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

This clause calls out for a modest stand part debate. We tabled an amendment, which is probably surplus to requirements, that it be deleted altogether. As it stands, it provides for certain automatic restrictions on dealings related to a completed merger that has been referred for investigation. In effect, companies are prevented under the provision from taking any further steps without the consent of the Competition Commission.

That has caused concern, not least for the CBI, which thinks, I think rightly, that it would be preferable to see the authorities rely on clauses 76 and 77, which already give them the power to offer undertakings or make orders, but without this automatic prohibition on a wide range of activities.

Under the Fair Trading Act 1973, there are narrower provisions that call for restrictions on share dealings. One can certainly see the wisdom of that, without too much thought. Restrictions on share dealings are the most likely restrictions that we would be talking about in such circumstances. That is already in the legislation. It is generally accepted that that is needed in the armoury. It would be preserved under clause 74 on that basis.

It is difficult to see why further restrictions should automatically kick in when there has merely been a reference for investigation. That puts an awfully large lock on many activities in which companies, even in that situation, may want to be engaged. There is a worry, which is why we have tabled a probing amendment.

I fully support what my hon. Friend has said. The concept of automatic prohibition seems strange in some ways, particularly because it is automatic in so far as there may be circumstances when it is appropriate for the merger to go ahead, such as not upsetting companies that may be in a difficult position, or to save jobs when they are at risk unless particular action is taken immediately.

Undertakings may be required under other provisions and companies will carefully assess what the position is. They may come to the overall opinion that they have a certain percentage chance of divestiture coming out of the investigation. However, balancing that with the need to keep their businesses intact and not lose jobs, they may decide to go ahead with the merger. Therefore, the absolute prohibition that the clause would provide seems strange and I would be interested to hear the Minister's opinion as to why that is justified in all situations.

I also have grave philosophical concerns about clause 73. It is wrong for the commission to have an overriding power. The Minister will no doubt tease out one or two examples of why it is important to have that power in place.

My hon. Friend the Member for Huntingdon (Mr. Djanogly) has already touched on sensitive

mergers that have taken place when there is a jobs issue vis-a¨-vis international trade. In that case, there may be some mileage in putting certain restrictions in place. Surely the onus should be on the commission to justify the idea that certain restrictions should be put in place in what I suspect will be a relatively small number of circumstances.

The commission should be able to make its case in relation to those particular mergers. It should not be the other way around. It would be a difficult job for a company to ensure that it should not be subject to any great restrictions over time. Given that the raison d'être of the Bill is to favour enterprise and competition, it seems somewhat odd that the commission has that strong power.

Is my hon. Friend not making the case that we are moving from a situation in which companies can take their own decisions, appreciating the possible consequences, to one in which they are shackled?

My hon. Friend put that far more eloquently than I could have done. I was nanoseconds from the end of my contribution anyway. I look forward to hearing what the Minister has to say.

I do not want to deal with the philosophy behind the clause, but I have one question on subsection (7). I wonder whether the Minister could offer some guidance. I understand that the Bill is constructed around UK rather than European Commission merger control. If a merger is essentially trans-national, it will be dealt with on an EC rather than a UK basis. Is there a loophole? I am looking for reassurance from the Minister that there is not. The merger situation could be UK-based, so far as the enterprises are concerned, the control could be a UK control and the orders of that kind could refer to UK nationals, and so forth, but if the company were listed on the New York stock exchange, the connected persons trading in those shares could, in effect, undertake transactions that might be prejudicial to the merger reference and this order would not necessarily bite on them.

Clause 73 introduces an automatic restriction on the parties to a completed merger, as we have discussed, once it has been referred. That will prevent them from any further integration without the consent of the Competition Commission. Further integration could prejudice the Competition Commission's ability to take remedial action following its inquiry. I am sure that that is widely accepted on both sides of the Committee. The hon. Member for Eastbourne mentioned share dealing. If a merged entity makes staff redundant, sells off assets, integrates computer systems or takes any other similar action, it could be very difficult for the commission to effect a divestment of the merger businesses thereafter.

