Clause 21 - Relevant merger situations

Enterprise Bill – in a Public Bill Committee am 4:30 pm ar 30 Ebrill 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon 4:30, 30 Ebrill 2002

I beg to move amendment No. 215, in page 11, line 46, leave out '45' and insert '70'.

The concept of a de minimis threshold is, of course, vital to the process of the competition regime to avoid clogging up the workings of the OFT, stopping small businesses doing what they have to do and submitting such businesses to unnecessary regulations. Those provisions are not in place to stop businesses competing against one another. Indeed, it is quite the opposite: they are here to ensure that competition is encouraged in such a way that consumers and other businesses are not hurt.

How did the Government arrive at the figure of £45 million to be used as a de minimis? I would also be grateful if the Under-Secretary would give comparisons with other countries, as those are relevant to what happens in this country. We should

also appreciate that the regime under discussion is already being used in other countries. The £45 million figure seems very low, particularly when one considers the 25 per cent. market test in the Bill. In large markets where many competitors do not come within the 25 per cent. market share, mergers could nevertheless be dragged into the regime in circumstances where it was not a relevant issue.

The CBI has suggested that the figure be raised from £45 million to £70 million. I do not know how scientific that figure is, although it does come from an organisation that has a lot of experience because its members are subject to the competition regime, and is therefore worthy of proper consideration. I would finally note that clause 26 provides for the Government to change the figure if necessary.

It is important that we have a figure at the outset that is acceptable to business, as well as appropriate to the regime, in order that the system is fair and transparent.

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

When we devised the turnover test, our intention was that it should catch roughly the same number of merger cases as the asset test does at present. In fact, research carried out by the Department of Trade and Industry suggested that the figure of £45 million roughly equates to £70 million in assets, hence the figure that we have chosen. We do not propose to change the figure, although obviously we have the opportunity to see how it works out in practice. Opposition Members have my assurance that we are not looking to catch any more than the present regime does.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

On the basis that £70 million was seen as acceptable for an assets test, why is that figure not acceptable for the test that is being used?

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

Clearly, there is not a straightforward one-for-one correlation between assets and turnover. I do not understand the hon. Gentleman's point. In 2000, we carried out research on the levels of turnover and assets of 110,000 UK companies. The data showed that the number of companies with a turnover of £45 million roughly equated to the number that had assets of £70 million, as I have said.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

For clarity, when the Minister refers to £70 million, is she referring to worldwide or UK assets?

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

It is a worldwide figure. If hon. Members are interested and feel that we may have erred on the wrong side in the matter, the research showed that £42 million was a better equivalence, so we have decided to err on the side of catching fewer by upping the figure to £45 million, in any event.

As the hon. Member for Huntingdon (Mr. Djanogly) recognised, that system will be monitored and the OFT will advise the Secretary of State from time to time as to whether it is still appropriate. As hon. Members are aware, the level can be changed by order if necessary. We are not seeking to increase the work of the OFT in some gratuitous way. We have picked the figure as carefully as we can. Experience will tell whether we have got it exactly right, but we believe

that we have. I ask the hon. Gentleman to withdraw the amendment.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

On reflection, I am not sure that we have heard the best justification of how the figure of £45 million was reached.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry 4:45, 30 Ebrill 2002

Perhaps the hon. Gentleman can clarify what reasoning he would see as best, other than research based on 110,000 companies and, in trying to get the figure exactly right, erring on the right side?

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I thank the hon. Lady for pointing that out. In effect, she has said that new technology companies, which tend to have a small asset value but a higher turnover, will be prejudiced in comparison with old industries—I do not like to use the phrase smokestack industries—which might have a higher asset value but a much lower turnover. In other words, the Government are prejudicing legislation against new technology companies in favour of older companies.

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

Perhaps my hon. Friend might like to comment on the view that it would have been more logical to try to catch a certain proportion, within the 110,000 companies surveyed. The rather arbitrary use of numbers, instead of using a percentage of UK companies, seems to be without genuine explanation.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

My hon. Friend makes a good point. Indeed, in other classification systems, such as that used by the stock exchange in the test to determine the class of a merger, there are a range of different tests—an asset-based one, a turnover-based one—to apply to different types of industry. Yet in reviewing this legislation, the Government seem to be concentrating just on a turnover test. It would be helpful for the Under-Secretary to give us comparisons with other countries that have similar tests, as I requested in my opening remarks.

