission would consider it under an intervention notice all the way through the reference, but at the end of the day the Secretary of State would not have to make the order, in which case that consideration would fall away and the reference would not be made.

The Secretary of State would be able to have his cake and eat it. He would be able to have an opinion about whether a consideration ought to be made under section 56, he could have it tested by reference to the Competition Commission and could get virtually to the last day and it would still be considering it. He could then pull everything away at the last minute and it would never have to go before Parliament.

I dwell on all those matters because if the amendment moved by my hon. Friend the Member for Eastbourne were agreed, the Secretary of State could still intervene. Clause 56, as amended, could be used. The difference is that the Secretary of State would have to bring an order before Parliament and get it to agree that such a consideration ought to be added to the exceptional considerations of national security that were foreshadowed in the legislation.

On the face of it, there would be ample time in which to do that because 28 days is sufficient time to make and lay an order. There would be no bar under clause 56 for that to relate to considerations for cases that had already occurred. People would not be able to run through a merger situation and secure consent without the Secretary of State having an opportunity to make an intervention notice, because he could amend clause 56 to do it. The legislation is designed not to allow the Secretary of State in wholly exception circumstances to issue an intervention notice with the scrutiny of Parliament but to allow the Secretary of State to make an intervention notice and test the issue virtually to completion without the intervention of Parliament.

We could deal with that by following the amendment of my hon. Friend the Member for Eastbourne and getting rid of the part of the clause that allows for the opinion of the Secretary of State, or we could change the time limits in clause 51 so that the Secretary of State must finalise the consideration at an earlier point. I shall not dwell on clause 51. We can quickly refer to it later, if necessary. However, a way of dealing with the issue would be for the Secretary of State not to take the power in clause 40, which allows an opinion about an intervention notice, but to use the proper procedure under clause 56.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon 5:45, 30 Ebrill 2002

One of the most significant purposes of the review of competition law is to remove political interference. I do not think that anyone in the Room would dispute that. On the one hand the public interest test has been removed—extremely curtailed, at least—but on the other, the Secretary of State has a get-out if, in his opinion, something should count as public interest. There is an inconsistency of approach.

When we debated clause 20 at some length, Opposition Members argued that the OFT should have discretion on making referrals. At that time, the Government attacked the suggestion on the basis of a variety of arguments but mainly the concept of uncertainty coming into the legislation and the need for businesses to be able to have certainty. Yet here the tables have been turned, this time in favour of discretion for the Secretary of State. The Government seem to be arguing that the Secretary of State should have discretion to decide when the measure should apply. I would be grateful if the Under-Secretary would justify the inconsistency of approach.

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

I entirely agree with the comments of my hon. Friends the Members for Huntingdon and for South-East Cambridgeshire—

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

I apologise to my hon. Friend the Member for South Cambridgeshire (Mr. Lansley). Clearly, I do not know the geography of Cambridgeshire as well as that of the centre of London. Perhaps I may be forgiven for that.

We had a long discussion on clause 20 and I openly said that I was uneasy about the idea of taking politics out, not least for the reasons given by my hon. Friend

the Member for South Cambridgeshire in relation to those who are not deemed fit to run companies and how the powers to make the sort of inquiry that we had in mind might be taken away from the Secretary of State.

Clause 56 is entirely clear about the ground of national security. Clause 40 tries to undermine or drive a coach and horses through the issue of national security by virtually giving carte blanche to any Minister, notwithstanding national security considerations—I believe that such considerations are entirely acceptable to everyone—effectively, to play to the gallery. In recent years, Ministers have played to the gallery on competition matters in several cases. For example, the rip-off Britain campaign that was run by the then Secretary of State for Trade and Industry in the late 1990s was a deliberate attempt to get at the supermarket chains.

We are concerned that playing to the gallery will undermine the predictability and certainty tests that have been heralded to such a great extent. Subsection (3) gives carte blanche for any Secretary of State to undermine the very ideas of competition and certainty that the Enterprise Bill should be putting in place. I shall be interested to have the Under-Secretary's guidance as to how the clause will operate. Under what circumstances will Ministers invoke their powers and go one step further than what is envisaged in clause 56?

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

Let me be clear: we have no plans to specify new public interest considerations. Merger reform has been the subject of extensive consultation and we have considered thoroughly whether anything beyond national security should be in the Bill. We do not expect to specify further issues in relation to the current scope of the merger control regime.

It would be unwise, however, to ensure that unforeseen circumstances could not be dealt with if there were a compelling case in the public interest. We must ensure that we can meet unforeseen circumstances and other legislation makes similar provision. The European merger control arrangements are focused on competition, but provide that member states can take appropriate measures to protect other legitimate interests. Consideration of whether new issues raised by member states are legitimate interests takes places in parallel with consideration of the case. That is a sensible arrangement and it ensures that a case is not needlessly delayed.

The amendment could stop the Secretary of State claiming an interest where a case raises important issues but the deadline for a reference decision is close. I have already explained why it is sensible to have limited flexibility, but I reassure the Committee that wherever an intervention notice cites a new public interest consideration, subsection (7) will ensure that the Secretary of State must move quickly to make an order specifying that consideration. The subsection states that it must be finalised ''as soon as practicable''—[Interruption.] The hon. Member for South Cambridgeshire is laughing, but it is only sensible to include such a provision.

The Bill also ensures that public interest considerations can be taken into account in making a final decision on a case only if they have been finalised by Parliament. Our proposals ensure that the Secretary of State can intervene to claim an interest in a case, but cannot determine its outcome with regard to any public interest consideration that has not been approved by Parliament. That represents the right balance: we need to ensure that the legislation can deal with unforeseen matters, and provide appropriate safeguards for the use of the Secretary of State's powers, but I emphasise that we have no proposals to use that. We are simply ensuring that if the unforeseen arises, we have some contingencies.

