I beg to move, That the Bill be now read a Second time.
In our first term in government, our economic priority was to establish macro-economic stability—the essential precondition for business success and wider prosperity. As a result of the decisions that we took nearly five years ago, we now enjoy low inflation and the lowest long-term interest rates and highest levels of employment that we have had for many years.
In this second term, as my right hon. Friend the Chancellor of the Exchequer and I explained in our joint statement in June last year, our economic priority is to build on that foundation of stability by promoting higher productivity and greater enterprise. To achieve that, we will match the independence that we gave our monetary authorities with independence for our competition authorities, and alongside tough rules for public finances we will put tough rules for competitive behaviour and consumer protection.
Our ambition is greater prosperity and world-class public services for all—for every individual and family, every community and every region and nation of our country. To achieve that ambition, we need dynamic, competitive businesses that generate wealth, create jobs and provide the tax revenues that we need to invest in public services. The Bill strengthens the foundations of an enterprise economy by promoting competition, protecting consumers and establishing an insolvency regime that will encourage honest but unsuccessful entrepreneurs to try again. It builds on our considerable achievements to date—the Competition Act 1998, recent insolvency reforms and the measures that have already been implemented from the 1999 consumer White Paper.
Just as we are creating the right market framework for business in Britain, so we continue to press ahead with economic reform in Europe. We made solid progress in Barcelona, where, with our European colleagues, we set a timetable to complete the single market in financial services and achieved the long-awaited, if not yet sufficient, breakthrough on energy liberalisation.
The Bill has been widely welcomed. For example, David Lennan of the British Chambers of Commerce said recently:
"There is nothing more frustrating as an entrepreneur than finding you are unable to compete because other businesses have cheated and we therefore wholeheartedly support what the government is trying to achieve via this Bill".
"put an end to the billions lost to consumers each year from rogue traders".
"We support— the Bill—
"in the round and we value a very tough competitive regime because it will enhance productivity".
The extent of support for the Bill reflects the fact that at every stage in formulating policy we listened to the views of business, consumers and insolvency and competition experts. In 1999, we consulted on the measures in the consumer White Paper. In 2000, we consulted on personal bankruptcy and reform of the merger regime, and last year we consulted on competition and insolvency. As a result, we have developed proposals that improve the competition, consumer protection and insolvency regimes for all concerned without creating additional burdens or regulation for business.
Before the right hon. Lady moves away from her references to the Competition Act, will she tell the House on how many occasions actions have been successfully taken for infringements of the chapters 1 and 2 prohibitions since that Act came into force?
There has been significant use by the competition authorities of the new prohibitions in the 1998 Act, which will continue to be an extremely important part of the competition regime.
As a Government, we are unashamedly pro-competition. The best protection for consumers is choice—the choice that is provided in open and vibrant markets. Effective competition is a powerful incentive for firms to innovate, to improve their customer service and to become more productive. Of course, it also provides opportunities for new firms to enter markets and to grow. Strong, fair competition contributes to innovation and productivity growth and to the diffusion of economic power. It maximises opportunities for all.
The United Kingdom therefore needs a modern, world-class competition regime and a regulatory framework that is designed to promote competition rather than perpetuate regulation. The more effective the regulatory framework, the more markets will work efficiently and fairly, and the less regulatory intervention will be needed in the long run—competition where possible and regulation where necessary.
Before 1997, the competition regime had remained largely unchanged for almost 20 years, even though, for most of the period of Conservative government, it was clear that our competition laws were out of date and byzantine in their complexity. We have already made progress. My right hon. Friend the Secretary of State for Environment, Food and Rural Affairs, when she was Secretary of State for Trade and Industry, introduced the Competition Act and, with it, a modern, more streamlined regime that addressed anti-competitive agreements and abuses of dominant position. However, further improvement is needed. The mergers and markets regime needs to be modernised, and we need a step change in competitive pressures to help us close the productivity gap between the UK and our key competitors.
Our reforms are based on a number of key principles set out in the competition White Paper. The first principle is that we need strong, pro-active and independent competition authorities that are able to deal with anti-competitive behaviour. The Bill therefore provides that, in the vast majority of cases, with the exception of national security cases only, decisions will be taken by independent competition authorities, free from political interference. Although the Conservative party did not make that change when it was in power, I hope that it will support us in making it now. An overwhelming majority of respondents to our consultation supported the policy of taking the politics out of mergers and monopolies decisions. In removing those decisions from Ministers, we are removing a layer of regulation and streamlining the competition regime. Consistent with this new approach, I can announce today that, from September this year, UK competition views on merger cases that are being dealt with by the European Commission will also be a matter for the Office of Fair Trading, and not for the Government.
For mergers and markets cases, the authorities will apply a focused competition test rather than the current, less precise, public interest test. The result will be more transparent and predictable decision making. There will also be more transparency in the operation of the competition regime. The OFT will be required to publish an annual plan. Alongside its annual report, that will provide a clear basis on which Parliament and others will be able to assess its performance. The competition authorities will also be required to publish guidance on how they will approach the consideration of cases under the new regime, and to publish reasons for all their key decisions. Provisional conclusions in mergers and markets inquiries and the remedies for dealing with them will be discussed openly with the parties.
The Bill will also create better procedures for decision making, with statutory maximum timetables and a new right of appeal to the Competition Appeal Tribunal in mergers and markets cases. The effect will be a regime that operates more predictably, more consistently and more proportionately—better regulation.
Before the Secretary of State leaves the matter of the independence of the competition authorities, will she confirm that those authorities will not be subject to the same accountability procedures as apply to other public bodies? Will she take this opportunity to say that the OFT should have accepted in full rather than in part the views of the parliamentary ombudsman regarding the compromised investigation of the Colorvision case?
I am afraid that I am not aware of the details of the case to which the hon. Gentleman refers. However, he raises an important point, and I shall have a look at the matter. The Bill will establish that, in future, the OFT will be supervised by a board, so that its decisions will not be made solely by the director general. As I have said, we are also ensuring that there will be a new statutory right of appeal to the Competition Appeal Tribunal in mergers and markets cases. Those reforms, and the others made by the Bill, will establish a much stronger and properly independent system of competition decision making, but one with proper accountability to the law and to the House.
Will the Secretary of State clarify the status of the boards of the OFT and of the Competition Commission? What plans does she have to ensure that the composition of the boards is representative? When a specific inquiry is in hand, what will the right hon. Lady do to ensure that the Competition Commission board has the relevant market expertise? There has been considerable concern about the number of former Government officials who are placed on such boards. That renders somewhat suspect their ability to scrutinise markets.
I am aware of the concern to which the hon. Lady refers. We will ensure that the boards of the OFT and the Competition Commission contain members with the competition expertise necessary to deal with competition cases. We will also continue to have available the broader panels, which can be drawn on for specific investigations. Together with the increase in resources for the OFT and the Competition Commission, our reforms will ensure that the bodies have the range of expertise that will enable them to arrive at well informed and robust decisions in their investigations.
The second principle of our reforms is to establish a strong deterrent effect for anti-competitive behaviour. The Competition Act 1998 introduced fines for firms that operate cartels, but did not provide a deterrent for those individuals who dishonestly engage in hard-core cartels.
As I hope that the whole House will agree, those hard-core cartels do serious harm to consumers, businesses and to the economy as a whole by forcing up prices or keeping them high artificially, and preventing new entrants from gaining access to markets. Recent cartel cases include the price-fixing arrangements in the global vitamins industry, which cost consumers in the UK and the rest of the European Union millions of pounds, and the Sotheby's-Christie's price-fixing cartel, which was the subject of considerable publicity. Indeed, American competition authorities believe that cartels raise prices by some 10 per cent. on average.
We therefore propose in the Bill to introduce a new criminal offence of dishonestly entering into cartels, backed by sanctions that include the possibility of up to five years' imprisonment. We regard forming cartels as very serious offences, and the threat of imprisonment is important to deterring them. The new criminal offence will send out a strong message to the perpetrators, their colleagues in business, the general public, and the courts. We envisage that a prison sentence would be imposed in cases of serious cartel activity. Alternative sanctions, such as a suspended sentence or a fine, would be available to deal with the less serious cases where there are mitigating circumstances.
The Office of Fair Trading will continue to investigate cartels. Indeed, it has 25 alleged cartels under investigation already. In general, prosecutions will be the responsibility of the Serious Fraud Office, as is the case with other offences of dishonesty.
In the Bill, the offence is tightly drawn and properly so, but it will create a real deterrent effect. Again, I quote David Lennan of the British Chambers of Commerce, who said
"I do not believe that many business people will end up in jail as a result of the goverment's proposal. But introducing a criminal sanction should provide a strong disincentive, which will focus minds and help to create a competitive environment in this country."
So, not only is this measure vigorously supported by consumers, as one would expect, but it has business support too.
Our third principle is that people who are harmed by anti-competitive behaviour—whether other businesses or consumers—should have a genuine opportunity to obtain redress. The Bill will enable harmed parties to bring claims for damages before a specialist body—the Competition Appeal Tribunal. That will establish a cheaper, more streamlined route to obtain redress from companies that have broken the law.
In the Bill, we are also providing that representative bodies will be able to bring claims for damages in front of the tribunal on behalf of named and identifiable consumers. That will help consumers to bring claims where a large number of parties have each suffered a relatively small level of harm.
I shall turn now to the measures in the Bill specifically designed to protect consumers. As strong competition is the best form of consumer protection, all our competition reforms are good news for consumers. In particular, we are putting consumer interests at the heart of the new system with our new super-complaints, where the OFT must make a considered response within 90 days to properly investigated complaints from designated consumer bodies.
As a strong competition regime is not always enough by itself, however, we are also introducing specific new powers to empower and protect consumers. The stop now orders that we introduced last year were widely welcomed by consumer organisations.
I am sure that my right hon. Friend is aware that, by pure coincidence, my first ten-minute rule Bill concerned those orders, which shows that lowly Back Benchers are taken into account when legislation is drawn up. The measure is welcome, but there are concerns that it may cover not all rogue trading, but only that covered by existing legislation. So practices that are designed to get around the law may be excluded. I am referring specifically to pyramid money gifting, such as the women empowering women scheme, which extracted large amounts of money from women in my constituency and throughout the country and left many of them in grave debt. Will my right hon. Friend assure us that the Bill will deal with those sorts of schemes as well as the consumer protection issues that are covered by the law?
Of course, the stop now orders, which were indeed initiated by my hon. Friend, are designed to deal with rogue traders and others who are in breach of existing statutory provisions that apply to their sector. She raises an important matter and I am sure that we can deal with it in Committee.
Before the Secretary of State leaves that matter, will she confirm that, despite the urging of such bodies as the National Consumer Council, the Government have apparently set their face against introducing a general duty not to trade unfairly, which would be a catch-all method of dealing with exactly the matters raised by Margaret Moran?
We have looked carefully at the proposals for a general duty not to trade unfairly, but as I hope the hon. Gentleman will accept, we have decided that such a duty—particularly if it is cast in negative terms—would be so vague and general that it would create real uncertainty for business and difficulties for enforcement. For that reason, we have not included it in the Bill. Instead, we are extending the protection of stop now orders to other areas, in particular in the service sector, where consumer interests are harmed by traders who do not meet their legal obligations.
I guess that all of us in this House, and our constituents, have suffered from cowboy builders, incompetent plumbers, poor car servicing and so on. The reformed system of stop now orders, and the extension proposed in the Bill, will be clearer for businesses to understand and will create a single, coherent enforcement structure that will replace the parallel regimes that currently exist for different issues.
The proposals on rogue traders will be generally acknowledged and respected. However, the key to the effective enforcement of the Bill will be to ensure that trading standards bodies within local authorities are improved. I do not understand their omission from the Bill, and I should be grateful if the Secretary of State explained it.
I welcome the hon. Gentleman's support for the extension of stop now orders and he is right to draw attention to the vital role of trading standards officers. There is some variation in the quality and resourcing of trading standards officers around the country. That is why the Under-Secretary of State for Trade and Industry, my hon. Friend Miss Johnson, the Minister responsible for consumer protection, is using funding from the modernisation fund, and working with the OFT and trading standards officers, to ensure that they are properly resourced and able to implement their extremely important responsibilities towards consumers.
The National Consumer Council—to which reference has been made—has said in relation to the stop now orders and more general matters:
"These measures will complete the crackdown on anti-competitive practices that for too long have damaged the interests of consumers."
The Bill also includes measures to enable the OFT to give formal approval to voluntary industry codes of practice—provided that these are effective in protecting consumer interests and meet core criteria—and to promote the benefits of those codes to consumers and business. In that way, we will help consumers to identify reputable traders and benefit businesses by increasing consumer confidence in their products and services.
I should now like to turn to the measures on insolvency and the insolvency reform proposals within the Bill. Failure, as well as success, is an integral part of an enterprise economy. But the fear and consequences of failure should not be so disproportionate that they act as a disincentive to entrepreneurs. We need to encourage honest risk-takers, while dealing with the minority of bankrupts who are thoroughly dishonest.
I welcome the proposals in the Bill on insolvency, a matter that the Select Committee investigated three years ago, when we went to the United States and saw what was being done there. Will my right hon. Friend address the concerns of the TUC about consulting employees and protecting workers in cases of insolvency?
It is extremely important to take account of the position and interest of employees in cases of insolvency. The provisions and the reforms of administration, to which I shall turn in greater detail in a moment, will ensure that, in the case of a failed business, there is more money available to the creditors, who may well include employees; either directly, because wages or holiday money are due to them, or indirectly, because national insurance contributions have not been paid on their behalf. Employees will benefit, along with other creditors, from our proposed reforms.
My hon. Friend Linda Perham referred to the experience of the United States, upon which the Select Committee drew in formulating its recommendations. It is noticeable that, in the United States, there is much less fear of failure. Only one in five people in America say that fear of failure would deter them from starting a business. Indeed, it seems that if people do not have one or two failures under their belt in America, they are hardly regarded as serious entrepreneurs.
My right hon. Friend is assuaging the fears of some of those who have seen the Bill. Like my hon. Friend Linda Perham, I greatly welcome the proposals on insolvency and the consultations with insolvency practitioners that my right hon. Friend has undertaken to provide. Will my right hon. Friend give an assurance that she will look carefully at the provisions on the possible impact on voluntary organisations such as citizens advice bureaux and the debt advice sector? That would do much to generate widespread acceptance of these measures.
My hon. Friend makes an important point. Our regulatory impact assessment draws attention to the possible increase in the need for advice and an updating of the advice given by citizens advice bureaux and money advice centres to take account of these provisions. So we are already aware of that issue.
It is important to encourage entrepreneurship by addressing this fear of failure and supporting business start-ups. The Bill contains a number of measures to address that.
My right hon. Friend knows that I have an interest in industrial and provident societies. She, as a champion of social enterprises, will be aware that many use the industrial and provident society legal form. Given her comments about insolvency and the attractiveness to companies of the new regimes in the measure, will she ensure that Government officials keep under close consideration the possibility of applying the benefits of these measures across industrial and provident societies at some point?
I welcome the private Member's Bill that my hon. Friend has introduced to modernise the statutory framework for industrial and provident societies. I know that colleagues in the Treasury who are working with him on the Bill are considering the best way to ensure that the present regime for mutuals that go into administration can be updated in the light of the reforms in the Bill.
We are getting rid of the present "one size fits all" regime for individuals who become bankrupt and introducing a differentiated regime that takes account of the circumstances of the case. The Bill reduces the period before which a bankrupt is discharged from restrictions to a maximum of 12 months for those who have failed, through no fault of their own, and who co-operate with the official receiver. However, for those bankrupts who have acted recklessly, irresponsibly or dishonestly, the Bill introduces a new court-based bankruptcy restrictions order regime under which they will face much tougher restrictions lasting between two and 15 years. So there will be tougher penalties for the minority of dishonest bankrupts but a much lighter regime to encourage the honest but unfortunate entrepreneur to learn from his mistakes, try again and go on to business success. The Bill also removes many of the irrelevant and outdated restrictions that apply to bankrupts.
I welcome, to a large extent, the thinking behind the changes on insolvency. However, the right hon. Lady's talk about the dichotomy between honest bankrupts and dishonest traders exposes the Bill's backward-looking and traditional British thinking on insolvency. As has already been said, there is an entirely different outlook on insolvency in the United States, where people do not see it in black-and-white terms of honest and dishonest bankrupts and insolvents.
I do not really accept the hon. Gentleman's point. The new regime that we are putting in place—the fact that there will be a maximum of 12 months for those who have failed through no fault of their own and co-operate with the official receiver as well as a set of restrictions that can last for between two and 15 years—will enable the courts to graduate their response according to the circumstances of the case.
The reforms have been widely welcomed, not least by the Prince's Trust, which has done so much to encourage entrepreneurship among young people from disadvantaged backgrounds. It says:
"We welcome the proposal to distinguish more clearly between those who have made a genuine attempt to succeed in business and those who have become bankrupt through reckless or fraudulent practices."
That is a distinction that we are right to make, but by giving the courts a proper time scale over which restrictions can be imposed they can make their judgment on an individual case.
Will the right hon. Lady clarify how the difference is to be determined? Clearly, in some cases it will be obvious that people have become bankrupt through no fault of their own, but in the case of a company which is up against it in the tail end weeks and months, it is often the practice to pay preferential creditors in order to keep stock coming in. That is illegal, but one can understand why it is done. Would such a person or company be deemed to be on the two-to-15 year track?
Each case will have to be decided by the courts on the individual facts, but the new administration procedure will encourage companies to come forward earlier once they get into difficulties rather than going up against the wire in the way that the hon. Lady describes and behaving in a way which, on the face of it, could be regarded as dishonest. That system of administration which, as I say, has been so widely welcomed, will encourage company rescue rather than insolvency wherever possible.
Having been involved in business, I welcome the fact that someone who has become bankrupt through no fault of their own is to be given the chance to start again, but how shall we define "through no fault of their own"? There has to be some error of judgment in the management of a company for it to go down. The right hon. Lady's words have a good spin to them, but the practicalities on the ground might be slightly different.
I cannot help feeling that the hon. Gentleman is making rather heavy weather of this. We have consulted insolvency practitioners, and the British Bankers Association wrote to me a couple of weeks ago expressing its appreciation of the constructive dialogue that it enjoyed with the Department's officials and their willingness to listen. I have no doubt that in individual bankruptcy cases the courts will be able to make common-sense judgments based on the evidence before them and having heard from the individual concerned.
My point is similar to that of Mr. Page, in that there is a clear distinction between the malevolent bankrupt and those who have done their best, although perhaps not doing everything according to the book. I hope that my right hon. Friend might consider changes in the Bill's terminology to reflect that distinction more clearly. In particular, the odious word "bankrupt" really should not be used for those who are in the basically honest camp.
In Committee and at other stages in the Bill's passage, we shall of course see whether we can improve the wording. I welcome the support of my hon. Friend and others for the principle here. The Federation of Small Businesses, which has extensive experience of the problem, has also said that, clearly,
"where it is obvious that the bankrupt has fallen on hard times through sheer bad luck, it is only right that they be allowed back into the system at a much earlier stage".
It goes on to say:
"We do not see anything controversial in these proposals and would urge all party support and speedy implementation through Parliament."
I hope that our discussions can focus on the details of how we implement the principle rather than on any disagreement about the principle itself.
Will the right hon. Lady clarify the concepts of dishonesty and recklessness that are, I understand, at the heart of the culpability test? Will they be defined according to the criminal standard of proof—that is, beyond reasonable doubt?
This part of the Bill deals with civil proceedings, so we are talking about a civil standard of proof. The same applies to the new bankruptcy restriction orders.
I stress that we also want to ensure that companies do not go to the wall unnecessarily. That is why the Bill would restrict in future the use of administrative receivership, which places effective control in the hands of a single secured creditor. Instead, we shall shift the balance in favour of the new streamlined administration procedure that aims, as I said, to facilitate company rescue and to produce better returns for creditors as a whole. The reforms will ensure that account is taken of the interests of all creditors, including small firms and other trade creditors whose claims are unsecured.
The Bill will abolish the Crown's preferential rights to recover unpaid taxes ahead of other creditors. That, too, will bring real benefits to unsecured creditors. We are also including measures that contribute towards reforming the Insolvency Service's financial regime, to bring increased transparency and simplicity. That will ensure that money does not flow, in effect, from the coffers of the creditors into the coffers of the Treasury. The reforms will ensure that the maximum possible return goes to insolvent estates. Together with the abolition of Crown preference, those two provisions will make up to £110 million available for distribution to all creditors.
The measures in the Bill are radical and bold, but based on careful and extensive consultation. They will benefit businesses and consumers by hundreds of millions of pounds. They will boost productivity and enterprise, help our international competitiveness and make the United Kingdom an even better place in which to do business and to be a consumer.
As I have emphasised, the Bill has attracted widespread support which will, I hope, be reflected in our discussions today and during its passage. I commend the Bill to the House.
The measure has been described as the flagship Bill of the Department of Trade and Industry. It consists of 269 clauses and 26 schedules, running to 333 pages; and there are 139 pages of explanatory notes.
