Clause 173 - interpretation: part 4

Enterprise Bill – in a Public Bill Committee am 5:15 pm ar 7 Mai 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 5:15, 7 Mai 2002

I beg to move amendment No. 328, in page 124, line 31, at end insert

'and includes a local authority or a public body.'.

Photo of Mr Nigel Beard Mr Nigel Beard Llafur, Bexleyheath and Crayford

With this we may discuss amendment No. 136, in page 124, line 34, after 'is', insert—

'(a) a consumer of goods or services whether publicly or privately provided.'.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

The CBI raised this issue, which has wider ramifications. The amendment seeks to clarify that the provisions would cover public bodies such as local authorities. I have a distinct memory of debating the issues when shadowing local government, particularly when the Local Government Bill was going through its stages. There is an increasing desire in local government to get away from the old ultra vires doctrine and to be permitted to trade and find other ways of producing income. This is the other side of that coin.

The borough of Westminster was particularly active in lobbying on this issue because of the other opportunities available to it in terms of charging film companies, and so on. Local authorities can boost their income in ways other than holding out their hand to central Government for grants—we know that the level for specific grants has gone up exponentially under this Government—and increasing council taxes, and so on, in these days of continued capping, although under a slightly different system.

In its context, this is laudable. Local authorities are looking for innovative ways to raise revenue, or engaging in activities which could loosely be called trade, which they are capable of doing—no one wants to encourage them to go into things that they are plainly not cut out for. However, every silver lining has a cloud, and the other side of the equation is the concern of the CBI and others about unfair competition. It is a little like the concerns that we occasionally hear from our local chamber of commerce about the explosion in the number of charity shops. There is no difficulty if they are genuine, but certain charity shops buy in their produce and operate much more commercially, sometimes using their inbuilt advantages to compete unfairly with genuine local businesses. That is a slightly different illustration of the point.

We must not allow, even unintentionally, public bodies of whatever sort to be outwith the potential investigations. I have mentioned local authorities as perhaps the best example, but I am sure that hon. Members can imagine others. The amendment would ensure that market investigations can apply to publicly owned bodies that may operate as I have described, including by selling goods or services for gain.

Other examples include potential mixed markets in which both private and public businesses operate. They span health care, hospitals, postal services—we have seen the recent proposals from that industry's regulator—and even the defence sector. The CBI has a

fair point, which is that if such bodies operate in a commercial environment, they should be treated like any other market operator by the competition rules. It is a fair point. It may not have a practical effect on many organisations but, as I said earlier, there is increasing pressure for local authorities to be more involved in commercial activities and for them to be allowed to be.

I recall that there was a Green Paper floating around when I left the job of shadowing the Minister responsible for local government, which may have been firmed up into a White Paper by now. The Government did not seem unsympathetic to the cause. There is also a growing trend of a mixture of public and private provision across our public services. There is a big debate to be had on that, but not today. On that basis, I commend the amendment to the Committee.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

The hon. Member for Eastbourne (Mr. Waterson) has a point, which is practical rather than a matter of public sector versus private sector. After the changes of the past 20 years, there is not much public enterprise left. Those that remain include the Post Office, which is covered by a separate regulatory regime and we have discussed how that fits in with this Bill, and the BBC, which is currently being debated Downstairs in the context of the draft communications Bill. There are areas in which Government quangos and public entities are being encouraged to operate commercially, and that presents a competition policy problem.

One example, with which I am familiar because of its impact on a company in my constituency, relates to the Department of Trade and Industry and Companies House, which is a public provider of data about companies. It generates the data, transforms it and has been encouraged to sell it into the market. At first sight, getting Companies House to earn some money seems admirable, but there is already a small private sector industry of companies that buy data from Companies House, transform it through sophisticated computers and data processors, and sell it into the market. Those companies have found themselves in the awkward position of buying data from Companies House at a higher price than Companies House charged to its own marketing division. That problem may have been resolved by now, as it was raised with me two years ago, but it illustrates the kind of dilemmas that arise.

