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Competition Act 1998 (Land Agreements Exclusion Revocation) Order 2010

Volume 719: debated on Wednesday 23 June 2010

Motion to Approve

Moved By

That the draft order laid before the House on 21 January be approved.

Relevant document: 8th Report, Session 2009-10, from the Joint Committee on Statutory Instruments

My Lords, the Government's position is that this exclusion order is no longer necessary or appropriate and that its revocation would benefit both UK consumers and businesses. Effective competition in markets promotes productivity, competitiveness and innovation. It ensures that consumers are offered the best products at the most competitive prices.

Chapter 1 of the Competition Act 1998 promotes competition by making it illegal for enterprises to agree to share markets, fix prices or restrict new players from entering markets. The law applies across all areas of the economy. At present, however, there is in place an exceptional exclusion for land agreements. That was introduced when the Competition Act first came into effect, mainly for practical reasons.

Before the introduction of the Competition Act 1998, land agreements were generally deemed not to be covered by competition law. The aim was to capture them under the new regime, but to avoid a situation where uncertainty about their legal position might prompt a large number of parties to submit agreements to the Office of Fair Trading for approval. The vast majority of land agreements would have raised no competition problems, and would have forced the OFT to commit resources to non-essential work instead of tackling genuine competition concerns.

To avoid this, the exclusion order deemed land agreements compatible with the Chapter 1 prohibition unless and until they were found not to be—at which point the benefit of the exclusion could be withdrawn. As the result of reforms made to competition law in 2004, this concern about a deluge of unnecessary notifications is no longer an issue.

Since 2004, parties to agreements may not seek prior approval of them from the OFT. Instead, and drawing on published OFT guidance, parties must carry out a self-assessment of agreements and satisfy themselves that they do not restrict competition. Assuming that an agreement has no such effect—and most do not—it is simply legal.

In these circumstances the Government see no practical reason to maintain the exclusion for land agreements, and there is no reason of principle why land agreements, in particular, should be excluded from the application of the Chapter 1 prohibition. As the Competition Commission made clear in its report on the groceries sector, land agreements are capable of restricting market entry and damaging competition. On the contrary, there is a real prospect that the continued existence of the exclusion order may encourage parties to land agreements to assume, wrongly, that they do not need to assess their impact on competition.

We want to remove any confusion or doubt about whether land agreements are subject to competition law, and to make it absolutely clear that the validity of such agreements can and will be challenged if they appear to involve a restriction of competition. At present, any land agreement found to restrict competition in markets must be amended accordingly. But removing the exclusion will mean that serious sanctions could be imposed if a land agreement is found to breach the Chapter 1 prohibition, as is already the case in respect of all other agreements. This would provide a strong incentive on parties to make sure that their agreements are compliant with the law, protecting consumers against anti-competitive conduct.

I know that some parties have expressed concern about the burdens associated with having to ensure that land agreements are compatible with the law. However, this is the same burden that applies to every other type of agreement. In reality, parties to land agreements should already have undertaken work to make certain that agreements are properly compatible with the Chapter 1 prohibition. The fact that some parties may not have done so demonstrates the value of bringing clarity to this area of the law.

To help businesses adjust, we are delaying implementation of the order’s revocation until 6 April 2011. The OFT will also provide updated guidance on how competition law applies to land agreements as a way of helping business respond to the change.

In conclusion, I simply reiterate that the purpose of the exclusion order was never to provide legal cover to agreements that restrict competition in markets. It was introduced for what were valid practical reasons but which no longer apply. It now makes sense to correct an unnecessary anomaly. Through consistent application of the law, we can better promote effective competition across our economy. On those grounds, I trust that noble Lords will agree to our recommendation and approve this order.

My Lords, on this occasion I find myself concurring with that superb analysis from the noble Baroness. I suppose that it is not surprising, given my previous association with my honourable friend in the other place, who was responsible for introducing this instrument.

My Lords, I commend the Minister and my noble friend Lord Young for their support for this proposal. It was pointed up by one reference to which the Minister referred, the Competition Commission report in 2008 that dealt with grocery retailing. We all know that there has been quite a lot of scandal and abuse in that field, with some supermarkets leaning on small farmers and other people in a way that has damaged competition and the interests of consumers. Exclusivity arrangements in a particular area can prevent the entry of competitors, and it is fortunate that this ruling today—if we approve the new order—will be dealt with effectively.

I draw attention to paragraph 9.1 of the Explanatory Note, which says:

“Following the Order’s revocation, there may be increased demand for OFT advice to parties about the compatibility of land agreements with competition law”.

The Minister has explained that the OFT is going to produce revised guidelines and that time is to be given so that the order does not become immediately effective and those who have not done their homework will still have time to do it. I am all in favour of that, but I would like an assurance from the Minister that the OFT has got and will be allowed to have adequate resources, which will not be cut, to deal with what may be quite a lot of requests for advice. After all, one should remember that many parties to agreements that will now be unlawful because they are anti-competitive may be small parties. They will not have their own legal departments that they can lean upon and from which they can immediately get a response. They will have to go elsewhere, to a trade association or a private lawyer. I suggest that very often the obvious place to go to will be the OFT. Can the Minister assure me that they can do that particular job?

My Lords, I thank noble Lords for their contributions to this debate. I thank the noble Lord, Lord Young, who I hoped would give his support, as this is after all his work. The knowledge that the noble Lord, Lord Borrie—the previous director-general at the Office of Fair Trading—will be here always sends a shiver through me, because I always know that he is going to ask me a question that I cannot answer. In this case, his points are valid. Yes, we are allowing more time and, yes, the OFT will be helping and guiding. I assume that it will be able to do that within the range of funds available to it, and I am sure that the noble Lord will be the first to complain if objections arise because it has not been able to respond. I hope that that is not the case.

The noble Lord makes the case that many of these parties will be small ones that will need help and advice, and will have to turn to outside advice since they will not have in-house lawyers. I hope that I can reassure him on this point. If there is anything more that I should have said to him, I shall receive advice from the Box and write to him to confirm.

I hope that we are happy to continue with this order, which will remove the doubt that land agreements in line with other agreements must be properly assessed to ensure that they do not restrict competition. The Government’s purpose is to provide for consistent application of the law and to promote effective competition in markets, helping to deliver value and quality for consumers while boosting productivity and efficiency for business. By delaying the effect of the revocation until next April, we are giving parties sufficient time to review their existing and future agreements in line with the OFT’s latest guidance. They will also have the breathing space to make any necessary adjustments to comply with the law. I commend the order to the House.

Motion agreed.