It is true that many of the main principles of the Bill are not matters of controversy between us. However, I am sure that the Secretary of State will agree that the effects of the Bill are likely to be far reaching—across the whole of industry; and that the measure represents a major change in the law governing commerce and business in the UK which is likely to affect every company in the land.
Given those facts, it is extraordinary that a Bill of such complexity is to be pushed through Parliament with so little opportunity for detailed scrutiny and debate. In her speech, the Secretary of State made much of the fact that business had welcomed the amount of consultation that had taken place while the Bill was being drawn up. I think that she specifically referred to the CBI, so I draw her attention to a speech given a few days ago by the deputy director general of the CBI, especially the section entitled "Lack of real consultation". He said:
"Many CBI member companies have expressed serious concerns to us about the inadequacy of the consultation period, given the complexity and novelty of many of the proposals. Nine weeks for the White Paper—four of which were during August—was hardly sufficient, especially since so much of what was being proposed was new and unexpected."
The innovation for which the Government are responsible—subjecting Bills to pre-legislative scrutiny—has undoubtedly improved the process of law making, but if ever there was a Bill that would have benefited from such scrutiny, it was this one. Instead, however, its publication was delayed and delayed until finally it appeared on the very day that the House went into recess for Easter. Just 15 days later we are giving the Bill a Second Reading, with almost no time for those with an interest to study it and make comments. Worse still, the motion on the Order Paper requires its Committee stage to be completed by
It is not entirely clear why there is any such need for haste, as only a few years ago the Government passed the Competition Act 1998, which was described at the time as the most radical overhaul of our competition laws for 50 years. Indeed, on Third Reading, the then Minister of State said:
"Reform of the current regime is long overdue. The Bill will give us a really modern and effective competition regime at last."—[Hansard, 8 July 1998; Vol. 315, c. 1209.]
Here we are, however, a few years later, debating a Bill that overturns several of the principles contained in the Competition Act and establishes new rules and powers that go far further than those allowed for under that Act.
Can we conclude, therefore, that the regime established by the Government, which has only recently come into force, has proved to be neither modern nor effective? If so, what is the evidence for that? Will the Secretary of State tell us which anti-competitive practices have continued to occur that the powers contained in the Competition Act 1998 have proved inadequate to prevent?
Lest there be any doubt, I should say that we are strongly in favour of a strong and effective competition regime. Although I am a believer in free and competitive markets as the ultimate protection for the consumer, I fully accept the need for tough laws to prevent abuse of market power and anti-competitive practices. Just as the vast majority of people in this country are law-abiding, so are most firms happy to win business by offering customers what they want at the best available price. However, there will be some who try to take advantage of their market strength to seek to eliminate their competitors by predatory pricing or by collusion with competitors to fix prices or markets behind closed doors.
The purest free market thinkers, with whom I have traditionally had some sympathy, believe that the market will always win, and that when a firm seeks to take advantage of its elimination of its competitors or a price is fixed by a cartel of producers, a new entrant will always come along to undercut it. However, that takes no account of the damage suffered in the meantime by competitive companies and consumers as a result of market abuse. Therefore, I agree with the Secretary of State that legal sanctions are required to deter such practices, and I do not oppose measures designed to achieve that.
There are several specific measures in the Bill to which we are happy to give unqualified support. The first is the decision to remove Ministers from the decision-making process on the clearance of mergers. I should declare that I had some experience of such matters when I worked as a special adviser to Norman Tebbit, the then Secretary of State. Lord Tebbit established the Tebbit guidelines, which required that merger references should be made primarily on competition grounds, rather than on any of the wider considerations contained in the Fair Trading Act 1973. The proposal to remove Ministers from the equation entirely and to leave matters to competition authorities is in some ways the ultimate application of the Tebbit guidelines, although knowing that may not increase the Secretary of State's enthusiasm for her policy.
I am grateful to my hon. Friend, although for accuracy's sake I should point out that I was a civil servant at that time, not a special adviser. However, I did have the same experience. Would my hon. Friend agree that, whereas the Secretary of State implied that the measure should have been undertaken earlier, the whole point of the application of the Tebbit doctrine by subsequent Conservative Secretaries of State was that competition was given primacy? A degree of predictability in the market place was therefore engendered, which has been lost in recent years by the apparent unpredictability of decisions made by Labour Ministers. Is it not an implied criticism of her predecessors that the Secretary of State is taking this step?
Having welcomed some parts of the Bill, I shall explore some of the concerns that have been expressed, in particular by the CBI, about some aspects of the new competition regime—concerns that I think should be addressed. The new powers to be given to the Office of Fair Trading to investigate markets to identify and root out anti-competitive practices are considerable. Supporters of the Bill argue that those who are innocent of any such behaviour should have no reason to be concerned, but it is not true that those who are investigated and cleared of any wrongdoing face no penalty. The truth is that those who are subject to investigation are required to devote huge amounts of time and resources to proving their innocence. In some cases, they have had to do so repeatedly, as no sooner are they cleared of any malpractice in one investigation than they face another investigation—one that seeks to uncover evidence that the previous investigation failed to find.
That has certainly been the case in the record industry, which has repeatedly been accused of rigging the market to maintain an artificially high price for compact discs. In 1993, the industry was subjected to an investigation by the Monopolies and Mergers Commission which lasted for a year and which cleared the industry of any wrongdoing. The MMC's subsequent report ran to 350 pages, and the total cost of that investigation to the industry in terms of professional fees and management time was estimated to have been between £17 million and £20 million. None the less, in the past three years the industry has had to contend with five more separate investigations, none of which has overturned the MMC's original conclusions.
There is genuine anxiety that the OFT might come under pressure from consumer groups and the media to hound particular industries such as supermarkets, newspaper owners, petrol retailers, or indeed record companies, if there is a popular view that anti-competitive practices are rife, even when previous inquiries have found no evidence to support that view. I hope that the Secretary of State will consider the representations made by business about the need to set stricter criteria that have been satisfied before an investigation can be launched. I hope, too, that she will consider the case for allowing businesses that are subject to an investigation in which no evidence of inappropriate behaviour is found to seek compensation for the costs that they have incurred.
The provision of the Bill that has given rise to most controversy is the proposal to impose criminal sanctions on those found guilty of anti-competitive practices. I share the Government's view that those who participate in cartels or other anti-competitive practices are guilty of theft, both from consumers and often—and just as important—from other, small businesses. I therefore agree in principle that the penalties must be sufficient to act as a strong deterrent, and it may well be that fines—even at the punitive level provided for by the Competition Act—are not enough. However, we want the Government to tell us why they believe that that Act is failing in that respect, and why they think the fines now available to the courts are an insufficient deterrent. So far, only one fine has been imposed by the OFT under the Competition Act, so it seems a little early to conclude that it is not working.
The Government must also explain why they are now departing from the European model, in which criminal penalties are usually not available, and seldom applied if they are available. On Second Reading of the Competition Act, the then Secretary of State criticised the existing law, saying:
"UK companies that are large enough to be affected by the EU regime face differing laws, a differing approach and potentially differing judgments on the same competition issues."—[Hansard, 11 May 1998; Vol. 312, c. 25.]
Yet that is precisely what might now result from the Bill. If a company is found to be in breach of EU competition law it may be subject to a civil administrative fine, while those found guilty of the same offence in the UK face criminal proceedings and imprisonment. As one European official has pointed out, that might mean that a double glazing salesman who fixes prices in the local pub can be sent to jail, while the biggest pan-European cartels risk at most administrative fines on their companies.
There is also concern that the provisions recently introduced by the Commission to encourage whistleblowing might be undermined if the Commission is unable to guarantee immunity from prosecution in the UK. The creation of a leniency regime allows this issue to be addressed, but the process lacks transparency and appears to give considerable discretion to the prosecuting authorities. We shall be looking to the Government to provide certainty in this area and for assurances that they will be willing to work with other competition authorities to ensure that whistleblowers are not deterred.
In large part we welcome the provisions that deal with consumer protection laws, but the increased powers for consumer groups give rise to some concern. The super-complaints provision should allow malpractice to be dealt with quickly, but it must not allow consumer groups to set the priorities of the OFT. Such complaints clearly merit urgent consideration, but the OFT must retain the right to decide whether immediate action is justified. It is clearly essential that such complaints be subjected to the same degree of scrutiny by the OFT as any others.
Perhaps of greater concern is the power to allow consumer groups to bring representative actions for damages. This risks turning consumer organisations from lobbying groups into prosecuting authorities, thus supplanting the role of the OFT. Should such actions be successful, it will be hugely difficult to quantify damages, and even harder to decide their distribution.
In the United States, which we are told is the model for the Bill, the original Sherman Act gave injured competitors the right to seek treble damages for any violation of anti-trust laws. Consumers, too, are able to bring actions in the US if they are directly and adversely affected by a price-fixing conspiracy. However, the power proposed in the Bill goes considerably further than that which exists in the US, and risks creating huge additional burdens on business.
The final part of the Bill is intended to reform and modernise the UK's insolvency and bankruptcy laws. Not being a lawyer, I admit that it is something that I struggled with when researching the Bill. However, it is of huge importance and a matter about which we have the most concerns. The Government's stated objective is to encourage a climate of entrepreneurship along American lines where business failure is not a mark of shame but evidence of economic dynamism and risk taking.
That is an aspiration that we understand and share. However, it is not possible to legislate to transplant an American-style entrepreneurial climate into the UK. There is a real danger that the Government's proposals may end up making it harder for fledgling businesses to attract support, while at the same time encouraging reckless personal behaviour.
We give an unqualified welcome to the abolition of Crown preference, which is long overdue. It is both absurd and unjust that the Government, who are better placed than any other creditor to absorb any losses incurred when a company becomes insolvent, should somehow take priority over ordinary trade creditors, many of whom may depend on being paid for their very survival. The provision has been widely welcomed by business organisations and lenders, and it is one that we are happy to support.
The case for the abolition of administrative receivership, except in specific circumstances as set out in the Bill, is less clear. It was not contained in the recommendations of the review of company rescues and business reconstruction mechanisms, which was set up by the Chancellor of the Exchequer and the Secretary of State and published in November 2000. Yet the Government's intention to abolish ARs was announced by the Chancellor only seven months later.
The Government's justification for doing so is that the AR procedure puts too much power into the hands of one group of creditors at the expense of those who are unsecured. It is claimed also that it gives the administrative receiver a primary obligation to recover the debts of the appointor rather than an obligation to treat all creditors equally. Yet there is considerable evidence that the AR procedure has worked quite well and that it has proved successful in many instances in rescuing companies in difficulties rather than burying them.
The ability of a lender to impose a floating charge, together with the power to appoint an administrative receiver if necessary, has encouraged lenders to be more flexible and to support companies that run into difficulties. By removing this power, the result may well be that lenders will be less flexible and more risk averse. It is therefore not only the businesses that go into administrative receivership each year that will be affected, but potentially every business that is seeking financial support. There is a real danger that as a result of this measure banks will be less inclined to lend, or will lend more expensively, and that the businesses that the Government are seeking to help will be the ones that suffer as a result.
I hear what my hon. Friend says. However, he will be aware also that the small business sector—especially small and medium-sized business—has been lobbying about the abolition of the floating charge for a long time. The genesis of the process goes back to the days when banks tended to lend not on the basis of a proper evaluation of a business plan presented to them but on the capital assets and collateral of the company concerned. Is it not incumbent upon the banking sector to start to do what it should be doing, which is to give good business advice and a proper evaluation of a business plan, not only when the initial application is made for the loan but in terms of the on-going cash flow and management of the business concerned? I hope that my hon. Friend will agree with me that there is an incumbency on the banking sector to carry out that role in its relationship with the business sector.
I agree with my hon. Friend that it is strongly in the interests of banks that they help businesses to stay in business, and to give them whatever support they feel able to give if they run into difficulties. To that extent, I share my hon. Friend's view. I think that banks now are much more careful in their lending practices than perhaps they were some years ago.
I have outlined my concerns. It is not the banks that will suffer, because they will simply adjust their practices. Ultimately, small businesses may suffer if banks are less inclined to adopt flexible practices when making loans and decide to charge more for them. We must seriously address that danger when considering what the Government propose.
The other main concern which has been expressed by a number of those who have examined the Bill's provisions is the extent to which the work load on the courts is likely dramatically to increase. In many instances it is essential, if a business is to have a chance of survival, that action is taken by the administrator quickly to salvage whatever is available. If the courts have to be involved in every case as a result of the change, and that means that letters have to be written to creditors and papers have to be filed with the courts, and a case has to take its place in the queue, there may be nothing left to rescue in the business by the time that those things have been done.
We will be looking to the Government for assurances that extra resources will be given to the courts to allow them to handle cases quickly, especially those that have a habit of arising at about 5 pm on a Friday. Administrators need to know the time from when they have the power to act and they need to be able to act quickly without having to revert to the courts.
We understand and welcome the main thrust of the Government's intentions to help those setting up in business who may fall into difficulties. However, the Government's proposals for reform do not discriminate between business bankruptcies and personal bankruptcies. While their proposals are well intentioned, it may be that they will prove counter productive.
The wish to remove the stigma of bankruptcy, which has been spoken of by the Secretary of State, and to encourage risk taking is admirable, but at a time when consumer debt is rising sharply, this measure risks sending exactly the wrong message to those who may be reckless and irresponsible borrowers.
The distinction between so-called honest and culpable bankrupts, which has been mentioned by several hon. Members on both sides of the House, will be extremely difficult to draw, as my hon. Friend Mr. Page made clear. I have no doubt that the vast majority of bankrupts reach their position through personal incompetence or recklessness—in some cases, they will have become bankrupt through no fault of their own—rather than through deliberate malice. However, it should not be forgotten that whatever the causes of their behaviour, they will leave victims who are often not the banks, but friends or family who have acted as lenders of last resort. Creditors are often small businesses that may be unable to survive if they are not paid. Meaningful consequences are needed in respect of bankruptcy, with a minimum period set for it by law.
It is worth bearing in mind what happened in America, as it is the American model to which the Government constantly refer. In the United States, 95 per cent. of bankruptcies are suffered by consumers and are unrelated to any business activities. The relaxation of bankruptcy laws in the United States in the late 1970s led to a fourfold increase in consumer bankruptcies, while the number of business bankruptcies fell. Some people in the United States have even said that bankruptcy is now regarded as an easy way of supporting social welfare, as a consumer can run up large medical bills and then go bankrupt, passing the cost on to the credit or health industry and ultimately to other consumers.
The Bill fails to distinguish between consumer and business bankrupts. In seeking to encourage a small number of risk-taking entrepreneurs, the Government may end up merely encouraging a far bigger number of reckless individuals who run up substantial debts that have nothing to do with enterprise. Those that may end up suffering in the longer term are the businesses that will be left to pick up the bill and the consumers who will suffer restricted access to credit and higher costs.
Although the Bill has been introduced today by the Secretary of State, it is not her creation. It was conceived in the Treasury and has been promoted at every stage by the Chancellor of the Exchequer. We know that raising the UK's productivity is his big idea for Labour's second term. It is an objective that the Government have so far been singularly unsuccessful in achieving. In the five years since the Government launched their productivity agenda, progress has been virtually non-existent. Output per head in the UK remains way below that in not only the United States, but Germany and France. Whereas productivity here rose faster than in the United States in 1992-97, since that time, growth has been slower. As a result, the productivity gap is getting bigger, instead of narrowing.
The Government may be correct that strengthening our competition laws will help improve productivity, but it will not put right the damage that has been done to our competitiveness by the relentless increase in tax and burdens on business that has taken place under them. The CBI has calculated that the amount of extra tax paid by business amounts to £29 billion. The British Chambers of Commerce, which the Secretary of State has quoted so approvingly on several occasions, estimates that the cost to business of the extra red tape and regulation under this Government is now more than £15 billion. It is that burden that is eroding our international competitiveness, crippling business and destroying jobs.
If the hon. Gentleman will forgive me, I am just about to finish.
This Government do not understand that one cannot regulate one's way to economic success. They seem to think that they can support enterprise simply by introducing a Bill with the word "enterprise" in its title. Sadly, it does very little to tackle the real problems that are affecting business in this country today.
In welcoming the Bill, I should like to refer back to the Competition Act 1998. It is significant that the 1997 and 2001 Labour Governments both found time in their first year in office to introduce Bills that improve competition policy. That is in stark contrast to the work of the Conservative party during its latter years in office, when despite pressures to introduce improved competition legislation, it put the matter to the bottom of the list and introduced different measures.
I welcome the Government's decision to give up the power to intervene in merger policy; at least, they have more or less given it up. However, I would like some reassurance about their ability to intervene when mergers are considered to be in the national strategic interest. I was interested in the BAe-Marconi merger a few years ago. If similar proposals were to arise in future in relation to mergers of major transnational defence companies, I should like to feel that a Minister was involved.
The Government's decision to give up the power directly to intervene in merger policy means that they are giving up the power to establish national champions. That is good in terms of economic theory and competition policy, but it prompts this question: if the UK's competition policy is synchronised with that of its EU partners, should not those countries also operate a competition policy that precludes them from supporting national champions? It is also important, especially given the Prime Minister's recent visit to the United States and his discussions with the President, to ask whether the bastion of the free market, the US, will also give up a policy of promoting national champions and perhaps reconsider its policy on the steel industry and its promotion as such a champion.
The introduction of criminal law in respect of cartels is welcome. It is crucial that penalties for cartels be commensurate with the severity of the deed that is done. We have too often assumed that cartels are a minor issue and commit only small misdemeanours that do not matter. However, the crime in question is theft either from the consumer or other businesses and should be treated as such, so strong penalties should exist and I welcome those provisions.
In broadly welcoming the provisions on insolvency, I wish to make a number of points. The issue of the Crown giving up its preferential creditor status is crucial not only to many employees in companies that currently lose out because the Crown takes the first cut of any resources that are left in insolvency, but to many other small businesses that are dependent as creditors on the business that is going into bankruptcy. If the Crown had not been a preferential creditor, some failed companies in my constituency might have received enough from businesses that went into liquidation to enable them to survive, instead of finding that the scale of the loss incurred was just enough to push them over into bankruptcy. Serious issues are involved, so I welcome very much the proposed removal of Crown preferential status.
A number of bankruptcy issues have been raised by citizens advice bureaux in a briefing circulated to many hon. Members. They relate in particular to the problems of poor debtors who cannot use existing law on bankruptcy because of the fees that are involved in initiating bankruptcy proceedings. I know of cases that have been reported by citizens advice bureaux in Lancashire in which people with large debts who are on very low incomes are unable to move towards clearing their debts and sorting out their lives. They do not even have the necessary £250 to sort out their affairs through the bankruptcy arrangements, whereas people who are better off can use that procedure to get things sorted out.
There is also an issue relating to married or unmarried couples who have joint debts. They would need a minimum of £500 to sort matters out and, for many couples in that situation who are poor and have no prospect of paying off their debts, the bankruptcy option is one that should be considered. I should be grateful if my right hon. Friend the Secretary of State reconsidered the fees involved, when the Bill goes into Committee.
Another issue that has been raised concerns people whose period of bankruptcy has run out. Under these proposals, that could happen more quickly for someone who is regarded as an "innocent" bankrupt. Such people often have great difficulty in getting access to banking facilities, and I would like my right hon. Friend to consider whether there are ways of ensuring that people get their lives back into some sort of order once a bankruptcy period has run out, by being able to access banking facilities so that they can get wages paid into a bank account, take on a mortgage, or whatever.
In too many cases, the fact that people have been bankrupt remains on a credit reference agency's files for up to six years, so that, even if their bankruptcy order has run out, they are still shown as having been bankrupt, so far as financial institutions are concerned. That is a major barrier to their moving on, and goes against the thrust of the Bill in that area.
I want to concentrate on consumer protection, and the proposed power under the Bill to give the Office of Fair Trading a supervisory role over trade organisations' codes of practice. There is a real problem in this area. There will be few hon. Members who have not heard their constituents say, "I thought I was covered, because this trade association's logo is on this letter, and it said it would look after me if things went wrong." Things have gone wrong, and the trade association has not been there to help.
A constituent of mine came to see me recently with a very tragic case. With a bit of luck, we might be able to resolve it, but it serves to illustrate some of the problems that can occur. My constituent, Mr. Norburn, from New Longton, purchased a piece of land a few years ago and wanted to build a house on it. He looked around for a builder, and was obviously keen to ensure that the builder was registered with the National House Building Council so that he would be covered if anything went wrong. He employed a firm called Foys (Builders) Ltd., which was based in Preston, to build the property. It had all the necessary NHBC certificates.
The house was not built correctly; there were things wrong with it. My constituent went to the NHBC to register a complaint and to see whether it could sort things out. Shortly after that, the builder started legal proceedings for non-payment of the remaining part of its bill. The NHBC decided that it could not continue to be involved while legal action was outstanding because the action was against one of its members. Eventually, the case went to court, and my constituent was awarded £155,000 to cover the cost of putting the house right and the legal costs. The builder promptly went into liquidation.
