Clause 130 - Duty to remedy adverse effects

Enterprise Bill – in a Public Bill Committee am 10:45 am ar 7 Mai 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

`(7) In the event that the Commission decides that no remedial action needs to be taken following a market investigation, it shall reimburse the costs and legal expenses of the undertaking which have resulted from the investigation'.

I appreciate that there will be many economic indirect costs that are not reclaimable in any sensible way. By using restrictive wording, which focuses on cases in which no remedial action is required after investigation, we would not disincentivise the OFT from making reasonable inquiries into markets.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East 11:00, 7 Mai 2002

It concerns me that amendments demanding payment for investigations should have been tabled. I accept that an investigation may ultimately show that there were no problems with a company. However, the Conservatives are suggesting that the taxpayer should foot the bill for proper inquiries into industrial monopolies, anti-competition and so on. That could lead to considerable costs. Their method of probing the Bill is to suggest that the OFT will act capriciously on almost every occasion. In past sittings, I have noted the number of times that the Conservatives have concocted circumstances in which there will be capricious action by the OFT.

In many cases, it is fair enough to probe and to try to understand the Bill's intention and effects. However, it is an amendment too far to call upon the taxpayer to pay for investigations that turn up blank and give a company a clean bill of health. The

Under-Secretary should rebut that idea as quickly as possible. It is not the Committee's duty to impose additional costs on the taxpayer.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

It is, of course, correct that there should be investigations, and that the Competition Commission should have effective remedies to prevent an adverse impact on competition. However, we must realise that even when no remedial action is required after an investigation, a company will still have suffered costs, and will have spent a lot of management time on the issue. Its share price may have been affected. It may also have lost jobs, because a foreign competitor might have acted while the company stalled. Companies could be affected in many ways.

The hon. Member for Wolverhampton, North-East (Mr. Purchase) made the point that the public should not pay companies' costs but, in other cases, that is the case. The example that immediately comes to my mind is taken from my time on a planning committee. I remember that, frequently, when we were considering turning down an application that the officers had recommended for approval, the officers would say, "If you turn this down, the decision will be appealed, and costs will be awarded against the council." Under the hon. Gentleman's argument, one might say that that should not be allowed. However, it is allowed; quite rightly, too, because it puts in place a discipline. Public bodies, and those who serve on them, should be just as disciplined as companies or anyone else. That is what we are trying to say through the amendment.

With all due respect to the civil service, its members are paid to do their jobs, and the more creative they are and the better they are at their jobs, the more likely they are to find possibilities for referral. There should be a balance. Just as in my local government example, when a decision is made, the Minister concerned or the Competition Commission should realise that costs might be awarded against them if they were to take an action and lose it. I support the amendment because it seeks to achieve a fair balance.

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

I do not believe that the amendment seeks to achieve a fair balance.

We acknowledge that market investigations can be time-consuming and costly for the parties concerned, but the proper application of competition law ultimately benefits businesses and consumers. I should correct a possible misapprehension; if a market investigation concludes without any remedial action being taken that should not be taken to mean that it was all a big mistake, which seems to be an underlying assumption of Conservative members.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

The Under-Secretary makes a fair and important point; such an investigation might serve the public interest by raising significant issues, and connected matters. However, a different point is being made here. Should the company have to pay for that public benefit?

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

I understand the point that is being made; it is obvious.

Under certain circumstances, although the Competition Commission might find serious competition problems, it might not be reasonable or practicable to impose a remedy, for a variety of reasons. The Competition Commission will not spend its time undertaking frivolous investigations, and I take on board the point that my hon. Friend the Member for Wolverhampton, North-East made so well.

Photo of Gareth Thomas Gareth Thomas Party Chair, Co-operative Party

A parallel can be drawn with the actions of the police. They might investigate a company but decide not to take remedial action against it, such as to take it to court. In such situations, we do not ask the company to pay the costs of the lawyers whom it has appointed to deal with the police investigation. That is another reason to reject the amendment.

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

Indeed. My hon. Friend is right to support the remarks of my hon. Friend the Member for Wolverhampton, North-East. There are several reasons why it would not be a good idea to accept the amendment.

