Clause 78 - Final undertakings

Enterprise Bill – in a Public Bill Committee at 11:00 am on 1 May 2002.

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Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 11:00, 1 May 2002

I beg to move amendment No. 67, in page 57, line 30, after `undertakings', insert—

`, but no such undertaking may be accepted from persons other than one who is a party or is a member of the same group of companies as a party to the merger or anticipated merger in question'.

`, but no such order may be made against any person other than one who is party or is a member of the same group of companies as a party to the merger or anticipated merger in question'.

The new powers are drafted in wide terms and will give the Competition Commission power to accept undertakings from persons it considers appropriate. We do not want to see, and business certainly does not want to see, what is supposed to be a merger investigation effectively turning into an investigation into a whole industry. The Bill provides for looking into that sort of thing, but this is not that provision. In that context, the Competition Commission and the OFT should not be empowered to make orders against parties who are not party to a merger or an anticipated merger. We are deeply sceptical about why the power should have been drafted in such wide terms, and no doubt the Minister will take us through

the Department's thinking. We need a pretty strong justification from him as to why people wholly unconnected with the merger should be drawn into the process.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry) 11:15, 1 May 2002

I want to say a few words in support of the amendment and the legal community's helpful approach to clarifying existing vague and woolly language. It would be helpful if the Minister could give examples of the way in which people who are considered appropriate under the legislation could be involved in an undertaking although not party to a merger. Consumer groups, affected workers and so on might have an interest in mergers but would not be involved in giving undertakings. The only people I can think of who might be involved are competitors, as the hon. Member for Eastbourne said, and other people within the industry. I shall quote a couple of topical examples that might suggest how the clause could come into play—the Minister has confirmed that that is the intention.

In the banking sector, there is a high level of concentration among the leading clearers and there have long been arguments about whether mergers should be allowed among those in the remaining group. Let us suppose that an ambitious, expanding clearer such as the Royal Bank of Scotland, which owns NatWest, moved in on Lloyds TSB and the competition authorities considered that inappropriate in competition terms. Is it the intention of the clause that the Competition Commission could say in its determination not only that the merger was unacceptable, but that written undertakings would be required from Barclays and HSBC that they were not engaged in comparable merger activities even when they had not contemplated such activities? That is the sort of hypothetical situation in which the clause might come into play.

Another topical example about which I have written to the Minister concerns competition in the accounting profession, which is a small group and will become even smaller with the disappearance of Andersen into Deloittes. The competition authorities might discourage that merger because it would result in excessive concentration but then demand of PricewaterhouseCoopers that it divests some of its business to improve competition in the industry. The clause is so openly phrased that it could lead the competition authorities into such powers, which would be new. I am not completely familiar with the history of competition policy, but I would have thought that the clause could open new vistas and uncertainty. Perhaps the Minister will clarify with examples exactly what the provision is intended to cover and not to cover.

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

In his reply, will my hon. Friend the Minister take into account the back reference to clause 33(3)(b) which states:

"recommend the taking of action by others for the purpose of remedying, mitigating or preventing the substantial lessening of competition"?

That might refer to the fact that some companies have a sweetheart company and could facilitate a merger that is not in the public interest by getting it to divest itself of certain interests, which makes it impossible for the merger not to go ahead. Is that, rather than the observations made by the Opposition, what my hon. Friend has in mind?

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

The amendments seek to prevent third parties from being the subject of undertakings or orders following merger inquiries. I start with a candid confession: I share the concern that third parties should not be drawn unnecessarily into the remedy-setting process following a merger. It is the decision of the parties to merge, if that could lead to a substantial lessening of competition, that the authorities will address. The merger parties must be the focus of any remedy, whether by seeking an undertaking or, in exceptional circumstances, by imposing an order.

I am not convinced of the case for the amendment, however. The approach taken on both undertakings and orders mirrors the provisions of the Fair Trading Act 1973, which has been in place for almost 30 years. The Act's order-making power in section 73 does not mention the parties that may be subject to an order.

I emphasise that although clauses 78 and 80 may not, on the face of it, appear to limit who can be subject to an undertaking or an order, the commission's freedom for manoeuvre is actually limited by clause 39. Clause 39(2) requires that where action is taken

"to remedy, mitigate or prevent the substantial lessening of competition... or... any adverse effects which have resulted",

that action must be reasonable and practical.

The key word for our purposes in this debate is reasonable. Any decision to impose an order or request undertakings must be reasonable. It will almost always be unreasonable to attempt to impose an order on a party that is not a party to the merger to address a problem that has been caused entirely by the actions of the parties that are. If the commission tried to do that, the parties affected would undoubtedly have the decision reviewed by the Competition Appeal Tribunal, which would almost certainly caution it.

I am wary of being drawn into real-life examples, but I hope that I have given some comfort to the hon. Member for Twickenham (Dr. Cable), on his questions about the banking sector and insurance.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I do not want to disappoint the Minister, but it is difficult to grapple with the provision in its present form without some real-life examples. The hon. Member for Twickenham, with a more vivid imagination than I, has come up with some thoughts, but I, for the life of me, cannot imagine what the provision is getting at. Why are those words in there, unless just through sloppy draftsmanship—as we know, that never happens.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

I certainly concur with the hon. Gentleman on that point, despite the amendments that I have just tabled.

I hesitate to use real-world examples, given the individual commercial players, but I shall try to give a hypothetical example to give the hon. Gentleman the comfort that he seeks. When I looked at the material over the weekend, I asked officials for exactly such an example. The transfer of an exclusive distribution arrangement with a third party might form part of a merger situation. The Competition Commission might reasonably conclude that it must terminate part or all of that arrangement to remedy the substantial lessening of competition. The third party might consider it in its own interests to give undertakings regarding partial or complete termination of that agreement rather than see the merger blocked completely. Alternatively, were it reasonable to do so, and the Competition Commission decided to order a complete termination of the arrangement, an order might have to be made against both parties.

That possibility, that a third party be subject to undertakings or an order in certain circumstances, suggests that we should leave the clause as it stands. In conclusion, although I share the concern of hon. Members on both sides to protect third parties and limit the scope of the investigation of the merger in hand, I do not believe that the amendments are necessary. The legislation already provides effective protection for those third parties that we have discussed this morning and does so in a more flexible way. I therefore ask the hon. Member for Eastbourne to withdraw the amendment. If he does not, I shall ask the Committee to oppose it.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Before the Minister gets heavy about it, of course I shall withdraw the amendment. I must say that I am still not wholly convinced. We might wish to return to the matter on Report. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 78 ordered to stand part of the Bill.