Clause 11 - Super-complaints to the OFT

Enterprise Bill – in a Public Bill Committee at 6:30 pm on 16th April 2002.

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Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 6:30 pm, 16th April 2002

I beg to move amendment No. 17, in page 5, line 3, leave out ''feature, or combination of features, of'' and insert

''agreements between undertakings, decisions by associations of undertakings, or concerted practices in''.

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

With this we may discuss the following amendments: No. 18, in page 5, line 4, leave out from ''services'' to end of line 5 and insert ''prevents, restricts or distorts competition''.

No. 24, in page 5, leave out lines 31 and 32.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

We have reached one of the more exciting parts of the Bill. [Interruption.] I notice a ripple of excitement among Labour Members, particularly from the hon. Member for South Ribble. I am sure that we shall have a lively debate.

The arrival of the super complaint must have seemed like the arrival of gunpowder and cannons to the proprietor of a medieval castle–alarming and impressive at the same time. It is, on paper, an extremely powerful weapon, which could change the balance of power–I do not want to get too carried away or I shall sound like David Starkey–between consumers and business. Like all powerful weapons, it must be handled with care. That is why we have tabled a number of amendments; they express our concerns, queries and probing ideas and those of business about how it will work in practice.

I should like to make a point that might be of help. Our general approach will be to seek fairly wide debates on groups of amendments, but to dispense with a stand part debate unless no amendments to the clause have been tabled. Even then, we might not have a stand part debate if the clause does not warrant it.

However, because this clause is such an important part of the Bill, we might want to say something about the stand part aspect of it even after we have dealt with the amendments.

When the Department is preparing its press releases about how wonderful the Bill is, the provision for super complaints will be one bit that ends up in the first paragraph. The concept of super complaints is widely welcomed by the consumer organisations. We are keen for it to work in a way that delivers for consumers but does not cause massive problems and disruption for legitimate business.

The wording of amendments Nos. 17 and 24 replicates the wording in article 81 of the EU treaty and the chapter 1 prohibition in the Competition Act 1998. Without such replication, it seems to us and to organisations such as the CBI that there is a risk of inconsistency and uncertainty. There is also the possibility that a new and unnecessary additional standard could be introduced into the UK competition regime. I do not know whether that was what the Department had in mind when it drafted this part of the Bill, but we want to find out through these probing amendments.

Amendment No. 18 would delete the wording

''is or appears to be significantly harming the interests of consumers''

and replace it with the phrase

''prevents, restricts or distorts competition''.

That would again replicate wording in article 81of the EU treaty and the chapter 1 prohibition in the 1998 Act. It is again a question of consistency and certainty and the concern is again that a new and additional standard is being introduced into the regime. Anti-competitive behaviour almost by definition harms consumers, so is there any real need to refer to them explicitly?

That is the reasoning behind the group of amendments. They are more probing amendments than anything else, but I would be interested to hear the Minister's response to them.

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

The amendments would narrow the definition of a super complaint by placing the emphasis on conduct connected to breaches of chapter 1 of the Competition Act or article 81 of the EU treaty rather than broader problems in the market that may harm the interests of consumers. Our intention is to ensure that consumers receive better protection by enabling consumer bodies to complain about any market failure that causes significant harm to consumers. In order to do that, we need a broad definition of the circumstances in which a super complaint can be made.

Using the language of the Competition Act, as suggested in the amendments, would narrow the focus of the procedure to the potential investigation of anti-competitive agreements. The new super complaints procedure is intended to ensure that the OFT is made aware of as wide a range of markets that are not working well for consumers as possible–not just those markets where competition concerns arise. Taken by

itself, without amendment No. 17, amendment No. 18 would mark super complaints out as a preliminary to OFT action under its competition law powers, such as those under the Competition Act, or through a market investigation. It would not be allowed to act under its consumer protection powers.

Consumer bodies and anyone else who wants to complain about basic infringements of the Competition Act can already do so. Super complaints should not be limited to a preliminary to a particular type of competition investigation. They should be an open-ended vehicle for the OFT to launch investigations under any of its consumer and competition powers. By, effectively, excluding the possibility of a consumer-side action as a follow-up to a super complaint, the amendment perpetuates the division between the OFT's competition and consumer sides, which the Bill is trying to break down. The amendment would make it very difficult for consumer bodies to submit super complaints. As third parties, they are unlikely to know much about the agreements that firms have entered into between themselves.

The hon. Gentleman said that these were probing amendments. I hope that with that explanation I have encouraged him not to press them to a Division.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

I support this group of amendments. The question arises whether a clause that is, on the face of it, well meaning will give companies comfort that they will not be subject to witch-hunting by consumers or pressure groups. There is a balance to be struck here, as with other parts of the Bill.