The NHBC has since said that, according to the fine print of its certificate, its liability is limited to 10 per cent. if the house has not been completed. Because it had not intervened when my constituent approached it when the house was not being completed properly, and because the builder then went to court, this loophole means that my constituent is probably the best part of £150,000 out of pocket. He is very dissatisfied with the way in which the NHBC has dealt with his case.
We may yet be able to resolve that case, but it illustrates the importance of the OFT being involved in a supervisory role with trade organisations that have similar schemes. Such schemes will, occasionally, go wrong, but having the OFT actively involved will be crucial in ensuring that people have more faith in them, and that they are better regulated. I have some concerns, however, about whether sufficient resources will be made available under the Bill for the OFT to carry out such duties properly. It will need resources and time to do that kind of job, and I will be interested to hear whether my right hon. Friend can give me some assurance that sufficient resources will be made available.
Stop now orders will be extended under the Bill to areas that were not included in the Competition Act 1998. That is welcome, but, as one or two colleagues mentioned earlier, there is concern that this will not be sufficient and that the provisions will not cover the whole range of rogue traders who operate in this area. I would like the Standing Committee to examine ideas for extending the stop now orders to areas about which organisations such as the citizens advice bureaux are concerned.
I note that the citizens advice bureaux are also concerned about the differences between trading standards offices. My right hon. Friend the Secretary of State mentioned this in her speech, and has given assurances that resources are being made available to improve the quality of trading standards offices, and to ensure a more level playing field. This, too, will need to be discussed in Committee.
I welcome the Bill, but I have sympathy with the comments made by some Conservative Members about it being very long, with 120-odd clauses.
I stand corrected. It is certainly a major piece of legislation. I think that it will be possible to deal with it within the Government's proposed time scale, but it will be important for Ministers to be prepared to listen constructively to the comments on various clauses from different sides of the Standing Committee. Many hon. Members will have concerns about whether we have got the definitions right—particularly in relation to insolvency, and about the issue of whether someone is an honest or dishonest bankrupt. Having seen the Bill, there are certainly issues on which I would like to seek clarification before it reaches Third Reading.
There is a great deal to agree with within the philosophy of the Bill. We fully endorse the principles of competition, of encouraging entrepreneurship and of strengthening consumer protection, as the Conservative spokesman did. There are also specific proposals with which we agree, such as political independence, the competition test, and the use of stop now orders to protect consumers. They represent admirable advances, though they will all need much clarification when the Bill is scrutinised. The point that was made about stop now orders shows the uncertainty that still hangs around, and I noted that the Secretary of State did not answer it, although I am sure that she will do so in Committee. Other elements of the Bill are attractive in principle, such as the bankruptcy reforms and the criminalisation of cartels, but they could fall victim to the law of unintended consequences. I agree with many of the reservations that have been expressed.
By way of introduction, I shall address what I think is the central logic of the Bill and what the Government are trying to achieve. The proposal is that we need to stimulate productivity growth, that the best way to do that is to have a more intensive and aggressive competition policy, and that the best way to achieve that is to import competition policy ideas from the United States. I do not disagree with the basic logic, but it is being massively hyped and exaggerated.
An enormous political investment is being put into the Bill that I suspect will not be realised. The Chancellor and his advisers, and perhaps the Secretary of State, have probably been to the United States and been star-struck by people such as Joel Klein, who introduced the innovative competition policies during the Clinton Administration. They may have jumped to false conclusions about the ease with which those policies could be applied on this side of the Atlantic.
I shall make a few points about the American system and the difficulties of applying it in this country. Their system is immensely litigious: ask any American business man about the problems of doing business in the United States. A speech about such problems in this country would be all about red tape, but in the United States it would be full of complaints about lawyers and tort costs. That is the fundamental problem with their system, and importing it uncritically here—adding a new layer of legal costs—would not help business, innovation and productivity.
I do not want to appear anti-American, because I am a great admirer of the way in which the American economy has performed, but we were in a similar state in relation to Japan 10 years ago. There was a Japanese economic miracle, and we were urged to copy everything that they were doing. A similar situation exists with the United States today, so a cautionary note should be sounded. Recent work suggests that productivity growth in the United States is almost certainly exaggerated by a factor of two, because of how national accounts in the US deal with depreciation in the rapid-growth computer industry. We should not get too carried away with the US experience.
We should also be aware of intellectual fashion. I am a little older than Mr. Whittingdale. In the 1970s, when I did my stint as a special adviser in the Department of Trade and taught economics students the principles of competition policy, the intellectual fashions were very different from those of today. There was a tremendous belief in economies of scale, large-scale firms and large-scale plants. Such ideas were seen as the way to productivity growth. We had the Industrial Reorganisation Corporation, mergers in the car industry, and the idea of national champions, to which Mr. Borrow referred.
In retrospect, we realise that that approach was probably not very smart, but at the time, there was consensus in politics and business that it was the way forward. In the 1980s, during the Reagan years, we drew on the Chicago school and the belief that we did not need a competition policy because excess profits bring new competition into the industry, provided that there are contestable markets. That idea prevailed for a while, and now we have a new fashion following the reforms in the United States in the 1990s.
However, as the Americans are discovering, the position is difficult. One of the big problems that they have, and that the Office of Fair Trading and the Competition Commission will have with our merger decisions, is striking a balance between competition and monopoly in high-technology activities. On Friday, I am bringing back my private Member's Bill, which has wide support. The principle behind intellectual property rights is that a monopoly is deliberately created in which innovation can develop.
The United States has had enormous problems getting to grips with the problems of Microsoft—the case is still bouncing around in the courts, for very good reasons. How do we deal with the balance of competition and monopoly in such a case? The US Administration, despite their activist policy on monopoly, have still not determined how to deal with Microsoft. They have not tried to attack the underlying monopoly, which is the MS-DOS operating system. They have gone for the unbundling problem, which is a secondary issue. There is a genuine difficulty about how much competition should be allowed in the interests of innovation and growth.
The United States policy is, in the Government's language, the gold standard, but there have been important changes in Europe. The European Union's competition policy has advanced considerably, and some of the toughest actions, such as those involving GE and Honeywell, have been taken by the EU. One of the concerns expressed by the Confederation of British Industry and the Law Society is that the Government are developing an American-based competition policy when the EU's own policy through the merger directive and the cartel legislation is developing independently.
I do not want to get into an argument about whether the American or European approach is best: they just happen to be different. From the point of view of British companies, it is important to have consistency. If the Government are not consistent and do not take into account the European trends, the legislation will get into trouble in the courts. We have seen that already with one or two key cases, such as the Interbrew case, in which the Competition Commission was humiliated by being overruled by the court. One of the key lines of Interbrew's defence was that British law and European practice were at odds. The Government must be careful, because uncritically adopting an American approach to competition policy when the European Union is trying to refine competition principles for the single market will produce some difficult inconsistencies.
I want now to address some of the specific points in the Bill, the first of which is on political independence. I think that we all agree that merger references should no longer be determined by Ministers. I had an open mind on that issue, until something that the Secretary of State's predecessor did finally persuaded me of the need to remove such decisions from the political world. Mr. Byers made some excellent speeches on this subject, and strongly defended political independence until the NTL and Cable and Wireless case came along, which coincided with the interests of the Murdoch group. It was out of character, but he intervened, and although his motives may have been entirely innocent, it persuaded many people concerned with competition policy of the need for Ministers not to intervene politically, and not to be seen to be intervening. I support what the Government have now done.
We must bear in mind the need for checks and balances. I am not sure how many hon. Members realise that, under this legislation, it will no longer be possible for them to go along to the Secretary of State every time a merger takes place that threatens jobs in their constituency and ask her to do something about it. She will not be able to do anything. There is a radical change in that policy area, and checks and balances must be built in.
When the Bank of England was made independent of day-to-day political interference, checks and balances were provided, in the form of parliamentary accountability through the Select Committee on the Treasury. I was part of that process, and it worked admirably. One of the key elements was confirmatory hearings. I would be interested to know why the Government have not proposed that in this area. Mr. Vickers and the four members of the OFT board are immensely powerful people, although Mr. Vickers is probably less powerful now that he has a board behind him. In their own way, they are just as powerful as the Monetary Policy Committee of the Bank of England. Their appointments should be vetted and scrutinised by Members of Parliament as a necessary part of the discipline. The same should apply to Mr. Derek Morris and the Competition Commission. That element of political accountability is missing from the legislation as it stands, and we would like more action taken on that front.
The second element on which there is general consensus is the competition test. It is right that we should move away from the vague public interest test to a competition test. I am not entirely sure that the Government or the House have appreciated how radical that step will be, because as I understand the legislation, it will now become almost a matter of course for large mergers to be referred for examination. Almost by definition, a large merger reduces competition. Unless there are extenuating circumstances such as national security or palpable consumer benefits, or unless the companies involved are very small, there is no good reason why mergers should not be referred for examination. There is an irony here. A few years ago, the City called for the political independence of merger decisions because it did not like the interruption of merger processes by "Mrs. Blockit", as it described the then Secretary of State for Trade and Industry. It howled with pain and rage at the loss of its fee income, and asked politicians to keep out of the process.
Ironically, there will almost certainly be many more merger references, because mergers will infringe on competition, and because of the growing volume of evidence that they do not add value. Many studies have been undertaken, but according to the KPMG study that I saw a couple of days ago, half of all mergers subtract shareholder value, let alone anything else, and a third do no good whatsoever. There is no good reason, therefore, why the Office of Fair Trading should ever stand aside and not refer a merger. We are entering into a totally different culture, which the City will probably have to get used to, whereby mergers will be constantly referred and investigated much more actively. I welcome that, but the implications have probably not yet been thoroughly thought through.
I want to say a few words about a third issue—the criminalisation of cartels. I have no particular objection to that principle. It seems perfectly sensible that, if businesses behave in a very damaging and collusive way, their representatives should go to jail. Indeed, they already go to jail for offences such as fraud or the adulteration of meat. There is nothing particularly problematic about that.
The hon. Member is right. I, too, was a little surprised by the comment of the hon. Member for Maldon and East Chelmsford; in fact, I was encouraged by it. Perhaps it illustrates the reformist tendency that we are told exists in the shadow Cabinet.
The point about criminalisation is not whether it is wrong, but whether it is necessary. Is the problem a lack of powers, which we discussed earlier? As I understand it, only one case—involving Arriva and FirstGroup—was subject to massive fines under the Competition Act 1998, and that was thrown out by the courts. It is not a lack of powerful sanctions, therefore, that has deterred the authorities from dealing with cartels.
One big problem in dealing with cartels, to which the hon. Member for Maldon and East Chelmsford rightly referred at length, is that of whistleblowers. Unless somebody blows the whistle on a cartel, it is impossible to track it down. By accident, I uncovered a cartel operating in my constituency. A constituent of mine, who was a leaseholder in a block of flats for which the council was the freeholder, challenged some building work on the roof that cost £5,000. On obtaining the tenders submitted to the council, we discovered that they were all within £5 of £5,000—a clear, prima facie case of a cartel.
I asked for a proper investigation, and although there was clear circumstantial evidence, nothing could be proved. All who were involved denied ever having spoken to each other. Of course, such a case would not stand a cat in hell's chance in a cartel investigation, because it would not meet the standard of criminal proof. There has to be whistleblowing, and a culture in the British and European systems that encourages it. Criminalisation of itself will not solve the problem.
One must also bear it in mind that, whenever cartel legislation has been significantly toughened, as it was in the 1950s, the response has been merger activity among small companies. Many companies will take cartels in-house, thereby preventing action under the law. Useful work by Mr. Simionides, a British academic, demonstrated a big increase in such activity in the 1950s, in response to the then Conservative Government's action against cartels. It is possible, therefore, to escape criminal sanctions through obvious business strategies.
My basic point about cartels is rather different, however. What is a cartel? In her introduction, the Secretary of State said that she will provide a very tight definition, but there is a commonsense one. A cartel involves companies getting together to raise prices and restrict services. In addition to the highly proscribed cartels that the Government are going to act against, others are operating under their noses. I wonder whether the Government or the competition authorities have thought of looking at the Association of Train Operating Companies, which meets next week to take a collective decision to increase the price of the network card by £10, thereby devaluing it for anybody who lives within 35 miles of London. A group of business men is acting together to raise prices collectively and restrict a service—a cartel by any definition. However, it is operating under the Government's nose; indeed, I believe that the Government talk to it.
Another example—in many ways, it is more topical and important—is the banking system. As I have repeatedly pointed out in debates with the Secretary of State and the Chancellor, and as the Cruickshank report showed, in effect, the banking system operates as a cartel. However, I doubt whether anybody expects Mr. Barrett to go behind bars. The banking system is accepted as a legitimate structure, but the Government need to be more careful about distinguishing between small cartels—gentlemen in dirty macs in the back room of a pub who are subject to criminal sanctions—and legitimate cartels that operate in the heart of the business establishment and are totally free not only from criminal sanctions but from effective regulation. That gap in credibility needs to be bridged.
On bankruptcy, I agree with many of the comments that have already been made. Mr. Page, among others, pointed out that distinguishing between good and bad bankruptcy could become virtually impossible, and certainly unworkable. Such problems are always difficult in law. One thinks of the problems associated with trying to discover the guilty party in a divorce case. We are importing into bankruptcy the same subjective judgments. Many people will be wrongly judged from their point of view. They will launch legal appeals and the process will become very complicated. The administrative system will lose much of its flexibility and become much more expensive.
In respect of bankruptcy, I want also to endorse the point that was made about Crown prerogative. In that regard, a welcome and positive step is being taken, but we need to be careful. In many ways, we are talking not about the law but the spirit of the law. If the Inland Revenue loses its Crown prerogative but continues to operate in the same way, regarding itself none the less as driven by a need to get at assets before other creditors, the same problems will arise. The issue is as much about the way the Inland Revenue functions as it is about the law.
I endorse the importance of personal bankruptcy. It has yet to be pointed out that many very poor people would benefit from personal bankruptcy, but cannot get through the bankruptcy process because they cannot afford the £250 fee. If the legislation is going to deal with personal and corporate bankruptcy together, we should devote time and thought to how the bankruptcy law affects the socially excluded, who are right at the bottom of the social scale.
I want to reinforce the comments of the hon. Members for Luton, South (Margaret Moran) and for South Ribble about the stop now provisions. They constitute an important innovation, but it is unclear how they will operate. I fully agree with those hon. Members who emphasised the need to apply stop now orders not just to illegal activities, but to activities specifically designed to get around the law. Pyramid selling was mentioned, but there are many other examples, such as time-share and the jobbing contractor scandals. Such scams are often cleverly designed to get around the law, and it is important that the stop now provisions be applied to them. It may well be that, as the Secretary of State said, the general legal powers that were discussed do not apply, but we must find some other way to deal with the problem.
Many of the consumer powers depend on the capacity of trading standards departments. Stronger consumer action powers are all very well, but if trading standards officers are severely under-equipped and resourced, as they are at present, much of that action will not be taken locally. Local councils' trading standards departments have to be beefed up so that that aspect of the legislation can be effective.
In conclusion, I welcome much of the philosophy behind the Bill, which is big and complex. It will require a great deal of scrutiny, and we shall certainly table a good many critical amendments to it.
I want to make a small contribution, but I am grateful to have had the opportunity to listen to the debate because this is clearly a very far-reaching, complex and highly technical Bill that will affect our constituencies and the businesses in them in many ways. Dr. Cable made clear in his thoughtful contribution how far reaching the Bill is, and I hope that those hon. Members who are fortunate enough to serve on the Standing Committee—I do not include myself as one of them—will have an opportunity to give it the full scrutiny that it clearly deserves.
I have briefly looked at schedule 25 and reckon that about 36 measures on the statute book will be affected by the changed powers of the Office of Fair Trading, as opposed to those of the previous Director General of Fair Trading. I hope that hon. Members will consider the way in which the Government are developing competition policy and the fact that there is more liberalisation.
The Communication Workers Union lobbied Parliament earlier today. It is concerned that Postcomm might be taking forward its proposals too hastily, and perhaps not in the right direction. It is crucial, therefore, that we carefully consider how the Bill will affect other Acts on the statute book. I remember going to the OFT with other hon. Members to make representations about football coverage under the Broadcasting Act 1990 and football club mergers. Clearly, we need to understand how the Bill will affect such issues.
My hon. Friend Mr. Borrow mentioned some of the concerns that were expressed by citizens advice bureaux. I have had almost Herculean battles with firms facing bankruptcy in my constituency—usually manufacturing companies—especially when there have been real fears about what will happen to their employees. We have to consider the proposals very carefully, because perhaps they will bring about some changes.
I welcome the Bill, which will bring real benefits to unsecured creditors, including many small businesses. People say to me, "Joan, I don't understand why the Inland Revenue always has the first call when a firm is about to go under." Many people may be owed money, which they need to be paid, but because they are not top of the queue they too go under. So the Bill will increase and enhance competitiveness in a way that benefits constituencies throughout the country, not just Stoke- on-Trent, North.
Citizens advice bureaux have already circulated their concerns to many Members of Parliament. They are concerned about whether those on means-tested benefits and in hardship will be exempt from the bankruptcy deposit fee. I hope that the Minister will consider that issue in responding to the debate. Many of our constituents cannot afford to take advantage of some of the Bill's proposals. We should consider whether there should be an option to pay by instalment and perhaps reduced fees.
As well as having talks with trading standards officers about guidance and consultation, I hope that the Government will have further talks with citizens advice bureaux, as that might provide a way forward. Many of my constituents face debt and bankruptcy, and they need to be included. The Bill needs to be inclusive, especially in relation to the disadvantaged sections of our communities.
I speak as a former chairman of a local government health and consumer services committee, which had responsibility for trading standards officers, and in doing so I should like to echo the concerns that have been expressed about trading standards officers. A consistent approach must be taken throughout the country. What happens in each part of the country—including Northern Ireland and so on—must reflect what happens elsewhere, so the guidance should be consistent. I hope that there will be proper consultation on that.
I also hope that the Bill will continue to enable trading standards officers to act against rogue traders. The opportunities that it provides to act against rogue traders represent a real step forward and will be warmly welcomed by many people. I hope that the Minister will consider the guidance that will be issued to trading standards officers on the new extended stop now regime.
For many years I have tried to get answers about unfair competition and barriers to enterprise, especially in relation to independent petrol retailers and the newspaper industry, which Select Committee on Trade and Industry and the OFT have investigated. A lot of Members have been approached by independent petrol retailers, many of whom have gone under during the past five or six years because of unfair competition. In swathes of the country—not in my constituency, where there are some excellent ones, I hasten to add—many of them have closed because of such unfair competition.
In the time that I have had to consider this lengthy and hefty Bill, I have tried to consider whether that long-standing concern can be addressed. I hope that the Minister will consider the issue in detail in his reply or in a follow-up letter to me. Those retailers are buying fuel wholesale, but the wholesale suppliers are selling oil and petrol at less than cost price in parts of the country because they can gain an advantage elsewhere in the supply structure. The independent petrol retailers operate at a loss because of unfair competition in the buying and selling of petrol. That is grossly unfair.
Many small businesses are severely disadvantaged by the power of the larger conglomerates that provide them with goods and services. Small businesses in rural areas and areas of high unemployment are particularly vulnerable. The Bill presupposes that the consumer is an ordinary member of the public, but small businesses are also consumers—they receive goods and services from larger businesses. Will the Bill afford them adequate protection? I know that clauses 5 to 8 refer to the issue, and I hope the Minister will pay close attention to it.
Currently, a monopoly is deemed to have been brought about if a supplier dominates 70 per cent. of the market. In the oil industry, three players dominate 80 per cent. of the fuel-supply market. No individual company will cross the magic 30 per cent. threshold and thus trigger an investigation, but collectively they dominate the market. All their prices at the pump move either up or down in unison. What protection from such predatory action will the Bill provide? Those running independent garages in my constituency—I will not name them—will listen closely to the Minister's reply.
Although I broadly welcome the Bill, I do not consider its title entirely apposite. It could have been the "This is the other half of the insolvency legislation that we should have produced in the last Parliament" Bill, or the "These are the OFT changes that we have been promising for years and years and have just got around to" Bill. What we have, however, is the Enterprise Bill. A more truthful title would be the Enterprise Regulation Bill: this Bill has precious little to do with enterprise, and an awful lot to do with the regulation of industry.
I am not against that, in fact, but I think that the Government carry spin a little too far. When their time is up and the pundits engage in a critique of their activities, the one word that will sum up those activities will be "spin". It will run through them just as the word "Blackpool" runs through a stick of rock.
Nevertheless, as I have said, I support the Bill. I am not in favour of rushed parliamentary reform: in many instances, it is a case of "Legislate in haste and repent at leisure". However, I agree with my hon. Friend Mr. Whittingdale that the Bill should have been scrutinised before being presented to Parliament. It contains 269 clauses and 26 schedules. In Committee, if the Minister speaks for only 10 minutes on each clause, it will take just a tad less than 3,000 minutes—50 hours—to give the background and the Government's reasoning. The House should realise how much those involved in industry and commerce want to hear ministerial explanations that may help them to interpret the Bill. Pre-legislative scrutiny could have taken place at its own pace, allowing us to deal only with items prompting interest or contention.