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

I would not want to promise the hon. Gentleman any such comparative data because it is probably not available in a comparable form.

I remind hon. Members that the purpose of the test is to ensure that we focus on companies with economic significance. In the two consultations on the mergers regime that took place throughout 1999 and 2000, businesses broadly welcomed the change. I believe that it is the right change to make.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

Having heard the Under-Secretary, although I am still not entirely convinced, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I beg to move amendment No. 65, in page 12, leave out lines 7 to 46 and insert—

''( ) The condition mentioned in this subsection is that the merger would create or strengthen a share of 25 per cent. or more in any relevant market in the United Kingdom or a substantial part of the United Kingdom''.

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

With this, it will be convenient to take amendment No. 131, in page 12, line 7, leave out from ''that'' to end of line 46 and insert—

''the merger would create or strengthen a share of 25 per cent. or more in any relevant market in the United Kingdom or a substantial part of the United Kingdom''.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

This is a probing amendment, on a short but important point. The amendment would replace the supply of goods test with a market share test. We take the view that it is slightly illogical, to put it mildly, for the substantive test to be based on competition but for a test not based on competition considerations to be one of the criteria. The test based on the supply of goods or services of any description is not the same as a market share test, and should be replaced by one. We are simply trying to bring more logic to the legislation. I hope that the Government will reflect on that and perhaps see the wisdom of it.

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

I simply do not agree with that change. The thresholds have to be simple and easy to determine quickly. The existing share of supply test has fulfilled that function well for years and we were not pressed to revise it on consultation. My view is that if something is not broken, do not fix it. Market share would be a more difficult test and would lead to undue debate at the initial stage of the merger process. The purpose of the test is to take out of the scope of merger control a large number of transactions that are of no economic concern and to give business regulatory certainty that they will not fall within merger control. The share of supply is a more workable test for those purposes.

We also envisage extra resource burdens for both the OFT and business. It would take longer to calculate a more complex economic market share test. At the same time, business would feel the need to access more economic guidance, and the result could be to encourage more notifications on a prudential basis, increasing the administrative burden on the OFT. The definition in the Bill is simpler, more flexible and the right test in the context. Therefore, I hope that I have persuaded the hon. Gentleman to withdraw the amendment.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I said that it was a probing amendment and it has served its purpose. The Under-Secretary's explanation was sensible and helpful, even if she seems to take amendments personally at times. We can see the logic behind her explanation and, therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

I beg to move amendment No. 216, in page 13, line 6, at end add—

'(10) Notwithstanding the above, a relevant merger situation shall not be deemed to have arisen for the purposes of this Part if the transaction in question has no effects (either actual or potential) in the United Kingdom or any part of it.'.

Again, this is a probing amendment. I appreciate that a share of supply test will not be brought to bear. However, the turnover test remains at a fairly high level—£45 million. To prevent an excessive regulatory burden on UK businesses, we want to ensure that the OFT does not have the opportunity to spend the time and valuable resources of businesses reviewing mergers that have no impact in the UK. As the Minister pointed out, the asset test of £70 million and the turnover test of £45 million apply to world-wide

turnover. Therefore, in some cases—admittedly, it may be a relatively small number—there may be no impact whatever in the UK and we are keen to ensure that the companies involved would not find themselves falling foul of an immediate and automatic OFT inquiry. We propose that such transactions would not need to be notified in the same way.

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

The amendment would make it clear that a relevant merger situation would not include mergers that have no impact on the UK or a part of it. In a sense, I agree with the hon. Gentleman, but I do not think that the amendment is necessary as the new merger regime is already clearly centred on mergers that relate to activity in the UK.

The share of supply threshold stipulates that the supply must be in the UK market or a substantial part of it, so it is UK centred. The turnover test measures the turnover of the target company in the UK. I emphasise the words ''in the UK,'' because they meet the hon. Gentleman's point. The Government have no desire for the competition authorities to investigate mergers that are not directly relevant to UK markets or activities and our merger regime reflects that. We propose to concentrate more on making that clear. I hope that I have persuaded the hon. Gentleman to withdraw the amendment. If not, I regret that I shall ask the Committee to oppose it.

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

I thank the Under-Secretary for that explanation. In part, one of the purposes of the amendment was to clarify the situation. I hope that it has been clarified for those companies that would otherwise fall foul of the turnover test for an OFT inquiry. Therefore, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 21 ordered to stand part of the Bill.

Clause 22 ordered to stand part of the Bill.