Examination of Witnesses
Enterprise and Regulatory Reform Bill

Katie Lane and Professor Sir John Vickers gave evidence.

Katie Lane: I am Katie Lane, head of welfare policy at Citizens Advice. I am here to talk about part 2 of the Bill and the employment aspects. Those are the issues that I am briefed to speak on today.

Sir John Vickers: I am John Vickers, an economist from Oxford university. I am here in a personal capacity. The formation of the Competition and Markets Authority is the part of the Bill that I would do best to focus on.

Q 182182

Sir John Vickers: I completely share the aims that the Bill has in that regard. As may be clear from the short note that I sent to the Committee a couple of days ago, I am not sure that combining the Competition Commission and the Office of Fair Trading into a single competition authority will be positive for that. It may be, but I would question that.

Q 183

Sir John Vickers: Certainly. I should say first that I have been remote from this area of policy since I left the OFT, so I would rather put the points as questions rather than as definite doubts that I have. The most important thing for UK competition policy, which has had a good legal basis for the past decade or so, is to improve the robustness and speed of decision taking in the casework. In the area of mergers, I believe that combining the OFT and the CC has a very good prospect of doing that. In the area of market investigation references, in which the UK has a special regime, it will be of paramount importance to have very strong separations between the case initiation part of the CMA and the part of the CMA that reaches conclusions and introduces remedies. Those separations will have to be so strong that the efficiency gains from combining the two bodies will be rather limited. Given all the institutional upheaval to get from where we are to the new regime, it is an open question whether the benefits for the casework would outweigh the cost of doing that.

Q 184

Katie Lane: As I said, I am going to focus on part 2 of the Bill, on employment tribunal reform. Although we broadly welcome the reforms, particularly the measures for early conciliation and settlements, we think that there is some overstating of the rise in employment tribunal claims, which is the Government’s justification for the need for the measures. That is largely because of the way in which some of the figures are presented for the rise in claims. The combined figures for single claims and workers included in multiple claims suggest a rise over recent years, but that is largely owing to the number of workers included in multiple claims. When you take single and multiple claims together, the actual net cases show a slight decline in the past year. The rise was a little blip at beginning of the economic downturn. The strong case for urgency might therefore be slightly overstated, but we think that some of the measures relating to the form of employment tribunals will be good for employers and employees.

Q 185

Sir John Vickers: It is not a question that I have considered in sufficient detail to give a detailed response. On general grounds, I welcome measures to enhance transparency in that general area. Of course, in the banking work with which I was involved in the past couple of years, that was and remains an important set  of issues. The work that the Banking Commission did was not directly on that, but indirectly, it was certainly relevant to it. One of our main concerns—it is by no means the only one—was to ensure that the taxpayer was not on the hook for future losses that banks might make.

Your question has an additional twist in a banking context, because such large amounts of taxpayer money have gone into institutions at a time when the remuneration—in some parts of the sector, at any rate—has continued to be quite handsome.

Q 186

Sir John Vickers: First, I will elaborate on the point I made earlier. Any good competition law regime has at least these three elements: merger control, a prohibition on anti-competitive agreements and a prohibition on the abuse of dominance. Through the Enterprise Act 2002—and the Competition Act 1998, which came a few years before it—we have those elements in place. What is unusual in the UK regime is a system where markets can be investigated and remedies applied, which can change market conditions very significantly, even though no one has broken any prohibition in the law. That has existed for decades in one form or another and many people regard it as a very valuable part of our system and, on balance, I agree with that view.

When I was at the Office of Fair Trading and Sir Derek Morris was chairing the Competition Commission, he would sometimes be questioned in international forums about this because through American eyes, for example, it would look like an unusual part of the regime. His response, which I think was very strong, was that no case that comes to the Competition Commission as a market investigation reference has been initiated by the Competition Commission. It is issued by an entirely separate body: the OFT. That sharp and total separation between initiation and decision has enhanced the robustness of this aspect of our regime, which is unusual by international standards but positive.

With mergers it is different, because a merger case is initiated not by the authorities but by the merging parties. In any regime, when merging parties want to do a significant merger, there will be scrutiny of that. My worry is that by combining these functions into one organisation, even though it may be entirely consistent with human rights legislation, it weakens that element of the system. When you have two organisations under one roof, you need an extra strong wall between the two parts. That will necessarily limit the efficiency gains that may come from the combination.

There is a rider that I might add, which is the final paragraph of my note. Along with the combination of the competition functions of the OFT and the Competition Commission, there will be a removal of a good deal of the consumer policy role that the OFT has had. I am not entirely clear from Government statements how far  that will go. I found, when I was at the OFT, that a very important thing to try to do was to make competition law enforcement consumer-focused and, at the same time, to have a proper market context and understanding for consumer policy interventions. All those things can be achieved with the separation of powers, but it can be a bit harder and it would be important to have safeguards on that front.

Q 187

Sir John Vickers: It is not for me to give advice; I am here to answer your questions. On the last point about whether a CC-OFT merger on the competition front will lead to a separation between competition and consumer policy, I suspect that that is not a question for legislation, so long as the OFT continues to have the powers. It will be more about how it will work in practice, and what the division of labour is between trading standards and the OFT. There are a number of markets where I believe that it was a very healthy thing, including within the organisation, to have competition and consumer matters together. That is consistent with what I have seen in Government statements, but I think that it will be a soft rather than hard legislative solution.

Q 188

Sir John Vickers: Of course, the Bill does refer to the Green bank. I do not think it is any criticism of the Bill that its competition aspects do not refer specifically to banking, because this is about the general competition and consumer law of the land and the institutions that administer it, so I would not expect banking-specific parts of this legislation.