This is a huge Bill. That pleases me in some ways—we shall be dealing in primary legislation with many matters that are normally contained in secondary legislation—but we are trapped in a savage timetable that will prevent us from devoting enough scrutiny to the Bill.
I had some mischievous thoughts when reading the Bill. It seems that various designated organisations will be approved. I wondered whether a political party would be deemed a consumer group. Would the Conservative party be deemed to represent consumers? I must tell the Minister that I think we do a splendid job representing consumers, and I think we should be allowed to make representations to the OFT as a designated body.
Mr. Borrow, who has left the Chamber for a moment, raised an important point about trade associations, with which the Bill does not deal. I took a great deal of interest in the subject before 1997. I think consumer representation could be hugely advanced if leading trade associations were recognised, and if that recognition required appropriate insurance and certification. Government would recognise and deal with only those associations that wrote that requirement into their constitutions. Anyone dealing with, say, a builder who saw that the builder had that trade association accreditation would know that the insurance was there. The Association of British Travel Agents implements such an arrangement to a degree: it is one of the leaders in that regard. I can only commend it, and suggest that further thought should be given to the idea.
I experienced a moment of panic when my hon. Friend Mr. Lansley mentioned clause 254, which refers to bankruptcies among Members of Parliament. For a dreadful moment I thought we were going to remove the rule that an MP who became bankrupt could not remain in the House. It flashed through my mind that if we had removed that barrier, the noble Lord Archer would not have had to resign all those years ago. He would not have gone to the United States and written all those books, and none of the ensuing drama would have taken place. He would probably still be in the House, entertaining us in some other way, rather than in his current abode.
I listened to the Secretary of State's arguments in favour of the Bill with a good deal of attention, and at some points almost with enthusiasm. The repetition of the words "competition", "consumer" and "enterprise" from the Government Front Bench had a mesmeric effect on me. The Secretary of State's emergence from the chrysalis of clause IV socialism as a butterfly of enterprise is one of the more remarkable political transformations of the last 20 years or so. I welcome it: it is a definite step in the right direction.
As I have said, I am happy to support some aspects of the Bill. The distancing of various Ministers from decisions about competition and mergers is highly sensible, and has clearly received a general welcome in the House. I also support, in principle, the proposals to reduce the problems of those who become bankrupt through no fault of their own—although, as I said earlier, it is difficult to ascertain exactly what constitutes "no fault of their own". Dr. Cable summed that up rather well. As he agreed with me, I think I should agree with him. This mutual admiration society suggests that between us we must have got something right.
As a former small business Minister, I know that when people become bankrupt it is seldom through no fault of their own. Amazingly, there is a horrendous failure rate among those who start up businesses simply because it seems a good idea at the time. According to statistics I have seen, about one business in nine is still operating after a couple of years, but a much higher percentage of businesses whose programmes and financial statements have been vetted by various bodies, such as Business Links, are able to survive. We must consider that carefully in Committee.
Let me give a small piece of advice. I hope that the Bill will help in this regard. I have observed that if a company is going to go bankrupt, the faster it does so, the less cost and pain will be involved. Companies should not hang on until the bitter end, running up more and more debts. That just means that more people outside are hurt. Those lending money to such companies are hurt far more than they would be if the companies had closed weeks or months earlier.
I welcome the fact that the Crown will be put on an equal footing with other creditors of a failed business or a bankrupt person. That is long overdue. However, we must take care to discover whether the actions of the Crown will precipitate a more rigorous collection method, which may in turn cause businesses to have to close much sooner. I hope that in Committee the Minister will give guidance on how Crown organisations will behave.
Although, over time, the Secretary of State and her ministerial colleagues have adopted the rhetoric of saying that they want competition and consumerism, too great an extension of regulation seems to be taking place. They believe that there is too little competition in our domestic markets and that consequently British consumers suffer unnecessarily high prices. Their solution is to make even more stringent an already tough competition regime by creating a new corporate authority in the Office of Fair Trading and establishing new penalties for failing to comply with the enforcement regime. I support the measures to establish codes of practice for business and consumers. In case the Minister takes me seriously, I am only joking when I suggest that the Conservative party might become a designated consumer body. [Interruption.] I see that my hon. Friend the Member for Maldon and East Chelmsford is asking me to rethink that, but it would not be right for a political party to act in that way.
Is not Ministers' initiation of their "super complaints" system redolent of the approach of traditional old- fashioned socialists? The Secretary of State, who tries to make out that her new political colours are a tasteful pink, may be a tad redder than we like to think. I was intrigued to read a recent interview in which she claimed that she wanted the Department for Trade and Industry
"to be run more like a well-rounded business" and said that she believed that
"entrepreneurs who take risks"— should—
"get exceptional returns".
If she had more business experience, she would know that running a business is nothing like running a Department. Ministers should not think that they can run businesses—they make regulations, not play in the game. As soon as they start to do that, we face problems similar to those that arose in the past. I remember the success achieved by the National Enterprise Board, which was set up to bring several organisations together to gain the benefit of socialist leadership and direction. Every single one went pear-shaped and cost the people of this country a small fortune. We should ensure that any additional regulation reduces, or keeps to a minimum, costs on business.
I shall illustrate the confusion that lies at the heart of the Bill by considering two of its provisions. I fully understand why organisations such as the Consumers Association have enthusiastically welcomed the proposal to allow designated consumer bodies to complain to the OFT that one or more features of a UK market is harming consumers' interests—they have lobbied for years for the Government to honour their promise in that respect. All the consumer body has to do is to follow the OFT's guidance on how to present its case. However, neither hon. Members nor businesses are being told what criteria will have to met by complainants. For example, will they include exceptional profit levels? If so, the risk-taking entrepreneur whom the Secretary of State wishes to encourage will think twice about operating in this country.
I am a practical person, not an academic economist or a lawyer—I live and operate in the real world—but it seems to me that the criteria are so widely drawn that any UK market of any kind could be open to investigation. In the Bill, the Government largely fail to appreciate that there are two sides to a market: supply and demand. Over the years, I have had a degree of experience in industry and I have declared all sorts of interests for hon. Members who are paranoid about such matters. If one has a desirable product, there is a natural tendency for it to be in short supply and for its price to rise. Will the fact that a product is particularly desirable—other products are available, but they are not as nice—be subject to regulation and investigation by the OFT?
Like my hon. Friend the Member for Maldon and East Chelmsford, I believe that the free market is the best system for providing the goods and services that any advanced commercial and industrial society requires. That system works best when the supplier of goods and services can respond rapidly to the changing demands of consumers. Perfect markets exist—dare I say it?—only in the minds of economists, civil servants and Ministers who are not of the real world. The idea that markets can be dragooned and regulated by criminal penalties to work better offers only a partial solution. When we consider the Bill in Committee, we must be given clear guidance about all the rules and regulations so that businesses know exactly where they stand.
This massive Bill needs to be examined in detail, but as we shall have insufficient time in Committee to do so it will pass largely unchallenged and undebated. That is part of the Government's relaxed approach to the role of Parliament. They are dragooning business through without enabling us to consider matters in the detail that is our task and duty.
I welcome the fact that the OFT will be structured as a board, not as a single person, and that rogue traders will face additional pressures. I also welcome the giving of more resources to trading standards officers. The Secretary of State made a lovely generalised comment about that, but those in local authorities would like to know—as would I—how many pounds will filter through to enable them to strengthen trading standards operations in their areas and in our constituencies. Several constituents have come to me with matters about which they have been told, "Sorry, we can't investigate it; we haven't got the resources." That is a common plea that will resonate with hon. Members on both sides of the House.
We should all welcome the completion of the insolvency legislation and moves to produce a cohesive consumer law to replace the current piecemeal approach.
This is a massive Bill, but we shall be in Committee for a very short time and it will not get the scrutiny that it deserves. As a result, consumers may ultimately be worse off rather than beneficiaries.
It is a pleasure to follow Mr. Page, who, although he is a distinguished commentator on such matters, confirmed an impression that I have formed while listening to Conservative Members—that they are trying desperately hard to find fault with the Bill, but are in fact embarrassed that they did not introduce it themselves when they had the opportunity to do so in government all those years ago.
The hon. Gentleman picked on a tried and tested piece of advice from the Conservative central office handbook—when in doubt, attack spin. He may find it worthwhile to quibble with the title of the Bill, but it is very relevant to my constituents.
Leythers have a history of enterprise and inventiveness. Indeed, Leigh has a strong claim to being the cradle of the industrial revolution. The spinning Jenny was invented there by a poor mill worker called Thomas Highs, but the design was pinched and patented by a wealthy mill owner from Blackburn. Some would say that that was the story of Leigh. We never got our rightful place in the history books.
Leigh was one of England's—if not Britain's—most enterprising towns throughout the Victorian period and until the 1960s and 1970s. It had a thriving economy with thousands of jobs in mining, the textile industry and manufacturing. However, like other economies based on traditional industries, it has fallen on hard times in recent years. Since I was elected, we have undergone the pain of two large-scale redundancies in manufacturing. Two hundred and fifty jobs were lost at Ingersoll-Rand, which manufactures portable compressors, in Hindley Green. A month ago, a further 220 jobs were lost at Volex Power Cords, which manufactures household plugs and cords—long a staple of the Leigh economy.
Beyond the headline redundancy figures, we have also lost jobs in countless smaller businesses that grew up around the companies and acted as suppliers to them. Such losses would be difficult to absorb anywhere, but they are devastating in a former coalfield area. I have set out the context because it leads to my main point: the Bill is most needed not in the City of London, but in our deprived communities.
Communities such as Leigh need help to rekindle enterprise and revive the economy, especially in the new sectors of industry. It is fair to say that people in such areas are acutely aware of the need to foster greater competitiveness and productivity in the UK economy and to help businesses survive when they hit financial difficulties. They should not be allowed simply to go to the wall; that has happened too often in the past.
The Bill will be welcomed by companies and employees in my constituency. Sadly, it will come too late for those who have already lost their jobs. However, I still believe that I can confidently say to them that since we came to government, Labour has made a huge difference through boosting our local economy and productivity. I am proud that the Government are introducing the measure.
Mr. Whittingdale criticised the Government's economic and employment records. I simply do not recognise those criticisms. Despite the large-scale redundancies and the obvious problems in manufacturing, we have hard evidence of strong economic growth and increasing employment since 1997.
Yesterday, I was sent the latest labour market report for Leigh. Other hon. Members will receive such reports for their constituencies. The Leigh report shows that 1,602 people are unemployed—661 fewer than in May 1997 and a 29 per cent. decrease. The number of long-term unemployed people has fallen by 458—a cut of 69 per cent. since May 1997, and more than 500 people have been helped into work through the new deal.
Such achievements cannot be belittled in an area such as Leigh, which has struggled over the years under Conservative party policies. The Conservative Government closed down the mines and hit the textile industry. The Labour Government's achievements have a genuine impact on people in my constituency. That is testimony to the Government's measures to boost competitiveness and employment.
Our local economy is slowly transforming itself from one based on traditional primary and secondary industries. The Bill can only help us through that difficult process. At the end of March, I attended a reunion of former miners from the Parsonage colliery, which closed, coincidentally, almost 10 years ago to the day, on the eve of the 1992 general election. That move did not help the Conservative party's attempts to win votes in Leigh.
A manufacturing facility for Patak's—the Indian foods company—stands on the Parsonage site. Patak's is a startling British success story and I am proud that it is now based in my constituency. The fact that it is located on the site of a former pit embodies the transformation that the Leigh economy is undergoing. Although there is a long way to go, it points to a more hopeful future for our town.
On Monday, I met representatives of Barlo Engineering, the UK's leading radiator manufacturer, which has a plant in the centre of Leigh. It wants to modernise, increase employment at the plant and invest in new equipment that will enable it to produce leading edge radiators in Europe. It is another example of a company that is sufficiently confident in the UK competitive environment to invest and bring more jobs to our local economy. The company is looking for help to invest through the regional selective assistance grants. I make a plea to Ministers to continue to consider seriously using such grants to regenerate deprived communities, especially former coalfield areas. I have an eye on the comprehensive spending review, which will be concluded shortly.
I shall do my best. I was trying to make the point that the provisions to boost productivity and competitiveness need to be complemented by resources to help companies expand and become more productive.
I want to consider the consumer protection provisions, and especially stop now orders. In recent weeks, some of the sharp practices that are used to sell gas and electricity to consumers have been brought to my attention. I am sure that that is true of hon. Members of all parties. This week, a constituent told me about a new policy that TXU Energi, which is trying to market its services in my constituency, has adopted. My constituent received a bill and an accompanying letter, which stated:
"From now on, if you choose not to pay your bill within 14 days of the bill issue date (including this one), you'll pay 9.5 per cent. more on your next bill. However, we do believe in being fair, so once you return to paying promptly, your next bill will return to the lower rate."
I readily own up to not paying all my bills within 14 days. The company is clearly attempting to get people on low incomes to use direct debit.
People could be in hospital or on holiday. There are several reasons why those on low incomes simply cannot pay a bill in 14 days and do not want to use direct debit. Such company policy is a licence to add charges willy nilly to consumers' bills and continue to fleece them. I am not 100 per cent. sure whether such a case is in the scope of the measure, but it suggests a need to be ever vigilant against sharp practice. Stop now orders and the ability to introduce them quickly show that companies are making rapid decisions that have a direct impact on consumers in weeks. We therefore need measures that can be implemented with great speed to prevent companies from doing that and acting directly against consumers' interests.
Does not the hon. Gentleman believe that the unfair contracts terms cover his point? Would not more funds for trading standards officers enable them to investigate such cases with more alacrity and thus prevent them?
I am grateful for that intervention. I agreed with the hon. Gentleman's comments about the valuable role of trading standards officers. I should like them to be able to increase their activities and the work load that they are able to take on. Whether that is principally because of lack of resources or lack of legislative power, I am not in a position to say. However, I would support the hon. Gentleman in saying that there is a need to boost the role of trading standards officers.
That brings me to the impact that the Bill may have on sport. That was touched on briefly by my hon. Friend Ms Walley. I must declare a relevant interest in this respect: I am the chairman of Supporters Direct, a publicly funded organisation set up to promote greater supporter and community ownership of football clubs through the establishment of mutual trusts or industrial and provident societies. The Bill is relevant in the context of the issues facing the football industry at the moment. I remind the House that the administration of ITV Digital has real consequences for football league clubs up and down the country. I am no expert in these matters, and I would be interested to hear how the measures in the Bill would have impacted on the ITV Digital administration and how creditors would perhaps have been better protected than under administration as currently constructed. It leaves football league clubs very vulnerable to loss of revenue, for which they had clearly budgeted. However, the measures on administration in this Bill are extremely interesting, as we are about to see football clubs across the country falling into administration. Indeed, several football clubs are already in administration—Swindon and York, to name just a couple.
Bad business practice or the asset stripping of clubs has endangered the very existence of football clubs in this country, many of which have a proud history and heritage. That is not at all the fault of football supporters, who simply want their clubs to survive and who want to keep them in trust for future generations to enjoy. Some would argue that the problems that football is currently facing are self-inflicted, and that high wages and bad business planning are largely to blame. I sympathise with those arguments, but that is not the fault of football supporters who face the prospect of their club going into administration, and who clearly want to do their best to guide the club through that process and enable it to survive and to thrive.
Two measures in the Bill are directly relevant to football clubs, because they are small, community- oriented businesses, and it is crucial that they be kept afloat for the well-being of the towns that we represent. Football supporters everywhere—particularly those of Brighton and Doncaster—will welcome the tougher sanctions against rogue directors introduced by the Bill, as they have suffered at first hand the effects of corrupt practice in the boardroom.
The second measure that will be warmly welcomed is the Bill's key aim to facilitate the rescue of companies when reasonable and practicable and not to drive them to the wall unnecessarily. The Bill seeks to do that through streamlining the administration procedures and restricting the use of administrative receivership. If that gives a company or a sporting institution the breathing space to get back on its feet and sort out the bad debts that are often bequeathed by bad boards, that is all to the good, and should be wholeheartedly welcomed by all.
I want to conclude on a note of concern, to which I should be interested to hear the Minister's response. That concern relates to how the powers and measures in the Bill can be used to impact on sport more generally, and how competition law might be used against the best interests of sport. I feel strongly that the competition authorities have been itching to get their hands on sport for many years. There has long been talk of cartels in premier league football—in a famous case, the Office of Fair Trading took the premier league to the restrictive trade practices court in 1999.
I would not like the issue of the collective sale of sports rights to be reopened by a challenge from competition law or a suggestion that sports cartels need to be broken. At the time, I was working as an adviser to the Government's football taskforce. Our report, "Investing in the Community", which was published just before the court case, argued strongly for an exemption for football and sport in general from the regulations covering restrictive practices on two public interest grounds.
The first of those is that collective bargaining, and the sharing of the revenue collected from it, is crucial to enable sports to maintain balance throughout their competitions. That is crucial to the television product—if leagues are well balanced and competitive, the uncertainty of the outcome remains and the television viewer remains interested and engaged in the product.
The second issue is that the collective selling of rights for sport can generate income that can be top-sliced and reinvested in the grass roots of every sport. The Lawn Tennis Association is well renowned for investing money in inner city communities from the proceeds of rights sold on a collective basis, as are the Football Association and the premier league. The case was won, and the special public interest attached to sport when faced with competition law was accepted when the judge quoted at length from the taskforce report. Currently, Wigan council is about to bid for £1 million of the proceeds of the premier league contract to invest money directly in public football facilities in our area.
In introducing tougher measures in the Bill, especially against cartels, I urge Ministers to consider building in safeguards to recognise the special nature of sport and to consider wider issues than pure competition. Sport is unique for the simple reason that companies in the sector need each other. Without each other, they cannot carry on playing—they need competitors, which is not true of every other industry.
Several hon. Members have referred to the experience in the United States, and we should note that although the US has the strictest pro-competition and anti-trust legislation in the world, it exempts sport and sports franchises from those provisions because it recognises the special nature of sport.
I would support an amendment to the treaty of Rome to protect sport. In the knowledge that that will take some time, I hope that, in practice, the competition authorities will bear those points in mind when exercising their new powers under the Bill. With those provisos, I give my full support to the Bill.
Much of the Bill is unnecessary, some of it is ill thought out, and very little of it is to be broadly welcomed. It will not make a major contribution to closing the productivity gap, which is the Chancellor's objective. That objective can only be delivered if Ministers use their time a bit more wisely and legislate to reduce red tape and to simplify the British tax system. I fear that those aims are beyond new Labour Ministers.
Instead, there is a flurry of press releases, White Papers and consultation documents inspired by a Chancellor whose misplaced sense of machismo about being pro-enterprise is just an excuse for one more headline. Never mind that the Competition Act 1998 has hardly had any time to bed in; the Chancellor wants another Bill to show that the Government are doing something. Never mind proper parliamentary scrutiny—we have already heard that the Bill will have a minimal amount of time spent on it in Standing Committee. But that does not bother the Chancellor in the pursuit of his big idea.
All the rhetoric and spin in the press, of which we have heard much in the debate, conceals one basic fact—at bottom, new Labour does not understand what enterprise and competitiveness truly demand. If the Government
"wants to draw a sustained cheer from business in this Bill it should tackle the explosion in red tape generated by Westminster and Brussels."
That is not a quotation from my admirable and excellent colleagues on the Front Bench. It is the judgment of the Financial Times with regard to the Bill, contained in its
"largely candy floss measures which fail to address the main problem facing Britain's enterprise economy—namely, the growing burden of regulation, especially as it concerns the labour force."
The Chancellor and I agree on one thing at least—that raising UK productivity levels is essential to driving better economic growth, keeping borrowing down and keeping price levels low and sustained. However, the facts since 1997 show that productivity has not improved. The December outlook figures from the OECD show that the average annualised rate of productivity growth was lower in the past four years than in the preceding four. That is all the more worrying and depressing because the Conservative Government bequeathed to the Chancellor an economy in fine fettle—the result, in large measure, of the decisions taken by my right hon. and learned Friend Mr. Clarke.
Of course, the problem of UK competitiveness goes beyond the basic productivity numbers. Competitiveness has also deteriorated since this Chancellor took office. According to the International Institute for Management Development, this country was ranked 11th on the world competitiveness scoreboard in 1997. By 2001, under this Chancellor, we had fallen to 19th.
According to the global entrepreneurship report of January this year, the UK has a higher proportion than Ireland, the US, Mexico or Australia of entrepreneurs who feel that they are a low priority—or less—for the Government. Of the UK respondents, 75 per cent. said that cutting red tape would radically improve the state of entrepreneurial culture in this country. David Wilkinson, head of entrepreneurial services at Ernst and Young, has said, in relation to the global entrepreneurship report, that
"entrepreneurs are disappointed with the Government for continuing on the one hand to preach the benefit of an enterprise culture, whilst on the other burdening companies with an endless litany of red tape. It's not surprising they feel misunderstood and under-represented."
