Committee (5th Day)
My Lords, if there is a Division in the House, the Committee will adjourn for 10 minutes.
I would like to detain the Committee briefly on a point of clarification that arose out of last week’s proceedings. Grand Committee Hansard for last week states:
“The creation of the CMA has also been welcomed by business groups and practitioners, including the CBI, the Federation of Small Businesses, the Institute of Directors, the Forum of Private Business and the City of London Law Society”.—[Official Report, 12/12/12; col. GC 335.]
The Committee will remember that we were debating the creation of the CMA under Clause 20. In col. 338, my noble friend Lord Razzall said that,
“all the major business organisations and the Law Society are in favour of this recommendation”.—[Official Report, 12/12/12; col. GC 338.]
That did not tally with my memory of the Government's response to the consultation on this matter.
Paragraph 317 of the consultation, which was admittedly published some time ago, states:
“A number of respondents expressed stronger concerns about the creation of the CMA and did not support it. Notably, the City of London Law Society and the Joint Working Party of the Bars and Law Societies of the UK on Competition Law (‘Joint Working Party’), echoed by many individual law firms in their responses, considered the proposed CMA to involve some real disadvantages that outweigh the potential efficiency benefits”.
So the government document published in March said in terms that neither the City of London Law Society nor the Law Society, which are two completely different organisations, supported the creation of the CMA.
Now I recognise that they may have changed their minds. When three Front Benches agree something it seems to become inevitable and in true British style they decided to make the best of it. But at that time it is quite clear that they did not agree.
I have gone over the ground with the Law Society. I confess that my impression is that it has not changed its mind. It repeats that,
“the merger is not expected to achieve any material cost savings; and, although there is potential for a single CMA to deliver efficiencies of the kind mentioned in the Consultation Paper, the [Joint Working Party] is very doubtful about the scale of such benefits. More importantly, the [Joint Working Party] sees a real risk that the benefits of the merger will in practice be more than outweighed by the loss of the benefits of independent decision-making by separate organisations”.
The Law Society ends by saying:
“The scale of these risks is such that the [Joint Working Party] is not persuaded of the case for a single CMA”.
As the whole burden of my own argument was that we were running into trouble with the legal profession if we created the CMA on a single-institution basis, it was quite important to clarify where these two important organisations now stand.
My Lords, as my noble friend said, we did not actually mention the Law Society, but he has responded with a statement from the Law Society. We mentioned the City of London Law Society, which, as he said, is a totally separate body. I quote from a statement made by Mr Robert Bell, the chairman, on 21 June 2012. The CMA,
“will help competition policy be more cohesive, and it will help streamline the regulatory process, which, in turn, will provide efficiencies and boost business confidence in the rigour of the competition system in this country”.
He also said:
“There are benefits to be gained. On the merger of the CC and the OFT, we do not really have a very strong position, but we are pleased to see in the Bill that the checks and balances between first-stage and second-stage merger investigations and market investigations have been retained. There is potential to streamline the regulatory process and make it faster”.
I am very content with that statement. It is unequivocal, and it is just one example, which was used by my noble friend on a previous day in Committee, of a number of institutions that supported it. I hope that that clarifies the position.
I thank my noble friend for that clarification.
My Lords, there is no question before the Committee so we cannot have a debate. I call Amendment 24C.
Schedule 5 : Amendments related to Part 3
24C: Schedule 5, page 115, line 19, at end insert “, and
(b) for “Commission” substitute “CMA”.
Thank you, Deputy Chairman. This is a government amendment. First, I would like to put on record my thanks to the officials. Not only have we had a confetti of amendments to deal with on this Bill but, late last night, they were all changed into different groupings. That has meant a huge amount of work for them but they have done it with good cheer. It has been difficult not only for them but for the rest of us. However, we shall press on as hard as we can. We have only 23 amendments to get through today so let us hope that we can do it. I am sure that people want to go home tonight for Christmas.
These government amendments are minor amendments. They are quite technical, which rules me out of the equation pretty early on, but they are consistent with what is intended. I hope that they will find favour with the Opposition and other Peers. I beg to move.
My Lords, we have very few comments to make on the substantive point in the amendments before us. We accept the drafting; it is very appropriate. On Amendment 25A, which is included in the group but was not specifically spoken to by the noble Lord, I simply note that this matter will come up later on in discussions. Although I have no comments to make at this stage, that does not mean that we will not wish to raise one or two points later. I agree that the rest of the amendments are technical.
I apologise for the slightly odd grouping of Amendment 26AD. It is not in my name but I shall speak to it—which will confuse matters even further.
Is the noble Baroness, Lady Hayter, already on her Christmas holiday?
She certainly is not. She is working hard on other matters elsewhere, to which I will need to repair. That is why I asked if we could group the amendments rather oddly, although I think they work in the scheme of things. I shall speak to them briefly at this point.
The point of concurrency, which is raised in these substantive amendments, raises an issue in relation to the way that the new architecture which has been proposed will operate. Clearly we take a view, which I think is common around your Lordships’ House, that functioning competition and certainty are the two single most important conditions that markets require to sustain investment and drive innovation. Those conditions are best aided by clear, robust and agile competition regimes. That condition is most required in fast-moving sectors, such as telecommunications, where the market is in a state of constant, relentless evolution.
The recent experience of competition oversight of one section of the telecommunications market—the pay TV market—highlights two critical failings that the Bill must address: the slow-moving pace of investigations and the confusion that might be caused by differing outcomes between sectoral and competition authorities. Although it is right that the CMA should be the ultimate protector of the basic principles of competition law, surely it cannot do so effectively in isolation from market developments and, in particular, from advice that may be available within the sectoral regulators.
In my remarks I want to refer to recent investigations of the pay TV market in considering questions of pace and lack of collaboration. I recognise that some of my remarks will delve deep into regulatory matters and it may be appropriate for the Minister, even although he has taken an extended Christmas break, to respond to me in writing if he wishes to go into some of the points that I am going to make.
On slow pace, UK consumers have enjoyed more than a decade and a half of investigation into competition in the content/pay TV market by Ofcom, the Competition Commission, the Office of Fair Trading and the European Commission. Inevitably, much effort has been duplicated. Nevertheless issues in the market have been identified and yet no lasting remedies have been proposed to tackle a consumer harm that the Competition Commission had initially estimated cost consumers £50 million to £60 million per year in inflated prices for premium content.
Inconsistency, or lack of collaboration, is the other point I want to make. In August 2012, just a week apart, both the Competition Commission and the Competition Appeal Tribunal reached completely inconsistent and contradictory conclusions on two aspects of the state of the pay TV market. On 2 August 2012, the Competition Commission concluded that Sky has market power and that competition in the pay TV retail market is “ineffective”. On 8 August 2012, the Competition Appeals Tribunal issued a completely different view to both the Competition Commission and previous Ofcom statements, concluding that there were no substantive competitive concerns regarding Sky’s supply of premium sports channels.
Surely what we need is for the different layers of a regulatory regime to work together in the best interests of the consumer. This amendment seeks to ensure that the CMA acts in co-operation with sectoral regulators when exercising its competition powers to share information; undertake joint working, investigation and, if needed, remedies; and to keep the performance of each sectoral regulator against its competition powers under periodic review.
The CMA should provide the central core of expertise in these cases. It should have primary responsibility for conducting the full competition investigation and ultimately should take the decision on all aspects in competition cases. A reformed and strengthened competition authority acting within the parameters of competition law is best placed to objectively apply competition principles consistently across all sectors.
However, it cannot effectively judge the competitive conditions of a given market in isolation from the sectoral experts. So we believe that the sectoral regulator is best placed to make the initial assessment as to whether competition concerns may potentially arise in a given scenario. In recent history—certainly where the pay TV market is concerned—that stage of the process has taken far too long.
In addition, there should be a renewed emphasis placed on sectoral regulators to reach a speedy judgment on whether referral to the CMA for full market investigation is indeed warranted. But the role of any sectoral regulator should not stop at speedy referral. Rather, it is vital that it also provides a supportive and advisory role to the CMA, imparting knowledge and experience in the sector which the CMA would take into account as appropriate, and where appropriate taking a central role in considering any remedies that might be required.
I apologise; I should have dealt with this amendment in the same grouping. Clause 45, as was rightly said, will bolster concurrency by giving the CMA stronger powers to co-ordinate Competition Act enforcement work and giving regulators explicit duties to consider using the Competition Act. Amendment 26AD is intended to add to these arrangements to make sector regulators make an early decision on whether to refer a matter to the CMA for an in-depth investigation. It would also allow the regulators to take exclusive responsibility themselves for remedying a problem in a market.
I do not believe that this amendment is necessary. First, it is the Government’s intention that new timeframes for market processes will apply to sector regulators. This will be effected by subordinate legislation later in the year under this Bill. Therefore we recognise the need for a timeframe—but we will get to that, as I said, with subordinate legislation.
Secondly, there are existing provisions in the relevant sector legislation which prevent duplicate market investigations by the relevant regulators and the CMA. Furthermore, the CMA in looking at a market should be able to consider whether action by a regulator is impeding competition. Amendment 26AD therefore is not appropriate and I would ask the noble Lord to withdraw it.
Amendment 24C agreed.
Amendments 24D and 24E
24D: Schedule 5, page 115, line 22, leave out sub-paragraph (5)
24E: Schedule 5, page 119, line 8, at end insert—
“( ) In subsection (1), in the words before paragraph (a), for “Commission” substitute “CMA”.
Amendments 24D and 24E agreed.
Schedule 5, as amended, agreed.
Schedule 6 agreed.
Clause 22 : Transfer schemes
Amendments 24F to 24J not moved.
Clause 22 agreed.
24K: After Clause 22, insert the following new Clause—
“Powers to reverse transfers
(1) Where regulations are made under section 22(4A) to transfer consumer functions, duties and responsibilities to other statutory bodies or to non-statutory bodies, those regulations shall also stipulate powers to require the return of those functions either to the CMA or to the Secretary of State, subject to subsections (2) and (3).
(2) Those regulations shall also require the Secretary of State to carry out at least every five years a review of any transfer to other bodies under section 22(4A) as to whether those functions, duties and responsibilities have been carried out effectively by the transferee body; and that the transferee body and other relevant parties will be consulted over such a review.
(3) A negative finding from such a review under subsection (2) will be necessary before the Secretary of State uses the powers to reverse a transfer under subsection (1).”
My Lords, we return to the issue that I raised in the Minister’s absence during our last session, on what exactly is happening to the functions and duties of the OFT which are not being subsumed within the CMA. I apologise to the noble Viscount, Lord Younger, that I had not seen his letter of 12 December when we debated it last time. Included with that letter was a draft order under the Public Bodies Act; reading that and its Explanatory Notes, I have to put Ministers on notice that when that comes before the House I shall object to a large range of its areas. It includes not only the abolition of various bits of consumer regulation and protection but the movement of functions from the OFT, and therefore the CMA, to the trading standards operation on the one hand and to Citizens Advice on the other.
That movement, which we debated briefly last time, includes the move of responsibilities to organisations that are not mentioned in statute, although some of them are mentioned in the draft order. This relates to the slightly shadowy national trading standards body and another body, which I think is called SIPEP. I forget what that stands for exactly, but it is another body that will absorb what were previously statutory duties of the OFT. We have debated that move but this amendment would provide for the ability of a future Secretary of State to reverse that devolution at any point.
While I have great admiration for Citizens Advice and for the trading standards organisation—indeed, I am a vice-president thereof—there is some doubt as to whether they will be able to cope. For example, will trading standards cope with a whole range of scam-busting or code-forming operations which were previously done or overseen by the OFT? Concerning Citizens Advice, while there are some functions of Consumer Focus and some of the OFT with which it will be able to cope in its present structure, on others there is some doubt whether Citizens Advice will have sufficient resources and expertise to conduct them. However, I strongly support the transfer of Consumer Direct from the OFT to Citizens Advice.