On Government intervention, ministerial involvement will be the exception. The Secretary of State will take decisions only where the case raises certain matters specified by parliamentary agreement. The Secretary of State must serve the intervention notice before the public interest test can be applied. If no intervention notice is served, the case follows the competition-only route.

Of course, companies need certainty. When a case raises wider public interest issues, the Secretary of State needs to claim interest transparently and within a clear deadline. The intervention notice will have to be published and will make it clear that the case is to be decided by the Secretary of State in terms of the public interest test. The Secretary of State will have to give reasons for the intervention. It is important that companies know that non-competition issues must be raised in advance of any possible reference decision.

The Secretary of State will be limited in the matters on which he or she can intervene. They must already have been specified in legislation, or be ones that the Secretary of State thinks should be so specified. There are no plans to extend that beyond national security.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

I have indeed seen subsection (7). Given that the Secretary of State will have to set out the grounds for the intervention notice at the time at which it is made, can the Under-Secretary give any reason why an order under clause 56 should not be made within 12 weeks, for example, rather than the 24 that seem to be allowed?

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

When the Secretary of State wishes to intervene on those grounds she will be compelled to bring forward an order and to specify that in legislation. The 24-week period is a long-stop and fits in with a possible time scale for obtaining approval for a new public interest consideration. It was chosen for the order to be laid twice to allow for consultation and discussion, as well as long summer breaks and parliamentary timetables during such breaks. If the consideration is not approved within the deadline, the issue will be disregarded in any case. I assure the hon. Gentleman that we want to ensure that cases are not unduly delayed.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

When making an order to amend under clause 56, clause 116(7) provides that periods

''during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than four days''

will not be counted. I fail to see why a recess should be a relevant consideration. If time is to be allowed for

orders to be made simply in a practical way, would it not be better to set an intermediate time limit of, for example, 12 weeks rather than allowing the Secretary of State 24 weeks during which the commission might be working?

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

As I have said, the time scale is a long-stop. It is a maximum and will not necessarily operate. I appreciate the hon. Gentleman's interest in trying to peg it to a shorter time frame. We would all like that, but the fact is that the summer break involves not only the House, but other parties that may wish to comment. Members of this House may wish to have an input but they may be away on holiday. During the summer, it is difficult for people to contribute fully to discussions unless some of the time scale falls outside the summer period. That is why we chose the time scale. It was not plucked out of the air. It allows for the most extreme case when that length of time may be required. We need that flexibility to cope with the need to obtain parliamentary approval and to make final decisions.

Clause 56 does not affect the limitation that the Secretary of State must intervene before reference and I hope that that clarifies the interaction between the two clauses. I hope that I have persuaded Opposition Members to support the clause unamended because I believe that we have got the balance right.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I am sorry to disabuse the Under-Secretary, but she has not persuaded me. Two issues still worry me. One concerns the principle behind this part of the Bill: to eliminate ministerial involvement. I believe that it is common ground in the Committee—including the Under-Secretary—that any exception should be as narrow as possible. National security is, I hope, about as narrow as one can get. Rather like an elephant, it is difficult to describe but one knows it when one sees it. National security would hit any sensible Secretary of State firmly in the face as and when it arose. I am worried as a matter of principle about any attempt to extend what is being suggested, particularly in this vague way.

What the Under-Secretary said was supposed to reassure me, but it had the opposite effect. More worrying is the fact that, as she has repeated on several occasions, there are no plans whatever to specify any other ground and nothing foreseeable is being considered. That seems to be making the situation worse. If something sufficiently serious arose outwith the imagination of everyone involved with the Bill, including officials who have had a hand in drafting it over a long period, and was sufficiently serious and important, primary legislation could be passed through both Houses very quickly to deal with the matter, rather than going through the order-making procedure. It is very worrying that this might depend on the approach of the individual Secretary of State. We have been told that this Secretary of State cannot foresee any circumstances to be included, although I do not expect that she has spent much time worrying and thinking about it. National security is, apparently, all that we are worried about.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry 6:00, 30 Ebrill 2002

I can reassure the hon. Gentleman that we have spent time thinking about the matter. After considering it very carefully, we can foresee no further situation that might be included.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I take that point; I am not trying to denigrate the amount of time that the Secretary of State has spent on the matter. From that point of view, it is reassuring that she and other Ministers, however much time they have spent on it, have not come up with the remotest possibility of any other heading to put in primary legislation. However, suppose a different Secretary of State were to take over during what remains of the life of this Government—someone with a much more interventionist approach, who wanted to intervene before breakfast, before lunch and before dinner, to coin a phrase. This would be a wonderful section through which they could do that, by coming up with a whole range of different grounds.

Lest the Under-Secretary should think that fanciful, let her look ahead to amendment No. 262, which we shall debate very shortly, under clause 56. It is a workmanlike attempt by some of her old Labour colleagues in the House to do just that—open up a great hole in the legislation through which such interventionist policy could be enforced.

There is a problem about certainty. If the Under-Secretary wanted to go halfway towards allaying the concerns of the business community, she might agree to go away and consider later amendments to exclude any changes affecting mergers or investigations of mergers already afoot. That would take a lot of steam out of the business community's concerns. We are not happy with the explanations. I am not saying for a moment that the Under-Secretary has not tried hard and been absolutely open about the thinking behind the provision. However, given the Department's current thinking, it is precisely the mystery of why on earth we need to leave that gap in the legislation that still causes me concern. We might wish to return to the subject later. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 40 ordered to stand part of the Bill

Clause 41 ordered to stand part of the Bill.