Enterprise Bill – in a Public Bill Committee am 6:00 pm ar 1 Mai 2002.
When I first saw this clause, I wondered whether it was just one of those quirks that computers sometimes throw up and whether it had been included in error. I hoped that a raft of Government amendments would follow to show that it was all a horrible mistake. Only a few moments ago, acting as my straight man, the Minister referred to the rationale behind the Bill. Those who take a more superficial interest in the Bill may have noticed that removing Ministers from the process appeared near the top of most press releases that trumpeted the wonders of the Bill as it neared the House. That has been welcomed by everyone, including Conservative Members, not least because it is what happens anyway in most instances, it is the right thing to do and it will command widespread confidence in the process.
There are exceptions to those who support this clause.
Since the hon. Gentleman set up his office in the corridor this morning, I had almost forgotten that he was a member of the Committee. I apologise profusely to him for suggesting that he supports the Government's proposals. As a former Whip, it remains a mystery to me how he was selected to be a member of the Committee in the first place. I am sure that you will sympathise with that, Mr. Conway.
Clause 124 bears re-reading because it leaps off the page. The Bill has been promoted as taking political decisions out of competition policy, which everyone agrees is wonderful, yet this clause, unashamedly, allows a Minister to intervene when he is not satisfied. I suspect that Ministers of all political persuasions are not satisfied a great deal of the time. However, the Minister will be able to intervene when the OFT decides not to make a reference under clause 123. Curiously and paradoxically, it makes not a blind bit
of difference how dissatisfied the Minister is, if the OFT has decided to make a reference with which he does not agree, because it appears that he or she can do nothing about that. I would be interested to know why the clause provides for such a one-way system.
It is remarkable that the clause flies in the face of the general philosophy of the Bill. Even if we allow for the public interest aspect—which, on any view, is a tiny part of the equation and can be left to one side in the great mass of cases—the clause gives the Minister a power to intervene when the OFT has carried out its investigations and reached the conclusion that there is no case to refer under clause 123. No matter what the OFT has done, the Minister can step in and say that there should be a reference. If that looks and sounds like ministerial interference, it probably is. It flies in the face of all the Government's claims about the Bill. Why is the provision included? What is the rationale? Why is the system only one way? Surely it is a drafting error.
I wonder whether the hon. Gentleman thinks that the clause is partly intended to deal with cases in which the OFT is not fulfilling its duties as we should all like it to. If a Minister used the power, it would represent an expression of no confidence in the OFT, and presumably a review of its membership might follow. My experience with West Hertfordshire health authority has led me to want to have its members dismissed. The OFT might be as incompetent as that public body, and the Minister might need to send a shot up the gunnels.
Across the gunnels is probably the correct nautical expression—a shot up the gunnels sounds potentially far more disastrous.
The hon. Gentleman makes an excellent point, but sadly he is entirely off-message, as the Government have suggested quite the opposite to everyone, including industry and hon. Members. The last thing that Ministers want is for the Derbyshire-Hemel Hempstead axis to come pounding on Ministers' doors and saying, ''I'm fed up with this—there's a factory closing in my constituency and the OFT is almost as bad as West Hertfordshire health authority, so what are you going to do about it?'' Ideally, the Minister should reply, ''There's nothing I can do about it, squire. It is not down to me—it's down to an independent body that employs wonderful people and has massive new resources. In the bad old days of Mrs. Block-it and the Tories, of course, we could have done something about it, but not anymore. We are just getting on with the business of governing the country and trying to get a third term.''
That is the theme that runs, like the word ''Blackpool'' through a stick of rock, through the entirety of this part of the Bill, apart from this clause. Although I understand the point being made by the hon. Member for Hemel Hempstead (Mr. McWalter), both he and the hon. Member for North-East Derbyshire (Mr. Barnes) are talking about a different piece of legislation.
The debate has thrown up a whole series of questions for the Minister, and I shall listen agog to his response.
I am happy to concur with my hon. Friend. I shall not quote the White Paper at great length, but it is curious to discover in the proposals for the market investigation regime a whole series of paragraphs on the role of Ministers but no specific reference or foreshadowing of the clause. On the contrary, paragraph 6.42 says:
''Reducing Ministerial Involvement is an underlying theme of the changes made to our competition regime. The Government believes that competition authorities acting on the basis of sound economic analysis are best placed to take decisions in order to correct competition weaknesses, and restore healthy competition for consumers. This view has strong support within our domestic competition community, and internationally.''
Although subsequent paragraphs express reservations in relation to exceptional public interest cases or major divestment remedies, at no point does the White Paper say that decisions on competition will be made by the Competition Commission, but decisions on references to the commission by the OFT and other sector regulators will not be made solely by the competition authorities—they will be interfered with by Ministers.