I wish Citizens Advice well with its new responsibilities but there has to be a reserve power somewhere here to reverse that decision. As far as I can see in this Bill, and as far as I read the order, there is no power to reverse those decisions. My amendment would provide for that power. It is one that I hope would not need to be used, because we will have to settle down with the consequences of earlier decisions. However, if it is needed it ought to be in the Bill and I therefore beg to move this amendment.
My Lords, I recognise the amendment and I have just handed the noble Lord, Lord Whitty, a letter that was written to him. I am sorry that he has not been able to see it or that it did not arrive on time, but I hope that it deals with a number of issues raised earlier in the debate which run concurrently. As he will see, that is a copy; there is one out there for him.
A number of these elements have already been debated; they have had a good airing. In addition, to remind and inform, the Government understand that the consumer regime landscape needs reviewing. We have committed to do that in 2018, so we have a long-stop position if the system is not operating. We believe that reversing the generic powers of the Secretary of State would be wrong, because it would create fundamental uncertainty for consumers. It is important in all this that the consumer understands the direction of travel and where it is coming from. As I said, we will be reviewing the landscape in 2018, which gives us a long-stop position if we all agree that the system is not working, but we believe that it will. On that basis, I hope that the noble Lord will withdraw his amendment.
My Lords, I certainly hope that when everything settles down, it will all work, but it is interesting that on other matters which the Government are changing, they are providing accounts reviews, reversals, sunset clauses, or whatever. It seems odd that they do not do so in this case. I hope that the Government will keep that under review. It may eventually need to be covered in the order or some parallel order if it is not in the primary legislation but, for today, I beg leave to withdraw the amendment.
Amendment 24K withdrawn.
24L: Before Clause 23, insert the following new Clause—
(1) Section 22 of the Enterprise Act 2002 (“the 2002 Act”), (duty to make references in relation to completed mergers) is amended as follows.
(2) After subsection (1) insert—
“(1A) When considering whether or not a situation results in a substantial lessening of competition for the purposes of subsection (1) above, the CMA shall take into account—
(a) the long term ability of the merged entity to compete effectively; and(b) the likely long term effect on consumers.””
My Lords, I shall speak also to Amendment 24M. Amendment 24L deals with what issues the CMA will have to take into account when dealing with completed mergers. The principle should also apply to prospective mergers. When asking whether competition is lessened, as the clauses refer to, we need to consider why we want competition to be maintained or increased. Competition is not, in my view, an end in itself; it is about the efficiency of the newly created entity, its ability to compete—globally, in some instances—and whether it is in the long-term interests of consumers. In the vast majority of cases, the long-term interests of consumers are served by more competition rather than less. Therefore, lessening competition can be, and usually is, a detriment to consumers, but there are instances where that is not the case. Not all competition results in benefits to consumers.
Mergers can often reduce competition but sometimes manage to increase customer service and improve the way in which customers regard the supplier of the product or service. Unravelling mergers, particularly completed mergers, could, on occasion, result in less customer service. Hence, as well as a straightforward metric on what share of the market is covered by an already completed merger, we need to assess what the future of the new entity will be in terms of its long-term global competitiveness, which may not be relevant in all markets, but will be relevant in quite a few, and, in all markets, what is the effect on long-term consumer benefit of detriment. That needs to be written into the Bill. It should not be just a question of the metric of market share.
Amendment 24M also deals with consumer interests. Clause 23 deals with the investigative powers of the CMA. It includes provisions which are three and a half pages long but do not mention consumers once. Clause 23(2) deals with permitted purposes—that is, on what grounds investigations can take place. The amendment simply suggests that one of those permitted purposes ought to be in order to investigate situations when the CMA gets complaints or references from consumer organisations, specifically from those organisations which are designated as having super-complaint powers—that is, they can bring a worked-up super-complaint under present legislation to the OFT or the Competition Commission.
Designated bodies include Which?. They also include Citizens Advice and for the time being Consumer Focus. We will argue separately for a role for small businesses. A super-complaint has to be investigated. To get to that stage the consumer organisations must have a fully worked-out case. There are a number of cases that the OFT has looked into. I have a list here, which includes the supply of beer in UK pubs. Apparently CAMRA is a designated consumer organisation, which I had forgotten and am gratified to hear. We brought in a case when I was chair of the National Consumer Council and Consumer Focus on home credit. Citizens Advice first raised payment protection insurance, which is now a huge consumer issue, with its knock-on effect on other areas of consumer detriment yet to be completely resolved. There are a large number of super-complaints that have been considered over the last five years or so.
Consumer organisations also receive information about things that do not really amount to a super-complaint, or that would take too long, or that are too complex to turn into a super-complaint. At the moment the Bill covers neither the situation with super-complaints leading to an investigation nor complaints raised by designated consumer organisations that are short of a super-complaint. Amendment 24M deals with that situation. It deals with it under the mergers section and should also logically apply to the markets situation. These two amendments would embed more reference to consumers and the way in which consumers and consumer organisations can get into this competition system. I beg to move.
I support my noble friend Lord Whitty. He and the Minister, no doubt, will recall that when the Bill was going through the other place the then Minister, Mr Norman Lamb—I think that he now has a different post—got into a lot of discussion, because many people were concerned that the only interest of the consumer that was being expressed or mentioned was the consumer’s short-term interest. You can find references in Hansard, when this was being discussed in the other place, where the Minister emphasised more than once that we must be especially interested in the long-term interests of the consumer. These amendments are concerned with that.
Clearly you can have a merger which, in the short-term interest of the consumer, would seem to be a bad thing. A merger can lead to less competition when a company, rather than battling with other companies in the same field, is no longer inhibited by the competition from the company with which it is merging. We and the relevant regulatory bodies, especially the CMA, need to be concerned with the long-term interest. That is what matters in the long run. What immediately occurs this year or next year may be very unimportant compared with what it leads to. We want to know what are the long-term interest and benefit, or the disbenefit, to the consumer. That is what will count in the long run.
My Lords, I am much taken with the words of the noble Lord, Lord Whitty, which were underlined by the noble Lord, Lord Borrie. The three categories that the noble Lord, Lord Whitty, mentions—efficiency, global leadership and the long-term interest of consumers, which was amplified by the noble Lord, Lord Borrie—are fundamental to everything that we are trying to do. I am glad that they have been so accurately and succinctly encapsulated by the noble Lords opposite.
We have to remember that the CMA is an expert in competition and in these issues. We must also remember, although I am the wrong person to preach this, that competition law is based on the principle of improving consumer welfare. I firmly believe that the CMA—through its, some would say, very narrow area of activity, which is focusing on competition—will put at the front of its list improving consumer welfare, efficiency and things like that. There will be two phases, as we know. First it will go to the OFT and then to the CMA, so it will have been looked at twice. We will debate later, if we may, the super-complaints system and how that operates—an issue to which the noble Lord, Lord Whitty, made reference.
I turn to Amendment 24M. The CMA will be able to use its powers of assessment for any merger, and that is exactly what it should be doing; it will look at it from top to bottom. It is provided with these information-gathering powers, which will apply end to end for the whole process of a merger. Again, we have that base covered. I reiterate that I am glad that the noble Lord and I are singing from the same hymn sheet in our belief that efficiency, global leadership and the value of the long-term interests of the consumer are fundamental. I invite the noble Lord to withdraw his amendment.
My Lords, I did not understand the beginning of the Minister’s helpful reply because it seemed to refer to the OFT and then the CMA. I shall come to the issue of the complexity of the internal two-stage process at a later amendment—
Sorry, I should clarify that the CMA has both phases. Currently it has the OFT and the CMA as we phase in that policy.
I am grateful to the Minister for that, as well as for saying that he completely recognises the need for the long-term consumer interest to be understood in these investigations. If he could delete “understood” and say “written in”, I would be at one with him, but we shall see what happens at later stages. For the moment, I beg leave to withdraw the amendment.
Amendment 24L withdrawn.
Clause 23 : Investigation powers: mergers
Amendment 24M not moved.
Clause 23 agreed.
24N: After Clause 23, insert the following new Clause—
“Mergers in the regulated financial services sectors
In respect of mergers or proposed mergers in the regulated financial services sectors, the criteria for thresholds shall be more than 25% of a defined market of any financial service sector or more than 15% of two or more markets where the merger or proposed merger cover more than one financial market.”
My Lords, the body politic has suffered over the past few years from two major crises—a dreadful economic crisis as a result of problems in the financial sector and a major political crisis, which is about to be debated down the hall, on the media side. The amendment suggests that there have to be special considerations in the operation of the new CMA in relation to both these areas. This is a probing amendment to see whether the Government agree that one needs to look at those two sectors in a rather different way—particularly, in this regard, the financial sector.
This issue is complicated by the fact that the Financial Services Bill does not yet have Her Majesty’s signature on it, as well as by the fact that the FCA, as it will be, will not have exactly the same kind of concurrent powers as some of the other sector regulators. There will be some powers in the Bank of England and in the proposed PRA, as well as in the FCA. Well, good luck with all that; the Government seem to be replacing a much reviled tripartite system of regulation of the financial sector with a quintipartite one, and we will see how that works out. One of the factors in that, though, must be the CMA.
The complexity in the financial sector, with ever-increasing interrelations between the different parts of that sector both locally and nationally—plus we are waiting for a banking Bill shortly, and other provisions are coming out of the banking commission—means that there is turmoil in what we believe ought to be the structure of the financial sector. Do we believe in Glass-Steagall or in, as the EU Commission requires lawyers to do, selling off some outlets in order to provide more choice? How does this fit with a general duty on the CMA to look at the structure of, among other things, the financial system? Following the financial crisis—admittedly things could have changed a little since then—we had about 40% of retail banking and about 30% of the mortgage provisions in one place. That seems to be a market situation that deserves investigation. Indeed, I recall telling the previous Government that at the time. However, it is something that has not been completely and definitively tackled and it will fall in part, at least, in the CMA’s lap.
I do not expect the Government to accept the wording of this amendment, but it indicates that we will need to have some threshold provisions that probably need to be different. It may be in the area of the structure of the financial markets. We need to know which markets, how we define them and who does it—the CMA, the FCA or both?
Although I do not expect the Minister to accept the amendment, I do expect the Government to recognise that whatever happens, the CMA will have to give particular priority to the financial sector and will almost certainly need to have different criteria in relation to that sector than elsewhere, if only for global and political reasons. I beg to move.
I am sorry that telling the previous Government fell on deaf ears. I fear that it might do the same as regards this Government, as the noble Lord has already recognised. We all recognise what the noble Lord is saying. Incredible hardship has been caused to our great country and we must make sure that it does not happen again. I believe that the OFT and CMA will inherit these powers. There is a governor in place with two criteria. One is that if the target’s turnover is greater than £70 million, the merger can be investigated and/or if the combined share of supply or acquisition of particular goods and services of the companies is 25% or more, that is known as the share supply threshold, which can also be investigated.
There are some pretty low thresholds in place which would capture the excellent examples given by the noble Lord, particularly in the mortgage market. These have to be applied rigorously. I hope that, as we debate the Bill, more will come out on the important issues that he raises. On that basis, I hope that he will withdraw his amendment.
I thank the Minister for that. We may well return to the issue, but for now I beg leave to withdraw the amendment.
Amendment 24N withdrawn.
Clause 24 : Interim measures: pre-emptive action: mergers
24P: Clause 24, page 19, line 23, at end insert—
“( ) The provisions of section 23 relating to mergers and prospective mergers in the media and financial services sectors shall also apply to the provisions in this section on interim measures.”
My Lords, we now move on to the other contentious sector: the media, and in particular the media sector dealing with news provision.