The same problem arises with Ordnance Survey, another Government agency that the Government encouraged to be more commercial before they realised that private companies were in the business of using the mapping data on a commercial basis. I do not argue about the rights and wrongs here, but there is a rather awkward borderline between the public and private sector in those little niches of the market. It is important that competition is fair and is seen to be fair and that the Government entities operate on the same basis as their private sector competitors. If the amendment manages to capture that problem, even if it is a rather limited one, it has a good deal of value.

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

I strongly believe that local authorities and other bodies, which in essence cannot go bankrupt, should not compete in the private sector for the sale of goods and services of whatever kind. I am a strong supporter of the mixed economy and I believe that competition should be fair. I have no problems in saying that local authorities and other public bodies should be subject to similar rules of the game. I am concerned, however, that the hon. Member for Eastbourne mentions charities. While it is also true that an element of unfair of competition can obtain in the circumstances that he described, charities and other voluntary bodies have to adhere to so many rules and obligations that we are in danger of loading the system to the point where people will no longer volunteer.

I am an honorary parliamentary adviser to the British Healthcare Association, which has come under the scrutiny of the Financial Services Agency. While matters have been resolved, the problems of getting to grips with the new requirements for an essentially non-profit-making charity assisting people with their health care within the national health service resulted in considerable expenditure. Others in the charitable field are concerned about the way that they are being brought under the aegis of bodies like the FSA. If this measure were extended to charities it would be another disincentive to people volunteering for what are often important additions to our social life.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

It seems unfair that the public sector should not be included in the market investigation regime. The hon. Member for Twickenham made a good point. It is not a question of public against private here, but the public sector acting as a private sector body, which is now possible within the law and is increasingly being encouraged by the Government. I do not say that that is necessarily a bad thing. Let us take one example. There has been talk of the NHS buying up private hospitals, either in total or the use of all or a percentage of their beds. A monopoly provider will move into the private sector and compete from a massively dominant position.

Considering that the health service will have an extra £9 billion after the tax increases to play with, that is a massive block compared with private sector competitors. In that context it is a very relevant issue. The NHS is the largest employer in the world. It is a massive corporation, with massive monopoly purchasing power. If policy changes, as it seems to be doing, so that it can compete with the private sector, it should be subjected to the regime outlined here. If the amendments are not carried, I hope that the Government will think about the issue more carefully. That has come across from all hon. Members.

Photo of John Pugh John Pugh Democratiaid Rhyddfrydol, Southport

I am all in favour of people thinking about the issue a lot more carefully and I listened carefully to what the hon. Member for Eastbourne said. He gave me the sense that we are debating a limited kind of application; that it could apply to public bodies only in so far as they operate in the commercial environment.

The hon. Gentleman then went on to describe situations where traditional local authority services have rivals in the private sector, so it seems to me that the amendment could embrace almost any public body activity where there is, in theory, the opportunity of a private enterprise providing a similar or analogous service. If that were the case, would it apply right across the board to the whole range of public sector bodies and their operations?

The hon. Member for Huntingdon talked about the public sector acting on a private sector basis. I am not aware, however, that it is always entirely clear when a local authority is or is not doing that. I think it would be accepted, therefore, that an anxiety would be that we might apply it to areas of public sector operation where there are no customers—there are citizens—and where there are no actual profits. However—

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

This is a fascinating and complicated area, and the hon. Gentleman makes points that should be considered in that context.

I end by saying that if the Government—

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

Following on from the previous intervention, this is an interesting train of thought. Would my hon. Friend care to comment on a situation where a hospital, for example, decides to subsidise its mainstream activities by taking in laundry from people other than its patients and to turn that into a business to create income? What would be the position if it entered into arrangements that were anti-competitive with private laundries in a particular locality? Which side of the line would that take us?

