Clause 21 — Duty to make references in relation to completed mergers

Orders of the Day — Enterprise Bill — [1st Allotted Day] – in the House of Commons at 4:30 pm on 13th June 2002.

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Votes in this debate

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 4:30 pm, 13th June 2002

I beg to move amendment No. 18, in page 11, line 7, leave out "shall" and insert "may at its discretion".

Photo of Michael Lord Michael Lord Deputy Speaker (Second Deputy Chairman of Ways and Means)

With this it will be convenient to discuss the following: Amendment No. 19, in page 11, line 7, after "(3)", insert "have a discretion to".

Amendment No. 21, in page 11, leave out lines 11 and 12 and insert—

'in the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 202, in page 11, line 11, after "competition", insert—

'or substantial damage to the public interest'.

Amendment No. 22, in page 11, line 12, at end insert—

'or

(c) the creation of that situation has operated, or may be expected to operate against the public interest.'.

Government amendments Nos. 224 to 226.

Amendment No. 20, in clause 32, page 19, line 34, leave out "shall" and insert "may at its discretion".

Amendment No. 23, in page 19, line 38, leave out from "result" to end of line 40 and insert—

'in the creation or strengthening of a dominant position, as a result of which competition is likely to be significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 203, in page 19, line 39, after "competition", insert—

'or substantial damage to the public interest'.

Amendment No. 24, in page 19, line 40, at end insert—

'or

(c) the creation of that situation has operated, or may be expected to operate against the public interest.'.

Amendment No. 56, in page 20, line 7, at end insert—

'or

(d) the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to the acquiring party; and there is no less anti–competitive way of selling the company.'.

Amendment No. 204, in clause 34, page 20, line 43, after "competition", insert—

'or substantial damage to the public interest'.

Amendment No. 25, in page 20, line 45, at end insert—

'or

(c) the creation of that situation has operated, or may be expected to operate against the public interest.'.

Amendment No. 26, in page 21, line 3, leave out from "result" to "or" in line 25 and insert—

'in the creation or strengthening of a dominant position, as a result of which competition may be significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 27, in page 21, line 8, leave out from "result" to end of line 10 and insert—

'in the creation or strengthening of a dominant position, as a result of which competition may be significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 28, in page 21, line 15, leave out from "preventing" to end of line 18 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 29, in page 21, line 20, leave out from "preventing" to "and" in line 23 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 30, in page 21, line 28, leave out from "practicable" to end of line 29 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 31, in clause 35, page 22, leave out lines 5 and 6 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 205, in page 22, line 5, after "competition", insert—

'or substantial damage to the public interest'.

Amendment No. 32, in page 22, line 6, at end insert—

'or

(c) the creation of that situation has operated, or may be expected to operate against the public interest.'.

Amendment No. 33, in page 22, line 11, leave out from "preventing" to end of line 13 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 34, in page 22, line 15, leave out from "preventing" to "and" in line 17 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 35, in page 22, line 22, leave out from "practicable" to end of line 23 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Government amendment No. 227.

Amendment No. 36, in clause 40, page 25, line 37, leave out from "prevent" to "and" in line 38 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 37, in page 25, line 40, leave out from second "from" to end of line 41 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 38, in page 26, line 1, leave out from "to" to end of line 2 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 57, in page 26, line 5, at end insert—

'(6) In making a decision under subsection (2), the Commission may also have regard to whether the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to the acquiring party; and there is no less anti–competitive way of selling the company.'.

Government amendments Nos. 228, 230 and 231.

Amendment No. 39, in clause 43, page 29, line 14, leave out from "in" to end of line 15 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 58, in page 29, line 28, at end insert—

'or

(g) the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to the acquiring party; and there is no less anti–competitive way of selling the company.'.

Amendment No. 40, in clause 44, page 30, line 7, leave out from first "of" to "the" in line 8 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 41, in page 30, line 15, leave out from "result" to end of line 16 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 42, in page 30, line 27, leave out from "result" to end of line 29 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 43, in page 30, line 33, leave out from first "of" to end of line 36 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 44, in page 30, line 41, leave out from "in" to end of line 43 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 45, in clause 46, page 32, line 8, leave out from "in" to "and" in line 9 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 46, in page 32, line 10, leave out from "any" to "the" in line 12 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 47, in page 32, line 25, leave out from "in" to "and" in line 27 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 48, in page 32, line 28, leave out from "any" to end of line 31 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 49, in page 33, line 6, leave out from "be" to "it" in line 7 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 50, in page 33, line 11, leave out from "preventing" to end of line 14 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 51, in page 33, line 17, leave out from beginning to "and" in line 19 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 52, in page 33, line 26, leave out from "be)" to end of line 27 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Amendment No. 59, in page 33, line 32, at end insert—

'(10A) The Commission may also have regard to whether the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to the acquiring party; and there is no less anti-competitive way of selling the company.'.

Government amendment No. 237.

Amendment No. 53, in clause 54, page 39, line 3, leave out "substantial lessening of competition" and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

Government amendments Nos. 238 and 239.

Amendment No. 54, in clause 70, page 51, line 5, leave out "substantial lessening of competition" and insert—

'creating or strengthening a dominant position, as a result of which competition may have been significantly reduced'.

Amendment No. 55, in page 51, line 12, leave out—

'substantial lessening of competition and any adverse effects resulting from it' and insert—

'creating or strengthening a dominant position, as a result of which competition may have been significantly reduced'.

Government amendments Nos. 248 to 251.

Amendment No. 69, in clause 99, page 70, line 30, leave out Clause 99.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I shall set your mind at rest, Mr. Deputy Speaker, by pointing out that this group of amendments is not as fearsome as it might first appear. I shall take the House through at least those amendments for which I claim some responsibility.

Rather than imposing an obligation, amendments Nos. 18 to 20 would give the OFT the discretion to refer completed and anticipated mergers to the Competition Commission. The idea was debated in Committee on 25 April, but it was rejected by the Government on the basic ground that a broad discretion not to refer was appropriate where there is a two-stage referral process. However, as the Director General of Fair Trading would act alone on the basis of a more focused test, there would be less room for discretion. The Minister said that the new test should not result in a greater number of references. It is important to note that, broadly speaking—it is impossible to be wholly accurate on these matters—the Government's intention is that the number of references should not rise as a result of the provisions.

However, we are not wholly convinced, which is why we have tabled similar amendments on Report. The Bill introduces a significant change of emphasis. Under the Fair Trading Act 1973, the Secretary of State had the discretion to decide whether or not to refer mergers, acting on the advice of the director general. Since October 2000, the director general's advice has normally been accepted. Taken together, the formulations set out in clauses 21 and 32 require a reference to be made in respect of proposed and completed mergers, except in certain limited circumstances.

Lest anyone think that I am cleverer than I really am, the amendments were inspired by the joint working party of the Law Society and the Bar. [Interruption.] I am grateful that my comment has found favour with the Government Whip. It is therefore clear that concern exists outside this place that there will be almost routine or obligatory pre-clearance for mergers—a point that we made in Committee. It is fair to say that many parties already undertake such pre-clearance, but entirely at their own discretion. We—and others who are perhaps better placed to know—believe that a dramatic shift will take place. It will make practical sense for those who are contemplating a particular merger to obtain pre-clearance, which will in itself involve a major increase in applications.