Amendment 24P simply argues that any special provision in the financial and media sectors needs to be reflected in the interim provisions as well as the basic provisions. In one sense, I will say no more about that because there will be a consequential amendment if the Minister agrees. The key amendment in this group is Amendment 25EA. When it comes to the media, particularly the news media, much wider issues are relevant with regard to market structure than those of size, market share, abuse of market power or unfair trading.
It will not have escaped the Committee’s attention that over the past few months there has been considerable attention on this area, with a fair amount of debate on the role of newspapers and media ownership over our national life and a huge range of aspects of public interest. As I said before, a rather oversubscribed debate will take place in the Chamber shortly. We will no doubt return to this issue. But most of that debate is not concerned about the issues relevant to this Committee and Bill. It is concerned with issues of press’s behaviour, privacy, the freedom of the press, possible regulation as against state control and so forth. That has nothing to do with what I am talking about here.
The issue that lies behind these debates—I will not be pontificating on it today as I cannot speak in the Chamber at the same time as I am speaking here, although I see that my noble friend Lord Stevenson is able to do so, if he is able to speak at all—and the reason why the press has been in its own headlines for so long, relates to the structure of the market and the structure of ownership. I am gingerly stepping into that debate today; I fear that we will almost certainly return to it.
A truly free press requires diversity of opinion, and that requires plurality of ownership. I am not one of those who thinks that the Murdoch empire is uniquely evil or that its journalists are uniquely scurrilous or unscrupulous, although one or two of them seem to be pitching for that title. The issue is that it is uniquely powerful and dominant in market terms. That is an issue for the Bill, where the issue of state regulation is not the same as is being debated in the Chamber, because there has always been regulation in the Competition Acts, the Enterprise Acts and the Communications Acts of the structure of the media sector, as of others.
Lord Justice Leveson looked at that and made eight recommendations right at the back of his report which have received very little attention but are relevant to the Bill. Towards the end of the Statement on Leveson, I asked the noble Lord, Lord McNally, whether the Government will take advantage of the Bill, going through the House as it is, to add to it provisions implementing those relatively uncontroversial recommendations of Leveson. As I said, that is nothing to do with state control or a free press but concerns plurality and competition.
In his response, the noble Lord did not say no. He said that it was above his pay grade. The noble Lord, Lord Strathclyde, was sitting next to him, so apparently it was above his pay grade as well. I suspect, with regret, that it is beyond the pay grade of the noble Lord, Lord Marland. It cannot be beyond everybody’s pay grade. Those eight paragraphs at the back of the summary of Leveson are bang in this area. They focus on plurality, how you measure it, the need to cover related sectors such as the internet as well as the press, the need, as we discussed in relation to the financial sector, for a different threshold of intervention, the role of Ofcom, periodic reviews, public interest, and so on, and the role of the Secretary of State.
Those are areas of interest to which the competition authorities will eventually have to pay attention. Unless the Government consider that the structure of the news media requires entirely separate legislation on the market structure front, which I think would be a dangerous road for them to go down, it is relatively easy for them to consider it in the context of the Bill. I would rather advise them to do so.
My Amendment 25EA concerns the least controversial, I think, of the Leveson recommendations. We could have come up with a whole lot of amendments attempting to implement them all, but I think that that is the Government’s responsibility. The ball lies in the Government’s court on this. They have said that they accept all but the contentious dimensions of Leveson. They have not objected to these provisions. My amendment simply states that, before any intervention by the Secretary of State, there has to be consultation on media issues. That is uncontentious in itself but, put into the wider context, it provides a base for some intervention in this area.
Whoever it is—at whatever pay grade—who decides these things, there needs to be an early decision on whether we are going to use the Bill to implement the plurality recommendations. I think it would be easier for the Government to do it in the Bill and I rather advise them to do so. I am sure that the Minister cannot tell us today the answer to that, but if not today, then by Report—which will be towards the end of January, at the earliest—we should know which way we are going. That will mean providing either significant amendments to this part of the Bill or a clear indication of an alternative approach. The delay, buck-passing, and so on, cannot go on that long. I do not expect much from the Minister today, he will be gratified to hear, but I do expect the Government to come back on this one and I am putting the ball clearly in their court. I beg to move.
I thought that that was a brilliant speech by the noble Lord, Lord Whitty—
If the Minister would care to allow some other speakers—
I am sorry.
My noble friend Lord Whitty has made a most useful point. There is no doubt at all that this Bill, and this part of the Bill, is a convenient vehicle. Governments often look for convenient vehicles to do things that they have already decided to deal with. In this case that may not be so, but I suggest that if it seems convenient to the noble Lord, Lord Whitty, I have no doubt that it will seem convenient to some members of the Government.
I think that what we on this side of the Committee this afternoon are saying is that we are not worried about particular words in an amendment, and we are not expecting the Minister to accept these particular amendments. However, we are expecting the Minister to take this back to his people with higher pay rates than he has, and indeed to the Ministry of Justice and all the other departments that are probably interested in this subject, because plurality of the media is vitally important. It is a public interest concept beyond competition. It is subsidiary to competition, in a sense. We want competition because we want plurality. We want plurality because we want diversity of opinions throughout the industry. The Bill is a convenient opportunity to deal with an aspect of Leveson which, I am sure, is not the most controversial at all—but it happens to be with us, and it happens to be on the Government’s agenda. There also happens to be a Report stage and a Third Reading at which he can take this further.
My Lords, knowing the nature of this Government and the fact that not everyone in it is paid, I wonder whether before my noble friend the Minister gets up, he could tell us whether he has a pay grade at all. If he does not then, quite clearly, he has an all-inclusive alibi against anything which is said to him from the opposite side.
As I was about to say before I so rudely interrupted the speech of the noble Lord, Lord Borrie, for which I apologise, I thought that the noble Lord, Lord Whitty, made a brilliant speech. If he wants to go into the Chamber I will do a deal with him: he can dump the rest of his amendments and he is very welcome to go.
My Lords, there is a Division in the Chamber. The Committee will be adjourned for 10 minutes.
Sitting suspended for a Division in the House.
I will rewind the clock, my Lords. This has been a brilliant debate and I do urge the noble Lord, Lord Whitty, to consider my offer of going next door and withdrawing the amendments. The offer is still open. The noble Lord, Lord Brooke, mentioned pay grades. I know exactly whose pay grade this is in. Certainly it is not in mine, because I am in the unpaid grade—voluntarily, I hasten to add, although most people would think that it was by necessity rather than by volunteering. This is in the pay grade of the Prime Minister. He will look at all this. There is a lot of aerial warfare going on at the moment—discussion which appropriately should be fully aired and debated. We have, obviously, notified DCMS of the noble Lord’s considerations of this recommendation, and it is considering them. It will consider them in the round in view of the overall Leveson position, and then that will rise like cream to the top to the Prime Minister for him to decide. As the noble Lord rightly says, we will doubtless revisit this. Indeed, more importantly, we should revisit it. On that basis, I hope that the noble Lord will withdraw his amendment.
My Lords, I am grateful to the noble Lord for his remarks. When the cream eventually reaches the Prime Minister I hope at least a footnote on this debate is enclosed.
This is a bigger and in some senses, a wider issue, but it is also an issue that is very relevant to this Bill. It is one that we need to get a decision on relatively early. There has been some move to all-party discussions on the other side of Leveson. If there is legislation to be proposed, in whatever form, it will have to include this. I would hope that we can come through this very difficult crisis with the news media with a cross-party agreement on how we should proceed. I hope that what little we can do here will help that. In the mean time, I beg leave to withdraw the amendment.
Amendment 24P withdrawn.
Clause 24 agreed.
Schedule 7 agreed.
Clause 25: Interim measures: financial penalties: mergers
24PA: Clause 25, page 20, leave out lines 20 to 25
My Lords, I want to probe the Government’s attitude towards penalties in this part of the Bill. My amendment would take out an order-making power which is there by virtue of an amendment to Section 94 of the 2002 Act. There is already, of course, a power to settle turnover and to levy damages. That power comes from Section 28(2) of the 2002 Act. Indeed a statutory instrument was laid in 2003—the Enterprise Act 2002 (Merger Fees and Determination of Turnover) Order 2003.
Why do we need a new power and why do we need the new power to run in parallel with the old power? The Government state in their submission to the Delegated Powers and Regulatory Reform Committee:
“This new penalty will run in parallel with the existing civil enforcement mechanism for failure to comply with interim measures under section 94 such that a person could potentially be liable to damages under Section 94 and a financial penalty under clause 25.”
Some explanation is needed of the Government’s approach to penalties in this part of the Bill. In following a policy of simplifying and deregulating things, and creating more certainty for business, it could be argued that this overlap between two penalty regimes is going in the opposite direction. In thinking about that, I would be interested to know from my noble friend, what has been the experience under Section 28(2) and the statutory instrument which flowed from it. Are we absolutely sure that we need both? I beg to move.
My Lords, I am grateful to my noble friend for raising this complex issue. In terms of the methodology, I undertake to look at it in some detail. This will come along in secondary legislation, once we have had a chance to look at it, because it is not a straightforward matter. We are applying rules in terms of financial turnover and in terms of percentage of the market. We then need to know how to enforce the penalties. Clause 25 provides the CMA with the power to impose a fine of up to 5% of the worldwide turnover. That is the effect of the clause that we have created. It is complex and my noble friend has drawn our attention to it. We will look at it in secondary legislation rather than having something in the Bill. I hope that that will encourage my noble friend to withdraw his amendment.
I am grateful to my noble friend for that reply. It probably needs to be looked at because it seems to me that here we have some sort of tightening of the screw. If you believe in tightening the screws—frankly, I do not—and you believe in civil sanctions and administrative fining, which I find a difficult subject, one has to justify why one is hardening up the regime. I do not have up-to-date information so I do not know whether any damages have been levied under the existing statutory instrument. If there have not been any, which seems quite likely, it is even more important that this hardening of the position be justified. I beg leave to withdraw the amendment.
Amendment 24PA withdrawn.
Clause 25 agreed.
Clause 26: Time-limits etc: mergers
24Q: Clause 26, page 21, line 39, at end insert—
“(3) Subject to the time limits set out in Schedule 8, the Board of the CMA shall make procedural arrangement for the operation of investigations and references conducted by the CMA.”
My Lords, these amendments have been tabled simply to raise the issue. The Government may well have a different solution. They all relate to the incredibly detailed provisions in Schedule 8 for the procedures and time limits of how the CMA should carry out its business. We have nine pages of procedures set down in the schedule. I think it is a lawyer’s paradise and a regulator’s nightmare. These amendments suggest different ways in which we can simplify them, while at the same time remaining bomb-proofed to judicial review and so on.
Some of the problem stems simply from the amalgamation of the two bodies and having to preserve two stages of the investigation. Consequently, there will have to be ring-fences, Chinese walls and, for all I know, barbed wire and high hedges, but it does not need to be as complicated as this. Is setting it out in statute, in a complex and incomprehensible schedule, the best way to deal with it? My noble friend Lady Hayter mentioned the other day that it might be better to leave the board of the CMA to sort out in detail what the procedures should be, like most regulators and most organisations. The role of the board could be separated from the role of the investigators, as other regulators, such as the pensions’ regulator, do.
These amendments are tabled to give us a brief debate on the issue. They offer a number of alternatives. Amendment 24Q would make it clear that the board can set its own procedures, subject to the time limits. Amendments 25ZA, 25ZB and 25ZC would delete those paragraphs of Schedule 8 that relate to procedures and just leave the time limits. The Question that Schedule 8 stand part could delete the whole of that schedule and leave everything to the board. There are probably other options.
The Minister’s amendment was a tiny snip. We need wholesale pruning of this schedule, but it does not appear to be on offer. I seriously suggest that, if we leave it like this, the CMA will get caught up in procedural challenges and threats of judicial review. Every corporate lawyer in the land will be looking at this and ensuring that they follow every dot and comma of it. I think that the Government would be wiser to prune it and leave much more to the CMA board to sort out for itself. I beg to move.