One figure—£15 billion—explains why the widespread dissatisfaction is growing, and why the Bill so utterly misses the point about international competitiveness. That figure represents the cost of the regulation that has been piled on British business since 1997. The British Chambers of Commerce calculated that figure using some very accurate numbers—the Government's own figures for regulatory impact assessments in each Department. Importantly, the figure excludes the financial costs of the national minimum wage: it deals with administrative costs only.
The Institute of Directors has also done some interesting work, as was evident in its survey published in the Financial Times on
The new Labour Government have done nothing to limit the colossal recurring financial costs of regulations, which are represented in the cumulative figure of £15 billion since 1997. I shall list the yearly costs of some of the bigger-ticket items. The recurring financial cost to British business of the working time directive comes to £2.3 billion a year. For the data protection directive, the figure is £0.6 billion, and for the pollution directive it is around £1 billion. The recurring costs of payroll burdens—where firms have to do the Government's work—have varied between £125 million and £210 million a year for student loan repayments. There have also been recurring costs of £105 million for the administration of the working families tax credit. However, I fancy that that is an underestimate.
I thank the hon. Gentleman. Phrases such as "general regulation" and "red tape" cover a multitude of sins. Which of the items that he has listed would the hon. Gentleman abolish to reduce the so-called burdens that he is illustrating?
I am using the nomenclature of the British Chambers of Commerce, not my own. That body has added up all the costs set out in each Department's regulatory impact assessment, and come to a total of £15 billion. I think that the working families tax credit—soon to be the working tax credit and family tax credit—is a mess. I do not believe employers and businesses should be required to be outposts of the Department for Work and Pensions.
As for the other directives, some have not been argued against effectively in Brussels, from where many—though not all—emanate. That will be one of the priorities for the next Conservative Government. We will act in the interests of competitiveness, whereas the proposals in the Bill are strictly second, third or fourth order. The first-order question has to do with how we get to grips with the regulatory costs on business. I shall continue the litany of regulatory costs, although I shall not trespass too much on the House's time, as I want to get to the meat of the Bill and to deal with the specific clauses that worry me.
There are in the pipeline EU regulations that will add to regulatory costs, and they include the information and consultation directive. Before the general election, the Government talked tough about opposing that directive, but we do not know what they will do when it reappears before the Council of Ministers. I hope that the Minister will tell us that the Government will oppose it.
What will the Government do with regard to the proposed end of life vehicles directive, or the proposal regarding waste electrical equipment? Will the Government bother with the new framework agreement between social partners on temporary agency workers? Will they oppose those directives, or not? We need to know, as the answer is at the heart of competitiveness, and is much more important than the Bill.
The Bill purports to promote enterprise, but it deals with too many second-order questions. I shall deal with the proposals in the Bill that are defective, but I acknowledge that some are to be welcomed. I welcome the sensible removal of ministerial rulings on proposed mergers, and the fact that the Bill will put the new OFT board on a statutory footing. Clause 8, which gives the OFT a more direct and forceful role in setting guidance standards in various sectors of the economy so that trade associations can put rule books together, is important and will benefit consumers. Finally, criminal sanctions against cartel operators will be a useful deterrent. Although I do not imagine that they will be used very often, the sanctions will concentrate minds. I welcome that, and I believe other Conservative Members do as well.
However, part 10 of the Bill will require a lot of attention in Standing Committee. Reducing the stigma of bankruptcy is important in encouraging entrepreneurship, but the proposals have been put together in a rather misguided way. The Bill seeks to encourage entrepreneurship by reducing the bankruptcy period from three years to one year, or to less than one year, for non-culpable bankrupts—that is, people who are deemed not to have been reckless or dishonest.
Will the Minister tell us if resources will be available so that the existing number of official receivers can investigate every bankruptcy case? In the first instance, I fancy that they—not the courts—will have to determine whether dishonesty obtains in a particular case. Indeed, given the heavier sanctions that the Bill will introduce for the dishonest or reckless bankrupt—a bankruptcy period of up to 15 years applies—many commentators in the legal profession observe that the judicial review industry may get a shot in the arm. There could be more claims under human rights legislation, which could undermine enforcement of the distinction—assuming that one can make that distinction—between a dishonest or reckless bankrupt on the one hand and a non-culpable bankrupt on the other.
Under the Bill, an individual could be out of bankruptcy in 12 months or even less. Are the Government seriously inviting us to believe that individuals will have an incentive to enter into individual voluntary agreements? Traditionally, such agreements and arrangements mean that bankrupts can repay over a period of time several times more to creditors than would be the case if they went into bankruptcy straight away.
In addition, given the discretion that official receivers will have to reduce bankruptcy periods to less than 12 months—as low as two or three, it would appear—is it not likely that the public will get the impression that a rogues charter is being created? That is particularly worrying as, according to the Government's own figures, more than half of the bankruptcies this year are a result of consumer debt. Surely the proposals in the Bill may result in consumers racking up debt in the knowledge that filing for bankruptcy could mean that they are free in less than 12 months, provided that they have not been dishonest. Frankly, in those circumstances too little stigma leads to too much moral hazard. I cannot understand why the Government are proposing such slack and non-minimal periods for bankruptcy. Twelve months or less simply will not do, as the Opposition Front-Bench spokesman has already said.
Equally, there seems to be a lack of clear thought and precision in the clauses that deal with corporate insolvency in part 10 of the Bill. Apparently, Ministers believe that administrative receivership is a very bad thing. The clichéd view, which the Minister probably shares, is that such receiverships are normally brought about by banks, which usually hold the debentures and floating charges. They pull the plug early when times are not so good and send businesses and their work forces into oblivion. Clearly, that is a bad thing.
The problem with that caricature is that receivership is not always like that. In many cases it involves a hive-down or a transfer of assets to a new company or management. That scenario is not captured by the business failure numbers.
Administration, which is what the Bill is pressing very aggressively and which will lead to the virtual demise of administrative receivership, is essentially a court procedure. While the Government ask us to believe that that procedure will not be as onerous as administrations at present, that the time and expense will not be as great and that there will be a fast-track procedure, I do not know any practitioner in the field who honestly believes that. Some businesses that do not have the opportunity to grant a floating charge or a debenture, and whose bankers do not have that facility, will have to go the administration route. They may face higher charges and more requests for personal security and guarantees. That is not what the Government want to achieve—a restriction in the ease of accessing finance—but it could be a direct consequence of administrative receivership being kicked into touch by those clauses.
Is the Minister aware that there are four times as many cases of administrative receivership as of administrations? Logically, if all those administrative receiverships become administrations, the court system will be severely burdened. There may be a capacity problem. This is not a party political point; it is a question of strategic planning. Has the Minister any idea of the amount of pressure on the court system if administrations become the norm as envisaged in the Bill?
If there are blockages in the court system, creditors will take a particularly dim view of administration. They could ask for more onerous levels of security to counter the risk and uncertainty of a court procedure that might be overloaded or sclerotic and might damage their interests.
Having talked to people in legal and corporate insolvency in the square mile, I have gained the impression that the Government have not thought the proposals on corporate insolvency out. They will have to do a great deal more work to get their act together. I trust that they will spend adequate time in Committee to ensure that that is done.
The more I look at the Bill and its omissions, the more I realise that the Government do not understand what competitiveness and enterprise are about. The Bill completely misses the point—it misses it cubed. The Government and the Labour party do not grasp that more regulation, interference and complexity damage economies rather than strengthen them. The Chancellor, who is the true architect of the Bill, has got to understand sooner rather than later that the business of Government is not, and never can be, the government of business.
I shall concentrate on the part of the Bill that deals with insolvency. I support the Government's enterprise agenda because it is a key part of job creation. Clearly, full employment is the best form of social justice and the Government's record is already quite remarkable.
When the Conservative Government left office, my constituency was well and truly the unemployment black spot of East Anglia, with unemployment of 11.5 per cent. Last autumn, it was down to 4.5 per cent. It edged up only a little over the winter and as we move into the spring it is starting to move down again. There are levels of optimism in my constituency that we did not see for many years under the Conservatives. I will not talk about feel-good factors, but things are much better than they ever were under the Tories.
The 30,000-odd people who voted for me in 1997 did not think that it was very golden. They were fed up with 11.5 per cent. unemployment and they threw out the Conservatives, who had held the seat for about 40 years.
Mr. Ruffley said how bad things are and whinged about competitiveness. As he will be aware, I know his constituency well as I was born there and it is my family town. I know that business is booming there at the moment and that employment is as near to full as it can get in that town, so I do not see the local basis for all his moans and groans.
Having said that, however, we must be careful that rogues cannot take advantage of the greater freedom that the Bill would introduce in the insolvency laws. It is important, therefore, to distinguish between responsible risk takers and culpable bankrupts. I am certainly pleased that the Government intend to extend the penalty for culpable bankrupts—or outright rogues—to a disqualification period of up to 15 years. I hope that it will be possible to distinguish clearly between the two types and to take firm action against those who need such action to be taken against them.
I feel strongly about this matter because of some events in my constituency last autumn. Those events showed the inadequacies of existing insolvency law and how rogues can get away with appalling practices again and again. The people who suffer in such situations are not only those who are owed money; the work force, their families and the wider community suffer, and the taxpayer ends up picking up some of the costs—in particular, redundancy payments.
The company in my constituency was called Zephyr Cams and employed 100 people; we call that a large company in my constituency. It became clear in the autumn that the company was in trouble. The people who worked there knew that, and strange things were happening. The management would not speak to them. There was no communication or meeting and employees were kept in the dark.
Understandably, the workers contacted me. I wanted to speak to the management confidentially to try to be helpful. However, the management would not speak to the elected representative of the people of the area where the factory was based. I have never experienced that before; they did not want to know and did not answer the phone. When we obtained the mobile phone number of the man concerned and rang him, he turned it off to avoid facing up to his responsibilities.
When one experiences such behaviour, one can only suspect the worst and that something improper, suspicious or shady is going on. The staff in the accounts department knew that any income received by the company was immediately being shipped out and transferred elsewhere. However, the company was also having county court orders made against it for not paying its bills.
I then received information from the sheriff's office. By early September, writs against the company from the county court totalled £38,000. The sheriff's office has to recover that money, but its guidance is to try not to destroy companies in doing so. The sheriff reached agreement with the company over an item of machinery worth £9,000, which it wanted to seize as part of the repayment. However, the company said that the machinery was essential for it to struggle on. Agreement was reached that the company would pay the money by the end of September and that the sheriff would not take the machinery. But the company did not honour the agreement with the sheriff.
In October, the sheriff tried to remove some other equipment and received a letter saying that the company did not own the machinery, but that it was owned by a holding company. Therefore, legally, the sheriff could not get his hands on it. Clearly, this was a blocking device that would necessitate the sheriff going back to court.
Staff then had to watch while machinery was removed from the company, but there was still no communication or information from the management. The staff believed, and have evidence, that some machinery and other assets were taken by the management themselves and transferred up the road to another factory in Great Yarmouth, the Breydon Bay company. Certainly the person running Zephyr Cams in Lowestoft, Mr. Paul Harris, is now running the Breydon Bay company. However, he was so unwilling to be held to account that he would not speak to his Member of Parliament.
Once the story became public, I received all sorts of other information, and eventually learned the most worrying thing of all; that the process we had witnessed at Zephyr Cams—of assets being stripped out of a failing company and put into another—had happened four years earlier with the same people. Two companies in Weston-super-Mare—one called QEP Camtec Ltd, and the other called Quality Engineering Parts Ltd—went down owing £2 million, including one individual debt of £100,000. Again, assets and money were taken out of those companies to acquire Zephyr Cams in my constituency.
The man behind it all was an American called Mr. Kenny Joseph, of Wells Industries, New Jersey. He was the ultimate owner; he was the so-called "holding company". He had a record of doing this kind of thing over there as well.
There was misery for the work force, who all lost their jobs, with the taxpayer having to pay redundancy payments. However, Mr. Joseph has got away scot-free. He is not exactly hard up; I understand that he has an apartment in New York valued at about $12 million and a nice little house in the Hamptons, worth about $40 million.
There is something deeply unfair about this. We do not begrudge people earning money legitimately. However, someone who has acquired such a fortune should observe decency and propriety in running a business over here without putting hundreds of people out of work. We have made attempts to get the matter investigated, but there are problems with the current receivership procedures. I am pleased that the Government want to reform them.
I am not exactly sure what proposal in the Bill the hon. Gentleman is suggesting would solve the problem to which he has referred. The Insolvency Act 1986 provides for preferences for fraudulent trading and wrongful trading, but I am not sure how the example he gives in any way relates to the insolvency provisions in the Bill.
I understand that the Bill will lead to cases being properly investigated, and the case to which I have referred has not been properly investigated. We have been in contact with the economic crime unit, because we have all sorts of evidence. However, the unit can only investigate a company in administration on matters relating to fraud if the company dealing with the receivership makes a formal request to the DTI, or the creditors make a formal complaint to the economic crime unit. That has not happened in this case. It should not be at the discretion of the receiver as to whether the matter is investigated if there is evidence—I have evidence in my possession regarding this case—that should be investigated. I am asking Ministers to take note of these proceedings to ensure that the Bill's proposals regarding receivership and investigation can deal with such cases.
There are also questions about the treatment of employees. I do not know whether these must be dealt with in other legislation or in the Bill. Some of the workers concerned had worked for the company all their lives, and they deserve better treatment. Sometimes companies fail and one must give bad news to employees. I have described what has happened to the company in my constituency as a smash-and-grab raid, while employees were left in the dark. People should not be allowed to do that.
I hope that the Bill will be tight enough to identify and punish culpable bankrupts. How does the Bill relate to foreign owners, such as the American chap to whom I have referred? Will such people be able to be caught if there is evidence against them? People like that are simply rogues who give business and enterprise a bad name. There are some who think that big business is awful because of these incidents. That is not the case—most people run their businesses properly and well, but some play fast and loose with other people's money and employees' livelihoods.
People have spoken of the different culture in the United States regarding risk and failure. That culture has spawned a successful and dynamic economy. Unfortunately, not all Americans, as we can see from the case to which I have just referred, are the kind of entrepreneurs that we want to encourage here. People such as Mr. Joseph do not deserve another chance—they simply deserve to be dealt with.
Finally, it is the view of some in the economic crime unit that it is still too easy for companies and individuals to take everyone for a ride. I hope that the Bill will address these issues and ensure that people taking a genuine risk and trying their best have other opportunities while rogues, who treat people badly, are well and truly dealt with.
I am grateful for the opportunity to contribute to the debate. I come to it, I confess, with a strong recollection of the passage of the Competition Act 1998, on whose Standing Committee I served. Starting from that point, I want to explore why some parts of the legislation are being introduced in this form and the Government's justification for introducing the Bill now.
The Secretary of State talked earlier about the damage that cartels can do and the theoretical calculation of the extent to which cartels could increase prices to the detriment of consumers. All that is true. However, four years ago, the Secretary of State's predecessor, now the Secretary of State for Environment, Food and Rural Affairs, Margaret Beckett, said on Second Reading of the Competition Bill [Lords]:
"give the Director General of Fair Trading the powers that he needs to uncover cartels, abuses and other anti-competitive behaviour. He will have effective powers to stop anti-competitive behaviour quickly and to impose stiff financial penalties that provide an effective deterrent."—[Hansard, 11 May 1998; Vol. 312, c. 117.]
Just four years ago—two years ago, considering that the legislation came into force in March 2000—the Government believed that they were taking the necessary powers to identify and act against cartels with an effective deterrent. Only two years down the line and the Government have clearly concluded that they did not have effective powers for that purpose and do not have an effective deterrent against hard-core cartels. However, we do not have the evidence.
The simple proposition that I put to the Secretary of State was that she might tell us on how many occasions the Director General of Fair Trading has brought actions for infringement of the chapter 1 prohibition so that we could examine it. The right hon. Lady does not seem to know. She refers to 25 cartel investigations, but an investigation is not an analysis of whether a cartel exists. We heard evidence from Dr. Cable and others that the Director General of Fair Trading, quite rightly in some cases, investigates and acts on complaints, but that is not the same as determining that cartels exist.
The simple question that should start any examination of the legislation is: what is the evidence of the mischief to which the Bill is a necessary remedy? At no point did the Secretary of State justify the Bill or examine where the mischief that has to be remedied in this way lies. That leads me to the same conclusion reached by my hon. Friend Mr. Ruffley. This is a demonstration of the Chancellor of the Exchequer's macho approach to policy making. The time has come for an Enterprise Bill and he wants to account for not having achieved what he set out to do in terms of relative productivity increases in this country compared with our main competitors. He wants to show that something will be done about it.
I share the view of colleagues who have made it clear that the Chancellor and the Secretary of State have not addressed themselves to the issues that are of most importance to industry in dealing with the relative productivity gap between ourselves and our competitors—skills, capital intensity and the use of capital equipment in manufacturing, the relative impact of regulation and the complexity of the tax system. Such matters are at the heart of our productivity and our relationship with our competitors. It is clear, in both a theoretical and a practical sense, that if the competitive intensity of our industry can be improved, it will improve our economic performance. However, I suspect that it would be hard to demonstrate—it has not been demonstrated in the evidence that I have seen so far—that there is a substantial gap in the competitive intensity of economic activity in the United Kingdom compared with France and Germany, yet there is a substantial productivity gap between ourselves and France and Germany. It has not been narrowed since the Government came to office in 1997 and if one were to look to a time when it was being narrowed, the evidence probably best supports the period in the late 1980s and early 1990s. That was to do with labour market reforms and the ability to employ more effectively in this country than in continental European countries, and that difference is being substantially reversed by the Government.
The Secretary of State talks about narrowing the productivity gap with competitors, but that is not at the heart of the Bill. It is about competition and insolvency, and I want to confine most of my remarks to whether it is a sensible measure in terms of competition. Of course, the Bill should probably have been called the competition and insolvency Bill.
As far as competition is concerned, I confess that I am not wholly opposed to the legislation. It contains some good aspects and some about which I have questions. However, I am surprised by the nature of this approach compared with what the Government were insisting on only four years ago. Ministers at the Department of Trade and Industry were then insisting on the necessity of bringing ourselves wholly into line with European Union legislation. It was all about bringing articles 85 and 86 straight into UK domestic legislation so that companies would not have to deal with two different types of competition law.
In relation to the criminalisation of the cartel offence, we are to be presented with something different. The UK approach to the treatment of hard-core cartels will be different from the EU legislation. I admit that some EU countries have criminal sanctions available, but they are rarely enforced. If the Government believed that criminal sanctions were necessary, it strikes me that as a matter of policy it would have been better to bring forward evidence after a longer period of seeking to implement the penalties and sanctions in the 1998 Act. They could also have worked alongside the European Commission to ensure that by 2004, when the EU competition regime is modernised, if criminalisation is seen as a necessary sanction, it can be introduced on an EU basis rather than on a UK basis alone.
The second point relates to structure. The Government consulted on two possible structures for the cartel offence. One related directly to the chapter 1 prohibition and the other to an offence of dishonesty. The Government have chosen the latter structure. That may well be easier to justify and to implement and enforce in the UK courts, and it will narrow and focus the nature of the criminal offence that is to be created, but it moves away from the effects-based regime that was at the heart of the 1998 Act. It looks at intention rather than effects, whereas previous competition legislation looked at effects.
I do not want to go on too long as other hon. Members wish to contribute and probably have more and better things to say than I do. Leaving aside those general points of principle, the question is whether the Bill will in practice promote enterprise. With regard to the Bill's overall structure, the Government must recognise that there is a threat—I hope that they will try to reduce it in Committee—of a chilling effect upon enterprise because of the extent of regulatory intervention that will be undertaken using the powers in the Bill.
The purpose of competition legislation is to remedy market failure, not to have an actor out in markets trying to impose a competitive regime by the determinations of bureaucrats rather than by the actions of markets themselves. As the hon. Member for Twickenham rightly said, there is a risk that, if there are too many regulatory activities and too many investigations, the regulator will move from being focused on genuine market failure with substantive evidence into becoming—himself or herself, or the board collectively—an actor in those markets so that the markets respond to regulatory signals more than to market signals. Market signals must be at the heart of this.
I shall not dwell on insolvency. Clearly, if the Bill fosters a sense of responsible risk taking, that will be to the good rather than to the ill. In respect of risk, Lord Hanson, who was—and still is—quite a business man, once told me that his approach was to say, "Look at the downside risk on a deal. If you can live with the downside, start to look at the upside." We need to think about that. This legislation is based around the idea of the greater the risk, the better, but the matter is not as simple as that. Business men should look for asymmetric risk where there is a limited downside with which they can cope and a greater upside benefit. Those probabilities have to be worked out. It is not a case of simply saying the more risk, the better. We do not want a risky culture, but an enterprise culture, and that means getting the risks right.