The Law Society and the Bar also pointed out that there was no consultation on this change of policy, which was not included in the White Paper. I think it fair to say—I have not checked the relevant editions of Hansard—that the Minister gave no reason for her assumption that the provisions will not result in an increase in references. We want to press her hard on that issue.

The other issues—public interest, and the dominant position in terms of the test that should be applied in such cases—fall into two or three categories. You will be relieved to hear, Mr. Deputy Speaker, that many of the amendments in this group make the same point. We had a good debate on these issues in Committee, but some of the arguments bear repetition. Under the 1973 Act, the public interest test was established, and it is generally accepted that that needs revisiting. Some discussion took place in Committee on the merits of the dominance test—which is favoured by the Confederation of British Industry, for example—and what is known as the "substantial lessening of competition" test. One argument in favour of the dominance test is that it is the standard for assessing mergers under the EC regime. There is real concern that businesses operating in this country might face a stiffer test here than they would face under the European regime.

In Committee, my hon. Friend Mr. Lansley pointed out graphically that, during the Standing Committee that considered the Competition Act 1998, Ministers expressed the strong view that there should be no disparity between regimes operating in Europe and in this country. Although not the most significant example, it shows how our system is in danger of drifting away from the European one.

I repeat the CBI's interesting quote concerning the Competition Act 1998:

"The demarcation line between domestic and EU mergers is sometimes not clear cut, particularly in more complex transactions. As a result it would be fairer and more sensible for companies operating across the European Union to have to comply with one standard as opposed to two differing ones."

That is an important point in principle, and an important point in practice. Like so many of these issues, having a different test—even a subtly different one—involves extra work and extra burdens for those who are trying to make businesses profitable. We do not resile, therefore, from our support for the amendments relating to the dominant position. I shall be interested to hear the Minister justify establishing a separate test from that operating in the European regime.

The other issue, dealt with in amendments Nos. 56 to 59, is one that we tried to import into the Bill from the United States and, indeed, Europe. That is the so-called failing firm defence. In the US, for example, four things have to be shown: that the failing firm cannot meet its financial obligations; that it cannot reorganise itself in bankruptcy; that it cannot find another buyer whose purchase would pose lesser anti-competitive risks; and that in the absence of the merger its assets would exit the market.

In the EU, we have had a fascinating discussion about the case of Kali-Salz/MDK/Treuhand, which is all about potash. In that case, the Commission set out three criteria: that the company would in any event go bankrupt in the immediate future; that the market share of that company would in any case go to the merging party; and that there was a no less anti-competitive way of selling the company. There is a slight difference in approach between the US and the EU tests, but that does not matter for our purposes, because we are trying to persuade the Minister that incorporating the so-called failing firm defence would be sensible.

In fairness, the Minister has not launched a full frontal assault on our suggestion. To summarise, possibly unfairly, her reply to the discussion in Committee, she said that the prospects for a particular company would be taken into account in any event, so it was not necessary to spell that out. I do not wish to labour the point, but if such a defence is good enough for both the US and the EU regimes—albeit with slightly different tests applying—we should seriously consider including it in the Bill for application to our system.

Amendment No. 69 would remove clause 99. Our problem with that clause is that it would give the Secretary of State extremely wide powers to modify clauses 94 to 98 on the mergers regime. The power is too broad and any significant change should be a matter for primary legislation. Again, our arguments did not find favour with the Minister in Committee, but I hope that we will have better luck on Report. I commend the amendments to the House.

Photo of Mr Harry Barnes Mr Harry Barnes Labour, North East Derbyshire

I tabled amendments Nos. 202 to 205, which would place the issue of public interest back into the Bill. Amendments Nos. 304 and 305 in the next group also address that issue. The difference between the two sets is that the present ones relate to the director general of the OFT and the later ones relate to the position of the Secretary of State. My remarks about the public interest will relate to both sets of amendments, but I shall try to keep in order. I may not need to repeat my remarks when we come to the next group of amendments on the Secretary of State's role because I will have already addressed the issues in relation to the role of the director general.

When Mr. Waterson moved the amendments, he said that they were not fearsome. However, I hope that my amendments will be viewed as slightly fearsome, because I am very concerned about the issue. In Committee, I explained the problems in my constituency associated with the takeover and immediate closure of Biwater, and the loss of 700 jobs. The provisions in the Fair Trading Act 1973 would have allowed that takeover to be referred to the Competition Commission on the ground of public interest, and if that had been done by the OFT or the Secretary of State, it is likely that those jobs would still exist today and that a profitable and viable firm, with its export market, would still be in operation.

Since that time, I have been interested in the provision in the 1973 Act that allows such reference and why it was not acted on in the Clay Cross case. I became aware that the DTI sought to remove the provision from the legislation through a consultative document and a later White Paper. I have always pressed for the provision to be retained.

It is a modest measure. The Fair Trading Act 1973, which contains the provisions about the public interest, was introduced by the Heath Government. In 1973, I was fighting that Government on their housing finance legislation and ended up in court, with several other people, in relation to its abject provisions. It can be seen from that that I did not generally share the Heath Government's attitudes, but it is interesting that I am now seeking to defend a measure from that period against a worse proposal from this Government.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 4:45 pm, 13th June 2002

My first task as researcher to Sally Oppenheim, who was then the Member of Parliament for Gloucester, was to assist her in her work as a member of the Committee dealing with the housing finance legislation. It was a gruelling battle by any standards, but in those days the Opposition were allowed much more licence than they are now.

Photo of Mr Harry Barnes Mr Harry Barnes Labour, North East Derbyshire

Perhaps some licence will be granted to the amendments before us now.

The Fair Trading Act 1973 provides that the Secretary of State or the director general of the OFT may refer a merger to the Monopolies and Mergers Commission, which later became the Competition Commission, when it is in conflict with the public interest, which is defined to cover job losses, the loss of industry in an area, the loss of export trade and factory closures. The present Bill contains very limited provision on the public interest. Clause 57 contains an element of public interest, in that the Secretary of State may refer a bid on grounds of national security and can seek an order in the House for something that is as yet undefined but appears to be a sort of fall-back position for making a reference on the ground of public interest.

The Opposition and their friends in the CBI are running worried about clause 57, because they think that it could release all sorts of hobgoblins and create huge difficulties. The TUC and many others think that the problem is that clause 57 is just dead words. It does not mean anything and we cannot envisage any circumstances in which the provision would be used. We cannot persuade the Minister to give us any theoretical examples of the circumstances in which it would be used, so we cannot tell whether it is possible that it could be used to defend the interests of the trade unions in any way in the future.

In 1973, when the Fair Trading Act was passed, Labour was in opposition and it adopted the position that the TUC has adopted now on this issue. The Labour party wanted the public interest provisions to be extended; it did not want their virtual removal, which is the position with this Bill.

Things were somewhat different in those days. Tony Benn was shadow Secretary of State for Industry. An interesting debate took place in Standing Committee, where some interesting people moved amendments to improve and strengthen the public interest provisions. They included Bruce Millan, the then Opposition spokesman on industry and aviation, who later became a Commissioner in Europe, and the late John Golding—the Library tells me that he was then an Opposition Whip, in which case I am not sure why he was tabling amendments, but he was certainly associated with the Labour Front-Bench team. My right hon. Friend Mr. Williams was the industry spokesperson. They all had some interesting things to say about extending the public interest. The logic of their position would be to be aghast that we are now virtually ridding ourselves of any concern about the public interest, apart from matters of national security.