The OFT has a duty to use its reference powers in a reasonable manner, and it will issue guidance on how it plans to use them. As I have said, in the unlikely event of the OFT using its powers unreasonably, unfairly or illegally, or basing a reference decision on material errors of fact, aggrieved parties will be able to apply to the Competition Appeal Tribunal for a review, and to seek to quash a reference decision. In situations in which the OFT's suspicion of competition problems in a market are reasonable, but the Competition Commission finds that that is not the case, the Competition Commission's investigation is unlikely to be long or costly.

Committee members might be interested to learn that only once has such an investigation led to a finding of no harm; an investigation into Scottish estate agents. Although it led to a finding of no harm, the investigation had merit and the public did not jump up and down and say that taxpayers' money should be paid to Scottish estate agencies as a result of that single instance of the finding of no harm.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

In circumstances where an issue is appealed to the Competition Appeal Tribunal, will that tribunal be able to award costs?

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

It would be possible to appeal against the decision of the Competition Commission, but it is unlikely that the costs of the appeal would be recovered, just as that would be unlikely with regard to an aggrieved party in a planning case. The parallel that the hon. Gentleman drew with planning applications was not terribly persuasive, given that, in his case, members turned down the advice of officers of the council, which is usually powerful and technical, in my experience. In such cases, there can be no parallel. There are

other aspects of disjointedness between the parallel that the hon. Gentleman seeks to make and the present situation.

The costs awarded would only cover those incurred in bringing the appeal itself when the appeal finds against the parties. We are striking the right balance, as my hon. Friends clearly agree. It would be wrong to accept such a course of action because there would be an incentive for parties to gold-plate their legal cover, which would lead to a massive increase in the overall costs of an investigation.

It could be perceived that the Competition Commission had a natural bias against deciding that no remedial action was taken in a market, potentially leading it to impose unnecessary remedies as a way of avoiding paying parties' costs. All of that would be unattractive. We have the right balance; the one most commonly struck, as some of my hon. Friends have said. I urge hon. Members to reject the amendment.

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

We have had a debate and, clearly, the Under-Secretary will not budge to any great degree. I was not impressed by the comparison made by the hon. Member for Harrow, West (Mr. Thomas) in relation to the police force. There are strong differences between a criminal investigation and the nature of Competition Commission investigations, not least because of the whole issue of compromise and openness to which we have already referred.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

Does the hon. Gentleman agree that the direct comparison made earlier between planning and OFT law is also odious, because planning law is based upon the premise that one must have a presumption in favour of the applicant?

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

My hon. Friend the Member for Huntingdon was a councillor in Westminster prior to entering Parliament. My own background was in the London borough of Kensington and Chelsea. I sat on planning committees for several years, and debates took place in which strong pressure was brought to bear by the planning committee upon members of the planning department. I speak from the basis of one who has little time for planning professionals; I have never been terribly impressed by the advice given. We should draw a veil over the issue of planning before I am ruled out of order. Suffice it to say, with great respect to my hon. Friend and to the hon. Member for Harrow, West, I suspect that neither example was other than a cul-de-sac in relation to the matter at hand.

I am comfortable about withdrawing the amendment, although the debate about it was deliberately narrowly focused. There were few instances in which no remedial matters were brought to bear. Indeed, the Under-Secretary had only one example, which related to Scottish estate agents, in which a fully-fledged market investigation resulted in no remedy being required.

It would be sensible for the Under-Secretary to reconsider the matter, and we will no doubt revisit on

Report the question of costs imposed upon business. The amendment was couched within a very narrow focus, although I accept the concern that somewhat cosmetic remedial suggestions may be made in order to by-pass the point about costs.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead

Does the hon. Gentleman accept that his amendment may have been more suitable if the action taken by the OFT was malevolent, as it were? That would give rise to an issue about compensation.