My Lords, I am very grateful to the noble Lord, Lord Whitty, because his contribution means I do not really have to say much about Clause 26 stand part. The real effect of knocking out Clause 26 would be to knock out Schedule 8, so perhaps we can elide the two.
This is a very tricky area and I am sure that it should be thought about again. There is already a time-limit regime—lots of it from 1998 and 2002—and there is a clear general duty of expedition, which is referred to in Clause 26:
“duty of expedition in relation to references”.
It is clear in the current legislation that everyone is supposed to do things in as timely manner as possible. The question then arises of why the Secretary of State thinks that his or her intervention is helpful in this matter, which was very much the line along which the noble Lord, Lord Whitty, was going. I cannot see that it is helpful, nor that it is consistent with the coalition’s policy towards these matters. I thought that we believed in decentralisation, deregulation and trusting the professionals. It seems quite strange to introduce this regime, and of course it has to be hedged about with all sorts of escape clauses. If something gets as far as Brussels, all time limits are off the table; it says so in the schedule. The 40 days can be extended by 20 days, you can stop the clock in certain circumstances and—again I agree with the noble Lord, Lord Whitty—the lawyers will have great fun, as they always do, with this kind of overcomplicated and apparently statutorily enforceable system because they find ways around it. I am very much in support of the noble Lord’s amendment—if it is not to be accepted as it is, I very much support the way in which he put it across.
We have had two excellent points of view, but the reality is as follows. Britain is seventh worst out of eight regimes in the world in terms of speed, in a review carried out by KPMG. That is a terrible place to be. We are seeking here to give some real clout to the process. Yes, the OFT exists on a 40-day rule but it is not statutory, and as a result 15 out of 76 cases have exceeded that time limit. We want to enforce that limit because it is absolutely no good being seventh out of eight in the world. We are enforcing the 40 days and we have put a period of undertaking in lieu of 50 days, as opposed to nil, and a period of implementation of 12 weeks, as opposed to nil. That is a very big step forward.
Often you are damned if you do and damned if you don’t, but one thing is for certain: we have to get our speed and efficiency up in getting these deals sorted, because that sends a clear message to industries that are merging. As we know, businesses want one thing, and that is clear messages. I therefore feel that this is the right approach for this Government. I do not totally disagree with the noble Lord, Lord Whitty, as on many occasions—I have rarely disagreed with him—we could perhaps have taken a more aggressive stance. This is a very good start, though; we will of course keep these things under review, but this is progress. On that basis, I hope that the noble Lord will withdraw his amendment and, when we come to it, that my noble friend Lord Eccles will do the same.
My Lords, I thank the noble Viscount for his support on this issue; I shall definitely support him on the next one. He is probably silent because there is not a lot more to be said. But yes, speed is of the essence and expedition ought to be a clear and central responsibility of the board of the CMA. Frankly, having all this to check and double check is the enemy of expedition, not its friend. Although I totally agree with the Government’s objective here, I do not think this will achieve it. Perhaps they will look at it again at some point. I beg leave to withdraw.
Amendment 24Q withdrawn.
Debate on whether Clause 26 should stand part of the Bill.
Very briefly, my Lords, my noble friend’s answer is an abdication of management. If you believe that public bodies should be of a certain strength and have a certain independence but then you say, “Of course, they cannot be trusted to do the job unless we can visit them and beat them over the head every now and again”, if we keep on going down that road, we will not only be turning more and more people out there in the country off the political system but completely missing the right target, which is not the legislation but the behaviour under it. That is what Ministers need to concentrate on. I am very disappointed that my noble friend cannot say whether, since May 2010, there has been any improvement in the performance of managing the way that time is spent in the OFT. If that is so, it is a kind of double abdication.
Clause 26 agreed.
25: After Clause 26, insert the following new Clause—
“Small mergersSmall mergers
(1) Section 23 of the 2002 Act (relevant merger situations) is amended as follows.
(2) After subsection (9) insert—
“(10) A relevant merger situation shall not be created where the value of the turnover in the United Kingdom of the enterprise being taken over does not exceed £5 million.””
My Lords, in proposing this new clause I am concerned about the impact of the current merger regime on small companies. I hope that every effort will be made by my noble friend to lighten the burden. Small companies wishing to grow through merger face a disproportionate cost in the professional fees that have to be incurred in dealing with an OFT investigation. I am seeking to highlight small mergers and to insert, after Clause 26, a new clause which would exempt such small mergers.
At the moment, the Bill misses a great opportunity to exempt or deregulate small mergers. I would have thought that there could be a simple measure based on turnover, which would allow small companies to merge and restructure without the threat of costly intervention by the proposed Competition and Markets Authority. Small companies just do not have the financial and management resources to justify responding to an in-depth CMA review, which I am told would cost between £50,000 and £100,000 or even more. The risk alone of an in-depth review, with the smaller risk of a phase 2 review, can lead to small and defensible mergers being abandoned at quite an early stage. I want the Committee to understand that I believe there is a point where the costs of reviewing a potentially anti-competitive merger exceed any likely damage to consumer interests.
On its own reports, the OFT has reviewed mergers where the turnover of the acquired company was about £100,000. I have also been made aware of a merger of two small companies where the target had a turnover of £500,000; with the OFT narrowly defining the share of supply, there were legal fees of over £100,000 in dealing with the OFT investigation. With the associated cost of professional fees and management time easily reaching a similar figure it must be clear that merger activity would be reduced and growth opportunities for small firms would be diminished unless this approach changes, and I hope that it will.
In this new Clause, I suggested that a turnover figure of £5 million for the acquisition could be applied. That is a proportionate and reasonable figure. This received strong endorsement from the consultation, when one analyses the responses. It is interesting that in Italy, Prime Minister Monti, who is still the Prime Minister and was formerly the EU Commissioner for Competition, has recently announced a liberalising measure that introduces a new turnover exemption of €47 million for the company being acquired. I do not want to say that we should follow that example, but I believe that it is possible to introduce a safeguard to limit the use of this exception over a certain time period to address the concerns of a large company increasing its market position. I leave it to my noble friend to decide what this safeguard should be. This amendment would allow more freedom for small companies to merge and grow without unnecessary regulatory cost. I beg to move.
My Lords, I have a few worries about this amendment. It sounds fine for the companies. They will merge, grow and make more money. That is wonderful. What if you are a consumer at the other end of these events? I see something of this in the West Country where I live. There are a number of quite small companies there and occasionally they play around at trying to take each other over or merge, and you end up with monopoly situations. I do not know what the solution is.
A monopoly with a turnover of under £5 million is just as dangerous to the consumer as a monopoly with one of £100 million. Competition is key. I do not know whether there is a simple way for the new authority to look at this and possibly not get involved but suggest another route. It is wrong to put a figure on this and just allow companies to merge, because they are small, without looking at the consequence of the merger on the customer and whether there is still competition for whatever services that are provided rather than turning the company into a monopoly.
My Lords, I very much support my noble friend Lord Hunt of Wirral’s amendment. Key to this is the definition of “market”. You can dance on the head of a pin and end up with a single supermarket in the Scilly Isles or somewhere and say that that is a market. First, this is a very good amendment and I hope that the Government will take it up. Secondly, the key is to be clear in the publications that are put out what a market is. I can remember occasions when we sat down and argued extensively over whether something that was said to be a market really was one. That is key to coming to the right judgment about whether something should be referred.
I doubt that there will ever be a market where a company has less than £5 million turnover and the anti-competitive effects are such that it should be referred. It comes back to one thing only. Are the public paying higher prices than they should reasonably expect to pay? The rest is fluff and twitter. It is the prices that the public are paying that matter. If there were examples, maybe there would have to be a review of a figure of £5 million, but £5 million is pretty safe on the basis of an accurate definition of “market”.
My Lords, I have listened with great interest to the words of the noble Lord, Lord Hunt of Wirral, and the noble Viscount, Lord Eccles. We, too, are always looking for reasonable ways to ensure that SMEs—or SEs, small companies, in this respect—are not subject to too much regulation.
Perhaps I am confused on this, but currently in the 2002 Act there are two criteria as to whether competition authorities should take an interest in a merger. The first, which we have spoken about today, is whether the turnover of the business is in excess of £70 million. This is a considerably higher level than what is being proposed today, so it is unlikely that any company with a turnover of £5 million being taken over would be investigated.
The second criterion, though, the one that we are paying most attention to today, stipulates that where two merging businesses have an effective market share of over 25%, that becomes a relevant merger situation for the competition bodies to consider. That 25% is an important threshold as to whether some form of monopoly is taking place and therefore, as the noble Viscount said, the value to the consumer is affected prejudicially.
At present, it appears that the only effect of Amendment 25 is to exclude the possibility of the CMA looking into a merger if the turnover of the business being taken over was above the £5 million threshold, even if the combined market share were to be more than 25%. Those are scenarios in which we might not wish to tie the CMA’s hands in this fashion. A tech company, for example, could have a low turnover but a high market share, particularly in a locality, and as a result the CMA might want to take a look at a merger between it and a dominant company in that market, or there could be some form of geographical dominance.
I find myself sympathetic with the thinking behind this because, as far as I am concerned, the more competition the better at all times, and I am also sympathetic with keeping red tape away from small businesses. However, it appears that when it comes to mergers, such protections are already offered, and this amendment could damage something even more important to SMEs—a strong competition environment. We definitely want to think about what has been said today; some important points have been raised. We will wait for the next round at Report.
My Lords, the amendment is interesting; on the one hand, the noble Lord, Lord Berkeley, has made a compelling point, as indeed, on the other hand, did my noble friend Lord Hunt. Both points, although they differ, are things that we all want to safeguard against. The other point that was not made is that the amendment would not safeguard against the big company buying the small company, which we also want to safeguard against. I think that we are all talking the same language and, on that basis, if my noble friend Lord Hunt of Wirral, will allow us, I think we ought to take this issue away, roll our sleeves up a little more with some hot towels—or cold, if he prefers; some days I prefer cold, I must say—and look at it a bit further. If he is happy on that basis, I ask him to withdraw his amendment.
My Lords, I am not just happy but enthusiastic in my response. There are not many Ministers who respond so positively and with such an open mind. I quickly say, “Done!”. I recognise that the noble Lord, Lord Berkeley, has an important point about protecting the consumer, and I recognise that I still have to persuade the noble Lord, Lord Mitchell. However, I am grateful to my noble friend Lord Eccles for his support. Yes, let us go away. As we all talking the same language, we do not need an interpreter; we just need action, not words. I beg leave to withdraw the amendment.
Amendment 25 withdrawn.
Schedule 8: Mergers: time-limits
Amendments 25ZA to 25ZC not moved.
25A: Schedule 8, page 195, line 32, at end insert—
“( ) omit paragraph (b),”
Amendment 25A agreed.
Schedule 8, as amended, agreed.
Clause 27: Power of CMA to make cross-market references
25B: Clause 27, page 22, line 22, at end insert—
“(5) In a “cross-market reference” the key concern will be whether the practice or practices identified in the reference cause significant consumer detriment.
(6) In the case of a “cross-market reference”, the markets identified as the most likely areas for occurrence of the potential cross-market problem at the launch of the investigation may be extended to other markets if prima facie evidence suggests the possibility of the same practices arising in those markets.”
My Lords, the amendment deals with cross-market issues and, I hope helpfully, suggests some flexibility. Other amendments simply insert a clearer reference to the consumer interest. I greatly welcome the reference in this part of the Bill to cross-market cases. Often, consumer or supplier abuse found in one sector is also rife in others. Traditionally, monopolies commission, OFT or Competition Commission references and investigations have tended to be siloed in vertical divisions. There are some horizontal abuses, in particular in relation to what I would call trading practices rather than necessarily market dominance. I suspect that with the growth of digital selling, we will have more consumer detriment arising from techniques which apply across a whole range of sectors.