In Standing Committee B on 3 April 1973, Bruce Millan, opposing the Heath Government, introduced an amendment that would strengthen the resolve of the Fair Trading Bill. He said:

"If the amendment were accepted, it would slow down mergers to some extent. This is one of the purposes of the amendment, and I want to make that explicit. If people involved in mergers had to prove positive good, the number of mergers going through would be reduced. That would be a good thing. I am not in favour of mergers going through unless it can be demonstrated that there is some public good arising."—[Official Report, Standing Committee B, 3 April 1973; c. 1078.]

Certainly, the merger that took place in Clay Cross was in every way contrary to the public interest and the public good. It is to the detriment of the former Secretary of State for Trade and Industry that he did not refer that matter to the Competition Commission—nor did the Office of Fair Trading do so.

In my amendments I am asking the OFT to use these provisions, hopefully in the spirit of the 1973 legislation, and not to ignore them. In the case of Biwater, the report that was issued to the Secretary of State, which said that it was okay for the takeover by Saint Gobain in France to take place, did not reveal that the Director General of Fair Trading knew that the plant would close. In fact, when I raised that matter with the Department of Trade and Industry in the House, I was told that it did not need to know that and that it was not a material consideration. It was certainly a material consideration to the people in Clay Cross and the surrounding area, where 700 people within a five-mile radius lost their jobs. Often, they were mature workers and it was very difficult for them to find any other reasonably paid employment. When Bruce Millan was speaking in 1973, the Labour party was aware of such concerns.

The late John Golding also tabled amendments to the 1973 legislation. He was not known as a left winger in the Labour party. He would in many ways seek out the left and try to contain its activities. However, we are now past that stage. The Enterprise Bill is the avenue through which we are trying to get the economy moving—to produce the dynamic economy and the free markets that are associated with it—and it follows a somewhat different pattern from the one with which many of us would normally be associated.

After the Minister had replied to John Golding, the latter replied:

"The Minister is insensitive to the impact of mergers on the lives of these people. He is insensitive, too, in respect of the damage being done in industry at present."—[Official Report, Standing Committee B, 5 April 1973; c. 1098.]

Much damage is being done to manufacturing industry now, some 29 years later. I hope that the present Minister is not insensitive to those concerns and will ensure that moves are made to establish means by which the public interest could be re-established in the Bill.

At the Report stage of the 1973 legislation, my right hon. Friend the Member for Swansea, West introduced a measure similar to the one put forward by John Golding in the Standing Committee. My right hon. Friend pointed out:

"when a merger takes place not only the shareholder is involved. Whereas the shareholder's risk is a financial one, it is not as absolute a financial risk as that of the worker, because the average shareholder spreads his holding over eight to 12 companies."

I do not know what the figures are today, but a similar argument could be used. He continued:

"That contrasts with the position of the worker in industry who, particularly if he is employed in one of the less-favoured areas of the country in employment terms, finds that his loss is absolute, complete and, in far too many cases, permanent. The only capital that a worker has is his skill and his job. The more specific the skills of the firm in which he works and the smaller the locality, the less likely it is that he will find an alternative outlet for his investment in industry—namely, his training and his skill."—[Hansard, 17 May 1973; Vol.856, c. 1817.]

As I said, that comment is certainly of great relevance to the case that brought these matters to my attention.

The TUC and major trade unions feel that there should be provisions to take account of the public interest. I am suggesting, rather moderately, that we should merely return to the position held by Ted Heath in 1973. The left wing is now defending Selsdon man against the further extension of those powers in another direction.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Before the hon. Gentleman gets too carried away, does he agree that he and the Government are at one on the issue, even though they approach it from completely different directions? As we shall debate in more detail when we come to the next group of amendments, the Government seem to take the view that the public interest will have to be expanded and are trying to take the powers to do so, but they will not tell any of us what they have in mind. 5 pm

Photo of Mr Harry Barnes Mr Harry Barnes Labour, North East Derbyshire

I offered an answer earlier when I pointed out that the Conservatives and the CBI saw these provisions as hobgoblin arguments and believed that all sorts of evils would spring forth—as regards their interests—owing to the Secretary of State's ability to extend such powers by order, as a fallback position. However, that is not the same as the introduction of a specific enabling commitment, such as the one included in the 1973 legislation, for the Office of Fair Trading and the Secretary of State; it is certainly not as good as what the TUC really wants—a provision whereby action must be taken in the public interest in certain circumstances.

Although the current proposals would sideline the 1973 legislation, the public interest provision has not been greatly used since the early 1980s. From Thatcher's time, that has been the policy of successive Governments. However, public interest concerns have crept through in some cases. It is difficult to define them because the Secretary of State or the Office of Fair Trading do not refer matters to the Competition Commission on public interest grounds A, B, C or D. They make a submission that argues which matters should be investigated, but it is not always easy to sort out whether those are the acceptable competition grounds to which the Government have referred or the unacceptable public interest considerations.

Other bodies can take on board the public interest considerations. For example, when the MMC recommended blocking BSkyB's attempted takeover of Manchester United, it used a public interest argument as well as a couple of competition arguments. My research briefing notes:

"Because it would tend to reinforce the wealth gap between weaker and stronger clubs, and to give BSkyB additional influence on League decision-making, the merger would 'have the adverse effect of damaging the quality of British football'."

The last Secretary of State for Trade and Industry to make direct use of the provision was my right hon. Friend Margaret Beckett, the present Secretary of State for Environment, Food and Rural Affairs. In 1997, she made a reference on public interest grounds in the PacifiCorp Energy Group plc case, where an energy supplier wanted to extend its operations in a particular sector. The MMC cleared the bid and found that it would not operate against the public interest, but the reference was made on those grounds and some interesting recommendations were made in the report in order to contain similar operations.

A case in 1995 affected my constituency. Stagecoach Holdings plc attempted to take a 20 per cent. stake in Mainline Partnership Ltd. I have regular problems with both companies, especially with Stagecoach whose buses do not turn up, or are late, or miss stops. Public inquiries were held in Mansfield and Chesterfield about aspects of its provision, including, in the Mansfield area, the collapse of certain buses which were towed away on the orders of the traffic inspector.

In that case, although the commission did not rule against the 20 per cent. stake holding, it said that it should not be extended. My research briefing notes:

"Arguably, this is an example of a non-competition element influencing the public interest test, albeit through its effect on competition."

As I pointed out earlier, there are avenues that can be used.

Further back, there are other examples. In 1988, a reference was made when the Government of Kuwait attempted to take over British Petroleum Co. plc. There was also a reference in 1982 when the Hong Kong and Shanghai Banking Corporation attempted to take over the Royal Bank of Scotland.

The measures may not have been used as they should, but that does not mean that they did not exist. They existed so that people could put pressure on their elected representatives and Governments to gain responses for their concerns.

The current political climate may be against those matters being dealt with, and the attitude that existed in the Biwater case may persist, but the climate can at least change, circumstances can alter and different pressures can be applied if the measure is in place.

The Government should be concerned with those issues, but they claim that it is very good that they are now at arm's length from them because of the measure; it keeps them out of things. However, the measure keeps the democratic process, argument and pressure away from involvement. Of course the Government should not manoeuvre, fiddle, spin and do the things that people claim they do to get their way; they should act openly and we should be able to see what is taking place.