I was slightly concerned by the Under-Secretary's statement that the measure was to be left as ''an open-ended vehicle'', as that seems a dangerous way of proceeding in what could be a litigious area. I accept the suggestion that we need a clearer definition of what can and cannot be investigated. Amendment No. 18 ties that down by referring back to article 81.

As the Bill stands, a super complaints procedure applies when the interests of consumers appear to be harmed, but what does that mean in practice? Who decides, and on what basis, what is best for consumers? Would it be consumer groups, for example? The CBI pointed out that that gives much too narrow a base; anyway, what would represent a consumer group for the purposes of the Bill? The new standard will lead to an awful lot of litigation, with costs being passed on to the public; to consumers, in other words.

There was a recent example of such a procedure in action. In October 2001, the OFT agreed to a Consumers Association referral to undertake a super complaints procedure, although at the time that would have been done only on a trial basis because the legislation did not exist. The case was brought against the dentistry profession.

In January 2002, the OFT announced that it would undertake a full investigation, which it expected to finish by the end of the year. It would have been helpful to the Committee if the investigation had been finished by now, because we would have had a better opportunity to analyse how it worked in practice. Unfortunately, that opportunity is unavailable.

Several questions surround that investigation, however. One might ask if the expected date was fair, but I shall not discuss dates as that subject arises in a later batch of amendments.

I mention the case now because it has an interesting aspect in relation to the Bill. When one reads the Consumers Association briefing on the state of the process so far, two basic reasons are given for the referral, as identified by the excellent magazine, Which? The first relates to transparency in charging, which certainly makes sense as the basis for an investigation. The second was more interesting, as it related to huge disparities in tariffs between dentists. That is an interesting concept, which seemed strange to me when I first read it.

I understand why the Consumers Association might want to point out why high-charging dentists should be avoided and to say who is a high-charging dentist, so that consumers know whom to avoid. However, when one considers competition issues, one normally looks for competition abuse, a convergence of price, people organising cartels or undermining consumers by maintaining a close series of prices. In this case, however, the Consumers Association is complaining about a massive divergence of prices, which is the exact opposite of the competition test. That brings us back to the essence of super complaints and the new rationale.

The Consumers Association is obviously looking forward to the time when the legislation is in place and it can run clear of the competition rule and start creating a new area of law. I do not know what the Consumers Association wants–perhaps some sort of 1970s price-capping policy–but it has nothing to do with competition.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 6:45 pm, 16th April 2002

My hon. Friend is developing a fascinating line of argument, which we might reconsider during the stand part debate. If one expects the same standard of product, there might be an argument also for expecting the same price, although there is always the question of regional variations. Is a dentist or a plumber expected to give a standard service? Presumably, some dentists, like some plumbers, are better than others and may warrant a higher fee. I am sure that my hon. Friend was coming to the issue of consumers being able to shop around and ask more than one dentist what he or she charges, but many people would be in the dentist's chair, anticipating the pain, and would not think about the price until afterwards. That is their prerogative. This is a fascinating discussion.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

It is indeed. When Which? looks at prices, especially of services–such as those provided by dentists or lawyers–there are often more considerations relating to price, such as the service that the consumer receives. Of course, I congratulate the Consumers Association on advising consumers of the various prices and telling them where they can get a cheap deal, if that is what they want, but that is a different issue.

I am not trying to pre-empt the OFT inquiry into dentistry. I am taking my information from the

Consumers Association briefing paper, as I have not seen the OFT report, but that information is backed up by a recent briefing from the National Association of Citizens Advice Bureaux. To return to the issue of what are legitimate grounds for a claim, the Consumers Association seems to be starting a new industry, in which it, rather than the law, tells us what is right and wrong for consumers. The briefing paper says

''As we understand it, it would be possible for a designated body to make a complaint on the grounds that a particular trader is conducting his business in a manner which is unfair and detrimental to consumers. This could encompass engaging in practices and sales techniques which are not presently illegal but are nevertheless unfair and harmful to consumers. Our concern is whether in these types of case the OFT would have any powers to act, if the complaint was found to be unjustified.''

In other words, even though a practice may not be illegal, NACAB wants it to be possible for the practice to be referred to the super complaints process. I wonder how many hon. Members appreciate that that is what we are talking about, because it is a dangerous proposition that consumer associations should take the lead in dictating what is illegal. We heard earlier that we should, perhaps, be considering what other bad trading practices should be made illegal. That is a valid argument, but I have significant concerns that, even before they get the powers, consumer associations are saying that they, not Parliament, should decide what is illegal. That is something that the Committee should consider carefully.

The size of the offence is relevant to mergers. There is a de minimis provision; in other words, if a complaint is below a certain level, it will not be dealt with under the Bill. However, I believe that that does not apply to clause 11. I ask the Under-Secretary for clarification, but if I am right, no complaint would be too small for the OFT to consider. It would have been sensible, as with the merger regulations, to have a level below which it was considered that the regulations should not apply.