As to the competition issues in the sector and more general consumer issues around conditions for informed choice, we in the Banking Commission made recommendations under three broad headings. One was the importance, as we see it, of ensuring that an effective challenger results from the Lloyds divestiture that is under way and is the subject of commercial discussions; second was a big step forward in ease of switching between current accounts, and consumer confidence that that switching will go well; the third, which is relevant for another piece of legislation, was that the new Financial Conduct Authority should have a clear central competition duty in carrying out its work for the future.

Q 189

Sir John Vickers: Those are both long-standing questions about the UK merger regime and, indeed, others internationally. On balance, I think that it is entirely reasonable to continue without a special carve-out for small mergers. One of the problems is that some mergers may be between relatively small companies, but in relation to the markets that they serve, they might not be so small in relative terms and there is a danger that there could be, incrementally, a substantial loss of competition if there is not some check on that.

On your second question, as between mandatory notification and the self-notification system, there is, in some ways, a higher regulatory burden with mandatory notification. There is, however, the risk that mergers will go through the net, without mandatory notification, that would be caught otherwise. Again, I think that it is a reasonable judgment on balance. In fact, either way; when I was at the OFT and we thought about this we were comfortable at the time without a mandatory notification system, because the incentives on the parties, I believe, are quite strong to notify; in part because of what can happen, even under current law, if an anti-competitive merger were to go through unnoticed, and also because the information available to the authorities is pretty good. I do not think that we have had many cases of things going through the net unnoticed, so I would not criticise the Bill on those counts.

Q 190

Katie Lane: We are concerned about the introduction of the fees regime. We think that that will increase the obligation on the Government to do more to ensure enforcement of the payment of employment tribunal awards once they have been made. We are concerned that at the moment we are still looking at figures showing that one in four employment tribunal awards are never actually enforced. Even under the new scheme set up a couple of years ago for awards to be enforced by High Court enforcement officers, latest figures show that only 50% of those are enforced and 50% are found to be unenforceable within a year, even though employees who have won their award have paid an extra fee to have a fast-track service.

We think that fees to use the employment tribunal service risk causing a further barrier to justice, although in our response to the consultation we did propose an alternative fees regime that we think would limit that barrier to justice and ensure that people would still use the service. That was given recognition and I think that was firmly on the Government’s mind, but we thought that the system that we proposed would make that fairer.

Q 191

Katie Lane: It is a really interesting question. We welcome the inclusion of financial penalties for employers in the Bill. That was suggested in the consultation last year. At that time it was suggested for every case where the employer had failed to comply with their employee obligations. We suggested that that was perhaps not appropriate. If employers were shown to have been repeat offenders, it would be more appropriate. There is a big question about how those penalties will be enforced, and the Bill does not say anything about that. It is something that we are interested in, because we assume that there will be a high number that are not paid, so the enforcement regime for those penalties would be really important. Whatever the Government suggest in relation to ensuring that they are enforced, we would like the same mechanism to be used for the payment of unpaid awards won by the employee.

Q 192

Katie Lane: On that, we are waiting for clarification about how those decisions will be made, but there is a concern. Again, obviously, we have to take account of the enforceability of those awards, but it is something that we would wait to hear more about. The largest penalties and awards are not usually the ones that we see. We generally see those from lower income and more vulnerable workers with smaller awards given. We are interested in that, but we would like to see more and the justification for that.

Q 193

Katie Lane: First, on the comment about whether the system is working or not, we accept and recognise that there are long delays in processing of current tribunals, so the measures taken in the Bill to improve that are welcome. My introductory comments were not to say that it is working well, but more to say that the kind of figures the Government use show a huge spike that is to some degree misleading.

Commenting on the use of ACAS for any case before it goes to tribunal; no, we welcome that and we think that early conciliation and early settlement are always preferable to going through to an employment tribunal. Our concern and question is that we would like assurance that ACAS will be sufficiently resourced to ensure that it is a gateway to resolution, rather than a logjam that will just put the delays in a different place. On the issue of early resolution, we have seen advice given by citizens advice bureaux and law centres prevent many cases from going through to tribunal, so we regret the fact that employment is coming out of legal aid scope. We think that there is a risk that that could result in more cases going to tribunals as a result of the changes.

Q 194

Katie Lane: I think that we always have concerns on whether there could be more consultation early on. We are aware of some of the alternatives being put forward on this by others, but it is not something that we have looked at in great detail.

Q 195

Katie Lane: It is difficult to say really. I do not think that we really think that the current regulation is causing huge problems. Some of these will make small steps. On settlement agreements, we were encouraged by the new clause as we had some worries about that. We would still value some further clarifications of that, but I know that that may be something that is encouraging to employers, and we think that is perhaps less worrying than we initially thought. They can be used in discrimination cases and only not used in unfair dismissal cases. I think that is an important clarification—that it is not eroding employment rights. For us it is a balance—risking the eroding of employment rights is a real concern, if there is not a clear case that it will improve things for business.

We certainly very much welcomed that on Second Reading the Secretary of State confirmed that he does not intend in any way, shape or form to introduce some of the Beecroft measures, particularly the hire and fire aspect that would be very worrying and not necessarily help employment growth. It would actually be of huge detriment to employees.

Q 196

Katie Lane: On the first point, particularly, the growth seems to be the larger number of workers included in a multiple claim. When you take the single claims and the multiple claims together, the figures have not changed. I have got the figures to hand, but I might lose myself if I go through them all. The figures have not seen growth at all; it is the larger number of workers included in the multiple claims.