My hon. Friend Mr. Whittingdale talked about the implementation of the Tebbit doctrine. Further to the points made by my hon. Friend and the hon. Member for Twickenham, I have two points to make on mergers and changes in the merger regime. First, we should think not just about the competition test—the Bill is structured in this way—but also, where a substantial lessening of competition occurs, about whether, in the Bill's terminology, a relevant customer benefit can be demonstrated. Transparently, that would mean that the lessening of competition implied by a merger in the context of that particular market makes it justifiable.
The Tebbit doctrine was always based around competition as the primary consideration, but we are not trying to create a perfect market by applying the competition test because the perfect market would mean that the greater the number of actors in the market—the greater the number of enterprises in a given market—the greater the competition. However, we cannot necessarily legislate for that. There will be a degree of concentration in markets and we must be prepared for that, but we should look for the customer benefits to be transparent, and for them to be customer benefits not benefits to the political system, which is essentially what has sometimes intruded in the form of other public interest considerations.
The other point that I am prompted to make by the comments of the hon. Member for Twickenham is that if we go down this path—the Government, probably rightly, are choosing to go down the path of independent competition authorities looking at mergers on the basis of the competition effects and the customer benefits—why do the Government not have a parallel consideration in relation to market investigations and anti-competitive actions? Why do the Government create a structure in the legislation that allows not only the Government to make references in relation to market investigations, but to make references even in circumstances where the Office of Fair Trading would have said that it does not see a case for such a reference? There is a strange lack of complementarity between the Government's approach to independence in the merger regime and the direct power, untrammelled as far as I can see, for Ministers to intervene where market investigations are concerned. It will be good for the Government to think hard about that.
If some of those matters are remedied in the legislation, perhaps we can hope for a Bill that is generally supportive of enterprise rather than otherwise. It will be if the effect of things such as super-complaints and the application of the new regime are geared to examining substantial examples of market failure that have significant anti-competitive effects. It will not be if the market investigations are lengthy and costly. Some serious thought must be given to timetabling market investigations so that they do not become politically motivated and are not arbitrary, too lengthy or too costly. We cannot have super-complainants acting on the basis of press and public agitation rather than of evidence. We must look carefully to make sure that the super- complainants and the consumer bodies themselves are not represented directly in the Office of Fair Trading. There must be a separation there if they have the power to make complaints.
With regard to the criminalisation of cartels, I have substantial reservations not just about the principle in relation to EU legislation but about how it will work in practice. The Government consulted about, for example, whether prior EU findings that are based on civil proceedings in the EU would be admissible evidence in criminal prosecutions in Britain. They have concluded on the basis of those consultations that they should not be. That begins to demonstrate precisely the problems to which the Government referred in the consultation—that the OFT will therefore have to secure evidence to a criminal standard before trying to bring a criminal prosecution and will have all the procedural difficulties associated with that as well as possibly trying to pursue a criminal prosecution in the UK at the same time as there may be civil proceedings in the UK or the EEC. Those two matters operating side by side can clearly give rise to difficulties.
If some of those points could be ironed out of the legislation, there is no reason why we should not end up with a Bill which, on balance, is capable of supporting enterprise rather than constraining it. However, whoever is called upon to do that task in Committee will have to do a lot of work in an unreasonably short period. The Competition Bill had 74 clauses and 14 schedules and at the time I did not think that it was examined at any exaggerated length in the course of 17 sittings in Committee. The Enterprise Bill is more than three times that size. It has 11 parts rather than four and 269 clauses rather than 74. Yet, so far as I can see, the Government propose to deal with it in pretty much the same number of sittings—perhaps 18 rather than 17. Therefore, on the basis of my experience, the Government are giving the Committee about a third of the time necessary—perhaps, to be generous, a half—to do the job.
The Competition Bill had first been considered in another place and came here afterwards. The Enterprise Bill has started its passage here and will go elsewhere for revision. The Government should think again about the Bill's timetable and be prepared to be flexible in Committee in response to the arguments that are presented. I hope that the Bill will be amended in Committee so that it can deliver the principle that is intended—to support enterprise.
I am grateful for the opportunity to contribute to the debate. The Bill is being introduced against the backdrop of an extremely positive economic environment. Inflation is at its lowest for a considerable period; interest rates are low and the other great measure of the success of UK enterprises—unemployment—is also at a record low. I am sure that the whole House wants to celebrate that strong economic environment.
Given that backdrop, it is tempting to consider whether we really need the Enterprise Bill. In April 2000, The Economist intelligence unit reported that, judged against about 70 factors, Britain was the second best place to do business among the world's 60 largest economies. However, we still need the Bill. We cannot be satisfied with second best—although that is a good record.
The situation appeared to have improved even more by February, when Erkki Liikanen, the European Union Commissioner, published a report on the implementation of the small firms charter in each EU state. He confirmed that the UK was leading the way for the representation of small businesses. Nevertheless, we should consider what else we can do to foster the vibrancy of enterprise in the UK.
I was minded, in part, to contribute to the debate when I read the Barclays bank survey of new business starts by region for last year. It revealed that Harrow was one of the top 10 UK regions for business start-ups. When my hon. Friend the Under-Secretary replies to the debate, I hope that, apart from responding to the wider points that have been made, she will take the opportunity to join me in congratulating Harrow in Business, an agency funded in part by the excellent Harrow local authority—well led by the Labour party—and by a series of Government funding streams, and the north-west London chamber of commerce. Between them, they provide a range of support for businesses and would-be entrepreneurs in my constituency and those of my hon. Friends the Members for Harrow, East (Mr. McNulty) and for Brent, North (Mr. Gardiner).
We are not only good at entrepreneurship in Harrow: larger businesses have also done well since the sun began to shine, on that wonderful May day in 1997 when Labour finally came to power. Ladbroke, the largest private sector employer in my constituency, has created more than 1,000 additional jobs since 1997.
May I be permitted to give a short advertisement for the enterprising nature of my constituents who work for Ladbroke? They now provide an extremely efficient betting service, of which Members may want to take advantage. Members may want to join sensible football fans and bet—with Ladbroke—on Arsenal winning the double this year. More courageous Members may want to take advantage of that betting service and back Wales to beat England in next year's Six Nations tournament.
Members may want to take a political punt. Having listened to the opening speeches in the debate, Opposition Members will, I am sure, find that the odds have lengthened on the chances of a Conservative victory at the next general election. Small and larger enterprises do well in my constituency.
Despite that generally good picture—in Harrow and nationally—it is right that we introduce further measures to celebrate and cement the effectiveness of the legislative environment for entrepreneurs and larger businesses. The various provisions to promote competition, to take tougher action on individuals who might be tempted to operate cartels and to increase opportunities for redress for genuine victims of anticompetitive behaviour, as well as the additional support and rights for consumers, are entirely justified.
As I suggested in my intervention on my right hon. Friend the Secretary of State for Trade and Industry, I strongly support the Bill's provisions on insolvency, but I want to comment on one sector of the business world that may not be affected by those provisions but which should come within the ambit of the insolvency reforms: the 9,000 businesses registered as industrial and provident societies under various Acts between 1965 and 1978.
Unlike the traditional company model, with which all Members will be familiar, businesses registered as industrial and provident societies are either bona fide co-operatives or societies operating for the benefit of the community. Their business is regulated by the Financial Services Authority and they often operate in the same marketplace as companies. They run funeral services, travel services and retail businesses, such as supermarkets. Why then should not the same insolvency provisions that apply to traditional companies also apply to industrial and provident societies?
The problem is that the societies are governed by industrial and provident societies legislation and not by the Companies Acts. That is why discrepancies in the application of insolvency law have developed between companies and industrial and provident societies.
As a result of the Cork report, corporate insolvency law was reformed in 1986 and in 2000. It provides a range of procedures for companies that run into financial difficulties. There is the traditional liquidation, or winding-up, route, which, in effect, brings an end to the life of the company.
The administration order process tends to have a wider purpose—to try to rescue a business or to facilitate a more beneficial winding-up. There are company voluntary arrangements. The administrative receivership process has been mentioned several times.
Furthermore, at the time of the 1985-86 reforms, the encouragement of corporate rescue was backed up by a new regime under the process set up by the Company Directors Disqualification Act 1986. That disqualified directors when it became clear that through their actions in the insolvency of a company they were no longer fit to hold office.
Sadly, industrial and provident societies are wholly excluded from the administration order and company voluntary arrangement processes; nor are their directors subject to disqualification under the 1986 Act. Why? They do not fall within the definition of "company" under the legislation. Unlike building societies and friendly societies, they have not had those rules applied to them, in whole or in part, in separate legislation. The Bill may provide an opportunity to remedy that deficiency.
If the Bill were to make its way through the House without an opportunity arising to amend insolvency provisions for industrial and provident societies, that legal model, which is important for many businesses and for many communities who run businesses, would fall even further behind the company model. I point out, in a non-partisan way, that not only have this Government introduced reforms for other business models but previous Governments made sensible reforms of company law. In this Bill, only the abolition of Crown preference benefits industrial and provident societies.
I point out to my hon. Friend the Minister that the insolvency regime for those societies could be amended either by including them in the Bill or, as she knows, by making provision in the private Member's Bill making its way through the House. I seek an assurance from my hon. Friend that she and her officials will continue to have discussions across Government about how we can prevent the legal model of industrial and provident societies—a small but important part of the business world—falling further behind the company model. If we are serious about competition, we should ensure that all legal forms are modern and up to date and have the appropriate structure.
I congratulate my colleagues in the Department of Trade and Industry on an extremely sensible Bill, and I note the warm welcome that it has received. I hope that we can address the issue that I have raised in Committee or at a later stage.
I shall deal mainly with the part of the Bill that deals with insolvency, but before I do so I want to express my support for the comments made by my hon. Friend Mr. Ruffley. He said that simply badging a Bill with the word "enterprise" does not necessarily produce an entrepreneurial culture. There is merit in many of the contributions that have identified the fact that, since 1997, the UK has dropped in the world competitiveness league, and that the burden of taxation and red tape, particularly on small and medium-sized businesses, has stifled the entrepreneurial culture that we cherish so much and which the Bill seeks to promote.
On insolvency, the second chance philosophy is something to which I can subscribe. Before I came into the House 10 years ago, I ran my own business for 10 years. For some time, I dealt with an American company that was in chapter 11, and although one had to be very careful about making sure that the invoices went out on time and got paid on time, month by month, just as a safeguard, the arrangement seemed to work very well and eventually the company came out the other side. I am signed up to the idea that there are ways of rescuing and maintaining companies to ensure that, ultimately, they survive and do not cause the damage to creditors, customers and consumers that the Bill seeks to avoid. I support that part of the Bill, but I am concerned about insolvency practitioners and liquidators and their activities.
The Minister will be aware—this is touched on in the regulatory impact assessment that accompanies the Bill—that small, medium-sized and, I think, large companies, have for some time been concerned about the way in which assets are disposed of and the lack of accountability of those responsible. They are particularly concerned about those responsible for winding up a company and those who are personally involved in disposing of assets on behalf of an individual or a company.
I notice that the regulatory impact assessment contains a lot of detail about individual voluntary arrangements. There is a breakdown in a detailed table at section 518 which shows the value of receipts, the nominee fee and the supervisor fee. We have heard tonight that many people avail themselves of individual voluntary arrangements because their personal and domestic finances are in trouble, but I am more concerned about the corporate sector, and particularly those small and medium-sized businesses that have assets to dispose of and where there is concern, not only about the proportion of the fee taken by those who wind up the business but about the way in which they go about their business and the lack of accountability. There are many well documented cases in which, despite the substantial sums involved, creditors received only a page of documentation giving them details about how the wind-up of a business was carried out.
Only on Saturday morning, I was visited in my surgery by a lady who had run a small textiles business in my constituency. I suspect that this case is typical of small and large companies throughout the country, because many textiles businesses have folded in recent years, not least because of relocation to other countries where labour costs are much lower. My constituent seemed to me a very good business woman who had tried desperately to maintain jobs for her staff, which was small but very important in a small town, and done her best to get new orders to keep the company going. What she found most distressing about the proceedings was the fact that although she leased her factory, she owned the capital equipment in it, and that was left for a very long time before it was disposed of. It included the sort of equipment that one would expect to find in a textiles factory, such as cutting tables, which are valuable assets, yet it was all disposed of locally for £500.
That is not best practice, and such behaviour is not acceptable. It is not good for the owner of the business; it is not good for the creditors and it is not good for the company's employees. I hesitate to call for more regulation, but I am disappointed that the Minister has not seen fit to include in the insolvency provisions statutory requirements on transparency and simplicity for insolvency practitioners and liquidators. They are key to insolvency practices. How those people go about their work and how long they take to do something is critical, and there is no mention of that in the Bill. They should be called to account because they have a duty of care to all the interested parties.
Even at this stage, when the Bill has been printed, I should like the Minister to consider very carefully improving the part on insolvency. Clearly, if a business had assets that could be disposed of in a timely manner, at a rate that was more advantageous to creditors, that would be to the greater good. I accept that the philosophy is that something is worth only what the market will pay for it at a given time, but some businesses have specialised plant, and it takes somebody with knowledge of the sector to realise the best price for it. It seems to me that my constituent, whose case is not untypical, has not been well served by those who were given the responsibility of winding up her business.
I suspect that the Minister will tell me that my next topic has more to do with the Companies Acts than with the Bill, but I consider it pertinent to the issue of directors. I refer, of course, to companies with limited company status. Concern persists about phoenix companies—companies that disappear and rise again, often with the second company having acquired some of the assets of the original one and with the same people involved. I know that the Companies Acts tried to disqualify directors who engage in such practice, but it appears to be continuing.
The matter is not unrelated to the Bill, although it may be other legislation that has to be amended. Mr. Blizzard touched on the subject when he gave a constituency example of the way in which directors can behave, and continue to do so, perhaps by using holding companies to asset strip before moving on. They leave behind a trail of damage and loss to the work force and others. I am sorry that Mr. Robinson was not present to hear his hon. Friend, as I suspect he might have been able to say something useful about running companies in such a fashion. Even if such issues cannot be covered in the Bill, they are pertinent to the general subject with which it deals. I hope that the Minister will take them on board as unfinished business connected with the Companies Acts.
That is all I had to say. I shall now sit down, in case I am put on the Committee.
I was unable to be present for the opening speeches. I apologise to the House, to Ministers, and specifically to the shadow Secretary of State, who is in his place. I was unavoidably detained elsewhere.
I support the Bill. I shall concentrate on three aspects of it: the provisions on competition, consumer matters and insolvency. The competition aspects are very much a continuation of the Competition Act 1998, enhancing the provisions of that Act. The background in this country was one of an administrative system to deal with competition problems. Under that system, Governments sometimes actually promoted cartels, and we were not tough about promoting competition, so the 1998 Act represented a step change by, in essence, introducing to UK law articles 85 and 86 of the treaty of Rome.
The Bill will take that step change further. It will enhance the role of the OFT and take politics out of decision making to a large extent, except in certain cases, for example, those involving national security. Unfortunately, in recent decades the public perception has increasingly become that politicians cannot make disinterested decisions. I do not accept that that is true of politicians on either side of the House, but that is the perception, so taking politics out of the matter, as was done in respect of the Bank of England, should boost public confidence in the operation of competition policy.
I can deal briefly with the first specific aspect of the competition provisions, which is the criminalisation of hard cartels. I welcome that provision, which has been in operation in the United States for a century, but I doubt that it will have a great effect in practice. More important will be the second specific aspect—the damages provisions. The damages provisions of the Competition Act, whereby private persons could seek damages for losses they had suffered as a result of anti-competitive behaviour, were not especially clear cut. Mr. Lansley asked for empirical evidence in that respect, so here is some: to my knowledge, there have been no successful private damages claims under the 1998 Act.
The Bill is designed to make it clear that damages can be claimed; that they can be coupled with action by, for example, the OFT; and that they can be brought before the appeals tribunal. That will have an important effect on behaviour in the market. That has certainly been the American experience. The United States has a system of treble damages—we are not adopting that specific approach—and experience there is that the threat of private action by other businesses that have been damaged by anti-competitive behaviour is a stronger incentive for businesses to behave properly than criminal penalties.
I should like my hon. Friend the Under-Secretary of State for Trade and Industry to give further consideration to the possibilities offered by representative actions, as set out in clause 17. I see that provision as an advance, but leopards, especially old ones, cannot change their spots. Although I have argued for many years for such a provision, I have gone further, saying that consumers on behalf of whom the action is to be taken should not have to be identified, Many consumers who are adversely affected by anti-competitive behaviour have no incentive to take action because the losses they suffer are extremely small. So there is an argument for someone, such as the OFT, to act as their surrogate and take action on their behalf.
As drafted, clause 17 requires that such consumers be identified, but in many cases it will not be possible to identify the whole range of consumers who are adversely affected by anti-competitive behaviour. Therefore, I want the Minister to consider the provision. Perhaps in the fulness of time, an amendment can be made to allow for the aggregation of non-identified consumers who have suffered loss as a result of anti-competitive behaviour.
One important consumer provision of the Bill appears in the competition part, in clause 8, which deals with codes of practice. That provision is an enhancement of one that has existed since 1973—in section 124 of the Fair Trading Act 1973, which was introduced by the Conservatives. Under that excellent provision, during the 1970s and early 1980s, many trade associations introduced codes of practice, which enhanced consumer protection.
The example of the Association of British Travel Agents is illustrative of what can be done in this regard. Clause 8 seeks to take the process further because it provides for approval by the OFT of the codes. It provides also for the OFT to promote the codes. Many of the codes that were drafted in the past are now little known about. For example, there are codes that apply to funeral directors and shoes. There is always a debate about self-regulation. In this context, however, when it is backed up by public monitoring by the OFT, it is to be welcomed.
As for stop now orders, the Bill seeks to go beyond the regulations that were introduced on the back of European Community directives. In the brief produced by the National Association of Citizens Advice Bureaux, it is suggested that the stop-now provision should be extended to behaviour that is not in breach of the criminal or civil law. I am not sure that the association argued in its briefing that persistent breaches of the codes might not constitute breaches of the criminal or civil law. However, they would be objectionable.
The National Consumer Council, with which I have been associated back to the mid-1970s, is arguing for a duty to trade fairly. Again, I cannot change my spots. I have been arguing for that duty in writing for many years. Perhaps it is not for the Bill, but it is certainly something to be taken into account. If it is taken forward, it is important that it applies only to anti-consumer behaviour. In other jurisdictions, such as that in Australia, which have a general unconscionability provision, there is a lawyers' charter. That is good for lawyers but not necessarily good for others.
I support the changes in the personal insolvency provisions. It was suggested by Mr. Ruffley that these will lead to a rogues charter, with consumers racking up debt and declaring themselves bankrupt. That is not the reality. People do not consciously incur huge amounts of debt that they cannot pay. They know that if they do so they will not get credit in future. They will have a black mark against them and creditors will take that into account and not lend. A stigma attaches to bankruptcy in this country that does not operate elsewhere, and the proposed change is to be welcomed.
With the abolition of Crown preference, we are following other jurisdictions. For example, Germany has abolished it, and it is altruistic of the Government to abolish it. It is often the poor old tax collector who is paid last by a business in trouble. It will pay other traders so that it continues to receive supplies. It might even be able to pay its bank loan so that the overdraft will be continued. However, it will not pay its taxes. The abolition is magnanimous behaviour on the Government's part. As I have said, it follows a trend in other jurisdictions, and I welcome it.
Corporate insolvency is a difficult area. The Insolvency Service produced a good paper in 2000, which considered the empirical evidence. A survey was produced by the London business school. There was wide consultation and it was concluded that there was a problem in some instances of banks pulling the rug too quickly. It was found that there was precipitate action by banks when dealing with companies that could be rescued. On the whole, however, it was felt that that was a problem of the early 1990s.
The Bill tries to address the problem and it will abolish administrative receivership. The hon. Member for Bury St. Edmunds said that there would always be a court procedure, but anyone who reads the Bill will find that that is not the case. It will be possible for banks to appoint administrators out of court. Officials, Ministers and the Bill team have excelled themselves in coming up with a solution to the problem. A certain amount of tweaking still needs to be done, but they have carved out from the abolition of administrative receivership certain capital market transactions and project financings. Furthermore, as I said, there is the possibility of the banks appointing administrators out of court. The rationale is correct: we must promote the rescue culture. That issue was addressed by Mrs. Browning, whose point about the behaviour of administrators was right. The Bill introduces an explicit duty for them to act in the interests of creditors, but there may be room for further work in Committee in that regard.
I accept that the promotion of an enterprise culture will not be achieved by the Bill alone, as it requires a range of measures. I agree that, as has been suggested from the Opposition Benches, there is a very good case for tax simplification. Indeed, I have been working with the Institute for Fiscal Studies, as have hon. Members from the two main opposition parties, on how it might be better effected. Support is required for a range of other measures, such as those that my right hon. Friend the Secretary of State for Education and Skills is introducing to try to promote skills in schools and lifelong learning. Measures such as those introduced in recent years by my right hon. Friend the Chancellor of the Exchequer to promote research and development and science are also required, and we also need to promote a welfare state in which work is the primary avenue for getting people out of poverty. All those things are needed. The law can do only a certain amount, but inasmuch as the Bill makes a contribution, I welcome it.