Amendment 25B is a probing amendment to try to find out how this will work. I am not clear whether the cross-market reference has to designate both the practice and the sector in which it is suspected that it applies, or whether it just has to designate the practice. That is unclear in the Bill. If it requires reference to the sector as well, then Amendment 25B says, if you have found it in one sector, or two or three sectors, and you are starting an investigation or a reference, you need to provide for that to be extended to others. One frequent market or unfair trading abuse is the misuse of prepayment. That is a traditional one. That can apply in different respects to everything from paying for a ticket to a pop concert to buying a sofa or booking a holiday—there were tragic issues with the Christmas club and Farepak a few years ago—or paying for gym membership. If the service does not transpire or the goods never arrive, it does not really matter which sector the business is in, the practice needs tying down.
I hope that that is what is covered by the cross-market reference. I need confirmation, however, that you do not have to stipulate sector by sector where the suspicion arises. An investigation could start out knowing that there are problems in one sector but not until well into the process identifying them in another.
The other amendments in the group simply re-emphasise the need explicitly to look at competition from the point of view of the long-term detriment of consumers. Schedule 9 again does not once mention consumers. Amendments 25C to 25E would simply write into the key paragraphs of that schedule,
“to the detriment of consumers”,
to make it clear. I beg to move.
My Lords, no one knows more about consumer protection than the noble Lord, Lord Whitty. He had a distinguished time as chairman of Consumer Focus, for which we are very grateful. It is also interesting to learn what he does during the day: he went to a pop concert, bought a sofa and had a holiday—the man never fails to surprise me. He is of course right about the consumer, and far be it from me to disagree.
I would like to point out that his amendments, being probing amendments, have asked the right questions, and I can answer them. One of those questions was whether this applies to both practice and sector or one or the other. It applies to both, and I hope that that gives him assurance. The existing provisions in Section 135 of the Enterprise Act will enable the CMA to vary the scope of a cross-market investigation. That was news to me and I think it is to him as well. I assure him that enforcing effective competition for the benefit of consumers is already embedded within the market regime, and I hope that that gives him the comfort that he was looking for. I hope that on that basis he feels able to withdraw his amendment.
My Lords, I thank the Minister for that, particularly the reference back to the Competition Act, which I had not picked up. It is quite clear that we have that flexibility in a cross-market reference to a particular practice.
On the schedule itself, I accept that the Government’s intention is that it is the consumer detriment or benefit that needs to be assessed. It would be nice if the parliamentary draughtsman could occasionally remind us of that; I am afraid that he has failed to do so in this schedule. If there is anything that the Government can do quietly at later stages without upsetting too many people, but pleasing me, I would be extremely grateful. In the mean time, I beg leave to withdraw the amendment.
Amendment 25B withdrawn
Clause 27 agreed.
Clause 28 agreed.
Schedule 9 : Markets: cross-market references
Amendments 25C to 25E not moved.
Schedule 9 agreed.
Clause 29 : Public interest interventions in markets investigations
Amendment 25EA not moved.
Debate on whether Clause 29 should stand part of the Bill.
My Lords, I have tabled my intention to oppose Clause 29. It is not that the clause does not bring in some useful stuff, but I find myself in some bemusement over quite what the Government ultimately intend in relation to the public interest and the kind of interventions in that regard. I am hoping for some clarification of the strategy here. I do not yet know whether or not I agree with the Government because it is not clear in the clause, or in anything that anyone has so far said, what lies behind Clause 29. I hope that I will be a bit wiser at the end of this debate.
At present, as I understand it, the criteria under which the OFT and the CMA operate are clearly related to market structures or competition, and only the Secretary of State can intervene to require them to look at wider issues of public interest or himself deal with issues of public interest. A narrow definition of what the public interest is operates at present, principally, as I understand it, relating to national security. We all know, though, that when high-profile mergers come up, the public, by which I mean both interested parties, consumers, suppliers, workers, the financial press and so on, are often concerned about much wider issues than competition as such—the issues of employment or the potential loss of employment, the loss of UK control, technology, intellectual property or international competitiveness as well as the long-term effect on consumers, workers, communities, the environment, and so on.
Almost all these issues get raised when we are faced with a big merger. For example, in the Kraft takeover of that old and respected English company, Cadbury, all these things were gone over with a fine-toothed comb, but none of them was particularly relevant to the final agreement to the merger. Perhaps I can make one little gripe: despite assurances, the Bristol factory in fact closed. There was no issue of national security and no other issue on which the Secretary of State felt able directly to intervene, although there was a requirement frequently to explain the position to Parliament and to committees of another place.
There are two arguments. One is what constitutes the public interest beyond the stipulations of the competition regime. The other is who invokes the public interest and how. As I read Clause 29, it seems to attempt to transfer some of the responsibility of the Secretary of State on to the CMA; it does not at all attempt to define the public interest. One could take different positions on this. Some would say that the Secretary of State should retain some responsibility, as is largely the case now. Some would say that he or she should retain that control but have a wider range of criteria on which to define the public interest.
You could also say that the CMA should be able to invoke the wider public interest, such as competitiveness or employment issues, but that the Secretary of State should still retain powers to intervene as an alternative. Others say that the Secretary of State should be the judge of national security issues but that the CMA should have other aspects of the public interest in mind in its investigations and decisions. At the other extreme, some say that the CMA should have the sole role and that politicians should keep out of it. I think that the Government are veering towards that position but are not quite getting there. The cleanest position, which some of my colleagues have taken, is that the Secretary of State should have the sole initiative in issues of wider public interest and that the public interest definition should be narrow.
I take a wider view; I tend to think that the CMA should be able to initiate consideration of what the wider issues are if it considers that those could outweigh the competition issues. I do not think that, on this front, the Government’s position was clearly spelt out in the House of Commons or elsewhere. This clause stand part debate gives the Minister the ability to spell out clearly and precisely where the Government are going with this. Once we are clear on that, we can decide whether we take it any further at a later stage, but at the moment I am essentially unclear, so I hope that it can be clarified now.
My Lords, in supporting the thesis of the noble Lord, Lord Whitty, I just wonder whether this is meant to be unclear. It is very long and there are lots of tos and fros. You get caught up in considerations of exactly how independent the CMA is when something called public interest comes on the horizon. My suspicion is that it is not very independent at all. Schedule 4 makes certain that you had better do what you are told when the chips are down. It also seems to me that the weakening of the operations of phase 2 by the creation of a panel that floats freely without being rooted into the ground in any way that I can see also makes it all a bit unclear. Surely the sort of panels that there have been on the Competition Commission have been pretty good at public interest considerations, which vary widely. I entirely agree that there needs to be some clarity as to what this is all for.
My Lords, I will break with tradition and, much to my officials’ relief, read from a prepared script on this one, because it is way above my unpaid grade.
Public interest cases are particularly important to the UK, so it is right that the Secretary of State receives the best possible expert advice on these cases. This clause gives the Secretary of State the option to ask the CMA to look at public interest issues in the round with competition issues. I hope that that clarifies one of the points the noble Lord, Lord Whitty, made. This will enable the CMA to provide comprehensive recommendations on both issues. The Competition Commission can already do this in merger cases.
This clause does not give the Secretary of State additional powers to intervene in market investigations—he already has the power to intervene on certain public interest grounds, and these are not changing. Currently the Secretary of State can only intervene where there are issues of national security.
It will not be the CMA’s decision on where the balance is between competition issues and public interest issues. This will remain, as it should, a decision for Ministers who are accountable to Parliament. The CMA will be the UK’s primary competition authority and will therefore overwhelmingly be focused on competition enforcement.
The CMA, like the Competition Commission, will have expert staff and panel members with a wide range of experience. If the CMA does not have enough in-depth expertise on the specific public interest matter in question, the clause allows for a public interest expert, or experts, to be appointed, who would work alongside CMA teams.
To my way of thinking that gives a very clear understanding of the position on a quite complicated issue. I think the noble Lord, Lord Whitty, has initiated a very good debate. On that basis I commend this clause to the Committee.
The trouble is that it does not tell us why it is there. It tells us something about what could happen under it, but not why it is there. I would enjoy a freedom of information application to find out where this started and what it really means.
I am not sure I can respond to that.
I thank the Minister. The noble Viscount, Lord Eccles, as ever, is opening my eyes to wider objectives of government legislation. The objective of obfuscating everything is, I suspect, part of legislation more frequently than we would care to admit or like. I felt today it worked slightly to clarify the Government’s position. I am very grateful to the Minister for that. I shall study his words carefully, as they say. My initial take is that I might, on balance, disagree with it, but I will need to look at that and may return to it. It was a useful question to ask and we will see how this works out in practice and whether we need to return to it on Report. I beg leave to withdraw the Amendment.
Clause 29 agreed.
Schedule 10 agreed.
Clause 30 : Investigation powers: markets
25F: Clause 30, page 28, line 30, at end insert—
“(d) assisting the CMA in assessing complaints brought to them by bodies designated as super-complaint bodies, including complaints which are not formally super-complaints.”
My Lords, I have effectively spoken to this under an earlier item, so I will not move it today.
Amendment 25F not moved.
Debate on whether Clause 30 should stand part of the Bill.
My Lords, this is a very quick, probing amendment. It gives the CMA powers to seek information in support of a market study. That is useful. I imagine this is where one occasionally reads about dawn raids on companies that allegedly may have transgressed—it makes interesting reading. However, when one talks about the sector regulators, it is not clear to me whether they would also have the same powers of investigation in Clause 30 as the CMA would have.
I have been talking to one or two of them and will bring some of the issues up in a later amendment. It would be useful to know the position on this. I think they would find it useful to have such powers in the initial stages of their investigations. It certainly is not clear to me whether they do have these powers and I look forward to the Minister’s comments.
My Lords, we are trying to streamline the processes, as the noble Lord, Lord Berkeley, would acknowledge. We are trying to speed them up, as we have already debated. That is central to the Bill. As a result the CMA needs access to the relevant information, which it has. There have been a number of cases where the OFT has had difficulty getting to the information that it requires from the market-study stage, so this is being done to make sure that it does. The clause extends the powers to request the information and ask parties to give evidence so that consistent powers will cover the whole piece. They are subject to statutory limits. The most important thing is that business has clarity of vision and knows the direction of travel, and that is why speed, time limits and penalties send a clear message to business.
The noble Lord, Lord Berkeley, asked quite rightly if sector regulators have Clause 30 powers. We need to look at this more carefully. We have not come to a firm landing on it, but we could perhaps have dialogue on this together before Report. If we can bottom that out we will, but if we cannot we will make a commitment to look at it in secondary legislation. I commend this clause.
I am grateful to the Minister for his comments. As we discussed in a previous amendment, one of the objectives of the Bill is to streamline things and reduce the costs of activities connected to investigations. I am sure that he is aware that the better sector regulators—I will talk about them later—are probably able to undertake this work cheaply and quickly, and with sectoral special knowledge that you would not expect the CMA to have. I welcome his interest in looking at this, and perhaps we will be in touch before the next stage. On that basis, I am happy to see the clause stand part.
Clause 30 agreed.
Amendment 25G not moved.
Schedule 11 : Markets: investigation powers
25H: Schedule 11, page 213, line 24, leave out “£30,000” and insert “10% of the company’s revenue for the previous year, or £30,000 whichever is the higher”
My Lords, this amendment and the others in this group are pretty straightforward and deal with the level of fines in relation to Schedule 11, which relates to non-disclosure or falsification of information in the course of an investigation. It is about the maximum level of fines.
The maximum level of £15,000 or £30,000 would be significant fines to the kind of small businesses to which the noble Lord, Lord Hunt of Wirral, referred earlier. For many in large markets, though, these would be a flea bite. For the investigatory powers to work, they need to be able to ensure that the procedures are honestly met by those companies that they are investigating.