The Government should act openly and be subject to representation and pressure from organisations. The democratic process involves not just voting at elections, but people being mobilised and organised and having rights to represent their sets of views and ideas, and the pressure group system is supposed to be part of the democratic process.

So the public interest argument has been used in various arenas, and we need to try to preserve it in the future. Even though we could ideally do with such a measure now, I would be chancing it even more if I were to move amendments to try to improve things in the way that John Golding, Bruce Millan and my right hon. Friend the Member for Swansea, West did way back in 1973.

I want to mention some of the support for my proposals in the trade union movement. In Committee and now on Report, the Bill has been dominated by dollops of representation and amendments from the CBI. Other amendments have come from the Consumers Association and other more acceptable avenues, but it seems as though we have just had to sit here, gritting our teeth, while all that has shot forward, normally in the shape of probing amendments, so that the CBI's view could be presented.

We have heard nothing about the TUC's view. Perhaps the TUC and some of the major trade unions should have made a greater effort to ensure that members of the Standing Committee and other hon. Members, including Labour Members, were informed of such things. Perhaps, to an extent, that shows the way the balance of forces has altered in this country. The TUC felt it needed to make formal representations and to produce documents and reports; it was not going to try to stimulate a rebellion on the Back Benches of the Labour party, so some of us have had to try to do that ourselves on this occasion.

In September 2001, the TUC produced a document in response to the White Paper that led to the Bill in which it discussed politicians' roles—the issue that I have been raising. It stated:

"The TUC has concerns about removing Ministers from the decision-making process on mergers. While advice may usefully be given by those with expert knowledge, Ministers remain publicly accountable for their actions in a way that competition authorities are not. As argued above"— in its earlier arguments—

"if the competition authorities are going to take greater responsibility for decisions on mergers and other aspects of competition policy, it is essential that their accountability is also enhanced.

The White Paper states that Ministers will retain a role in relation to 'exceptional public interest' issues, but gives no guidance on the circumstances in which this might be appropriate. The TUC believes that it would be useful for the Government to promote a fuller discussion of what might constitute an exceptional public interest."

We tried to promote such a discussion in Committee, but exceptional public interest is still something we know not—it will not speak its name to us.

The general secretary of the TUC wrote to the Secretary of State for Trade and Industry on 20 March saying:

"As you will be aware, the TUC has consistently argued that mergers and takeovers should be regulated to operate in the public interest, and that employment effects should be taken into account alongside the impact on competition when judging a bid."

He then suggested amending the Bill to provide an avenue for written representations to be made in order that that door should be left open.

The Secretary of State replied on 9 April, repeating the points about clause 57 to which I have referred, but offering nothing else. The letter indicated that the Government were moving in a different direction. I at least hope that the Under-Secretary will be able to say that there will be a response to the general secretary's suggestion through suitable amendments in the Lords.

The argument is further pressed by Roger Lyons of the MSF section of Amicus. In its huge document on mergers, it expresses the need for ministerial answerability on these matters and for the ability to take things up. At a meeting in the House on 23 April, John Edmonds discussed these matters, and I have copies of statements of the GMB's position and its submission to the European Commission's Green Paper on merger matters.

I have letters from Unifi on the subject. I quoted its General Secretary, Ed Sweeney, earlier. In his letter to the Financial Times, he says:

"Unifi's concern is that no consideration will be given to the 'social' implications of mergers. Unifi believes that the consequences of mergers do sometimes need to be considered beyond the 'economic' and that the proposed reforms do not allow a mechanism for that consideration."

I also have letters from Equity, the National Union of Journalists, the Prison Officers Association and the National Association of Educational Inspectors, Advisers and Consultants, which all stress similar points. So there is a strength of feeling in the trade union movement that there should be a response. It is only correct that that view should be expressed in this debate.

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

My hon. Friend has not focused in his quite lengthy speech on what the consequences of incorporating the wording in the Bill might be. Although, with regard to the football analogy that he mentioned, I might accept that it is very boring that in Scottish football Celtic or Rangers always win, and that they have a virtual monopoly on all the trophies, I am not clear what the Government could do to arrange matters so that Scottish football became more interesting, or how other forms of dominance of various markets would be resisted in detail by my hon. Friend's amendment.

Photo of Mr Harry Barnes Mr Harry Barnes Labour, North East Derbyshire

My amendment would not do what my hon. Friend seeks. We would need other amendments and legislation to do that. However, the BSkyB case was considered because of the implications of putting Manchester United at the centre of the market. That would have had an impact on other teams and their ability to survive. However, my amendment would not lead to the transfer of resources to assist people. We would need alternative measures to do that.

My amendment relates to references to the Competition Commission by appropriate bodies, particularly by the OFT. It should be able to argue its case and Ministers should be able to consider cases such as the one that occurred in Clay Cross. They should be able to assess the masses of evidence coming to them and the alternative viewpoint that might be provided by the OFT. They should grasp the nettle and be prepared to say that certain cases would have an adverse impact on an area. They should allow the Competition Commission to consider such cases. It might not necessarily produce the answers that I want, but such avenues should be open.

I know that the Government are worried about excessive intervention in the economy and about the dangers of knocking back competitive elements within it. However, surely, in an age of massive technological change in which we are moving forward to new types of industry, it is possible to approach the issue in as organised and as regulated a way as possible so that people's interests are protected as they develop new skills and are given new opportunities. We do not do that.

My attention was drawn to the Bill by an anonymous letter that I received from the British Bankers Association. [Interruption.] I meant not an anonymous letter, but an internal memo that was sent to me anonymously. Someone said that I might be interested in what the Bill will do. Although the British Bankers Association later claimed that the memo was an elaborate hoax, it is so detailed that it does not appear to be one. It points out that the association's members should keep quiet about the issues until the Bill slips through the House. It suggested that the Bill would not cause much bother.

When I came into the Chamber after receiving the letter, I discovered that a cosy teach-in was taking place between those on the two Opposition Front Benches and those on the Government Front Bench. No Divisions were taking place and there was not much hassle. Conservative Members obviously want much more from the Bill but they probably feel that they have done very well. The memo told the association's members to be non-committal if an MP approached them and to wait until the Bill becomes law. They would then be able to use it. The memo then described exactly what was in the Bill in terms of the hobgoblins that I have mentioned.

I hope that we can remove some of the hobgoblins and that we, at last, will have the opportunity to say that the public interest is back on the agenda. It is worth holding on to and some of us should think about promoting it in a different set of circumstances. Perhaps we could introduce legislation, as my hon. Friend Mr. McWalter suggested. I feel strongly about that and I am minded to divide the House if the Government cannot demonstrate that they will at least pick up on the comments made by John Golding.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry) 5:15 pm, 13th June 2002

The arguments are well trodden. They were made in Committee, but as important principles are at stake we need to continue to debate them at least until the Bill reaches the other place.

I have several points to make. The first relates to clause 21, which deals with the facility with which merger references can be made. Like Mr. Waterson, I am struck by an apparent contradiction. The Minister said on Second Reading that she did not expect more merger references to be made. I found that difficult to square with the terms of the Bill, which clearly imply that merger references will occur almost as a matter of routine. However, that meant that I, unlike the hon. Gentleman, was pleased with the Bill, because more merger references are desirable.

