Clause 93 - Amount of penalty under s. 92
Communications Bill
11:00 am

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

I beg to move amendment No. 232, in

clause 93, page 87, line 38, leave out 'ten' and insert 'five'.

The Minister has explained that he believes it necessary for Ofcom to have an additional power to fine, which we accept. However, there is a question about the size of the fine. From day one, the rationale of the Bill is that it is supposed to be applicable across the whole communications sector. It should take account of the convergence of multi-media and that the barriers between telecommunications and broadcasting would be broken down. Surely, therefore, there is a case for consistency throughout the sector?

This probing amendment seeks discover why the penalty available to Ofcom in clause 93 is up to 10 per cent. of the operator's turnover, when in clause 231, which deals with contraventions of licensing conditions for the broadcasting of television or radio programmes, the penalty is £250,000 or 5 per cent. of the qualifying revenue. Why is the penalty 5 per cent. in one part of the communications sector and 10 per cent. in another?

Mr Andrew Lansley (South Cambridgeshire, Conservative)

I do not intend to delay the Committee for long, but this is an important point. I understand perfectly why the figure of 10 per cent. was chosen. It is to have a parallel penalty available to Ofcom in relation to the contravention of conditions in the Competition Act 1998. I am grateful that the Government agreed with the Joint Committee that there should be alignment, rather than misalignment in the sense that Ofcom would have the power to vary the 10 per cent. limit.

The amendment moved by my hon. Friend the Member for Maldon and East Chelmsford helpfully probes the basis on which the penalty will be applied. I do not want to change the 10 per cent. to 5 per cent. In practice, the maximum penalty needs to be closely aligned in case there is a small risk that the level of the penalty available would cause Ofcom to choose one particular route over another.

The calculation of the penalty is important none the less. As the Minister rightly said in an earlier debate, the structure of regulation when using sector-specific powers is different. Just as it is true that in sector-specific regulation one would be unlikely to come across inadvertent breaches of the rules—because the conditions that are applied are specific to given persons and specific as to what needs to be done—in the same way, it is debatable whether the structure of penalties needs to carry across to the rest of the industry or need to be specific to the contravention and person concerned. The conditions are specific.

In the Competition Act, there are general regulations and obligations that apply to all businesses. In sector-specific regulations, there are conditions that apply to specific businesses and every business in that particular sector should be aware of the nature of those conditions and the penalties that would flow.

When the 10 per cent. penalty is applied in the Competition Act, it is applied in a way that includes—this list may not be exhaustive, because I am working from memory—a penalty in relation to the contravention of the offence itself that is designed to reflect and penalise a firm in relation to any benefit accrued over the period of the contravention. That can be mitigated to the extent that the business had sought to limit the damaging or anti-competitive effects or remedy them when notified. The penalty also has a deterrent effect not only in relation to that business, but other businesses generally. Judging from what the Minister said, he thinks that that is true in this situation, too, but is it necessary? The deterrent element in the Competition Act powers is an important part of the penalty. Members of the Committee think that I am an anorak for the Bill, but they ought to try me on Napp Pharmaceuticals v. the director general of fair trading.

Does the Minister maintain the assertion that deterrents will be a part of the judgment of the penalty that is to be applied under clause 93? If not, it would be useful if he said so. There is a good case for saying that that is not necessary and that the penalty should be appropriate and specific to the contravention, and make it clear that businesses cannot benefit by behaving in a way that is contrary to the conditions.

If it were the Government's intention that a deterrent effect should be applied, where is such a provision in the clause? The Committee knows how little I like the word ''appropriate''. What does it mean? Does it mean the inclusion of a deterrent effect? We need to know whether it does, because it will make an enormous difference to the manner in which Ofcom applies penalties.

As for the application of Competition Act powers, although the Competition Commission upheld the director general's decision in the case of Napp Pharmaceuticals v. the director general of fair trading, it varied the penalty. One reason for doing that was the extent to which the penalty was required to have a deterrent effect and how that should be measured. Whether that applies in respect of the Bill will be an important aspect of the extent to which businesses factor in the risk associated with such penalties.

Mr Stephen Timms (Minister of State (e-Commerce & Competitiveness), Department of Trade and Industry; East Ham, Labour)

As the hon. Member for South Cambridgeshire said, it is likely that Ofcom will need to decide whether it is more appropriate to use the Competition Act powers or the sectoral regime to deal with a particular issue. The Competition Act sets a maximum turnover threshold of 10 per cent. The hon. Member for Maldon and East Chelmsford suggested that there was an inconsistency. The key comparison is with the Competition Act regime, not with what the Bill says about broadcasting, and the figure of 10 per cent. is consistent with the Competition Act.

As for licences under the Broadcasting Act 1996 whereby Ofcom will enforce a lower limit of up to 5 per cent. of qualifying revenue, the broadcasting regime is different in many respects from that for networks and

services. It serves a different purpose. It is not so closely focused on economic regulation, but includes a wide range of other potentially more subjective matters. It uses various methods and sanctions, including licensing, which the Bill will abolish for networks and services. There is not a material inconsistency in having different turnover percentages in the two different parts of the Bill.

As for how the penalties will be calculated, the turnover to be taken into account in that context is not the whole turnover of the company or the group, but only that which is relevant in respect of time and business activity. It could be a small part of the total. The hon. Member for Maldon and East Chelmsford pressed me to go further in setting out how the penalties will be calculated. When calculating penalties, Ofcom will be required to operate according to rules made by the Secretary of State, which will be subject to approval by resolution of both Houses. That will ensure that a fair and sensible basis is adopted after due consideration by those in the industry with an interest and Members of both Houses.

Subsections (1) and (2) require Ofcom to ensure that, in each case in which it chooses to impose penalties, the penalties are appropriate and proportionate to the contravention concerned. I know that the hon. Member for Maldon and East Chelmsford would like me to go further, but that is as far as I want to go today in spelling out the way in which the regime will operate.

Mr John Whittingdale (Maldon and East Chelmsford, Conservative)

I accept the Minister's comments about bringing the penalty provision in line with the penalties available under the Competition Act 1998. In terms of the debate about consistency across the whole of the communications sector, perhaps it is argument in favour for increasing the penalty for broadcasters. That is an interesting question, which we might revisit when we reach clause 231. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 93 ordered to stand part of the Bill.