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

My hon. Friend makes a good point. I remember that in Westminster we contracted out collections from parking meters and serviced collections from other councils' parking meters. We did that as an ancillary service to the existing service, which as the law currently works in local government, was all that we could do. If, however, the Government changed it—I think that there are proposals to do so—so that councils can provide services, clearly problems may occur with competition in terms of public money being used, in effect, to corner the market. Those are relevant considerations here.

If the amendments are not passed, I should be interested to hear the Under-Secretary's response to whether, if a public hospital had some private beds, as many do, it would be caught within the regime? If the public hospital increased its private beds to 50 per cent., would it then be caught within the regime? What I am interested to hear, as things stand, is whether the extent to which a public body involves itself in private activities has any bearing on whether it is caught within the definition of business.

Photo of Huw Irranca-Davies Huw Irranca-Davies Llafur, Ogwr

The way in which the clause is worded would seem to include most trading enterprises whether they are in the public sector, the charitable sector or the private sector. The amendment, which includes the words ''a local authority'', would seem to encompass the whole remit of what a local authority does.

Ultra vires and charitable status have already been referred to, but let me give an example other than hospitals. If a college was, in effect, trading as a charity, neither in the public nor the private sector, but having, as part of its enterprises, summer schemes that it operated out of its sports facilities under a separate trading arm, a separate trading enterprise, my interpretation of the wording of the clause is that those would be included. The same is true if a local authority has a dual-use sports centre. The operation is similar. It provides activities for schoolchildren during the day, but becomes a commercial operation in the evening. The amendment would extend the clause to cover the complete reach of the local authority beyond its simple trading. Will the Under-Secretary clarify that point?

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

My hon. Friend the Member for Ogmore (Huw Irranca-Davies) anticipated one of my points. However, it is important to recognise that some of the analogies that have been used are inappropriate. It is not clear whether there is a market in health care in all circumstances. The NHS is predicated on the idea that someone is entitled to health care if they need it, and the cost of meeting that care will be provided, regardless of whether they have any market power or the capacity to purchase. That raises different issues from the question of whether a market obtains.

On local authority services, the object of the best value regime is partly to try to ensure that a local authority will not undertake to deliver services if another party, such as another local authority or a private company, could deliver them more effectively, thus literally giving best value. In the special circumstances of the public sector, the market is unquestionably imperfect. So far as health care is concerned, it is good that it is imperfect, as it means that people who do not have market power nevertheless receive the service. There is therefore a surrogate—best value—system in the public sector that has the effect of subjecting public bodies to market forces so far as it is appropriate. This might be another case in which we look to legislation outwith the Bill to deal with some of the concerns expressed by hon. Members. I agree with many hon. Members that it is important that such market disciplines are used to ensure that consumers are not ripped off by the public sector any more than they should be by the private sector.

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

The amendments seek to expand the definitions of consumer and business for the purposes of market investigations. We are in danger of losing sight of that. Amendment No. 328 deals with the definition of business, which in clause 173

''includes a professional practice and...any other undertaking which is carried on for gain or reward or which is an undertaking in the course of which goods or services are supplied otherwise than free of charge''.

It is important to understand that that means that the goods or services that are publicly provided commercially will be covered.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

The Minister rather skated over the word ''or'', which is crucial as it appears that there are two alternative tests. One is that an undertaking is being carried out for gain or reward—in other words, commercially—the other is a much lesser test:

''or which is an undertaking in the course of which goods or services are supplied otherwise than free of charge''.

That eliminates the NHS at a stroke, unless the Government have further plans to which we are not yet privy. It certainly does not cover undertakings that are being carried out commercially.

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

I will elucidate the definition of business, which is the same in the Bill as it is in the Fair Trading Act. Hon. Members will all be interested in the NHS in this context. In a recent merger case, the Heart hospital in London was sold by its private owners, Gleneagles Hospital UK, to the national health service. That shows that the definition of business catches NHS trusts when operating on a commercial basis. The OFT investigated the merger and did not refer it to the Competition Commission because no competition problems arose. It fell within the appropriate definitions. Amendment No. 328 is therefore unnecessary.