It is unlikely in any case that small businesses would be caught under these provisions; it is middle-sized and larger companies that are likely to be caught. You need a deterrent to dishonesty, which is effectively what this is. We are suggesting that up to 10% of turnover would be an appropriate deterrent whereas, frankly, £15,000 would not. That runs through all these amendments. The Government would be wise to look at this again. I beg to move.
My Lords, I part company a little from the noble Lord, Lord Whitty, here and I shall illustrate why. I think that the Competition Commission has had the power to exercise civil sanction or administer fines—I am not too sure exactly what it can and cannot do. On the information that it has sent me, it has not ever done so, yet I have not heard any complaints that people have not given it the information that it has asked for.
A fundamental point needs to be remembered. We live under the law by consent. If the assumption is that people will live under the law only if they are threatened with fines and that the fines are big enough, and you go on down that road, in the end, people will not obey the law by consent.
Surely the noble Viscount would agree that these things sometimes have a deterrent value. People know about them; there is no need for them to be served with a writ.
I quite agree about deterrents: a nuclear bomb is a deterrent. You have to provide a deterrent. Everyone will say, “Well we expected that, so now we’ll only go to 70 and not 90”. I am sorry, but I do not agree with the philosophy behind such a system. The minimum number of sanctions and penalties that you can achieve is the best, and the greatest degree of things working properly by consent is the best way to go.
I have to disagree with my noble friend Lord Eccles because I believe that you should have deterrents. I think that the general public would want us to impose deterrents for those who do not comply with statutory rules, so I am afraid that he and I do not converge on that.
The noble Lord, Lord Whitty, is right to talk about deterrents. First, I point out that this is not just £30,000, it is £30,000 or 10% of turnover, so that deals with some of those companies that did not fall into the net that he was talking about. For very large companies, the Competition Commission can fine a daily rate of £15,000 per day with no limits, which is a serious deterrent.
The other point that I emphasise is that the Competition Commission has never had to impose a fine for non-compliance with a request, which shows that the system is working and has worked. I hope that on that basis the noble Lord will withdraw the amendment.
Before the noble Lord sits down, I was interested in his comments about the £30,000, the £15,000, or whatever it is plus the 10%, plus a daily rate of £15,000 or something.
Can I just clarify that? I did not say plus. It is £30,000 or 10% of turnover, and the Competition Commission can charge a daily rate of £15,000.
I am grateful to the Minister. I am wondering why the daily rate should not be a percentage as well. One is talking about a big range between small companies and multinationals. Frankly, £15,000 a day for a big company is really nothing.
I have made a mistake. It is not “or 10% of turnover”; it is a fixed rate of £30,000—not 10% of turnover—and £15,000 per day. The noble Lord, Lord Berkeley, asked where the deterrents are. The deterrents are the £15,000 per day, which has no limit on it unless the Competition Commission determines that it should have. So it lies within its power, if the noble Lord understands me.
I am grateful to the Minister for that clarification. I still think that £15,000 a day for a big company is chicken feed; they will not notice it, even if it goes on for several years. I am no expert at levelling fines but I have been investigating the potential level of fine, admittedly on the Government, but it concerns the Thames Water tunnel outside here. The figure being bandied around there is £1 billion if we are lucky. That is a project that is worth £4 billion, and maybe there is a company with a turnover of £4 billion involved in this competition issue. The figure seems to be slightly low and out of proportion. I do not know whether it is a deterrent. Perhaps the Minister could reflect on whether a percentage for a daily rate would not be an additional deterrent.
My Lords, I am grateful to the Minister for clarifying that; I was getting a bit confused myself. If he had been right first time, my amendments would not have been necessary. I accept that there is a daily rate and that is an important consideration. I am sorry to part company with the noble Viscount—I am sure that we will be back on the same course at some point—but you need a deterrent in these cases. The question is what level of deterrent is effective enough to ensure that you will never have to impose it. It seems to me that these amounts are a bit low, given the size of the markets that we may be talking about.
I hope that the Government look at this again. Among other things, they will probably find that some of the sector regulators have tighter powers on the disclosure of information than this. I think I am right in saying that Ofwat does, for example, in relation to misleading information. I declare a brief past interest: I was on the board of Ofwat for a short period. We will probably find that these are rather minimalist maxima and they could do with further review. I beg leave to withdraw the amendment.
Amendment 25H withdrawn.
Amendments 25J to 25L not moved.
Schedule 11 agreed.
Clause 31 : Interim measures: pre-emptive action: markets
25M: Clause 31, page 29, line 33, leave out “relevant” and insert “CMA or local”
My Lords, this is very straightforward. It is a matter of clarity. Clause 31 refers at several points to “relevant authority” and I assume that that means the CMA or possibly, in some cases, trading standards through to local authorities. The amendments in this group refer to the CMA or a local authority. Is that right? If not, there is some confusion. Or is it just the CMA itself? The Minister might wish to consider this improvement. I beg to move.
My Lords, I can get to the nub of this very quickly. The relevant bodies in this case are only the Secretary of State and the CMA. That is why we would not want to accept the amendment. It would not be appropriate to widen that, particularly embracing non-competition bodies in the organisation. I hope that that is the clarification that the noble Lord, Lord Whitty, was looking for and I hope that he withdraws his amendment.
In which case, my Lords, surely it would be sensible to say the Secretary of State or the CMA—then we would all be clear. I beg leave to withdraw the amendment.
Amendment 25M withdrawn.
Amendments 25N to 25S not moved.
Clause 31 agreed.
Clause 32 agreed.
Schedule 12 : Markets: time-limits
25T: Schedule 12, page 216, line 16, leave out “6” and insert “4”
My Lords, these amendments are straightforward. Part of the rationale for the merger has been to speed everything up. The time limits here seem generous in relation to Schedule 12 on market studies—admittedly, that is only part of the Bill—and I thought I would take the opportunity to try to speed them up a bit. I am relying on the Minister to tell me why not. I beg to move.
I cannot tell the noble Lord why not; I asked the very same question of my officials. It is a perfectly reasonable comment for him to make. If we can work together to see where the dynamics exist, we might be able to see if it is practical to improve this a little. I do not think that we will be able to do anything too dramatic, but the noble Lord makes a good point. We have said all along that this is all about speed of process. As I have agreed with his overall point, I hope that the noble Lord will agree for the moment to withdraw his amendment so that we can discuss this later.
Before the noble Lord sits down, I have a question in relation to these time periods. I have had a little experience of trying to do something like this in the railway sector. My recollection is that a long time is taken between when the notice is issued saying that the authority will conduct such a study and when it has sufficient information to allow the clock to start running. Reading the Bill and my noble friend’s amendments, I am not sure whether these numbers—from six months to four months—apply to the time between the notice being issued or where the clock starts ticking and the authority believes that it has sufficient information. Maybe my noble friend has more information on this, but it is a point worth looking at when we come back to it.
My Lords, in reply to my noble friend, Lord Berkeley, the point would be from when the clock starts rather than just a twinkle in the eye of the regulator. I accept that everything is a little arbitrary to some extent, but if we are trying to turn the screws and stop us from being seventh out of eight of the competition authorities within the larger countries in Europe, we should take every opportunity to speed things up. If the Minister wishes to have another look at this, I would be grateful. I beg leave to withdraw the amendment.
Amendment 25T withdrawn.
Amendments 25U to 25W not moved
Schedule 12 agreed.
Clause 33 : Investigations: power to ask questions
25X: Clause 33, page 31, line 40, leave out from beginning to end of line 2 on page 32
My Lords, these amendments are a little more complicated. I am not sure that I understand this myself, I concede to the Minister. They address the issue of employees giving information to the Competition Commission, in this case during the course of anti-trust cases. As I understand it, Clause 33 provides, in secret price-fixing cases for example, powers to ask questions of the employees about the undertakings concerned.
By definition, the actual knowledge of price-fixing will be confined to a few relatively senior people—directors of the company or their senior managers or agents. However, it is the nature of an enterprise that people get to know these things one way or another. Sometimes, indeed, employees who themselves may be quite high up but not immediately responsible for the area get to know about it, or it could be a secretary or a clerk in the finance department, or whatever. They might volunteer the information, or at least respond once the investigators are on the case. The investigators would be using the powers within this clause, and they may get information voluntarily or from pressing a junior employee to say something that, frankly, was damaging, or would be seen as damaging, to the position of the company that had been carrying out the price-fixing, bid-rigging or whatever.
The changes proposed in my amendments would try to ensure that those employees, of whatever status, who give or volunteer information have at least as much protection as in the Employment Rights Act provisions for whistleblowers. It is therefore important that this is put beyond doubt, so this is effectively a “for the avoidance of doubt” clause. Otherwise the investigation may itself be inhibited on the one hand because people will not come forward with information, while on the other hand it could mean that individuals are prosecuted for breach of commercial confidence or, if they have refused information, are themselves prosecuted individually, rather than the company or the senior management or directors concerned, for failure to provide that information. I accept that there may be better ways of doing this but I am anxious that such people, as well as the investigation, should be protected by some clarification here. I beg to move.
My noble friend Lord Whitty has tabled a very valuable amendment here. It is most important that any employee who public-spiritedly, and in the public interest, discloses information that he has from his employment that may indicate some illegality on the part of his employer or senior employees must be protected. The Public Interest Disclosure Act is now embodied in the Employment Rights Act, which we discussed at an earlier stage, and it is most important that nothing be done elsewhere in the Bill that would damage that protection.
In some countries—in the United States, for example—employees and others get what is called a leniency benefit. They may have had some guilt themselves in knowing about an illegality that their firm was committing, but they may get leniency by informing the powers that be of what that illegality is. This provision does not go as far as that; I bring that point up only to make it clear that in some countries the protection given to the whistleblower is even better than in ours. Our protection is good and is embodied in the Bill, and the amendment that my noble friend wants to introduce would ensure that that protection existed.
That was a veritable tour de force from the noble Lord, Lord Borrie, as one would expect. Just to deal with the issue of whistleblowers, I want noble Lords to understand that nothing in this clause would affect the rules relating to whistleblowers at all; that is key. I shall read out the speaking note on this—my goodness, I might get used to this—because it is a complicated issue; the noble Lord, Lord Whitty, himself wanted to clarify this in his own mind, so between us we might be able to muddle through and clarify both our minds.
The amendment is to Clause 33, which gives the CMA an important new power to require certain individuals to answer questions during an anti-trust investigation. The new power is similar to the current power to require a person to answer questions, which exists under Section 193(1) of the Enterprise Act 2002 in the context of criminal cartel offence investigations. The Bill will correct the anomaly that a person can be required to answer questions in criminal cartel investigations but not anti-trust investigations, including into cartels.
Such a power should be subject to safeguards, however. We have proposed provisions akin to those made in relation to cartels by Section 197 of the Enterprise Act, to provide that statements made by an individual in response to a requirement imposed under the new section can be used in evidence against the individual or the relevant undertaking only in limited circumstances. Those are the safeguards that the amendment would remove, and I therefore hope that, on reflection, the noble Lord will see that in effect extending the power to ask questions to the anti-trust area, we also need to transpose the associated protections for individuals and undertakings.
I hope that that is as clear as daylight to the noble Lord. In the light of that, I hope that he will withdraw his amendment.
My Lords, it is six o’clock on 18 December, so there is not much daylight, but I am grateful to the noble Lord for some reassurance on that. I am not sure where we are restating the existing provisions. I am grateful for the intervention of my noble friend Lord Borrie, because he points out that, on the one hand, investigations depend on people telling the truth and that, in other countries, there are rather stronger protections than we have.