I am grateful for the opportunity to contribute to this debate. I am particularly grateful to have caught your eye, Mr. Deputy Speaker, as when I look around the Chamber at those who are present and have sought to speak, it seems that I will probably be the only Scottish Member to contribute. That is rather surprising; indeed, it is regrettable, given that all bar 13 of the 269 clauses of the Bill—not to mention the schedules—will apply to Scotland and have a profound effect on Scottish business and insolvency law. However, it appears that the only contribution to the debate from 56 Scottish Labour MPs will be the very brief intervention made by Mr. Harris during the speech of my hon. Friend Dr. Cable.
I am afraid that I cannot speak with any great enthusiasm for the parliamentary love-in that we have heard hon. Members join today with regard to the merits of competition. I represent a part of the country where people view with some scepticism the notion that competition will be the panacea for all our business and enterprise ills—a point that I want to illustrate with one example. Recently, I met the director general of Oftel, who spoke at great length about the merits of competition with regard to the expansion of broadband access. I asked him what contribution competition would make to the £12 million project to lay a fibre-optic cable from mainland Scotland to Shetland. It is fair to say that the silence was deafening. There are some aspects of our enterprise development, particularly in remote areas, for which competition does not have all the answers. That is certainly true regarding the conduct of the Office of Fair Trading.
My experience of the OFT to date has been one of disappointment, and that view is widely shared in my constituency. It has examined once, if not twice, petrol pricing, a matter which was also raised by Ms Walley. That is a live issue in my constituency, where we pay at least 15p a litre more for our petrol and diesel than people pay on the mainland. Obviously, a small element of that will be attributable to transportation costs, but I do not believe that that amounts to 15p a litre. The OFT examined the issue, and came to the conclusion that it could see nothing wrong with the way in which the market was operating.
Since I was elected, I have had further experience of the OFT, when Esso decided to withdraw its business cards from businesses operating in my constituency. Under that system businesses were given the opportunity to obtain cards with which to pay for their fuel, enabling them to pay the average United Kingdom cost. That created more of a level playing field and was a valuable asset for a number of businesses in my constituency. I raised the issue of the cards' withdrawal from Orkney and Shetland with representatives of the OFT, but they merely shrugged their shoulders and said that there was nothing they could do. That withdrawal was, by any commonsense definition, an unfair trading practice, and if that is the best that the OFT can do, I am afraid that, viewed from north of the Pentland firth, we see the organisation as worse than useless.
Like other hon. Members, I am happy to give a broad welcome to the Bill in general. I have received briefings in recent days from bodies as diverse as the Law Society of Scotland and the Consumers Association, all of which have been broadly supportive. Any measure that can command support from organisations as diverse as those must have some significant benefit. I would, however, like to draw to hon. Members' attention a number of aspects of the Bill that cause me some concern, and which I hope will be given full consideration in Committee.
The first of those aspects relates to the creation of a cartel offence. Mr. Lansley raised most of the points that I wanted to make on this issue and I do not wish to rehearse them, but I associate myself with the reservations that he expressed. My particular concern on this matter, however, is one that I raised at a number of stages during the course of the Proceeds of Crime Bill, on whose Standing Committee I served recently.
The creation of a cartel offence of this sort, and the way in which it relates to the civil sanctions stemming from the Competition Act 1998, is a further instance of the blurring of the division between civil and criminal proceedings. It would greatly improve this part of the Bill if some guidance were to be given—either through a guidance note or in the Bill itself—on the circumstances in which evidence will be used in criminal proceedings, and those in which it will be used in civil proceedings. That is particularly the case as the OFT is to be the investigating but not the prosecuting authority in such cases.
While I am on the subject of prosecuting authorities, I hope that the Secretary of State's earlier reference to the Serious Fraud Office being the prosecuting authority relates only to England and Wales, and that prosecutions in Scotland will continue to be brought by the procurator fiscal and the Crown Office. I am not too narrow and nationalistic in these matters; I am quite happy to import the best of English criminal procedure into Scotland, but I am afraid it would be stretching that definition to include in it the Serious Fraud Office.
I have some concern about the definition of the offences that require proof of dishonesty. As a former criminal prosecutor and criminal defence solicitor, I can envisage problems stemming from a provision that requires proof of dishonesty beyond reasonable doubt. I understand why politically that may be desirable, but it may make it difficult to obtain successful prosecutions in the criminal courts. I suggest to the Minister that another form of words, such as "knowingly or recklessly" or "with culpable recklessness", would be preferable and would be more in line with procedures for similar offences.
I am also concerned about the powers of investigation that are to be given to the Office of Fair Trading. I flag up a particular concern about clause 184, which provides powers that could be quite intrusive and may not be compatible with the right to privacy under article 8 of the European convention on human rights. It would be sensible to have a procedure similar to what in Scotland we call commission and diligence, whereby application can be made to the court for the release of information by an investigated party before an order goes through that proper protection may be given to the rights of the individual in respect of that procedure.
With regard to the powers of the Office of Fair Trading, will the Minister explain to me why, under clause 185, warrants relating to the criminal investigation are to be obtained only from the High Court of Justiciary? That is bizarre. As far as I am aware, warrants for every other criminal offence in Scots law can be obtained from a sheriff. It is possible to obtain a warrant to investigate the circumstances of a murder from a sheriff, but for some reason a warrant relating to the operation of a cartel must come from the High Court of Justiciary. All other legislation on criminal procedure in recent years has extended the jurisdiction of the sheriff court, and I do not see why this Bill should be any different.
As for the insolvency provisions in part 10, I am not convinced that there is a great deal wrong with receivership as it operates north of the border. I am concerned that the significant differences in the way in which receivership and administration operate have not been reflected in the Bill. I am particularly worried that, unlike in England, administration orders in Scotland are not granted by Scottish courts on first application. The Bill envisages a three-month period for administration, and I suggest to the Minister that that is an unrealistic expectation. If the administration involved the disposal of heritable property, which poses a conveyancing problem of no great complexity, that might eat up the three-month period after the initial application granted by the creditors. It would require the administrator to go back to the court, and if for any reason it was necessary to do that on a number of occasions, it is quite conceivable that the proceeds and assets of the state would be significantly diminished, because of the cost of the lawyers' fees and the court proceedings, without the issue being properly resolved. I suggest that a longer initial period would be useful. The extra expense involved would defeat the Government's aim of streamlining the procedure.
I am happy to give the Bill a warm welcome in respect of several points, particularly the abolition of Crown preference, which has been welcomed by Members on both sides of the House. I hope that that signals a general shift by the Government in relation to Crown preference. With those few caveats, I am happy to support the Bill.
I appreciate that others wish to speak, so I shall try to be as brief as possible.
The Bill's enormous scope leads me to support the claims of other Members that the time allocated for its consideration in Committee is simply not adequate. The Government spent two years consulting on it, so why can they afford to allocate only five weeks in Committee? That makes no sense.
The Government clearly regard the Bill as a gateway to improving enterprise culture in this country, rather than as a means to improving insolvency, consumer and competition laws. The Secretary of State has said:
"Our goal is to make the UK the best place in the world to do business. The Enterprise Bill is a major step towards achieving this."
We must therefore consider not simply the legalities in isolation, but whether the Bill will help enterprise. That is a much more complex question, which requires us to view the Bill's likely outcomes in the context of the Government's overall position on enterprise. I believe that the Bill is particularly likely to fail in that regard.
On insolvency provisions relating to individuals, I have serious reservations about the proposal to reduce the period of bankruptcy to a maximum of 12 months. Presumably, some bankrupts, if not most, will be released within the first three to four months of bankruptcy. Not only will unfair discrepancies in release times arise throughout the country, but given that more than half of all current bankruptcies involve consumer credit, rather than business debt, it seems highly unlikely that the provisions will make any difference to improving enterprise. Instead, as other hon. Members have said, they may enhance careless risk-taking and excess credit.
The Government have missed the point. What bankrupts need most is the ability to clear the slate after the set period, and to make a fresh start. Shortening the period of bankruptcy is not the key; what is needed is the ability to declare a bankruptcy spent after a set period. As matters stand, bankrupts will still not get a loan because their record will remain for the rest of their life. It is also worth noting that one of the great successes of the Insolvency Act 1986 was the institution of individual voluntary arrangements. Time and again, IVAs have saved people from bankruptcy and saved creditors from losing their money.
Years of repayment under IVAs will become increasingly unattractive. Instead, why should one not simply go bust for a few months? The maximum 12-month period will apply to those who have failed through no fault of their own. I am still not sure what those provisions—they have been mentioned by other hon. Members—mean. Will the person who makes an illegal but small preference or transaction at an undervalue be at fault, while the sole trader who squanders millions through weak cash controls will not? To my mind, the whole approach reeks of future court cases and human rights claims.
I also have serious concerns about companies. The Government seem to be arguing that the procedure will in some way prove unfair to unsecured creditors, but at the moment there is transparency. A quick search on the Companies House register can reveal whether a floating charge is in place. In terms of the credit that they give and the size of the order, companies need to be careful when entering into contracts with their customers' suppliers. That is simply common sense. For larger loans, deals will be done with the creditor who has a floating charge, in terms of the preference that will be received in the case of insolvency.
The main point relates to the cost of receivership compared with that of administration. Receivership is relatively cheap and quick, but administration is very court intensive, slow and expensive. If any hon. Member does not believe me, I suggest that they ask the Secretary of State for Transport, Local Government and the Regions about that. Most companies that go into administration are eventually wound up, but at vast expense and therefore greater loss to their creditors than if they had gone into receivership. That is why receivership is almost invariably used for smaller companies.
The Bill will involve more administrations, thus more costs and therefore less money will go to creditors. The key to realising value to creditors in the vast majority of insolvencies where creditors' voluntary arrangements are not possible lies directly with the speed at which the company's underlying business can be sold. Every hour of delay will lower the value of the goodwill and therefore the return to creditors.
We currently have a major problem in this country in getting banks to lend to start-ups and smaller companies, and the Bill will make the situation worse. If banks lend to small companies without significant assets cover on which they can take a secured, fixed charge, they will do so at higher interest rates and the use of personal guarantees will certainly increase. I can only speculate on whether that has anything to do with the Government's proposals to reduce bankruptcy periods, but I am sure that those proposals will not help competition, productivity or enterprise; they will act against them.
I turn now to the competition provisions, many of which will improve the current situation, particularly the decisions to take referrals away from the Secretary of State and to create an independent OFT board, which, as other hon. Members have said, will represent a dramatic improvement. Likewise, the scrapping of the public interest test in favour of the substantial lessening of the competition test will be of great benefit, backed up by a fair de minimis set of provisions that keeps small businesses out of the loop altogether. That makes perfectly good sense.
However, problems have been identified for those companies affected, such as uncertainty and the additional costs involved in what Dr. Cable recognised would be a more judicial system. Concerns have also been expressed about the new enforcement powers and, more importantly, how they will be used. As the director general of the Confederation of British Industry put it:
"Nobody will benefit from forcing good firms to defend themselves unnecessarily when their European rivals shelter under less rigorous regimes."
Some may suggest that the attitude that companies should be fearful of the DTI, its investigations and heavy-handedness is mere bluff. I wanted to give two examples, but they will take up more time than I wish to use, given that other of my hon. Friends wish to speak. However, that is a real concern for companies, which are often subjected to Kafkaesque inquires by the DTI at great cost to those involved. That is all very well for listed companies with big pockets that can defend themselves, but the vast majority of companies in this country— 85 per cent.—are small with fewer than 10 employees, and they simply cannot afford the costs involved in defending themselves. That is why it will be necessary to ensure that we look out for smaller businesses.
All that is part of the existing enterprise culture, so I hope that hon. Members will forgive me if I seem to be a little bit cautious, but they should please keep in mind those examples as I consider one or two other provisions. First, the super-complaints process will have to be considered very carefully to avoid its becoming a way to initiate witch hunts, as other hon. Members have said. The CBI noted that the 90-day period was too long, but that could miss the real threat: if the DTI requires a full investigation to take place in that period, how long will that full investigation take? That point was made earlier by my hon. Friend Mr. Whittingdale. Will the Government pay the company's costs if nothing comes of an investigation? What rights will the company have to question the outcome? Will there be provisions to ensure that its reputation is not damaged during the investigation? I can imagine a series of trials by tabloid springing up.
In October 2001, the OFT agreed to a Consumers Association referral involving a super-complaint against the dentistry profession. The outcome was interesting. The OFT said that it would undertake a full investigation, which is expected to be completed by the end of the year. The question is this: should it not be required to complete the investigation after a certain period? Indeed, many questions arise, which I think should be raised in Committee.
That case is particularly interesting in one respect. The Consumers Association noted that one reason for the referral was the existence of
"huge disparities in tariffs between dentists".
That seems strange. While I understand the association's wish to identify high-charging dentists, I had always assumed that price variations were a sign of an open rather than a closed market. I shall not predict the outcome of the OFT investigation—we must see what emerges—but it would be helpful if we knew the results before the Committee stage, in order to analyse the way in which they would be implemented. Unfortunately, that will not be possible.
Similar concerns arise in relation to proposals for actions against individuals. While acknowledging that some other countries provide for criminal liability regarding cartel arrangements, businesses note that it is rarely enforced, and that the more active enforcement in this country will put UK companies at a competitive disadvantage in Europe.
Others have commented, relevantly, that criminalisation should be delayed until we have reviewed the Competition Act 1998. Concern has been expressed about how criminal liability—in terms of culpability—will work. One of my own main concerns is this: it simply cannot be presumed that criminal sanctions are an effective way of remedying the problem when juries in criminal courts may have to decide beyond reasonable doubt on complex questions of civil competition law when considering a cartel offence. Incidentally, the same applies to insider-trading legislation—as can be seen in section 151 of the Companies Act 1989, which the Government now want to get rid of, and in clause 246 of the Bill, which deals with the new civil bankruptcy restrictions orders that will protect the public from dishonest people.
The Government's White Paper states:
"The high evidential requirements of the current criminal sanctions mean that very few bankrupts have action taken against them."
The same point can be made about the disqualification of directors and, indeed, about criminal charges.
Getting the Bill right will involve balancing the interests of consumers and those of businesses, and ensuring that timely, due and fair process is achieved for all concerned. I do not believe that that balance currently exists in the Bill. Over-regulation will cause companies to leave the marketplace, which will mean less choice for consumers and higher prices.
That leads me to the question of whether the Bill will meet the Government's objective of strong competition, productivity and increased enterprise. According to the DTI website, the Bill's aim is, among other things, to make markets
"work better for both businesses and consumers".
That is an interesting phrase. I understand why Governments, particularly this Government, want to regulate markets, but how can they make them work? Will the Prime Minister send a memo to them?
The Government are entirely wrong to believe that they can make markets work, although they can regulate them. The only thing that will make markets work is Governments' staying away from them as much as possible. What makes markets work—what increases productivity, competition and enterprise in small and large businesses—is freeing labour markets, reducing regulation and lowering corporate taxes.
One of the great joys of representing the City of London is the ready availability of a vast array of historic material about that part of our nation. As I recently ploughed my way through David Kynaston's excellent history of the City—I wonder how often any of us have the uninterrupted chance to read a book—I came across a passage that seemed as apposite today as it was when it was written in 1857 by a contemporary commentator on commercial life, who said:
"I gathered from them a strong idea of what commercial failure is, to English merchants—utter ruin, present and prospective, and obliterating all the successful past; how little chance they have of ever getting up again; how they feel they must plod heavily onward under a burden of disgrace—poor men, and hopeless men, and men forever ashamed . . . It is not so in America, nor ought it to be here."
Perhaps things have not changed much in the past century and a half.
I want to say a few words about cartels, then concentrate on insolvency. I realise that I may yet have a chance further to examine the Bill's 269 clauses and 26 schedules if I win the fierce competition to serve on the Standing Committee.
On cartels, the principle of open competition has been supported across the political spectrum—if not by Mr. Carmichael—but in recent years there has been increasingly wide divergence on the means by which that can be achieved. There is also universal acceptance of the commercial need, in certain instances, for regulation. However, all too often the Government have used regulation as a rough and ready tool to promote competition while effectively displacing consumer choice. That has been especially true in the newly privatised industries, where under the pretext of enhancing competition the Government have shifted nominally to allow private utilities the responsibility to ensure that their disadvantaged customers benefit from improved efficiency and greater fairness. Under the disguise of competition, regulators have been given significant new powers of social engineering and, with that, an added burden on business that should properly be borne by the Government.
The importance of regulation dates back to the United States in the early part of the 20th century, when anti-trust legislation under Theodore Roosevelt clamped down on the protectionist power of big business. The undesirability of monopolistic power was deeply entrenched in the US's corporate psyche, and that played its part in the years ahead.
The domestic system was introduced about two years ago when the Competition Act 1998 came into force. The Bill goes a step further by proposing a maximum custodial sentence of five years for offenders. That creates a problem in relation to the complementary jurisdiction of European Union law. Where a cartel has an inter-state trade aspect, EU law will apply to the exclusion of national legislation. In view of the reluctance of many European countries to extradite their own nationals, it is difficult to see how the proposed new "get tough" cartel rules will work in practice.
On insolvency, I welcome the Government's clear commitment to grasp the nettle after so long. I suspect that many of the concerns pre-date even the comments from 1857 that I quoted. For as long as I can remember there have been plans to relax our insolvency laws. The Bill allows at least for a dispassionate analysis of some of the key issues, although I shall have time to do no more than set out a few ground rules.
During my experience as a junior corporate lawyer in the recession of the early 1990s, when I dealt with restructurings, administrations and liquidations, many UK lawyers cast an envious eye across the Atlantic at what appeared to be the infinitely more flexible regime under chapter 11. US insolvency legislation enables directors to continue in business well beyond the point at which a director in the UK would have incurred some personal liability for trading insolvently. Moreover, the mechanism allowing for the restructuring of older debts operates alongside a welcome breathing space for a company to reorganise without the ever-present prospect of creditors breathing down its neck. I accept the wisdom of trying in this country to emulate America's bankruptcy laws. However, we need to recognise that the stigma of insolvency is probably as strong as ever. It has been argued that, culturally, Britain is not sufficiently attuned to using insolvency to return a restructured company to the hands of its management. As a practical issue, that is as strong as ever. The commercial reality is that, without strong management and a distinct restructuring plan, no amount of tinkering with the insolvency law is likely to make a great difference.
The experience of Railtrack in the past six months seems to be adequate evidence that creditors should do anything that they can to prevent a business going into administration or any form of receivership, since the costs of that process are absolutely prohibitive. Railtrack is by no means an exception in that regard. All too often, the management of such companies is paralysed by having to concentrate on day-to-day rather than strategic concerns. That applies particularly to businesses in the service sector, in which the main assets of companies are often the middle-ranking and junior staff. A protracted cycle of administration is likely, as much as anything, to result in the rapid departure of that key staff asset in such businesses.
Before administrative receivership is consigned to the archives, it is worth pointing out that it is a quick, cheap and often effective mechanism, which allows businesses to be sold without interference from companies or their creditors. The unfettered power of secured creditors to appoint receivers makes them insufficiently accountable to other creditors, but that appointment puts paid to other potential rescue plans. Although the Bill seeks to water down the power of secured creditors to control an insolvency situation, a greater degree of certainty is needed as to its true replacement.
For all the Bill's much-heralded radicalism, these proposals are still founded—as I mentioned in my earlier intervention—on the traditional British insolvency distinction between innocent bankrupts who are victims of economic circumstance and more culpable cases, without recognising that there is often a very grey area in cases of negligence and recklessness. In its own terms, the Bill aims to improve enterprise and enhance responsible risk taking. However, I am concerned about the difficulties in relation to these measures, and I question whether they will make as much practical difference as the Government would have us believe.
As the last Back-Bench speaker in this debate, I feel that, although everything has been said, not everybody has said it.
I want to focus on the competition aspects of the Bill. First, from my experience of talking to businesses in my constituency, and on the basis of more than 100 responses to a business survey in my constituency, the main concern of businesses is not the competitive framework within which they operate, although that is important, but the burden of red tape and taxes that the Government have imposed on them. As colleagues have said, the costs of regulation since May 1997 have been £15 billion. That is the context in which the benefits that will accrue to business as a consequence of the Bill must be set.
As I believe that the Bill is peripheral to most businesses, I welcome much of its content. The removal of decisions on mergers from the Secretary of State to the Competition Commission is fundamentally right. It is a great strength to a country when it is perceived that decisions that affect business are made not on the whim of whoever happens to be in government at the time but on the basis of a clear, legal framework. Although I am sure that my hon. Friends the Members for Maldon and East Chelmsford (Mr. Whittingdale) and for South Cambridgeshire (Mr. Lansley), who referred to the Tebbit test, were right in extolling its virtues, merger policy should not be dictated by the incumbent Secretary of State for Trade and Industry, especially as there have been four of them since May 1997. Business requires a more stable and consistent framework than such a turnover allows. In that context, it is also right to change the test for whether a merger or takeover should be referred from one of public interest to one of competition. That will enhance the certainty within which major companies can operate when they undertake what I know from experience to be complex, lengthy and expensive transactions.