There is a long history of mergers in the United Kingdom, the United States and elsewhere; the practice has been fashionable. They have been driven by management, which has a vested interest in size, and by the fee incentive for the merchant banking institutions. Invariably, as much of the economic and management literature shows, not only do mergers reduce competition to the detriment of consumers, but they do not benefit shareholders much either. An altogether more sceptical view is necessary, and that does not square with how the Minister sees the Bill rolling out. It is useful that the amendments allow us to continue to tease out what will happen.

I do not share either the geographical or the ideological stance of Mr. Barnes, but an important point was buried in his contribution, and we need to keep it alive. I would approach the problem in terms of accountability. I agree in general with the idea of political independence, and that there should not be routine political interference in merger references. In that sense, the Bill takes us a step forward.

However, we have lost what elected politicians bring to bear to policy issues. We are elected to take account of the public interest and there is a fear that we are throwing out the baby of public accountability with the bathwater of political interference. We need to find a way to put it back. I would prefer to do that by having much stronger political accountability.

Indeed, I argued in Committee that we need a mechanism so that the chairman and other officers of the OFT receive the political scrutiny to which the Monetary Policy Committee is subjected by the Treasury Committee. It comes before Parliament at regular intervals and MPs, through the Select Committee system, have a veto over appointments. That helps to ensure that the officials appointed by Ministers to perform a specific task are kept aware of the public interest. However, the Government are unwilling to go down that road, so another way to tackle the problem is required. In that respect, the approach of the hon. Member for North-East Derbyshire is helpful.

The hon. Gentleman's approach is helpful for another reason, too. Some of my colleagues and I have a vivid recollection of the Utilities Bill, which was in many ways a good piece of legislation. However, the regulator's terms of reference on competition were narrowly defined. Many problems were generated by the automatic application of the new legislation to the new electricity trading arrangements—NETA—auctioning system, which crippled the combined heat and power sector and the renewables sector. The regulator could only throw up his hands and say, "Look. Parliament hasn't given me the flexibility to take account of the public interest." It is important that we do not repeat that mistake. Some form of words—it does not necessarily have to be the form of words suggested by the hon. Member for North–East Derbyshire—must be found. If it cannot be found this afternoon, I hope that it will be found in another place.

One of the amendments tabled by the hon. Member for Eastbourne is right. The conflicts, or at least the incompatibilities, between British and European legislation on the competition sector as it relates to merger references, have worried us from the outset. As we have discussed the matter, it has become clear that some of the initial concerns of business were rather exaggerated. The European Commission is clearly reforming its competition practices in ways that will make them somewhat more compatible with our own legislation. None the less, there are areas in which we are proposing something fundamentally different from European practice. It seems unnecessary, particularly in the cases that the hon. Member for Eastbourne has mentioned. That could be remedied by amendment, so I commend the changes.

Photo of John Martin McDonnell John Martin McDonnell Labour, Hayes and Harlington

I am following the lead of my hon. Friend Mr. Barnes in seeking some form of assistance and succour from those on the Front Bench on this issue, because I am desperate to vote for the Government at least once this week. Some passing phenomenon described us as "all Thatcherites now". I note that the Prime Minister denied that yesterday, but my hon. Friend has smaller ambitions: he is desperate for us all to be a bit Heathite now, and come back to some concept of the public interest. There is the potential for avoiding a vote on amendment No. 202, although I, like my hon. Friend, will call for a vote on it unless the Minister can convince us otherwise. Obviously, we would like to put that request formally to you, Mr. Deputy Speaker.

We want some assistance—an explanation of how the public interest is to be maintained as a result of the Bill. Clause 57 refers to the public interest being maintained for national security, but there is also a reference to public security, based on previous legislation that we have debated in the House.

I would welcome a view on whether public security means a safety regime for the general public, whether it means security of employment for the workers employed in a company, and whether it involves protection of the local environment in which a company is located, the health of the community that lives around that company's premises, and the quality of life of the work force and all those who have any relationship with the company.

If we can gain some assurances on the record tonight that public security as referred to in clause 57 encompasses all those elements, I do not think that there will be a need for a vote on amendment No. 202. However, if there is not clarity from those on the Front Bench that the public security definition within clause 57 encompasses all those, we will need to press the matter to a vote this evening, if only to ask that the other place consider restoring the public interest definition in some form. I agree with our opposite number on the Liberal Democrat Benches, Dr. Cable, about that.

This may not be the exactly correct form of words, but there needs to be a form of words that reiterates that fact clearly. Why? Briefly, because as demonstrated in the post-privatisation world, respect for the public interest is needed more now than ever before. We have seen some horrendous examples of the public interest being ignored, which has had an effect on the community overall. That is why I ask for those assurances.

There will be a danger if the public interest is not clearly defined in the Bill. The Government may not want to exercise existing powers, or any powers, to protect the public interest, but the hands of future Secretaries of State, future Governments—who may not be Thatcherite, as someone described us, but may want to be more interventionist in the interests of the public overall—are being fettered.

The problem with the Bill is that there is no sense of the common good. There is no sense of the responsibility of Government to protect the common interest of the community overall. I urge those on the Front Bench at least to define clearly how they see clause 57 operating in relation to the reference to public security. If it encompasses all the elements that I have described, there is no need for the vote. If it does not, we will need to vote this evening, so that we can signal to the other place to make the appropriate amendment.

Photo of Adam Price Adam Price Plaid Cymru, Carmarthen East and Dinefwr 5:30 pm, 13th June 2002

I had not intended to speak in this debate, but I was inspired by the contribution of Mr. Barnes to add my voice and offer the support of Plaid Cymru and the Scottish National party to the principles that he enunciated, if there is a vote on amendment No. 202.

As we are discussing collusion, I think that there has been a degree of collusion between the occupants of both Front Benches to give the impression that the shift in competition policy from a basis of the public interest to a purely competition-based approach is somehow completely uncontroversial. It is not. It is a matter of concern. In summarising responses to the White Paper, the Department of Trade and Industry referred to

"almost unanimous support for replacing the current public interest test with more focused competition."

Almost unanimous is not, of course, unanimous. As we have heard, there are important stakeholders who have voiced their concern and their opposition to a narrower competition-based approach.

I was interested in the Prime Minister's response to the assertion of Mr. Mandelson that we are all Thatcherites now. One of the Prime Minister's reasons for demurring was that Thatcherism had sought to isolate us in Europe. In this instance, we are seeing a shift to a more United States-based approach, which will hinder moves towards harmonisation of European merger policy.

I agree with the hon. Member for North-East Derbyshire that clause 57 does not provide us with the assurances that we seek. Indeed, the chairman of the Competition Commission has said that he believes that there will need to be a high burden of proof to add to the exceptions of public or special public interest. I understand that it is envisaged that provisions in the draft communications Bill will be added to the list that at present contains only national security.

There is an important issue. Some of us believe that the efficient functioning of markets is not the only consideration when it comes to industrial or regional policy. Merger activity can have a distorting effect on regional economic development. We have certainly seen that in Wales, where companies that are successful and reach a certain critical mass are taken over. The headquarters are then located outside the regional economy, and that has long-term implications for the pattern of economic development. There are also wider issues in the context of economic policy.

We have heard the concerns of the trade union movement, and especially of Unifi, the financial services union, which has led the assault, as it were, from the trade unions. The financial services sector has seen a great deal of merger activity and has suffered for it, in terms both of job losses and of service provision at a very local level. That would not be covered by the terms of the Bill.

Sometimes the public interest would favour loosening some of the competition rules. We have heard of the problem with producer co-operatives in the dairy sector and the wider agricultural sector. There needs to be a public interest basis so that wider issues can be taken into account.