The provision is completely contrary to the thrust of the Bill and it is astonishing that Ministers should want to include it. The question of public interest cases is not involved here. I imagine that the hon. Members for North-East Derbyshire and for Hemel Hempstead might want to go to Ministers and use the public interest provisions, which we shall discuss later. However, we are dealing only with competition matters at this point. On competition grounds, the Government propose to retain a power for the Secretary of State to set aside the view of the competition authorities on competition matters, which will undermine the predictability and consistency that Ministers claim to want and to be pursuing in the Bill as a whole. Frankly, one could take out the clause and there would be no negative consequences, only positive ones.
I totally concur with my hon. Friends the Members for Eastbourne and for South Cambridgeshire on whether a Minister should have the right to be satisfied with a decision by the OFT in those circumstances.
Materiality is another aspect of the clause that has not yet been mentioned. Subsection (2) will allow a Minister to make a reference if they suspect that any feature or features will distort competition, and there is a materiality aspect to that. It is not only a question of whether a Minister is satisfied, but a question of the basis on which they can be satisfied. The clause works on the basis that there is no bottom line or level at which it would or would not be acceptable for a Minister to refer. They can refer for any reason at all, which is why clause 124 is inadequate.
Much has been said already on the clause, so I shall speak only briefly.
I have spoken about mergers on a number of earlier occasions in the consideration of part 3. I instinctively feel that it is naïve to believe that mergers do not have a political angle. To that extent, I have always had some sympathy with the view that there should potentially be some ministerial input on mergers. There is, however, no justification for ministerial input into market investigations. Indeed, our concern is that that will allow Ministers to play to the tabloid gallery when it whips up a furore about a particular market. A Minister may insist on a reference, but they will not have any sort of balancing veto on a reference put forward by the OFT. In other words, ministerial power will be one way, rather than two way, in relation to OFT references, and, egged on by the mob, a Minister will be able to use that power to appear to rescue the situation as and when it suits them, which is not sensible, especially in relation to market investigations.
There are other areas of the Bill in which some ministerial input may be a sensible way forward. That is, in a sense, a matter of—dare I use the phrase—political philosophy, and I am sure that such commercial thinking changes from one era to the next. There is absolutely no justification for any ministerial intervention on market investigations.
I shall likewise be brief. Frankly, it sticks in my craw to agree with the hon. Member for Eastbourne time after time, and I now find myself in a position in which I agree with four Conservative Members, which is more than even I can stand.
Just to probe the hon. Gentleman, does it stick in his craw because I am a Conservative, because I represent an English seat or because I took my seat off a Liberal Democrat—or all three?
The fact that the hon. Gentleman is a Conservative is certainly enough for me. The fact that his seat is in England is of no consequence whatsoever. I am married to an Englishwoman—
Very broad minded.
It is certainly broad minded on her part. I hold no part in xenophobia against the English. The hon. Gentleman took his seat from a Liberal Democrat, but I am sure that that is a fault that will be mended in time.
The clause is a sensible backstop position. We are dealing with what I expect will be a very small number of cases. At the end of the day, the business of Ministers and politicians is to take hard decisions and not simply to abdicate all responsibility. The clause may be inconsistent with some of the ministerial press releases that have been put out, but I certainly would not damn it for that reason. What we have is a sensible backstop position. In circumstances in which the OFT has taken a decision that, in the wider sense, may be acceptable to it but will not be acceptable to the wider community, there should be some recourse for the Minister to make that clear.
I am grateful that the hon. Member for Eastbourne took my intervention, because it gave rise to a lively debate that has flushed out the clear
differences between the sides in the debate. I get the strong impression that those on the Opposition Benches—at least, those on the Conservative Benches—would like the OFT to be as inefficient as I claim that the West Hertfordshire health authority is, on the basis that it would be supine and inefficient, and business could just get on with doing its stuff without anyone asking whether the climate in which they were conducting their business was actually one of fair competition. I believe that it is important that the function be delivered effectively because, as has been said repeatedly in the debate, that would be to the benefit of good business. I hope that the Minister will not feel inclined to accept the argument that has been made by Opposition Members.
The Fair Trading Act 1973 allows references by the Secretary of State on competition and public interest grounds. My understanding is that, as a matter of policy since the early 1980s, different Governments have seldom used public interest grounds to make references. However, Secretaries of State must have made several references to the Competition Commission, despite what has been said. It might be interesting to know how many there were and what the Government's policy is on references under the clause. If their policy is the same as that for public interest, Opposition Members have nothing to worry about.
