Clause No. 126 - Questions to be decided on market investigation references

Enterprise Bill – in a Public Bill Committee am 6:30 pm ar 1 Mai 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon 6:30, 1 Mai 2002

I beg to move amendment No. 302, in page 91, line 35, after 'services', insert 'significantly'.

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

With this it will be convenient to take the following amendments: No. 303, in page 91, line 40, at end insert 'significantly'.

No. 305, in page 92, line 23, after second 'a', insert 'significant'.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

Some of the issues that arise with regard to this batch of amendments have been discussed. However, they should also be debated now, as we are discussing the questions to be decided on the market investigation and significant changes have been made to monopoly inquiries from the 1973 Act.

In the broadest sense, changing the focus from the vague public interest test to one based on identification of the adverse effects on competition that arise from the structure of markets is welcome. We will direct our protests and I hope that—the last debate not withstanding—the political input will be reduced.

Although the new test will more clearly identify what is to be reviewed, one of the main concerns about the new regime is that the 25 per cent. supply share level that is contained in the 1973 Act is missing from the provisions. Therefore, business is rightly concerned that the new all-powerful OFT might use its increased funding and prosecuting powers to roam around on what will effectively be fishing expeditions, in circumstances that do not merit reviews. That could be destabilising to affected businesses and to the business environment in general.

These amendments recognise that the mere prevention, distortion or restriction of competition should not be sufficient grounds for investigations, which should be based on the belief that there is a significant restriction or distortion of competition, to avoid fishing expeditions and unnecessary investigations, no matter how irrelevant the effect is likely to be on competition.

It is important to state that there will always be some distortion of the market: there is no such thing as a perfect market. The key issue is the extent of the distortion of a market. In effect, these amendments are saying that a certain level of disturbance needs to be established, which is the level at which it becomes significant. At that point, it should become unacceptable, because the public would not want that.

We last discussed this type of issue when we debated clause 123. The Minister said that investigations might not lead to action. That is a straightforward and fair point. However, he will also appreciate that the fact that investigations may not result in action will not necessarily be a comfort to businesses, or alter how they will view this legislation.

The Minister also spoke about the possibility that the reputation and credibility of the OFT would be damaged if it went on a series of fishing expeditions, as if that would be the reason why it would not do so. I

appreciate that the hon. Gentleman has not been present throughout our deliberations, but I have spoken on several occasions about the fears that businesses have with regard to investigations. I mentioned a few examples—which I will not go over again now—to show why there have been problems in practice. Problems do arise. The hon. Member for Hemel Hempstead asked what would happen if the OFT got it wrong. That is also a fair point to make.

It is a case of legislating on the basis not only of what we would like to see, but of what is possible. To that extent, materiality is a valid concern and it is not adequately dealt with in the clause. The amendments will deal with that.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness) 6:45, 1 Mai 2002

On amendments Nos. 302, 303, 305 and 306, the first three amendments would restrict the Competition Commission's duty to remedy—

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

Order. To help the Minister, we will be taking amendment No. 306 as a separate debate, so if he could restrict himself to amendments Nos. 302, 303 and 305 that would be helpful.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

I am grateful for that clarification. Amendments Nos. 302 and 303 would modify the definition of adverse effect on competition and insert the word ''significantly'' before

''prevents, restricts or distorts competition''.

The amendments may be intended to prevent the Competition Commission from imposing remedies that are not justified, but there is no need for that. The lack of a threshold word such as ''significant'' or ''substantial'' to qualify prevention, restriction or distortion of competition in the questions to be decided by the Competition Commission does not mean that it will be able to impose unjustified remedies. The commission cannot impose any remedy unless it considers that a reasonable and practical way to deal with an adverse effect on competition, which it has identified, or perceives a detrimental effect on customers resulting from the adverse effect of that competition.

The commission's view of what is reasonable and practicable must be reasonably held. The factors that it may take into account, when deciding whether a particular remedy is reasonable and practicable, will vary from one case to another and from one remedy to another. We would always expect the commission to take account of whether an adverse effect or customer detriment that a given remedy is designed to address, and their removal or mitigation, are sufficiently serious to justify whatever course of disruption to business will be involved in implementing that remedy.

The question to be asked in relation to each adverse effect is therefore not whether that is significant, whatever that would be construed as meaning. I have doubts as to whether we could formulate in appropriate legal language a satisfactory, objective definition of what significant would mean in this context. A more appropriate question would be to ask whether there is a remedy that could reasonably and practically be put in place.

When a remedy would have an impact on the existing property rights of parties, the Human Rights Act 1998 will place the Competition Commission under a specified additional obligation to impose remedies that are no more than is necessary and proportionate to address the competition problems that it has identified. The additional obligation will apply to a large number of possible remedies and, where it applies, will act as a further constraint on the requirement to impose only remedies that the commission considers reasonable and practicable.

The Competition Commission's report on a market investigation would, by definition, be an in-depth study of all the workings of competition and the markets concerned. Any adverse effect on competition that it has identified is potentially worth remedying, so long as it can be remedied in a reasonable manner. To give the Committee an example, if the commission can see a barrier to entry that is restricting competition and has identified a reasonable and practicable way of removing that barrier, it should be able to do so without considering whether or not it is significant. Without the intervention, that barrier to entry might persist indefinitely, leaving the market less competitive, new entrants excluded, and customers potentially worse off than they need to be.