If the Minister is right that my amendment would make the protection worse, I will clearly withdraw it. I will have a look at how the interplay between the various existing provisions protects that position. Whether they are responsible themselves and therefore a degree of what the Americans would call plea-bargaining is appropriate or whether they are simply imparting knowledge which they have acquired in one way or another, we need to protect such people. Any hint that the Bill would change that is important.
Clearly, I am not doing it in the right way. I will read what the noble Lord said and see whether I need to take the matter any further, but I am very grateful for his response. I beg leave to withdraw the amendment.
Amendment 25X withdrawn.
Amendment 25Y not moved.
Clause 33 agreed.
Clause 34: Civil enforcement of investigation powers
26: Clause 34, page 32, line 7, leave out from beginning to end of line 11 on page 33
My Lords, I am probing to see whether there is some way in which some of these arrangements could be drafted to simplify their implementation. I worry about the amount of work that we are giving the legal profession by some of these arrangements. This is a very complicated piece of paper chase. New Section 40A amends the 1998 Act. We have been talking mostly about the 2002 Act. It relates to powers when conducting investigations, to failure to produce documents, destroying or falsifying documents, and providing false or misleading information. The 1998 Act contains in Section 27 powers to enter premises without a warrant and with a warrant. In a statutory instrument in 2004—which, incidentally, is not included in the latest printed edition of the 1998 Act, you have to find it some other way, but it is an amendment to the 1998 Act, statutory instrument 1261 —there is a power to enter domestic premises with a warrant. That is the 1998 Act. However, new Clause 26A to that Act, which we have just been looking at, is in Clause 33 of this Bill. That leads me to ask one or two questions.
I should say to the Bill team: thank you for your assistance with my eventually finding Amendment 28A and that statutory instrument because it was a very interesting chase. No wonder I could not find it in the 1998 Act; it was not there.
New Clause 26A(6) says,
“For the purposes of this section … an individual has a connection with an undertaking if he or she is or was … concerned in the management or control of the undertaking”.
I started to get into a terrible panic and wondered what sort of information I might be required to provide about when I was laying graphite cores in nuclear power stations or something. Is there any limitation on that subsection, such as a statute of limitations?
I have many questions in my mind, but I shall limit myself. With regard to new Clause 40A in Clause 34, BIS’s presentation to the Delegated Powers Committee says that the Bill,
“removes … criminal sanctions attached to failure to comply … and replaces them with a new civil sanction”.
However, when I read the amendments in Clause 34, particularly the ones near the end about omitting subsections (1) to (4) and so on, I could see where we were omitting certain of the criminal sanctions, but there followed two or three other clauses in the 1998 Act that seemed still to apply and still to envisage criminal proceedings. All that I am asking is that some real effort is made to clarify some of these matters in a way that means that businesses, their secretarial departments and legal departments will understand them, and they will not have to go to outside lawyers too much. We keep on talking about making things certain so that people know that they can get on and do the things that they want to but, believe you me, it is some endeavour to find out what this means. I beg to move.
My Lords, I am in danger of re-establishing my alliance with the noble Viscount. There are aspects of this clause that could do with clarification. It had not struck me until he spoke that the wording,
“is or was … employed by”,
might refer to when they were an employee, a subcontractor or a director 20 years ago, and that would still be covered by this clause. Clearly the noble Viscount’s previous career flashed past him. Mine did so a little earlier this afternoon when watching the interplay between the Minister and his team; I recall that many decades ago my Civil Service career was clearly doomed when I passed the Secretary of State an illegible note during the course of one bit of legislation. There must be equivalent things that people have seen, and have had in their hands; they may not have realised their importance at the time but they still have vague knowledge of them. The criminal sanctions that are implied by the interplay of the various pieces of past legislation here could raise anxieties that the Government do not really intend. The noble Viscount is essentially right that perhaps once again the draftsman could have another look at this. Clearly the noble Viscount and I will quietly let any amendments on this front through at later stages.
Perhaps I could explain to the noble Lord, Lord Whitty, and to my noble friend Lord Eccles that all that the clause does is to allow the CMA to conduct a more effective and timely anti-trust investigation. We are imposing civil fines, to be quicker and more effective, which will have some bite to them. The reason for this is that not one criminal prosecution for non-compliance has been pursued. That shows either that the CMA does not want to pursue it because it is too complicated, or that it is in the margin.
We are retaining criminal sanctions for obstructing an officer exercising powers to enter premises, destroying or falsifying documents, or giving false or misleading information—they will remain. The imposition of civil fines rather than criminal sanctions to speed up the action on anti-trust is also in line with the European law that features that. On that basis, I hope that my noble friend might withdraw his amendment.
I thank my noble friend. Can he deal, if not now then later, with this point about an individual having had a connection with an undertaking? As a provision in Section 26A, which is one of the new clauses covered by this enforcement power, it seems pretty wide-ranging. I am pleased to be told that the criminal sanctions are staying for certain parts of the 1998 Act regime. On that, the presentation of the Delegated Powers and Regulatory Reform Committee was rather ambiguous, but we have cleared that up.
In the argument that says that if people know that there are all sorts of horrendous and complicated penalties, with extensive legal costs attached to them—even if you go down the route of new Section 40A, costs will still be attached—we are basically, steadily saying that nobody can be trusted. We are losing touch with the idea that people do things by consent and because they trust each other. That is very regrettable. Meanwhile I beg to withdraw.
Amendment 26 withdrawn.
Clause 34 agreed.
Clause 35 agreed.
Schedule 13 agreed.
Clause 36: Part 1 of the 1998 Act: procedural matters
26A: Clause 36, page 34, line 32, leave out subsection (4)
This is a probing amendment. Subsection 36(4) of the Bill provides for one or more of the CMA’s functions to be delegated to one or more members of a panel—for example, decisions in competition cases. It would be useful to hear the Minister’s comments as to whether this is something that the Government envisage for the sector regulators. There is an option, which was discussed in the Government’s consultation, but which was not set out in the Bill, for regulators to be relieved of their decision-making powers in competition cases. Is that still an option on the table, possibly through secondary legislation and for the decision then to be vested with the panels that are set up for that purpose under this clause? Some of the sector regulators are concerned about exactly what the intention is. I beg to move.
My Lords, I think that my noble friend Lord Berkeley is right to seek verification on this. A later government amendment will propose what he fears. At that stage, I shall certainly propose that we need a much more conciliatory regime between the Secretary of State, the CMA and the sector regulators, otherwise we shall get into serious trouble. It is important that we get clarity on the issue.
The noble Lord, Lord Berkeley, gets to the point. I am grateful for his brevity. I am reliably informed that the rules under Section 51 will apply to the sector regulators. The same principles will apply but the rules may differ a little in detail. Of course, as he would say, the devil is in the detail but I am sure that within the detail there is quite a wide canvas. I hope that clarifies the situation for the noble Lord.
I am grateful to the Minister but I wonder whether, within his broad canvas, or whatever, he has any views about whether any secondary legislation will be introduced on the issue which may or may not be helpful. I noticed that within this group there is the Question that Clause 40 stand part and Amendment 26BF, in the name of my noble friend Lord Whitty. I would be pleased to hear what he says about that because I have some comments on it too.
My Lords, I was going to leave that because my Amendment 26BF is an attempt to tidy up the provisions on review, along with another amendment that I cannot find immediately. There are separate provisions on the mergers, the markets and the anti-trust provisions, as to when we review them. I am in favour of the Government’s policy that we review legislation every so often but I think that it should be done simply and that we should look at the whole of the legislation. Essentially, that is what Amendment 26BF to Clause 48 is about. I was not going to move it today because I think that it requires the interplay of other parts of the Bill but I think a review of the totality of the Bill, all at the same time, would be helpful and should be built into the Bill in some way at a later stage.
Perhaps I may first reply to the noble Lord, Lord Whitty. We will review this in five years’ time, as I think he recognises. That deals with his point. The precise detail will be discussed with sector regulators themselves and, once we have done that, we will obviously publish what has been achieved. On that basis, I hope that that satisfies the noble Lord.
Amendment 26A withdrawn.
Amendment 26AA not moved.
Clause 36 agreed.
Clause 37: Threshold for interim measures
26AB: Clause 37, page 36, line 10, leave out “significant” and insert “serious”
My Lords, this is really a drafting amendment. Section 35 of the 1998 Act refers to “serious, irreparable damage”. I agree that that is too high a threshold and I assume that is behind the government amendment, but what is wrong with the present definition is surely the reference to “irreparable” which, by definition, is prospective, difficult to define, a bit subjective and therefore should go. To dilute “serious” to “significant”—I think it is a dilution—seems to reduce the threshold too far and is equally subjective. I consider that the word “serious” is probably better unless the Minister has a very good reason for sticking with the word “significant”. I beg to move.
As the noble Lord says, it is a matter of conjecture and we will obviously look at it. I am not sure that I would be prepared to concede that change. I think that both definitions hit the target and I know that the noble Lord, Lord Whitty, is trying to find the right word. We will look at it again to see whether it is the right word. At the moment I am perfectly happy with our drafting but, as the noble Lord knows from our past together, we are always open to discussing these things. I am glad that the noble Lord withdrew Amendment 26AA because there is an existing MoU between the OFT and the CMA, which answers that question.
I am grateful to the Minister for that and I beg to withdraw the amendment.
Amendment 26AB withdrawn.
Clause 37 agreed.
Clauses 38 to 40 agreed.
Clause 41 : Cartel offence
26AC: Clause 41, page 37, line 16, leave out subsections (4) and (5)
My Lords, Clause 41 makes some very significant changes to the law on cartels. At present, the competition authorities have to establish dishonesty by finding the directors or senior management of a company or their agents engaging in, say, market carve-ups, bid-rigging or price-fixing. “Dishonesty” takes us into the criminal law and, as a threshold, it is rather subjective at the point where it is triggered. I think that the Government are therefore convinced that it is too high a threshold and inhibits prosecution—or even investigation—into areas where a positive act of dishonesty has to be assumed, prima facie, before you start investigating. I understand and agree with that, in principle, and I agree on that part of the clause which removes the dishonesty threshold.
However, since making that judgment I have received representations, as colleagues no doubt have, from various groups of lawyers saying that this gets us into a worse situation than we started with because if you remove “dishonesty”, there will be court challenges as to why you proceeded in that case. I am not going to read out any of their learned opinions—the Minister will no doubt be grateful for that—but they indicate that there are still difficulties with doing that, which are in one sense compounded by the second part of this clause. I am hoping to remove subsections (4) and (5) but they interact and this is therefore complex, yet again.
The second part of this clause was introduced very late. It was not debated in another place and I object to it in principle. In effect, it is saying that if you inform people that you are engaging in market rigging, no offence has been committed. I understand that this was a sweetener to some industrial pressure from the CBI and others, but it is wrong. It is a highly detrimental provision; in effect, it is returning to the situation where there were registered cartels. We came away from that many decades ago and I think rightly so. If a bid rigging exercise exists, if a cartel of purchasers exists, if a price ring is in operation, if a market carve-up is taking place, surely it does not matter whether you told your lawyer or the Daily Telegraph that it is there. It is distorting competition and having an effect on market suppliers. Even if you told your customers, or at least some of them who are your suppliers, or even registered the matter with the authorities, it does not alter the fact that this is potentially an unfair trading practice. The effects are a distortion of the trade and the market and ultimately probably a detriment to consumers or suppliers. The CMA needs to be able to investigate that.
I appreciate that transparency; having told somebody can be mitigation in particular cases. However, I do not understand that it is an absolute defence, which is what effectively this clause seems to say. I think the Government need to clarify the first part of the clause and delete the second part. I think it is ill thought-out and an unwise concession to pressure. If we build on—but make clearer—how we can enforce this and trigger a threshold without the dishonesty provision being there, we certainly should not go down the road of transparency being a defence. It is not a defence, nor does it achieve the objective of freer markets, greater competition and better benefit to consumers. I beg to move.