In the past, the authorities have sought to prevent such further integration by seeking voluntary undertakings from the parties or by imposing an interim order. It is clearer, simpler and more efficient to create a new prohibition that applies to all

completed mergers that are referred. In answer to the question about how that advances our objective of enterprise, the degree of certainty provided by the clause will avoid a huge amount of work having to be undertaken by the authorities and the company, in terms of discussions and preparation of interim orders. People will be able to be certain, at the outset of the merger, that such a step will be taken.

I accept the ingenious argument on certainty, but surely the provision is not intended to apply to many cases. Or, is it the Minister's contention that this will be an automatic power, which will come into play in every single merger situation? What proportion of cases that come before the commission does the Minister envisage being subject to the provisions in the clause?

I do not think that I can answer the question as directly as the hon. Gentleman wishes, with an exact proportion. What I can say is that we are trying to make the provisions that already exist more effective. Helpfully, however, I have just been passed a note with an exact proportion on it: it is only completed mergers, which are roughly 30 per cent. I anticipate that that figure will be ongoing. The clause does not intend to widen that scope significantly, but to make real and effective the available powers, consistent with an obligation to which we hold ourselves—to give a degree of certainty to the businesses involved.

I have some observations on the argument of the hon. Member for Huntingdon about the automatic nature of the prohibition. The United Kingdom is unusual in allowing mergers to complete prior to scrutiny. We strongly argue that this clause is a necessary balance to the fact that mergers can take place with a degree of power that would otherwise prevent the Competition Commission from doing its job thereafter, as a result of further activity being taken forward.

I thank the Minister for giving way on that important point. As he says, in most other countries, permission has to be gained before the merger takes place. That is not the case in this country and mergers can take place, so the companies will already have incurred costs. They will have spent a substantial amount of money not only on the merger, but on integrating the systems. If a merger takes place, the companies have to prepare for that situation.

Is it not therefore the case that companies should either have to get consent beforehand or be able to get on with it and take the consequences if the OFT decides that they must divest, or accept some other type of order? Are we moving towards a halfway house where, on the one hand, companies will be able

to complete but, on the other, they will not be able to make the necessary preparations for that completion?

I prefer to characterise the position that we are adopting as a balanced approach rather than a halfway house. I have a couple of observations, following on from the hon. Gentleman's remarks. First, there will be an initial finding by the OFT about mergers in those circumstances likely to lead to a substantial lessening of competition. There remains scope for companies to agree a tailored undertaking with the OFT, if they do not like the terms of the statutory restrictions. In that sense, there is an adequate and appropriate degree of flexibility but, on the other, the clause is necessary to allow the Competition Commission to do its job.

How companies manage the merger process is a matter for them. We aim to provide an appropriate degree of certainty. There remain provisions whereby companies can notify authorities in advance and build into their merger-planning the assumptions necessary for the appropriate involvement of authorities. On that basis, the clause is entirely consistent with the Bill's broad thrust.

Bearing in mind concerns that have been expressed in Committee, can my hon. Friend the Minister confirm that, among other things, the clause will be particularly important where people want to create quick-sale mergers and engage in making wholesale redundancies, factory closures and so on? The clause could protect workers in that situation.

I am grateful for my hon. Friend's observations. As I said at the beginning, there are circumstances in which, without the Bill's provisions, mergers could immediately be followed by a mass lay-off of staff. Given the significant development in the integration of computer systems, the ability of many modern businesses to decouple or divest after mergers could be commensurately undermined without the provisions. We are therefore clear that the clause is important to balance companies' needs to be able to plan merger activities with the power that the Competition Commission must be given to do its job.

Will the Minister help me? My understanding is that the provisions are not designed to deal with the situations outlined by the hon. Member for Hemel Hempstead, which are matters for employment legislation. If the provisions could be so used, the Committee would be interested to hear about it.

I fear that we are confusing cause and effect. The terms on which the Competition Commission acts are consistent with the rigorous competition test outlined in the White Paper and the Bill. The reality of overlooking the need to stop divestment at a particular point, or at least to allow the commission to investigate, could well fit the circumstances described by my hon. Friend the

Member for Hemel Hempstead, not just in terms of employment, but in strategic decisions taken on shares, investment, employees or computer systems in the company. I hope that I have answered hon. Members' questions.

Question put and agreed to.

Clause 73 ordered to stand part of the Bill.

Clause 74 ordered to stand part of the Bill.