Moreover, there may be many different adverse effects on competition, many of which may not be especially significant, but all of which taken together make for a very uncompetitive market place. The question of whether and how to remedy each of them still needs to be explored for each individually. The amendments would limit the potential effectiveness of market investigations as a means of addressing comprehensively the competition problems of a market and interfere with the Competition Commission's exercise of its discretion in determining what remedies it is reasonable and practicable to impose where it has found adverse effects on competition.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

The Minister's argument was based on the same lines as before. I do not want the argument to go on for too long. However, when I hear that the decision will be based on a belief about what is reasonable and practicable, and that that belief must itself be held on reasonable grounds, it seems to me that we are opening the matter of determination to the law courts. That is potentially a greater and more complicated issue than what could be defined as ''significant''. The ability of someone to make a claim under the Human Rights Act is not a practical or ideal approach on which to base the drafting of legislation, which I hope is drafted with the aim of keeping away from that Act.

The Minister said something that gave me new cause for concern. He said that any adverse effect may be worth changing. That is easy for Governments and Departments to claim because they have deep pockets and if they identify a tiny distortion in a market that they think makes for an interesting debate as to whether competition is being affected, they can make it a test case. In previous debates, I gave examples of where that had arisen. However, people who are trading do not have deep pockets for test cases, which

concerns me. There should be a degree of materiality and the Government should not be able to go on fishing expeditions in cases of intellectual or academic interest. I have not been comforted by the Minister's response, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I beg to move amendment No. 304, in page 92, line 22, at end insert 'including public interest cases'.

I do not have much to say about the amendment, but it has been brought to our attention by the CBI that, as a definitional point, the words ''market investigation reference'' should include a reference to public interest cases.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

As we are nearing the end of the sitting, I hope that I can offer a new approach from Ministers by agreeing to consider amendment No. 304. The amendment seeks to ensure that the same definition of a detrimental effect on customers applies to all market investigation cases, including those with an intervention notice in force. That was our intention, so I am grateful to the hon. Member for Eastbourne for highlighting that part of the Bill might benefit from redrafting.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

It is the first time that that has happened to me and I am not sure what happens next.

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

I must confess that I am not sure whether the Minister was inclined to accept the amendment, or whether he was giving an undertaking to return to the issue.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

I ask the hon. Member for Huntingdon to withdraw the amendment, but we will give it due consideration on Report.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I beg to move amendment No. 306, in page 92, line 44, after 'services', insert—

'(iii) improvements to production or distribution; or

(iv) promoting technical or economic progress'.

The question is, am I on a roll? Perhaps my luck will run out at this point.

If the Competition Commission has decided on a market investigation and it shows an adverse effect on competition, subsection 4 provides that, as part of the decision on whether action must be taken, it can consider the question of whether there have been customer benefits. Benefits include such things as lower prices, higher qualities and greater levels of innovation. However, the amendment proposes that two further issues should be considered. The first is

''improvements to production or distribution'',

and the second is

''promoting technical or economic progress''.

Some of the greatest technological advances in the history of this country and others have been effected through monopolies—

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

Indeed. That is not to say that a monopoly or a lack of competition is necessarily good. I hope that the Minister knows from having read previous debates that that is not the position that I, or other hon. Members, take. However, in certain cases, such a position should be considered. The provisions would align the Enterprise Bill with the Competition Act 1980 and article 81 of the treaty of Rome.

The Confederation of British Industry said that without the change, it is probable that ''benefits to customers'' will be taken as benefits to the immediate customers, rather than to customers in the wider sense. It is important to consider not only the person receiving the goods but the wider market. It may also be relevant to consider where that market is heading. I am happy to have tabled the amendment.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

I am happy to support my hon. Friend. The amendment is interesting because when the Government published their White Paper on productivity and enterprise, they expressly invited views on two models of how to define consumer or customer benefits for those purposes. One model was that which we considered previously in relation to mergers. The Bill follows that model in relation to investigating markets. The other model is more akin to the test of consumer benefits in article 81 of the treaty of Rome and the Competition Act 1980. On that model, the Government said—I quote from the White Paper—that

''Under article 81 and the Competition Act, the relevant test is broader and includes whether the agreement contributes to improving production or distribution; or promoting technical or economic progress . . . European case law demonstrates, for example, that countervailing benefits can be taken to include consideration of the environmental, social and health benefits.''

Even if the production or distribution benefits and the technical progress benefit specified in the amendment were not so specified, there is a substantial chance that they would become part of the decision made by the Competition Commission when it considers customer benefit, not least by virtue of the incorporation of competition law from the European Community into our law. None the less, Ministers consulted on the matter in the White Paper. It is interesting that in the response to the White Paper, the Government say:

''The majority of respondents who commented on this issue favoured following the Article 81(3)/Competition Act model''.

In fairness, I should add that they go on to say:

''However, a number of respondents thought the more tightly defined merger model was preferable.''

It is interesting that the Government have chosen to take the route preferred by the minority of respondents. However, Ministers rightly stress, as has been acknowledged on Second Reading and elsewhere, that the Bill—especially the competition provisions within it—is the product of a great deal of consultation. It is important that we test the Minister on why the Government have chosen to go down that route. It is all very well for them to say, as they do in that document, that the competition authorities, or the competition revision judgments could be considered

authoritative on those narrow issues, and more consistent across the two regimes. However, in practice, if the market investigation regime has to proceed on a wider test, as I am sure that it will, it will incorporate the EC regime over time.

It being Seven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till Tuesday 7 May at half-past Ten o'clock.