It should be clear, certainly to Labour Members, that mergers affect consumers and communities. The hon. Member for North-East Derbyshire is seeking to uphold the principle that applies to those who used to be referred to as stakeholders. When we make decisions on such matters, we need to take account of a wide range of interests, not only consumer interests or competition policy.

Photo of Dennis Skinner Dennis Skinner Member, Labour Party National Executive Committee

I congratulate my hon. Friend Mr. Barnes on persevering with this issue, which goes back a few years. A merger took place in Clay Cross in his constituency, which he has raised on the Floor of the House many times; he and I also raised it in Westminster Hall. There was a lot of hand-wringing, as often happens with a lot of mergers when people get sacked; the Department gave the impression that it would love to be able to help, but could not.

The Government cannot do the things that it would like to do principally because of the climate created by the Single European Act. A few years ago Thatcher introduced it, guillotined debate in the House of Commons and shovelled it through. Now everything is wrapped up with the Common Market; that is part of the problem experienced by Governments here and elsewhere. I hope that minority parties that now say that they are sympathetic to my hon. Friend's position realise that the wonderful Common Market that they have fallen in love with is part of the problem.

The Biwater merger at Clay Cross prompted my hon. Friend to start the process that we have heard about today. Seven hundred people were told that Biwater was finished and would become part of Saint Gobain, a French firm. They were told that everything would be okay, although a few people might be shifted here and there—but within a few hours they had all lost their jobs, which is why the amendment is ultra-important.

I got the clear impression that the Government would like to resolve the problem. Next time a merger takes place, there will be a lot of hand-wringing and many people will say, "We'd love to do something, but we can't." The least the Government can do is tell my hon. Friend, "We've listened carefully to your case and we know that you've pursued it for a long time. We'll have a look at the amendment and, if necessary, deal with it in another place." As my hon. Friend John McDonnell has just said, if the problem is to be dealt with elsewhere, we shall be quite happy for it to fall into such an embrace.

Let us not kid ourselves; if there is a merger in future and several hundred or several thousand jobs are lost, let us not have any more hand-wringing or any more of the business of everyone feeling sorry about the problem. We could remedy the problem today if the Government agreed to the moderate suggestion made by my hon. Friend the Member for North-East Derbyshire.

Photo of John Pugh John Pugh Shadow Spokesperson (Education)

Before Mr. Barnes ignited our debate with an unexpected note of controversy, there was widespread agreement about the Bill's objectives. Most parties accept that an active free market that satisfies discriminating consumers is a good thing. The Bill seeks to prevent bad things, such as anti-competitive mergers, cartels, consumer rip-offs and the pitfalls of enterprise, including unnecessary insolvency.

Paradoxically, there has been cross-party, and probably international, agreement that a classic free market involves state regulation and a structured environment. Usually, free markets and state regulation are regarded as antithetical, but at the moment a third way appears to carry all before it. In Committee there was argument not about the content of the Bill but about its mechanics; Conservative Members examined in immense detail not the Government's intentions but the way in which they will deliver them. A persistent allegation was that some of the Government's methods might defeat some of their objectives. That accusation was not unreasonable, given the Government's track record of unnecessary bureaucracy.

To be fair, I must add that the CBI has similar fears. In theory, it is not in favour of cartels, consumer rip-offs or mergers that inhibit competition, because they damage trading interests as much as anything else. Nevertheless, all its submissions to the Select Committee have generated a certain image—that of worry about vexatious complaints, bureaucratic bullying, trial by the media as mergers are tested, legal confusion and lobby-group grandstanding, along with a constant commercial angst about exactly where the law is leading everyone. I am sure that that is not the Government's intention, but as Conservative Members have argued, it may be the result. It is important that that does not happen, especially if we are to bring criminal law into commercial practice.

So far the Government have not succeeded in allaying the CBI's fears, and arguably they cannot do so at this stage. Law has not become practice yet, and we have not yet seen the natural history of the Bill. Supplementary guidance has not yet arrived. It was evident in Committee, however, that significant issues already exist in relation to the clarity of the legislation—I am thinking of simple matters such as the distinction between hard-core and soft-core cartels—and coherence between this and existing English law, European law and Scots law.

The reference to mergers is crucial. My angle is different from that of the hon. Member for North-East Derbyshire. There are two tests for merger references. First there is the turnover test: is a company's turnover £45 million? It must be, for the company to be of real interest. Then there is the market-share test.

The turnover test has been debated by the CBI, which suggests that the figure should be £75 million. I have a worry, which we voiced in Committee, about the market-share test. It does not seem in any way to inhibit local monopolies. My hon. Friend Mr. Carmichael pointed out that if two airlines fly to Orkney and one takes over the other, there are plenty of other airlines in a national context, but there is no other airline flying to Orkney.

I know that newspapers are a special case, but nearly every newspaper in my constituency is owned by one company. Not long ago, the one independent company was taken over. It set itself up independently and survived somehow, but what had happened was a definite merger.

It could be argued that all my constituents who wanted to place advertisements in newspapers could advertise in the Burnley Bugle or the Middlesbrough Mercury. There were plenty of newspapers around—but there were no more newspapers in that area; one newspaper had an overall monopoly. Something that is theoretically not an issue is a very big issue in practical terms. A flaw in the Bill is the fact that we fret over big national mergers, although in those cases some choice is preserved at the end of the day, while there is no facility for dealing with local mergers by which choice is abolished.

The examples I give can be replicated. Members can cite cases in their constituencies. Taxi drivers, for instance, can form a consortium; there can be just one company in a whole area. Theoretically, someone in Leicester could get a taxi in Wolverhampton or London, say—but they cannot actually do that. Effectively, people faced with a complete local monopoly have no choice.

I genuinely understand the Government's reluctance to go further than they have. If a village contains two shops and one takes over the other, it is not desirable for the villagers to suggest that the OFT should investigate. I suggest, however, that there are simple ways in which local monopolies can be dealt with as national monopolies are. The number of consumers affected might be relevant, or perhaps the support of local trading standards authorities could be required.

This is wholly in line with the spirit of the Bill. We want to enact legislation that will stop large companies snuffing out small companies locally. Small companies do not start as national companies with national shares in the product they are producing, or as international companies; they start as local companies.

I realise that there are drafting problems and problems of work overload, but it is not possible to create a national climate of enterprise without encouraging a local climate of enterprise. National considerations also apply locally. The public interest defence or the failing firms defence could be used, and compensating consumer gains could be cited. However, if anti-competitive mergers can sustain themselves locally and prevail, local citizens suffer the same ill as when that happens nationally.

Let us consider the cartel analogy. We do not specify the size or turnover of the cartel; we simply define it by its effect. That should also apply to mergers. References to the OFT should be based on a merger's effect on consumers, not some artificial decision about size or market share.

Photo of Mr Tony McWalter Mr Tony McWalter Labour/Co-operative, Hemel Hempstead 5:45 pm, 13th June 2002

I am sad not to share the view of my hon. Friend Mr. Barnes. However, I believe that it is important to present a counter-argument. The Bill deals with fair trading and makes a substantial contribution to its development. Loading it with goals and burdens that such Bills cannot tolerate goes further than is reasonable.