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

The Oxford philosopher and great socialist thinker G.D.H. Cole wanted to transform Parliament into two Houses, one of which would be a House of consumers and the other of which would be a House of producers. They would have equal and co-ordinate powers. I wonder whether the provision on the super complaints procedure for consumers should not be mirrored by a super complaints procedure for producers, or workers.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

I shall not comment on the contribution of the hon. Member for North-East Derbyshire, not least because it would take me a long time to get my head around the idea.

The clause is extremely important. It is at the core of many of the concerns that we shall discuss on other amendments; if not this evening, at some time on Thursday. My hon. Friend the Member for Huntingdon pointed out to me one of the great fallacies in connection with price in competition or monopolistic power. It is that if we have perfect competition or a monopoly, logic and economic theory dictates that the price will be exactly the same. It is therefore difficult to make a coherent case

that price should be the determining factor for competition ills.

The CBI suggests equality of treatment and that the Government should hear all complaints equally. The concept of a super complainant procedure is cause for great concern, because people will assume that complaints have substance if they are put forward by a consumer group on that elevated scale. It seems that complaints will automatically get over the first hurdle if they are made by a super complainant. If legislation is to work properly, it is essential that it should treat all people in the same way. A complaint from a super complainant should be made as if it had come from an individual or another company.

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

I shall endeavour to sum up this diverse debate and answer all the points raised on the subject. First, it is important to reflect on why we are going along this path. It is rather difficult for individual consumers to identify market failure, market abuse and bad market practices of one kind or another. It is important to bear that in mind when considering the issues raised today.

Photo of Mark Field Mark Field Conservative, Cities of London and Westminster

Surely that is counter-intuitive with regard to events of the past 20 or 30 years. Those who have been Members of Parliament for any length of time–and Ministers, too–must have dealt with an enormous number of individual complaints. In a sense, the consumer has become liberated and is able to make complaints. The worry is that consumers may not know the most appropriate way to make those complaints, but the idea that they are powerless and require a super complainant body surely runs in the face of experience.

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

I take it that the hon. Gentleman is referring to our experience as Members of Parliament. Obviously, in representing people, we see many difficulties in various aspects of their lives. I accept that we have a wider view from that perspective, but the individual consumer has their own experience of engaging in the market and buying goods and services. However, although they may have access to the informal experience of others, they do not have that wider view. We are considering super complaints in that context.

A concern is floating around that people may make frivolous super complaints and that organisations that are authorised to act in this capacity–that will be a careful process in itself–will come forward with something that is not sensible. I can assure the Committee that organisations will be expected to base their complaint on a reasoned case. If they do not, the OFT will take no action beyond initial consideration. Equally, the OFT must publish its reasons for what, if any, action it proposes to take. The process cuts both ways; the OFT is held to account, and groups will submit reasonable super complaints because they will not want to end up with

bad publicity and damage to their reputation. That is a crucial part of their credibility with consumers and the wider public.

Photo of Jonathan Djanogly Jonathan Djanogly Conservative, Huntingdon

The Under-Secretary says that consumer groups will not want to lose their good image. It would be helpful if she could explain what she means by ''consumer groups''.

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

I am talking about any group that is authorised to act as a super complainant and is recognised as a potential super complainant. There will be criteria for that. We do not expect any group to act in that way; the groups will be designated. That designation will involve their demonstrating responsibility and certain other capacities for making such complaints.

I should now like to wrap up the debate, and I will take no further interventions if possible. The OFT will issue guidance on the substance of the complaint. That is about markets, not individual businesses, so we are not covering trivial complaints. On the competition side and the question of complaints where practices are not yet illegal, the result could be market investigations to order by the Competition Commission to stop anti-competitive practices in a particular industry. On the consumer side, there could be codes of practice to enshrine best practice. However, the OFT is not a law maker. Significant harm must be done to consumers before the OFT will decide what, if any, action to take, and that action must be based on that complaint.

The OFT can determine which of its competition or consumer points it should use if necessary. The complaint must be reasoned, and as I said the OFT must publicise its response. The whole process is open, reasoned and founded on OFT duties on behalf of consumers and business. I can reassure hon. Members who have contributed to the debate that the issues will be taken forward on those terms by super complainants and the OFT.

I find it hard to answer the point made by my hon. Friend the Member for North-East Derbyshire, because it requires a great deal more thought than I can give it at the moment.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I am thoroughly looking forward to the amendments that the hon. Member for North-East Derbyshire will no doubt table on this novel idea. We will doubtless have some interesting debates on them in due course. The amendments were probing. We tabled other amendments to clause 11, which is an important clause for consumers and business as it seeks to ensure that everyone understands how the new mechanism will work. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Further consideration adjourned.–[Mr. Pearson.]

Adjourned accordingly at Seven o'clock till Thursday 18 April at half-past Nine o'clock.