It is regrettable that although they have taken themselves out of merger and takeover decisions, the Government have retained reserve powers with regard to market investigations. Those powers allow the Government to override decisions made by the Office of Fair Trading, or to force the Competition Commission to investigate potential market abuses when the Government believe that the OFT will not act satisfactorily on evidence presented to it.
It is sad that the Government have not grasped fully the importance of taking competition policy out of Ministers' hands. They should accept that the OFT should not be second-guessed by the Government, and that, if the OFT has completed an investigation into supermarkets, for example, that should be the end of the matter.
It is sad that the Secretary of State has not learned from the experience of her predecessor, the present Secretary of State for Transport, Local Government and the Regions. His dealings with campaigns about "rip-off Britain" proved fruitless in many cases, but imposed high costs on British business. He distracted businesses from achieving their main goals, which are to grow bigger, to recruit more staff and to make profits. Such distractions force an unnecessary cost on business.
A further provision in the Bill will make matters even worse. Consumer organisations will have the potential to make super-complaints. Such organisations have their own priorities, and there is a grave risk that they will use that ability to press political agendas with a small "p". We need to make sure that more organisations can make super-complaints.
Moreover, the Confederation of British Industry has recommended that the powers to launch super-complaints be used sparingly to ensure that they retain credibility. Too many super-complaints launched by consumer groups to raise their profile, justify their existence and demonstrate a macho style of consumer self-interest will throw the system into disrepute and force companies to pick up the costs of defending the complaints. Those costs will eventually be passed on to consumers. It would be ironic if the competition measures in the Bill ended up increasing costs to consumers, rather than reducing them.
We must make sure that there is a prima facie case for each super-complaint made under the Bill, and that each such case passes a reasonableness test. I am sure that that will be discussed in Committee, as we must ensure that only fair burdens are imposed on business, and that businesses and consumers do not have to pick up the costs of fishing expeditions mounted by consumer organisations.
This is an important Bill for business. Many businesses will not benefit from its provisions, and most will not fall under its competition provisions. I hope that any businesses that take advantage of the insolvency changes will be those acting as creditors, rather than those that are insolvent.
I hope that the Government have listened to the comments made in the debate. The Bill is peripheral to most businesses. The Budget is to be announced next week, and the Government should accept that the real way to improve the competitiveness and productivity of business in this country is to lift the burden of regulation and taxes. 9.29 pm
It is fair to say that we have had a wide-ranging debate on this large Bill. As my hon. Friend Mr. Whittingdale made clear in his opening speech, the Opposition join with business and consumer organisations in welcoming much in the Bill and I will deal in more detail with the measures that we specifically welcome in a moment.
Many of the provisions are far removed from party politics, but much in the Bill is complex, technical and legal and needs careful and close scrutiny. We are far from convinced that the draftsmen have got it right first time. As has been pointed out more than once, this is precisely the sort of measure that cries out for a draft Bill and proper pre-legislative scrutiny. My hon. Friend Mr. Page made that point powerfully. What has happened? The Bill was published on the very day that the House rose for the Easter recess and this Second Reading debate is on the first day back after it.
The Bill contains no fewer than 269 clauses and 26 schedules. Myriad regulations will have to be made under it; I hope that we shall see drafts of at least some of them in Committee. However, we face yet another timetable motion and the Government's absolute insistence that the Bill be out of Committee by the middle of May. So, with the best will in the world, the Bill will not receive the detailed scrutiny that it deserves and that is no one's fault but the Government's.
I think that it was Bismarck who once commented that those who love laws, like those who love sausages, should not see how they are made. That comment is particularly apposite to this long and complex Bill. Of course, it is right that the Fair Trading Act 1973—legislation enacted under a Conservative Government—should be revisited. We support that, as do all the consumer organisations. However, we need to ensure that the functions and powers of the new Office of Fair Trading are properly defined and that it will have the resources to carry out those functions.
How will the so-called super-complaints and stop now orders work in practice? Will they really benefit the consuming public as the Government claim? Why has there been no attempt to reform consumer credit legislation, which also calls out to be revisited at this time?
Ministers should also be aware of the keen disappointment that consumer organisations feel at the failure to introduce a general duty not to trade unfairly as part of the promised replacement for part II of the 1973 Act. Only this morning, I attended the launch of the "Stop Shark Practices" campaign, led by the National Consumer Council with representatives of the Trading Standards Institute, the Federation of Small Businesses, the National Association of Citizens Advice Bureaux and the Consumers Association.
NACAB, for example, has some significant concerns, which it lists in its briefing for this debate: a series of rip-offs that it believes will not come within the scope of the legislation. Examples include pyramid money-gifting schemes, credit repair scams, time shares and holiday clubs, doorstep and distant selling, and pressure sales often to elderly and unwell consumers. It lists the case of a 90-year-old client with Huntington's disease who was sold an adjustable bed. The company would not refund the £300 deposit and was guilty of all sorts of abuses of normal trading practices. There is also the story of jobbing builders. Is there an hon. Member who has not received correspondence about cowboy builders from some of their constituents? Another such issue is home working. Those are some examples of infringements that NACAB believes will not be affected by the legislation as it stands.
While we are on that subject, in clause 202, where is the list of so-called domestic infringements that are meant to be covered? How on earth are we meant to debate that clause and those powers in Committee if we do not have that list in front of us? Will the Minister assure us that it will be available in plenty of time, before the Committee reaches those deliberations?
Under existing legislation, stop now orders have not been the success some hoped that they might be. They are at present operated with a lack of clarity and predictability, which is worrying for business. The guidance required by the relevant regulations has still not been published. When can we expect to see it? We need to ensure that the new measures do not create unacceptable and costly burdens for business, as well as giving consumers the protection that they need.
Another point made by more than one hon. Member in the debate concerns resources. It is all very well passing all these new regulations and giving new powers, but what if the resources are simply not there for trading standards departments to enforce them? We all know from our own experience that, as it is, trading standards departments are overstretched in many parts of the country. If they are to have all these new powers and duties without a concomitant increase in resources, that is simply unacceptable.
As we have made clear, we welcome the end of ministerial interference in the competition and mergers regime, but that was on the cards anyway and, in recent times, Ministers have only rarely refused to follow the advice of the director general. We have a Conservative Secretary of State to thank for the existing guidelines that decisions on mergers should be based primarily on competition grounds. My hon. Friend Mr. Hoban made some good points on this issue, based on his own hands-on experience.
The Opposition think that it is too early to revisit competition—the Competition Act 1998 has only been in force for a couple of years. More time should be allowed for the legislation to settle down in practice. My hon. Friend Mr. Lansley made that point powerfully in his knowledgeable and telling speech.
We note the concerns of business about criminalising cartels. Of course, no one is in favour of cartels—hardcore or otherwise—but is this the right way forward? The new regime will be out of step with most of the rest of Europe. In practice, it might make little difference and it seems to propose an extreme range of possible punishments for individuals. We also think that the new powers of the OFT to investigate markets could well be a massive extra burden on business. There must be some limit on how those powers are exercised and how the costs are dealt with.
On the Bill's insolvency provisions, we welcome the abolition of Crown preference—who would not? But we wish to ensure that the Inland Revenue and Customs and Excise will not find other ways of securing their pound of flesh. In trying to remove the stigma of bankruptcy and making it easier, the Government seem oblivious to the fact that the dramatic rise in consumer debt is the real problem. How in the real world are we to distinguish between culpable and non-culpable bankrupts without making distinctions that are both unfair and arbitrary?
Sadly, there will always be the Maxwells and others who are genuine villains, but what about the pathological optimist who can often leave just as much wreckage in his wake? In short, we must ensure that there is no danger of this becoming a rogues charter.
We have concerns also about the cost of bankruptcy. Some people will still be too poor, literally, to go bankrupt. We have concerns about whether the official receiver will have sufficient resources to operate the new system. The question of resources will run through Committee.
We can all see the wisdom of giving innocent bankrupts a fresh start but, in the real world, credit reference data are kept for anything up to six years after a bankruptcy. That is bound to affect the ability of a discharged bankrupt to take on new obligations. The Government seem to have missed this point altogether, but it was dealt with powerfully by my hon. Friend Mr. Djanogly.
We also share the concerns of a whole range of organisations about the proposals for administration, which we think are unrealistic. They could be costly, bureaucratic and slow; these issues were dealt with by my hon. Friends the Members for Tiverton and Honiton (Mrs. Browning) and for Cities of London and Westminster (Mr. Field).
Fundamentally, we all know that this is not really a Department of Trade and Industry Bill at all—it has the Chancellor's fingerprints all over it. We are told that he is impressed by the enterprise and productivity of the United States economy, yet he has completely missed the point in ignoring the role of light-touch regulation, low taxes and limited bureaucracy in the USA's success. We agree with the CBI when it says:
"The Bill is something of a misnomer".
It goes on to say:
"The Government is putting far too much weight on competition policy as a tool to boost productivity as opposed to other key policy areas, ie boosting investment, reducing the regulatory burden on business and encouraging greater enterprise and risk-taking."
The CBI also talks about the "chilling effect" on enterprise of the new powers to investigate markets.
The Institute of Directors has this to say about the Bill:
"We do not believe it will make any major differences to the way businesses are run in the UK . . . What is needed for enterprise to flourish is a serious attempt to cut the red tape strangling business."
We have already heard in this debate how the UK continues to lag behind countries such as the United States, Ireland, Australia and Mexico in overall entrepreneurial activity. During their first term, the Government imposed new costs of £15 billion on business. Those points were echoed by my hon. Friend Mr. Ruffley. No wonder The Independent said:
"these are largely candy floss measures which fail to address the main problem facing Britain's enterprise economy—namely the growing burden of regulation, especially as it concerns the labour force . . . the Government's pro-business agenda is at odds with its social objectives, for business will always do best if the Government simply gets out of its way."
We agree with that sentiment.
It stretches credulity when the regulatory impact assessment accompanying the Bill claims that no significant costs will be imposed on business as a result of the competition and consumer measures. [Interruption.] I welcome back the Secretary of State, fresh from relaunching her website, no doubt.
The real irony of the Bill's timing is that we are debating it against the background of the Government's sharply deteriorating relationship with business and the City. Even after the humiliating U-turn of the Secretary of State for Transport, Local Government and the Regions over Railtrack, it still seems likely that the shareholders will sue him and the Government. Even if the Government can raise the funding for their various projects, it is bound to cost the taxpayer more than it would have done. There will now be a premium to be paid for financing Government projects.
Among the large flock of chickens coming home to roost is the disastrous effect on company pension funds of the Chancellor's smash-and-grab raid on pensions. If we add to that the seemingly never-ending string of revelations about the Prime Minister's cronies such as Mr. Mittal and Lord Levy—the list goes on—we see a massive loss of confidence in a Government who, in opposition, went to enormous lengths to woo business.
Finally, is not the truth that the first super-complaint about the Bill should be about its title? It has about as much to do with enterprise as the Government's spinning has to do with the truth. I shall not invite my right hon. and hon. Friends to vote against Second Reading because of the measures that I have indicated that we support and that are supported by business and consumers. However, we shall not let the Government get away with the preposterous notion that the Bill has anything to do with encouraging enterprise.
My right hon. Friend the Secretary of State for Trade and Industry has set out how the Bill will promote a spirit of enterprise in the UK and, along with other Government policies, help to boost productivity. Without strong competition, business, consumers and the economy get firms that have little incentive to provide better goods and services or to innovate and improve productivity.
In developing our proposals for stronger and more independent authorities we have had the challenge of building in proper accountability, transparency and effective checks and balances. My right hon. Friend detailed how we have met that challenge.
The competition reforms and the consumer protection measures will ensure that markets work better for consumers. The insolvency reforms will help to address the fear of failure that is a significant barrier to enterprise and help to prevent companies in difficulty from going under unnecessarily. Together, the reforms will help to make the UK become a better place to do business and a better place to be a consumer.
Many interesting points have been made in this useful debate. I am pleased with the consensus among hon. Members today on a number of points. We agree on the benefits of strong competition and of taking politics out of competition decisions and the need to support entrepreneurs.
Several Opposition Members, including Mr. Waterson, argued that the Bill should have been given pre-legislative scrutiny, that it will have too little time in Committee and that it is generally being pushed through.
The Bill has been subjected to extensive consultation. We published White Papers last year and the Government's response to consultation at the turn of the year. As Mr. Djanogly remarked, over the past couple of years we have consulted in one form or another on many of the Bill's measures. We have also had continuing and regular dialogue with interested stakeholders throughout the process. The remarks of the British Bankers Association, quoted by my right hon. Friend the Secretary of State earlier, reflect the fact that we have worked closely with a number of groups in building our proposals.
Today's debate has shown that many, if not most, of the Bill's provisions have wide support in the House. We shall work hard in Committee to examine the Bill thoroughly and carefully and I am sure that we will be extremely constructive.
My hon. Friends the Members for Luton, South (Margaret Moran) and for South Ribble (Mr. Borrow) and Dr. Cable referred to stop now orders. There is no easy way of legislating against unfair practices that are currently legal. The Bill is about the better enforcement of existing consumer protection law. It will cover what is currently covered by the stop now orders, including the timeshare issue raised by the hon. Member for Twickenham and mentioned by the hon. Member for Eastbourne. Those will be extended to cover other areas too. As my right hon. Friend the Secretary of State said, they will include the breaches of contract for supply of services to consumers, such as those by cowboy builders, rogue planners, car repairers and others. We agree that those are important questions and we shall discuss them in more detail in Committee.
My hon. Friend the Member for South Ribble referred to a constituency issue involving the NHBC. The Bill gives the OFT clear powers formally to approve codes and to remove approval from codes that are not working effectively to protect consumers. I shall write further to my hon. Friend in relation to the points that he raised.
Several hon. Members referred to the importance of trading standards, on which we strongly agree. As my right hon. Friend the Secretary of State said, there are variations between trading standards throughout the country. There are more than 200 of them covering different population levels and types of community. I recognise that that needs addressing in a way that will produce consistent standards, and we are doing so.
Trading standards are funded from general local authority funds, as hon. Members know, but, as my right hon. Friend said, we have introduced the modernisation fund to support trading standards further. That fund is providing £10 million this year, of which £5 million is devoted to effective enforcement and improving trading standards capabilities, and £2.5 million is specifically devoted to supporting the implementation of the current stop now order regime. That is in addition to the £10 million a year that we currently estimate trading standards departments will need to implement the Bill.
The issue is not just about money, however, as hon. Members know; it is also about planning and performance. We have worked closely with trading standards officers and other stakeholders to develop a national performance framework for trading standards. After a pilot last autumn, I launched the framework in January and it is being introduced by local authorities this month.
I was interested to hear the support for our proposals on competition, and I welcome that. I note that the main concern of Opposition Members seems to be that we should not rest on our laurels after introducing the Competition Act 1998. We are not saying that the prohibitions in that Act are not valuable. It was a major step forward, as the then Secretary of State for Trade and Industry pointed out, and was much quoted by Opposition Members.
The prohibitions are only against firms. We are building on that. The cartel offence will have a serious deterrent effect and that obviously relates to individuals. Merger and market reforms are sensible and have received widespread support.
Mr. Whittingdale referred to criminal offences and the cartel proposals in relation to Europe. The criminal offence is compatible with the EC regime; it is narrower in scope and targeted at a different legal entity. The UK criminal offence targets dishonest agreement to run cartels by individuals whereas the EU civil regime covers a much broader range of competition breaches committed by undertakings.
The evidence for a criminal prosecution will, of course, have to be collected to criminal standards, following the safeguards in the Police and Criminal Evidence Act 1984. The OFT will collect the evidence separately from any civil proceedings. The Serious Fraud Office as prosecutor will take the decision on whether to prosecute in particular cases, in consultation with the OFT. I take the point made by Mr. Carmichael about prosecutions in Scotland. Continuing close co-operation between the UK and EU authorities will be the key to avoiding difficulties in practice.
The hon. Member for Orkney and Shetland and my hon. Friend Ms Walley asked about the organisation of particular markets—I think that they both mentioned the petrol and fuel markets. As they are aware, that matter is for the competition authorities and I cannot discuss particular cases for that reason. However, the Bill builds on the Competition Act, giving our competition authorities effective tools to allow markets to be investigated and to deter anti-competitive cartels.
Does my hon. Friend agree that legislation is introduced so rarely that we need to find some way to address the genuine concerns that exist? Will she consider that point further in Committee?
I shall study the report of our debate and if my hon. Friend would like to write to me on the matter I shall consider it. However, without further consideration, I can give her no assurances as to what action I might take.
The hon. Member for Twickenham anticipated that a far larger number of mergers would be referred to the Competition Commission. I do not share that analysis. I expect that the proportion of mergers to be referred will be broadly the same as at present. In practice, the OFT has already applied a competition test to mergers, but in future the process will be more certain and transparent. That is an advantage of the changes that we have made.
Insolvency was raised by several Members. Our proposals have stimulated a great deal of interest and debate, which is healthy, and I have listened with interest. One point that I must stress before answering individual concerns is that there are two distinct areas of insolvency law, and flowing from that two distinct parts to our insolvency provisions.
The individual insolvency provisions will reduce the stigma of bankruptcy and provide a second chance for those who failed through no fault of their own. The company provisions will ensure that companies do not go to the wall unnecessarily and will ensure a better result for all creditors.
One area where we propose to apply the same provisions to both individual and corporate insolvencies is in the abolition of Crown preference. I am pleased that that provision has been welcomed by so many Members on both sides of the House.
A number of hon. Members suggested that we are looking to copy the US system of personal insolvency and that the problems experienced in America will manifest themselves here. In drawing up the proposals, we have drawn inspiration from the insolvency regimes in a number of countries. I point out that the fundamental principle of our legislation is that those who can pay should pay, and we are not changing that position. The US is in the process of amending its insolvency regime better to reflect that principle, and is moving closer to the system proposed in the Bill.
Our insolvency proposals fall into four broad areas. The hon. Member for Maldon and East Chelmsford has raised concerns about the work load in the courts. I reassure the House that the intention in company insolvencies is to disengage from active involvement of the courts except in cases where there is dispute or complexity. As my hon. and learned Friend Ross Cranston pointed out, in future, both floating charge holders and the company itself will be able to appoint an administrator without a court hearing. The administrator will have extensive powers to deal with cases quickly without reference to the courts.
The hon. Member for Orkney and Shetland alleged that the proposed time scales for the new administration procedure are unrealistic. We have taken soundings from a range of insolvency practitioners, and their feedback indicates that the time scales would be realistic in a significant proportion of cases, although obviously there will be cases in which extensions are needed.
The hon. Gentleman also raised concerns that the company insolvency proposals might affect the cost of lending to business. There is no evidence to support that; it is simply scaremongering. We are not affecting the right of lenders to take a floating charge. We are simply providing for them to exercise their rights through collective procedures in which all creditors have a stake. We have liaised closely with all interested parties in developing these proposals, and, as the Secretary of State pointed out, the discussions, as the British Bankers Association acknowledges, were constructive. Secured lenders have nothing to fear from the proposals. I expect that many of those issues will be raised as the Bill progresses through the House.
The hon. Members for South-West Hertfordshire (Mr. Page) and for Twickenham questioned how the distinction will be drawn between bad-luck bankrupts and those who have behaved dishonestly or recklessly. Obviously, that is a matter for the courts, and the Bill sets out some of the criteria that they may take into account. No matter what hon. Members think, people do find themselves bankrupt through no fault of their own. Those who are in business may fail because of the failure of a major customer, and others may be made redundant. At present the law draws no distinction between those individuals and those who set out to defraud their creditors, and that cannot be right.
The official receiver will take a view based on the facts before him, including those provided by third parties, and on whether it is in the public interest to bring a bankruptcy restrictions order application. The court will decide, according the facts of the case, whether an order should be made. It is likely, as in the case of company director disqualification, that case law will develop over time and judgments will provide guidance as to what constitutes culpability and on the length of the orders. Those are matters to which we will no doubt return in Committee.
My hon. Friend the Member for South Ribble raised concerns about the costs of entering into bankruptcy. That point was raised by the National Association of Citizens Advice Bureaux. Individuals with small debts can and do apply to the county court for administration orders, and a growing number of individuals with debt problems seek advice. Voluntary organisations will administer debt repayment plans on behalf of debtors at no cost to the debtor. I recognise my hon. Friend's concerns, and I will write to him with further details.
I reassure my hon. Friend Mr. Thomas that we will take on board his points about industrial and provident societies as far as possible, although clearly some of these policy areas are a matter for the Treasury.
Finally, I turn to the questions about stop now orders raised by the hon. Member for Eastbourne. I assure him that all the areas that he listed, including timeshare, doorstep selling, distant selling and consumer credit, are covered by regulations on stop now orders, and they will be covered by the Bill. We shall provide a draft list of legislation in Committee.
Question put and agreed to.
Bill accordingly read a Second time.