Clause 29 - Interim measures: pre-emptive action: markets

Enterprise and Regulatory Reform Bill – in a Public Bill Committee at 4:45 pm on 10 July 2012.

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Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Innovation and Skills) 4:45, 10 July 2012

I beg to move amendment 57, in clause 29, page 28, line 11, at end insert—

‘(2BA) When subsection (2B) is applied, the relevant authority must publish a cost benefit assessment for the measures applied.’.

I sense that we may be regaining our full strength and although it was a disappointment to see that the numbers have been reduced in the last vote, the Government majority is not increasing. So I will take that. It was seven-ten, as opposed to nine-twelve.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Innovation and Skills)

Okay. I misheard. In the hope that the Government Members had been reduced, I heard what I wanted to hear.

We have made substantial progress, and again we come to what is a rather technical amendment but a rather important one. As previously discussed, the UK merger regime is highly regarded throughout the world. I may have already said that the mergers regime is estimated to save the UK consumer £127 million in 2010-11.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Innovation and Skills)

One hundred and twenty-seven million pounds. However, the Minister was right to say that we must not be complacent and that the regime can be improved.

One of the key criticisms of the current system is that the regulator has no ability to prevent mergers from going ahead or to take remedial action when a merger happens. The Bill attempts to address that by ensuring that the CMA’s powers to impose interim measures include the power to require parties to take steps to reverse pre-emptive action taken, or to reverse the effects of such action following a market investigation reference being made. The intent is to prevent parties from taking pre-emptive action that may impede implementation and measures required by the CMA following an investigation.

We support measures that strengthen the mergers regime and we recognise the concern here. Currently during an antitrust investigation, if evidence comes to light of practices that pose serious irreparable damage to a person or that threaten the public interest, the authorities have powers to impose interim measures. Generally, these are directions that a business has to comply with immediately. We can imagine, for example, an abuse that the authority identifies as predatory pricing, when a competitor lowers prices to drive their competition out of business. One might think that lower prices were good for consumers, but generally the strategy of the company concerned is to raise them once everybody else has gone bust. Without any competition, consumers are forced to pay much higher prices.

Those who have been critical of the Leader of the Opposition’s condemnation of predatory capitalism might want to reflect that current competition law recognises that a small minority of companies engage in predatory behaviour. In the case of predatory pricing, by the time the authorities have finished their investigation it may be too late: competitors would have exited the market.

To date, the power has hardly been used, which is one reason why the Government have agreed with the OFT’s argument to amend the threshold for interim measures from serious irreparable damage to significant damage. The OFT argued that the current wording prevents the OFT or a sector regulator from making an interim measures direction in cases where the victim of the alleged infringements is likely to suffer significant harm, but there is no current threat of their exiting the market or going out of business.

We support the measures, but we wish to make sure that they are transparent. Our amendment simply requires that the relevant authority must publish a cost-benefit  assessment for the interim measures applied to ensure that the measures are not disproportionate and are, at the very least, transparent.

Photo of Norman Lamb Norman Lamb The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I thank Opposition Members for their amendment. First, it is important to note that the Competition Commission and the OFT interpret the existing legislation as already enabling them to reverse pre-emptive actions. The powers are not new. The Bill simply makes it explicit that the powers can be used in all phases of the CMA’s work. Clause 29 makes it clear that the CMA’s powers to impose interim measures during a market investigation include the power to reverse any pre-emptive action taken by the parties or to reverse the effects of such action. The current legislation is not particularly clear on the issue although, as I have said, the existing bodies interpret the legislation as allowing them to act. We would all agree that clarity and certainty is important both for business and for competition authorities.

Where pre-emptive actions are taken, they can undermine the implementation of remedies following a market investigation. They might include any steps taken to bind an operating unit more closely to a parent company, which would make it harder to separate it if required at the end of the investigation. For example, it might include actions taken by a large organisation to integrate the IT structures or finance functions of its smaller companies, making it harder to sell off any of those companies. Where competition authorities have difficulty in remedying competition problems that they find, it can have detrimental effects on consumers.

The clause ensures the CMA has access to the widest possible toolkit to assist it in addressing competition problems that may be identified during a market investigation. In turn, this will help the CMA choose remedies that are proportionate and appropriate. The amendment imposes a requirement on the CMA to publish a cost-benefit assessment whenever the CMA adopts interim measures to reverse a pre-emptive action during a market investigation.

While I agree with the principle that the CMA should think carefully before it issues an order to reverse a pre-emptive action and in general seek to employ its resources in a cost-effective manner—that is absolutely right—this additional requirement on the CMA is not appropriate. It would be practically difficult for the CMA to publish an accurate cost-benefit assessment at the time of issuing an order to reverse pre-emptive action. At the stage of the market investigation where this measure would be issued, the CMA is unlikely to know the precise detail of the problems that it is trying to solve. Therefore, it would be difficult to assess what harm might be caused to consumers by any problems, which the CMA would need to know to determine the benefits of reversing the pre-emptive action.

Photo of David Mowat David Mowat Conservative, Warrington South

I am surprised by the amendment, which would make it more difficult to reverse a pre-emptive action, which puts something back to how it would have been. Is it not the case that if this amendment was agreed the cost-benefit analysis, which by its definition is somewhat judgmental, could be challenged and therefore stop the pre-emptive action being taken? The amendment would reduce competition and I think that it is wrong on this occasion.