The hon. Member for Twickenham spoke to amendment No. 136. The definition of consumer mirrors that of existing Fair Trading Act provisions in part 3. It is included for the purpose of the definition of customer, which is also used in part 4. ''Customer'' includes a customer who is not a consumer. Consumer is defined by the clause as any person who is either

''a person to whom goods are or are sought to be supplied (whether by way of sale or otherwise) in the course of a business carried on by the person supplying or seeking to supply them; or . . . a person for whom services are or are sought to be supplied in the course of a business carried on by the person supplying or seeking to supply them; and who does not receive or seek to receive the good or services in the course of a business carried on by him''.

That definition already covers consumers of goods and services whether publicly or privately provided as long as they are goods and services supplied in the course of a business.

The amendment faces two problems. First, it would go further in encompassing consumers of public goods and services irrespective of whether they are provided on a commercial basis. As it stands, the definition covers goods or services that are publicly provided on a commercial basis, as I explained. I would not want to widen the definition to include those publicly provided with goods or services for free or on a non-commercial basis. Secondly, the amendment would extend the definition of consumer to any person who is privately supplied with goods or services, which we believe is an inappropriate extension of the definition.

In the light of my full explanation of both amendments and their relationship to the existing clause, I hope that I can persuade both Opposition Members to withdraw their amendments.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I am not wholly convinced that the Minister changed course in response to my helpful intervention. We can accept that anyone carrying out an undertaking in the course of a business should be caught by the definition, but I part company with the Minister when she talks about a commercial basis. An enterprise may not be carried out on a commercial basis, in the ordinary sense of the term, and may make a nominal charge or one below what would normally be charged, but the only way to fall outside the definition is to charge nothing at all—or no money, which would remove the NHS as we bequeathed it to the Government.

We get into murkier waters where public bodies set up an operation that is usually carried out by commercial bodies, but do not charge a proper or full rate. As long as they charge something, however nominal, we believe that they should be covered by the definition. On one reading they already are, but the Minister's attempt to explain it by stressing ''on a commercial basis'' undermines her own case.

Photo of Huw Irranca-Davies Huw Irranca-Davies Llafur, Ogwr 5:45, 7 Mai 2002

By way of a straightforward observation, I doubt whether the hon. Gentleman would want to extend his amendment to cover aspects of local authority provision or, by logical extension, charitable provision that tackles social need where the market would usually not step in. Much regulation already defines commercial and trading activities and where the local authority or charity should keep away from filling a gap that the market could easily step in on. The worry with the amendment, and the logic of it, is that there should be an extension to the voluntary sector and that all aspects of its concern and business would then be covered. That might have the effect of deterring such bodies.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

The hon. Gentleman makes a fair point, but I have two comments in response. First, the ground is shifting under us with regard to what local authorities are or are not allowed to do now or in future, and the basis on which they will be able to do things and charge for them. Secondly, all that we are setting out is the possibility of people being involved in the provisions.

At the end of the day, there still has to be evidence of anti-competitive activity and a prima facie case for a full investigation. As I said initially, it seems extremely unlikely that any of the bodies that we are talking about would get involved in such a situation. However, it would be wrong for the definition, or certainly the Under-Secretary's interpretation of it, to exclude them from an investigation if they were engaged in prima facie anti-competitive activity. As I said, her introduction of the expression ''on a commercial basis'', which is not reflected in the clause, has muddied the waters, but we have debated the issue long enough.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

I am still a little baffled as to what precisely ''on a commercial basis'' means. We know that some public entities, such as the Export Credits Guarantee Department, operate on a commercial

basis, which means covering their costs. Others, such as London Transport, also operate on a commercial basis, but have to earn a 6 per cent. return on capital. The phrase is used in a varied way in the public sector, and the precision that the Under-Secretary seeks in the clause is still not there. However, I shall not press my amendment to a vote.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 173 ordered to stand part of the Bill.

Clause 174 ordered to stand part of the Bill.