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

I sincerely hope that there would be no question of frivolous or malevolent intent from the OFT, not least because there will be such strong ministerial control that there is no chance of such a thing happening. On balance, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon 11:15, 7 Mai 2002

I want to speak a little more about the clause as a whole and subsection (3), in particular. It starts off well, but then goes rapidly down hill. It states:

"The decisions of the Commission ... shall be consistent with its decisions as included in its report".

I should be grateful for the Under-Secretary's comments on some points. First, what would be material in such circumstances? Secondly, the circumstances of the company may be such that the causation is beyond its control. Would that make a difference? Thirdly, would any change to the Competition Commission's decision be only to take no action or less action, or could it decide to take more action? If it took more action—action that would be tougher on the company concerned—would the company be asked for its input or be able to comment on the altered circumstances that led to a change in the commission's decision? Could the company take that change of mind to the CAT as an issue in itself? Finally, can the Under-Secretary elaborate on what constitutes special reasons? Is she or her Department planning to issue guidance on the matter?

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

The hon. Gentleman is particularly exercised by subsection (3). As he said, it requires that, unless there has been a material change of circumstances or a special reason for the Competition Commission taking a different course of action, its action must be consistent with its report on a market

investigation reference. The clause specifies that the Competition Commission should achieve as comprehensive a remedy as is reasonable and practicable to the adverse effect that it has identified and any detrimental effects on customers that arise from it.

As I explained when discussing clause 126, effectively, the provision creates a presumption in favour of directly remedying the adverse effects on competition, though it does not mean that the Competition Commission cannot implement a remedy that completely removes the detrimental effects on customers over one that only partly mitigates the adverse effect on competition. It also means that the Competition Commission must consider whether the adverse effects that each remedy is designed to address are sufficiently serious to justify the costs of implementing that remedy.

As I said, the Competition Commission still has a duty to consult on a new remedy if the change is significant, and that process will take time. For example, the market could change between the publication of the report and the finalisation of the remedy.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

If the change were due to the marketplace, as the Under-Secretary has described, rather than due to the company or because of its action, why should it necessarily suffer as a result of circumstances that were beyond its control?

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

Any change will still be subject to reasonable and practical requirements. The company would be consulted, and circumstances could vary in either direction—the hon. Gentleman assumed only one direction. However, regulations or laws that cause a competition problem might take something beyond a company's control, so there might be reasons for new remedies.

I am sure that the hon. Gentleman does not want to deprive business or the Competition Commission of appropriate flexibility in responding to changes in circumstances. Indeed, the point of the provision is to specify that the commission may have regard to any customer benefits in any UK market—not only the market involved—which arise from features of the market that have led to an adverse effect on competition. To do so, it must be confident that the benefit has been accrued partly or wholly as a result of the feature or features involved and that it may be expected to accrue within a reasonable period. I hope that I have reassured the hon. Gentleman that in some circumstances the provision is appropriate and that, therefore, the clause should stand part of the Bill.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I am not wholly convinced. When is such a provision likely to be used, in particular that which refers to when the commission otherwise has a special reason? Clearly, that could mean anything. Does the Department intend to consult or issue guidance on that, or will that be based on precedent

to date? It would be helpful if the Under-Secretary expanded on that.

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

We do not propose to consult on the circumstances and reasons. I sketched out several examples of circumstances in which the provision may be necessary. There are reasons for the provision to do with causation beyond control. I have given illustrative examples. We cannot give a definitive list, and it would be foolish to do so. That is probably what the hon. Gentleman is trying to tempt me to give. I hope that the illustrations that I have given meet the point about the sort of circumstances in which we envisage the provision operating.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I hope that the Under-Secretary understands where I am coming from. At the end of two years, when the Competition Commission is in the process of deciding what to do after a long investigation, the company merely wants to know that there will be certainty and that, after a two-year report, the Competition Commission will not merely turn around and say that it has special reasons in the circumstances. I asked for an elaboration of what might constitute special reasons. The Under-Secretary has not suggested what might constitute special circumstances. I am asking not for a specific case study but merely an indication of what might lead to special reason and, therefore, indecision and uncertainty for business.

Question put and agreed to.

Clause 130 ordered to stand part of the Bill.

Clauses 131 and 132 ordered to stand part of the Bill.