To be perfectly honest, I am not quite sure where to start, given the range of comments and the excitement generated by the clause. Perhaps the obvious place to begin is with the comments of the hon. Member for Orkney and Shetland. As the debate proceeded, I found myself having ever more in common with him. We both represent Scottish seats, we both have English wives, and we both think that the clause is sensible and logical.
I assure my hon. Friends the Members for North-East Derbyshire and for Hemel Hempstead that, emboldened by their remarks, I shall reject Conservative Members' view and urge the Committee to do so. The accusation levelled at the Government is that the clause contains a word-processing aberration. I would have had more sympathy with the Opposition's comments if they had used the word ''remedy'' in place of ''reference.'' That is the key point and the sense of proportion that must be brought to the discussion.
The danger is—again, this turns on quite an important point—that, had we not had such a power, an opportunistic Opposition might have said that it was an outrageous breach of parliamentary accountability and would have argued for appropriate accountability. Therefore, it is important to recognise that retaining a reserve power for Ministers to make references in exceptional circumstances will enhance the overall accountability of the new regime. Subsection (3) specifies that, like the OFT and certain sectoral regulators, Ministers will be able to refer a market only if they have reasonable grounds to suspect that one feature or more of a market is preventing, restricting or distorting competition in the supply or acquisition of specified goods or services.
For clarification, I confirm that the Minister must satisfy the same reference criteria as the OFT. As with references made by the competition authorities, ministerial references will be subject to review by the competition appeal tribunal. We intend that the primary responsibility for making market investigation references should lie with the independent competition authorities—for these purposes, the OFT and certain sectoral regulators—which is entirely consistent with the spirit and letter of the White Paper and discussions on the Bill. Under the new regime, Ministers will no longer be able to veto references made by the OFT and certain sectoral regulators.
In line with the intention, Ministers' power to make a market investigation reference is more constrained than their power to make monopoly references under the Fair Trading Act. Subsections (1) and (2) specify that Ministers will be able to refer markets only in exceptional circumstances in which they are not satisfied with a decision of the OFT not to make a market investigation reference to the Competition Commission, or in which they are satisfied that the OFT or relevant sectoral regulator is aware of the evidence that has led to a suspicion but that it is not likely to reach a decision on whether to make a reference within a reasonable time.
Therefore, the reserve power is consistent with our decision to take Ministers out of the vast majority of decisions in competition cases. The reserve power allows Ministers only to request that a decision be made. I return to the point with which I began my remarks: there is a fundamental difference between a reference and a remedy. We are asking only that Ministers be allowed to request that a decision be made, but that does not entitle them to any involvement in the decision-making process itself.
I see the Minister's point, but I am afraid that I do not agree with it. Essentially, he is not saying, ''Is not it reasonable for Ministers to have reasonable grounds for suspicion of an anti-competitive effect and, therefore, to make it a subject for reference?'' He must address the point that, by using the power, Ministers will be seen in the market to be substituting their decisions for those of the Office of Fair Trading on exactly the same information. That is at the heart of our objection.
I merely reinforce what I said previously. We are conscious that the power is to be used only in exceptional circumstances and that a balance must be struck. We want to ensure that there is a greater degree of accountability throughout the process. If one were to ask me candidly what I think the market would wish, I would say that it wants a situation in which references can be made to the Competition Commission and, indeed, the appellate body of the competition appeal tribunal, but, none the less, there is provision for further investigations to take place. A degree of proportion must be brought to the debate. There is a fundamental difference between a reference being made for further investigations, deliberations and decisions and the idea that the provision is in breach of the spirit, thrust or rationale of the Bill.
If we are trying to bring proportion to the debate, we should do exactly that. The regulatory impact assessment in the White Paper suggests that there might be five such investigations in a year. If the Minister decides in any year, on the basis of the same competition evidence—we are discussing only competition grounds—to make a reference where the OFT does not, that would be a substantial part of the Competition Commission's activity on market investigations for that year. The Minister must tell us not about balances and possibilities, but whether he can contemplate any specific instance—hypothetical, perhaps—in which Ministers would exercise the power.
I would make a couple of immediate responses. First, I do not fully understand the logic of the hon. Gentleman's position. He says that he does not want to talk about possibilities and balances, but he invites me to do exactly that, by identifying a specific possibility. By definition, exceptional is exceptional.
Secondly, the idea that there will be a vast rush of ministerial requests that the Competition Commission investigate matters is defied by the exercise of a similar power in previous circumstances. I explained the specific terms on which a reference for further investigation would occur, and I simply do not think that the evidence of history bears out the hon. Gentleman's suggestion of a hypothetical scenario in which there would suddenly be a rush of references on the basis of ministerial recommendation.