My hon. Friend mentioned the boring position in Scottish football because of the domination of Celtic and Rangers. That is an interesting example because the reason for it is the wealth of both clubs compared with that of all the others in the league. They have the dominance that comes with wealth. I was keen for Manchester United not to be taken over by BSkyB because we would otherwise end up with one football club so rich that it was worth all the others put together. Absolute dominance in the market means that the consumer gets cheated and has less of the commodity to purchase and less of a service to enjoy.

The Bill tries to make it easier for small businesses to start up and consolidate so that, over time, the position of even the wealthiest and most dominant suppliers is challenged. I am a member of the all-party small business group, and the Bill's aim is laudable and important to achieve.

Sometimes the methods that large and wealthy companies use to dominate the market mean cheating workers and consumers. In Committee, I said that I was introduced to such matters when my father tendered for a small-scale contract to paint some houses in Hemel Hempstead and found that others were tendering at an extraordinarily low price. After he had lost the contract, he was told that others had stolen the paint and could therefore put in an unfair bid. That meant that those who made fair bids were put out of business and out of work.

Dominant companies and suppliers can consolidate their position through cheating their workers, not recognising trade unions, paying low wages, adulterating the environment and a host of practices that are vital components of unfair trading. The Government are not Thatcherite because they have tried to introduce measures apart from the Bill to counteract the effects of such practices through, for example, environmental protection and trade union recognition. It is not the job of this Bill to incorporate those measures, because they can be dealt with elsewhere. This Bill is about trying to provide an environment in which, if there is a dominant supplier in a particular trade, there is strong potential for the activities of that supplier to be called into question—notably, the activity of forming cartels or mergers, which are often a way of cheating workers and customers alike.

Photo of Mr Harry Barnes Mr Harry Barnes Labour, North East Derbyshire

I hope that my hon. Friend does not misunderstand my position. I have been supportive of all the measures in the Bill concerned with insolvency, establishing consumer rights, and helping small businesses. I am not opposed to the Bill in general, but there are matters relating to public interest and producer concerns that I would like to see incorporated in it. From what my hon. Friend has said, there might also have been a misunderstanding about my attitude to BSkyB. I supported the decision of the Competition Commission on that issue, because it took it partly on the ground of public interest.

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

I understand where my hon. Friend is trying to get to; I am just not convinced that his amendment will get him there. That is partly because he wants there to be powers that it is difficult to imagine being operated. To return to the Scottish football example, one way of ensuring that other Scottish teams had much more say than they do now would be to impose a maximum wage on footballers, so that the benefit of certain organisations being massively rich compared with others would be counteracted by very strong regulations that made it more difficult for wealth to dominate.

Another way of achieving that aim would be to have a fantastically powerful wealth tax to appropriate huge resources from the very wealthy football clubs and redistribute them among the others. There is a variety of ways of achieving that, and perhaps this is the time to ask why those clubs have such a dominant place in the market. I also agree with Dr. Pugh when he said that local monopolies and local dominance lead to consumer and employee impoverishment. The fact remains, however, that these matters can be returned to.

My hon. Friend the Member for North-East Derbyshire should accept that the Bill makes a contribution to addressing the problems that we face in trying to ensure that consumers have a genuine choice, and that workers have a genuine opportunity to work for companies that do not violate the environment or systematically violate workers' rights. I hope that he will not divide the House on this issue, and I look forward to working with him on this agenda on other Bills, because there is important work to be done.

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

In responding to what has been a lengthy and wide-ranging debate, I should like to thank hon. Members for their contributions.

I shall deal first with amendments Nos. 18, 19 and 20, which are uncontentious. They would provide the opportunity for discretion on the part of the OFT, rather than a duty to refer. The Bill already gives the OFT discretion in certain circumstances, when that is appropriate. A variety of such circumstances is listed in subsection (3) of clauses 21 and 32. Amendments Nos. 18 and 19 would extend the OFT's discretion in completed merger cases, and amendment No. 20 would do so in proposed mergers, beyond the particular circumstances set out. The Government believe that the exceptions set out in the two clauses cover all the circumstances in which discretion is appropriate, and do not anticipate any other circumstances in which such discretion will be needed. We do not believe, therefore, that the amendments have any value.

We do not believe that the number of references will increase as a result of the duty to refer. I reiterate what I said in response to Mr. Waterson and other hon. Members: we do not think that that duty will lead to a situation in which pre-clearance is almost obligatory. Those who have raised such concerns seem to be ignoring the fact that the OFT will apply a competition test to determine whether it has a duty to refer. Only cases that could lead to a substantial lessening of competition will be referred. That is the basis on which the OFT currently advises Secretaries of State, so we do not anticipate or accept that the incidence of references will increase because of the new arrangements. I hope, therefore, that I can persuade hon. Members not to press the relevant three amendments.

I turn now to amendment No. 21 and associated amendments that deal with the question of the substantial lessening of competition test versus the dominance test. First, the Opposition have tabled a large group of amendments on this matter, as the hon. Member for Eastbourne commented. The amendments would replace our substantial lessening of competition test with a European-style dominance test. That is a slight turn up for the books, because the Opposition are not frequently taking the European route these days.

I should like to stress at the outset that the Government have consulted carefully and extensively on the choice of competition tests for the new mergers regime. The question was first raised in our consultation document on reform of the merger regime in August 1999, and a further consultation occurred subsequently. In addition, officials have met lawyers, economists and other experts to discuss the new regime and the most appropriate competition tests to apply.

A very large majority of those who responded to the consultation favoured a substantial lessening of competition test. They believe that that represents a better economic test than the dominance test that is currently used in the European Community merger regulation. One of the responses that we received came from the City of London Law Society, whose members are obviously experts on competition. It stated:

"The Group does not favour the adoption of a dominance test due to its inflexibility in dealing with a range of situations including oligopolistic dominance and highly leveraged acquisitions. It does not see any benefits from having the same substantive test at a national level as in the ECMR. Additionally, it should be noted that other established merger control regimes within the EC have not found it necessary to adopt the ECMR test."

Indeed, the substantial lessening of competition test comes closest to the competition analysis that is currently applied by the UK authorities. It has the key advantage of allowing the authorities to concentrate on the overall effect of a merger on competition rather than on the structures, and will allow them to act wherever there is an increase of sole, joint or collective market power resulting from a merger.

The key concern about the dominance test is the uncertainty about allowing the authorities to take action where a merger will not lead to one firm having a substantial market share of 40 per cent. or more, but will nevertheless increase the likelihood of firms remaining in the market and acting in an anti-competitive way. To use economic terms, there is considerable uncertainty about whether a dominance test is effective in dealing with the creation of non-collusive oligopolistic markets. European law has developed the concept of collective dominance to try to bridge the gap, but its application is uncertain and the concept strains the normal meaning of dominance.

The substantial lessening of competition test is superior in alluding to the impact of a merger on the whole market, rather than concentrating on the position of a particular market participant. It was because of concerns that the dominance test did not satisfactorily cover collective dominance cases that both Australia and New Zealand recently switched from a dominance test to a substantial lessening of competition test. That happened in Australia in 1993 and in New Zealand last year. Among our European Community colleagues, the Irish Government have recently adopted a similar test, and Spain also has such a test. It is also noteworthy that the Green Paper on reforms to the ECMR raises a substantial lessening of competition test as a possible option to replace dominance. The issue is also well understood in a number of other jurisdictions: the United States, Japan, Canada, Australia and New Zealand.