Photo of Norman Lamb Norman Lamb The Parliamentary Under-Secretary of State for Business, Innovation and Skills

That was a fair and reasonable intervention, making a good point. The amendment would also slow the process down. If it has to go through a cost-benefit assessment, it is challengeable through judicial review. If a cost-benefit assessment has to be done before action is taken—that action might be necessary to protect the position and stop the parties doing something that is more difficult to undo—it will be, as my hon. Friend says, more difficult to exercise this important power.

Imposing such a requirement would add an additional and potentially time-consuming burden to the CMA, which needs to be able to act quickly to reverse pre-emptive action in such cases. If the CMA decides that it wants to issue interim measures, it would want to do so as soon as possible at the start of the process, to avoid a situation being created that would make it difficult to resolve any competition problems. The Opposition may reflect that imposing an additional hurdle by making it more difficult to use this important power would not be sensible.

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member)

Does the Minister have any plans to put right the previous injustices, where the big supermarkets have predatorily priced out bakers, fishmongers and others and then lifted their prices? Any potential entrant will fear that Tesco or whoever it is will come and do it again. Is there any strategy to right the previous wrongs?

Photo of Norman Lamb Norman Lamb The Parliamentary Under-Secretary of State for Business, Innovation and Skills

It is asking a bit much to reverse things that have happened in the past. We want to get a framework in place that deals effectively with problems that arise in the future to ensure that—we can learn lessons from where the regime was not effective enough in the past—it will be more effective in the future for genuine competition issues.

The requirement would also be costly for the CMA by requiring it to divert resources away from the primary task in hand: the market investigation itself. One of the Government’s key aims is to speed up the market investigation process. The amendment goes against that aim by requiring the CMA to allocate resources to the cost-benefit assessment in specific cases. It is worth noting that when the Competition Commission makes its conclusions from a market investigation, including deciding what remedies should be imposed, it undertakes an assessment to ensure the reasonableness and proportionality of the remedy at the end of the process. As part of the process, the Competition Commission assesses the costs and benefits of the remedies. There is more certainty at that point so it can do a proper and sensible exercise, whereas, at the earlier stage, when it is considering interim measures, it is making assumptions, which are difficult to make at that point in time.

I would expect the CMA to continue to act in the way in which the Competition Commission has done in the past and up until now. Therefore, there is no need to impose an additional requirement on the CMA, as this amendment proposes.

Photo of Geraint Davies Geraint Davies Parliamentary Assembly of the Council of Europe (Substitute Member) 5:15, 10 July 2012

I just wanted to know whether the Minister thought that it was reasonable for big multiple groups such as Sainsbury’s and Tesco to move into  small high street shops, use their economies of scale and actually push out convenience stores across the land. Is that a competitive thing, and are the Government going to do anything about it, or are they just going to sit back and let them take over everything?

Photo of Norman Lamb Norman Lamb The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I suspect that Mr Brady might intervene if I start to develop any further debate on that issue. [Interruption.] I am conscious that in all of our communities, such issues arise and cause considerable concern, but they have very little, if anything, to do with this particular amendment. Despite the encouragement of the hon. Member for Swansea West, we should remain focused and disciplined in the way in which we debate these clauses and amendments. I will resist the temptation to go any further and I encourage the shadow Minister to withdraw the amendment.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Innovation and Skills)

I thank the Minister for his clarifications. There is a balance to be found between speed and due process. I was somewhat surprised to hear the Minister apparently agree with the hon. Member for Warrington South that the effect of this amendment would be to reduce competition while, at the same time, also agreeing that public bodies, such as the CMA, must give detailed and quantitative consideration to the impact of the measures that they impose. The effect of this amendment would be to require the CMA to publish the internal assessment which, in my expectation and, I believe, the Minister’s expectation, it would be doing in any case. If it did not do such an internal assessment, it might find itself subject to judicial review. The imposition of any disproportionate measure by a public body could be a cause for concern.

Photo of David Mowat David Mowat Conservative, Warrington South

Let us suppose that I was a major multinational and I came in and started to merge with a smaller company in a way that gave the competition authorities an issue. Here I am doing this merger and I am putting in all the IT systems and all the rest of it in such a way that, if it carries on, I cannot go back to where I was. The CMA says, “Stop, and put it back as it was.” How should the CMA make a judgment of the cost of putting the IT systems back as they were? It is reasonable for it to say in this case that the multinational is out of order, and that the pre-emptive stuff needs to happen. I am really surprised to find that the Opposition are arguing against that process and putting hurdles in the way of it.

Photo of Chi Onwurah Chi Onwurah Shadow Minister (Business, Innovation and Skills)

I have made it clear that I am arguing in favour of having interim measures and transparency. If the CMA has no idea of the costs, even in order of magnitude in terms of assessing what the costs and benefits are, then it is not in a good position to impose those measures. It must have some idea of the costs involved. The second point is that publishing a cost-benefit analysis does not mean that it should not go ahead if the costs outweigh the benefits. It just shows that there has been significant and detailed consideration of the costs and benefits associated with the impact. I would have thought that Government Members would be clamouring to ensure that any public body assessed the impact it would have on businesses and the business environment as well as on the consumer.

Given the Minister’s assurances that the CMA will consider in detail the impact of its measures without the need for the amendment, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29ordered to stand part of the Bill.

Clauses 31 to 33 ordered to stand part of the Bill.

Schedule 13 agreed to.

Clauses 34 to 38 ordered to stand part of the Bill.