This provision is very important and we would wish to divide the Committee on it, unless the Minister has some further pearls of wisdom for us. He makes three broad points. First, he says that this is a reserve power. The clause does not say that it is. Secondly, he says that it will be used only in exceptional circumstances. The clause does not saying anything about that at all, and he would not be drawn on what would constitute exceptional circumstances. Thirdly, he talked about accountability. One cannot have it both ways. One can have the world order wished for by the hon. Members for North-East Derbyshire and for Hemel Hempstead—on that basis, I presume that they will be voting with us on the clause—in which Ministers can respond to political pressure from sources such as their colleagues and step in, which was the case in the bad old days; I suppose that one could call that accountability. Alternatively, one can have a system in which the OFT is set up as an independent body. That would mean that it could do whatever it wanted, which would include wreaking mayhem like West Hertfordshire health authority.
The Minister has not even attempted to tackle the final issue. If it were not for my high regard for him, I would regard that as a slight discourtesy to the Committee. On what basis would a Minister take a different perspective from the OFT, after it had made a thorough initial investigation, on exactly the same set of facts? That is the key issue. Unless the Minister can reassure us, we shall not be happy with the clause.
I assure the hon. Gentleman that no discourtesy was intended to him or the Committee.
Returning to the substantive point at issue, asking for a decision to be taken rather than taking a decision, which is the current position, does not contradict the spirit or, indeed, the rationale of the Bill. However important the involvement of Ministers may be, it is also important that their involvement is transparent and that they fulfil their role in close co-operation with the OFT. There is, perhaps, a genuine disagreement there.
I do not fully understand the logic that suggests that my hon. Friends the Members for North-East Derbyshire and for Hemel Hempstead would, given their contributions to the debate, find favour with the arguments outlined by the hon. Member for Eastbourne.
Mr. Lansley rose—
If I might make some progress, I will then be happy to take an intervention.
We need to strike an appropriate balance between respecting the independence of the competition authorities in making determinations and decisions, which is a rationale that runs through the entire White Paper and the Bill, and recognising that there are exceptional instances in which it would be appropriate for a Minister to ask the Competition Commission to investigate further.
I am getting worried by the Minister's desire to treat the fact that decisions on competition grounds will be made independently by the Competition Commission as sufficient in itself to guarantee the independence of the OFT. Those are two distinct bodies. The OFT will be trying to establish in the marketplace a clear, consistent and predictable understanding of the competition grounds on which it would expect to refer a market for investigation by the Competition Commission. The Minister must understand that independence means that if the Secretary of State were to bring information to the OFT, and the OFT considered it and decided not to make a reference, substituting a Minister's decision for the decision of the OFT would directly undercut that independence. The independence of the Competition Commission on the decision cannot restore the independence of the OFT.
I fear, once again, that I must dispute the logic of the hon. Gentleman's position. We would both agree that there can be a position whereby the Competition Commission is deemed to be, and recognised as, fully independent in terms of its deliberations and, ultimately, its decision. Equally, there could be a decision in which the criteria for investigations conducted by the OFT would be recognised within the marketplace. There could be circumstances in which a Minister would, acting on their own initiative, take the view, having met the same criteria, that a reference was appropriate.
Given the history of the role of the OFT, I do not accept the logic of the point that the hon. Gentleman is advancing. Given the OFT's independence to date, I suggest that the market has not questioned whether Ministers' powers will be restricted. If that was his point, it is a serious allegation.
Let us not get into red herrings. The Bill makes it perfectly clear that the Secretary of State will be able to make references on public interest grounds. We are, however, only discussing competition. The Minister proposes that the Secretary of State should have powers to undermine the independence of decision making on competition grounds by the OFT.
I want to put a second question to the Minister. If the OFT issues guidance in pursuance of the legislation about how it should interpret markets, conduct or any of the other factors in clause 123 that flow into whether a reference should be made, is the Minister saying that the Secretary of State will consider himself or herself bound to consider a reference on the same criteria as that published guidance?
I shall answer the first of the comments, and then move on to the substantive second point. There was an interesting interplay between the comments of the hon. Members for Eastbourne and for South Cambridgeshire. A question was posed asking why a reference could be made to the Competition Commission by a Minister but a Minister could not block a reference to the Competition Commission by the OFT .
I would have more sympathy with the argument of the hon. Member for South Cambridgeshire that that is a significant impediment to the independence to the OFT, if what we were proposing was a means by which a Minister could bar the OFT from making such a reference to the Competition Commission. That is simply not what the clause is intended to do, or narrates.