I could speak at considerable length on this subject, but I will not do so, as time is of the essence. I believe for all the reasons that I have given that we have got the right test.

I should like briefly to quote Mr. Lansley, who put the position well in Committee when we debated the test of choice. He said that if we had a chance of ensuring a merger control regime that was likely to provide pressures and incentives conducive to competition in general and to a greater intensity of competition in the UK than in other parts of the EU, we should take it. For all the reasons that I have given, we believe that we have the right test, and I urge that those amendments be withdrawn.

I should like now to turn to the amendments dealing with the restoration of the public interest test, which have been the subject of much debate this afternoon. The replacement of the current public interest test in the Fair Trading Act with a competition test is, of course, one of the cornerstones of the proposed new merger regime. Focusing the Bill on competition will provide better merger regulation. It will improve the clarity of the framework for decisions and the predictability of the decisions made under it. The wider the range of factors that can be taken into account, the less certain and the less predictable the outcome.

The change will also bring our statute into line with other major international jurisdictions; the US, the European Commission, France, Germany, Canada and Australia. Switching away from a public interest test to a competition test for assessing mergers has involved hard thinking and tough choices, but it is a focused policy. It means that certain factors that could previously have been taken into account—I emphasise the word "could" as opposed to "were" or "would be"—will no longer be capable of being taken into account. We think, as a matter of policy, that that is right. The reform is not just about improving the predictability of decisions or aligning the regime with others. It is necessary because we believe that, in the vast majority of cases, the economy is best served if mergers are assessed solely on the basis of their effect on competition.

Merger regulation is best aimed at safeguarding the competitive intensity in the economy. Competition provides the spur for businesses to be more productive, innovative and efficient, and better able to provide long-term sustainable employment and better products and services for consumers—my hon. Friend the Member for North-East Derbyshire and I share those aspirations.

Adding additional factors to the test for mergers would create barriers to market re-structuring. We think it is wrong to create such barriers unless there are significant anti-competitive effects. Restructuring must be possible if companies and markets are to remain dynamic and competitive.

I recognise, of course, that mergers can have adverse regional and employment impacts in the short term. There are hard cases; my hon. Friends have referred to cases in their constituencies, including the Biwater case. However, I do not think the answer is to step in to block mergers.

The task for the Government—one that we are pursuing—is to make sure that the economy as a whole is strong and to help people to adapt and get new jobs. We must make sure that for every job and every business that disappears, there are new companies springing up and small companies growing. We have a vibrant, dynamic economy. We have the lowest unemployment rate since the 1970s and the lowest inflation and interest rates since the 1960s. We have record numbers of people in work, because private sector employment increased by 1.25 million over the last five years. We are, of course, the No. 1 destination for foreign direct investment into Europe.

I would like to make a further important point to set the merger regime in the context of how the existing Fair Trading Act regime has operated. In practice, competition has been the principal factor in UK merger policy for years. In 1984, the then Secretary of State for Trade and Industry, now Lord Tebbit, announced that references would be made primarily on competition grounds. That doctrine has been pursued by every subsequent Secretary of State.

We must look at why independence from political interference and involvement is important in this regard. I remind my hon. Friends that there is a direct parallel between what we are doing here and what my right hon. Friend the Chancellor of the Exchequer did in the legislation relating to the Bank of England in 1997. Before then, there was clearly political involvement in decisions about interest rates, decisions that were made, at the end of the day, by Ministers. As hon. Members know, such decisions are now taken by the Monetary Policy Committee, and are therefore taken at arm's length from political interference. That has not had an adverse effect; indeed, it has brought remarkable benefits. We took the right decision in that regard, and we are taking the right one here.

On the question of the Bill's providing for the Secretary of State to make an order defining public interest issues that might be taken into account in considering a merger, when such issues arise it is Ministers themselves who will take decisions about a merger. The Bill will define as public interest considerations only national and public security concerns. However, we have built in appropriate checks on Ministers intervening easily in other areas. We have stipulated that additional criteria will be defined by order, subject to affirmative resolution of both Houses of Parliament. I am aware that some Opposition Members dislike that for one reason, and some Government Members dislike it for another. However, that power provides an important safety valve for the new regime, and ensures that very exceptional cases can be dealt with appropriately. In that sense, we have got the matter entirely right.

As I said, public interest considerations must be specified in the new legislation as relating to national security. Having consulted on whether new powers are necessary, we concluded that they are not. As my hon. Friend the Member for North-East Derbyshire knows, the existing power enables us to add further considerations. The process will be transparent and subject to parliamentary approval, and the Secretary of State must give reasons under the terms of clause 104(7). Safeguarding competition is just one aspect of our duty to protect the public interest. As I said, matters such as employment are dealt with through other targeted measures. My hon. Friend will acknowledge the tremendous progress that the Government have made in terms of economic growth, employment, prosperity and the provision of public services.

In the light of these changes, my hon. Friend also expressed his concern about the important issue of accountability. We have built in additional accountability elements, a long list of which I could run through. Although accountability will not be achieved through ministerial decision making, there will be additional transparency and checks and balances. For example, the OFT and the commission will have to publish their reasons for taking key decisions such as reference decisions, and for not referring.

The commission's chairman has also made a commitment to publishing during an inquiry provisional conclusions on the competition aspects of a merger or market. Decisions will not come, therefore, like a bolt from the blue. There will be open discussion of provisional findings, and of the remedies for dealing with them. The tests themselves will be focused. They will be conducted within a tighter procedural framework, and a number of institutional checks and balances will be established. For example, the OFT board will replace the Director General of Fair Trading as the pinnacle of the OFT's operation. Taken together, the measures show that we have got things right. I appreciate my hon. Friend's concerns, but I believe that adopting these measures will bring real benefits.

On failing firms, if an authority believes that a firm will in any case exit the market because it is failing, that judgment will influence the assessment of whether the merger may be expected to result in substantial lessening of competition. Another relevant consideration is whether the failing firm's market share is likely to fall to the acquiring firm in any event. It is not a question of weighing the position of a failing firm against the problems created by a substantial lessening of competition. If Opposition Members are suggesting that saving a failing firm should take priority over guarding against anti-competitive markets, I must disagree. It would not be appropriate to allow mergers to proceed that would result in a substantial lessening of competition, simply because one of the firms involved was failing.

I hope, therefore, that hon. Members will not wish to press amendment No. 69 to a vote and I urge the House to resist it. I commend, however, the technical Government amendments that are part of this group.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 6:00 pm, 13th June 2002

When I moved amendment No. 18—it seems like half a lifetime ago—I had no idea of the great fissures that were about to open up in the modern and the not-so-modern Labour party. I hope that we will hear no more from Ministers about having plenty of time to debate the Bill, because the harsh reality that is staring us in the face—especially if we now have a Division—is that we will not even begin to debate the issues of cartels and market investigations. On any view, that is wrong. I do not wish to waste quarter of an hour by pressing our amendments to a vote. We are not happy with much of what the Minister had to say, but we have rehearsed the arguments before and I am happy to say that I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: No. 202, in page 11, line 11, after "competition", insert—

'or substantial damage to the public interest'.—[Mr. Barnes.]

Question put, That the amendment be made:—

The House divided: Ayes 39, Noes 245.

Division number 273 Orders of the Day — Enterprise Bill — [1st Allotted Day] — Clause 21 — Duty to make references in relation to completed mergers

Aye: 39 MPs

No: 245 MPs

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Question accordingly negatived.