With respect, I have not proposed that the Secretary of State should have a power to bar references by the OFT, so I would appreciate it if the Minister would address the arguments that I have made, rather than different ones.
If the hon. Gentleman had allowed me to make some progress, I would have merely pointed out that, if we are in the arena of red herrings as he describes it, I do not accept the logic of the idea that the ability of the Minister to recommend that the Competition Commission investigate the matters somehow inhibits or destroys the independence of the OFT. I would accept the logic of that position were it the case that Ministers could prevent the OFT from making references to the Competition Commission—a point which was raised earlier in the debate.
This is an important point, and the Minister is being generous in allowing me to intervene. It is important that we nail down what we are debating.
For the record, I did not say that there should be a two-way power; I was merely inquiring what the logic was, but let us put that on one side and lock it away in its box for the rest of the debate. Surely the Minister has grasped that the political pressure will come when a Minister receives a reference in which the OFT says that it does not think that it is appropriate because of some campaign, Back-Bench pressure, or whatever. Is
that not the sort of situation that we are trying to get away from?
We should return to the issues under debate, and being investigated by the OFT. By definition, those are issues on which discretion is exercised. There could be circumstances in which highly complex and important matters were under consideration. A reasonable body—the OFT—could reach one conclusion, and the Minister could reach a view that it was necessary to have the matters further investigated. I would make clear the distinction between a decision and a discussion.
I shall not rise to the continuous provocation from the hon. Member for Eastbourne. Is not the reason for the clause quite straightforward? The Bill is entirely different from the Fair Trading Act 1973. Under the 1973 Act it was possible for the Secretary of State to ask for a view from the OFT, and on the basis of that view he could decide whether to go to the Competition Commission. There are no avenues for that in the Bill. Instead, there is a free-standing area for the OFT. With competition policy only, the Government have a fallback provision for exceptional circumstances that could come along—[Interruption.]
I have a couple of points to make. Of course, the entire scope of the Bill is not fundamentally different from the 1973 Act, many of the provisions of which are drawn and modernised in the Bill. I would concur with the view that one must have regard to the exceptional nature of the circumstances. Although there are complex matters in which discretion may be exercised, it is explicit that it would be an exceptional circumstance if a Minister chose to ask for those complex matters to be further investigated by the Competition Commission. I fear that there is a genuine disagreement about the import and significance of the clause. If the view being offered from the Conservative Benches was that the matter concerns decisions being taken by Ministers as distinct from a request for further investigation by the Competition Commission, I would have more sympathy. However, the provision is important, further strengthens accountability in the overall process and is consistent with the spirit of the Bill.
The arguments of Conservative Members would have validity if there were to be constant challenges to the OFT by the Secretary of State, but they will be rare or very infrequent and on that basis the reserve power seems sensible. It would undermine confidence within the OFT if they became a regular occurrence and I am sure that the Minister will confirm that that will not be the case.
I am certainly happy to give that assurance and I reiterate that, as my hon. Friend said, it would be exceptional for circumstances to demand action by the Secretary of State. I reinforce the point that even under the existing provisions of the Fair Trading Act, Ministers have not sought to act with a cavalier disregard for the position of the OFT or the impact of a referral on business. The provision is sensible and appropriate to ensure that in exceptional
circumstances—I emphasise exceptional circumstances—Ministers have a power to ask for further investigation.
I remind the Minister that colleagues deflected him in other directions—I understand that—and he has not answered my question. He said that the Secretary of State would decide whether to make a reference on the same criteria. Will that be not only on statutory criteria but on the same guidance that might have been published by the OFT?
Certainly the reference criteria that the Secretary of State will have to satisfy will be the same as for the OFT. However, there are obviously circumstances in which there may be a genuine disagreement about the discretion that must be exercised in reaching a decision on whether to refer.
Does my hon. Friend agree that one of those circumstances might be privileged information? For example, information that is available only to members of the Cabinet or others about foreign countries might have the effect of potentially reconfiguring a market in a way that the OFT might not be aware of. If the Secretary of State took a decision in part on that information, he would not be making it on the same information base as the OFT, which is what the hon. Members for Eastbourne and for South Cambridgeshire keep insisting on. There could be a differential in information.
Tempting though my hon. Friend's offer is, I shall resist being drawn into a series of examples about the exceptional circumstances that I have described. However, his point was well made. I remind the Committee that there will be a degree of accountability in that the Secretary of State is accountable to Parliament. To that extent I see no inconsistency between the independence not just of the Competition Commission but the OFT and its work and a reasonable and appropriate power for the Secretary of State who is accountable to Parliament.
Question put, That the clause stand part of the Bill.
The Committee divided: Ayes 10, Noes 5.