I take from this that the noble Lord, Lord Whitty, agrees with his own Front Bench in the other place that the removal of the dishonesty issue makes it easier to prosecute and therefore is a much better system. Clearly there has been a lot of consensus in the other place. I am not sure, because I was not involved in the debate in the other place, that we have put in a clause that bears any relevance to the provision that he is trying to impose. I have just confirmed that with my officials, who would concur.
At the end of the day, it is important that we should prosecute people who have formed cartels dishonestly—by marginal dishonesty. We all agree to that. It is reasonable that we provide notice for arrangements, for those who are likely to be affected, such as companies and their customers. It is very clear that where people breach these things we must use the strong arm of the law to create the necessary deterrents that involve market rigging, share rigging and all the usual things that are unpleasant and corrupt in many ways.
I think there is more debate to be had around this particular issue—there is more bottoming out to be had. As always, we are very grateful for the thinking that has gone into the amendments of the noble Lord, Lord Whitty. As he has said, we have had representations from various bodies. It is incumbent on us to listen to that. I think our direction of travel is right. There may be some tightening up of the wording needed to reflect the comments that the noble Lord has made as a result of those people who have contacted him. Obviously, as with all things, we make that undertaking. I hope that satisfies the objectivity of his excellent amendment and that he will withdraw it.
My Lords, I am grateful to the Minister for saying that he will look at the situation again. I want to clarify my position: I agree that the “dishonestly” threshold should go. We need to make sure that we do this in a robust way and that is what these legal opinions suggest we should have another look at. However, my understanding is that the second part was not debated in another place and that the Bill effectively says that, if you can prove that you have been transparent, the cartel may not exist. That seems odd. If it simply said, “If you have told your suppliers or customers that this is the way that you and your alleged competitors are dealing with it”, that would perhaps be some mitigation, but it cannot be an absolute defence. It cannot be, as the Bill says,
“Circumstances in which cartel offence not committed”.
I think that this is wrongheaded thinking and should come out entirely. However, if the Minister is looking at all this again, I am quite happy to wait and see what he and his colleagues in the department come up with on this clause. I beg leave to withdraw the amendment.
Amendment 26AC withdrawn.
Clause 41 agreed.
Clauses 42 to 44 agreed.
Clause 45: Powers of sector regulators
Amendment 26AD not moved.
Clause 45 agreed.
26B: After Clause 45, insert the following new Clause—
“Power to remove concurrent competition functions of sectoral regulators
(1) The Secretary of State may by order made by statutory instrument amend any enactment so as to remove from a sectoral regulator either or both of the following—
(a) all the functions of the regulator under Part 1 of the 1998 Act that are exercisable concurrently by the regulator and the Competition and Markets Authority (“the CMA”) or that would be so exercisable but for provision made by virtue of section 54(5)(e) of that Act;(b) all the functions of the regulator under Part 4 of the 2002 Act that are exercisable concurrently by the regulator and the CMA.(2) An order under subsection (1) may make such other amendments of any enactment as the Secretary of State considers appropriate in consequence of the removal of the functions.
(3) Each of the following is a sectoral regulator—
(a) the Office of Communications;(b) the Gas and Electricity Markets Authority;(c) the Water Services Regulation Authority;(d) the Office of Rail Regulation;(e) the Northern Ireland Authority for Utility Regulation;(f) the Civil Aviation Authority.(4) Before making an order under subsection (1), the Secretary of State must consult—
(a) the regulator whose functions would be removed by the order,(b) any bodies who appear to the Secretary of State to represent the interests of persons in respect of whom those functions are exercisable (“regulated providers”),(c) any bodies who appear to the Secretary of State to represent the interests of persons who use the services supplied by regulated providers,(d) the CMA,(e) where the regulator is the Office of Rail Regulation, the Scottish Ministers,(f) where the regulator is the Northern Ireland Authority for Utility Regulation, the Department of Enterprise, Trade and Investment in Northern Ireland and the Department for Regional Development in Northern Ireland,(g) where the regulator is the Water Services Regulation Authority, the Welsh Ministers, and(h) in any case, such other persons as the Secretary of State considers appropriate.(5) An order under this section may include transitional, transitory or saving provision.
(6) A statutory instrument containing an order under this section is not to be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.
(7) In this section—
“amend” includes repeal or revoke;
(a) an enactment contained in subordinate legislation (within the meaning of the Interpretation Act 1978), (b) an enactment contained in, or in an instrument made under, an Act of the Scottish Parliament,(c) an enactment contained in, or in an instrument made under, a Measure or Act of the National Assembly for Wales, and(d) an enactment contained in, or in an instrument made under, Northern Ireland legislation.(8) The references to the CMA in subsections (1) and (4) are to be read, in relation to any time before the commencement of section 20(3), as references to the Office of Fair Trading.”
My Lords, Clause 45 gives the Competition and Markets Authority stronger powers to co-ordinate Competition Act enforcement work and gives sector regulators explicit duties to consider using the Competition Act. This will strengthen the regime for the concurrent competition powers.
The Government want to send a further signal about the need for the strong and effective use of competition powers across the regulated sectors. The Government therefore propose, under Amendment 26B, that if the new concurrency arrangements do not work and a regulator fails to produce better outcomes, the Secretary of State will have a power to ensure that the OFT and then the CMA take sole responsibility for applying concurrent competition powers in that regulated sector.
This will be a reserve power and the Government see its existence as being entirely consistent with our aim throughout to see improvements in the concurrency regime. The use of the power would be subject to a full consultation with those likely to be affected by the proposal to exercise the power, including businesses and customers, and an impact assessment process as well as the affirmative resolution procedure.
Nothing in the current provisions in the Bill or the new clause is intended to affect the Government’s commitment that Monitor will have concurrent powers so that competition rules can be applied by a sector-specific regulator with healthcare expertise. We have therefore revised the new clause in Amendment 26B, following the debate in Committee last week, to make sure that this is absolutely clear. Monitor’s concurrent powers will therefore not be subject to this clause. I acknowledge the amendment put down by, I think, the noble Lord, Lord Whitty and the noble Baroness, Lady Hayter of Kentish Town, which made a very good point. I hope that that finds favour.
I turn to the amendments to the new clause proposed by the noble Lord, Lord Whitty, and the noble Baroness, Lady Hayter. The Financial Conduct Authority will not have concurrent competition powers so it would not be right to make it subject to this power. Instead, we have provided tailored powers of competition scrutiny of the FCA by the competition authorities in the Financial Services Bill.
The Secretary of State would have to publicly consult and gain Parliament’s approval before an order could be made. He would also no doubt want to take into account the CMA’s concurrency report. In our view, Amendments 26BA, 26BB and 26BC are therefore unnecessary.
Amendment 26BD would provide for arrangements for the co-ordination of concurrency, which in many respects—for example, on information-sharing—will mirror the arrangements for co-ordination that will be made under Clause 45. It would also duplicate the main features of Amendment 26B in giving the Secretary of State the power to make an order removing the concurrent powers of a sector regulator. Given this, we believe that this amendment is also unnecessary.
I beg to move Amendment 26B and I hope that, in the light of what I have said, the noble Lords will not press their other amendments.
Amendment 26BA (to Amendment 26B)
26BA: After Clause 45, line 21, at end insert—
“(g) the Financial Conduct Authority”
My Lords, I am extraordinarily grateful to the Minister for accepting that Monitor should come out. My amendment was to the original version of this amendment, and I thought that I would have to make that speech all over again. Luckily, as he has pointed out, it has been removed. I am glad that the Government took my advice on that; I think that they should remove any reference to Monitor anywhere in the Bill, and I hope that they will do so.
My only other point regarding the list was that we need to make some reference to financial regulators. Although, as I have said before, the Financial Services Bill has not yet received Her Majesty’s assent, we are in a position where we will have a Financial Conduct Authority and a Prudential Regulation Authority under the auspices of the Bank of England, which may well be taking measures that affect the structure of the financial sector. Therefore, although I am not suggesting that there be a reference to the FCA or the PRA, there should be some reference to the concurrency with the financial sector, albeit that the concurrent powers are not quite the same. So there is still a little issue with the list.
The more general problem with what the clause provides, however, is quite an important one. I am happier with the original clause that encouraged the sector regulators to use their competition powers. Actually, that clause merely requires them to consider using the competition powers; the noble Lord’s letter said “instead of” their sector powers, whereas they need to see which powers are best. The clause is fine on that, so I approve of the clause. However, I do not approve of the government clause that the Minister has just moved. It relates to the relationship between the sector regulators and the CMA, and that is clearly going to be crucial. We touched on this a few times earlier; indeed, my noble friend Lord Stevenson referred to it under the first amendment.
We need to change the present system. Frankly, some of the sector regulators have been overdefensive about their role with regard to using competition powers themselves, rather than their more familiar sector-specific powers relating to licences, franchising and so on, and very resistant to any suggestion that the Competition Commission should look at the competition structure of their sectors as a whole. On the other hand, it has also been true that both the Competition Commission and the OFT have been somewhat loath themselves to intervene in regulated markets, although I know that at one stage the Competition Commission was quite anxious to look at the energy market, with which the Minister is very familiar, but Ministers helped Ofgem to resist that. As I understand it, that was the position under both Administrations, and that needs to be addressed.
However, while the relationship between the two does need to be restated, the Minister has used the nuclear option. I assume that, like the nuclear deterrent, he is hoping that it will never be used, but it will mean compliance by the sector regulators, which will be using their competition powers more frequently, or they will meekly be prepared to hand over cases to the CMA under the threat in this amendment that their powers will be taken away by the Secretary of State completely, either on a particular issue or in total. That does not seem on its own to be the correct approach. We need the big print to be about co-operation between the CMA and sector regulators.
Amendment 26B would give the Secretary of State draconian powers to reduce the whole role of sector regulators and leave them with only their sector-specific powers. That is counterproductive to what we were trying to achieve, which was more use of competition powers with all regulators.
As my noble friend Lord Stevenson suggested this morning—or, rather, this afternoon; it just feels like this morning—we need a more co-operative approach between regulators. Unfortunately, the Minister rejected the particular option proposed by my noble friend at that stage.
In this group, we propose another option with Amendment 26BD. That requires a memorandum of understanding. Some of that exists already, but it will need to be boosted between each of the regulators and the CMA. It would eventually allow the CMA to ask the Secretary of State to require the CMA to take over provisions—again, either in a particular case or more generally—but that would be after a period when a co-operative and conciliatory memorandum of understanding had been working. That requires joint working, sharing of information, and so forth. This would still allow the CMA to conduct periodic reviews into how this was going with the sector regulators, but it would be far preferable to the nuclear powers that the Minister’s amendment gives to the Secretary of State.
I hope that we could accept this more conciliatory approach. I also hope that, even if the Minister’s amendment still stands and ours does not, the two amendments to his amendment, which would require the Secretary of State to give reasons for his action and to take note of the CMA's periodic reviews, would at least add a more objective context and require the Secretary of State to go through a significant number of hoops rather than jump straight into taking powers from the sector regulator. It is a more constructive approach. I prefer our amendment but, if the Minister is not prepared to accept that, the amendments to his amendment should be accepted.
This is a delicate area and one in which the CMA’s relations with the sector regulators will be very important. We could get it horribly wrong. The big stick that the Minister’s amendment implies is probably not the right way to be going about it. I beg to move.
My Lords, I share my noble friend Lord Whitty’s serious concern about Amendment 26B. It goes to the heart of independent regulation. As I recall, going back a long time now, these regulators were created to be demonstrably totally independent of the Government. The Secretary of State probably appoints the chairman, but he cannot remove him unless he does something very naughty, bad or financially uncertain.
The principle of independent regulation without government interference—and Governments of all hues have a pretty bad reputation about interfering in different things—is fundamental to the operation of a regulated monopoly or series of monopolies. That is certainly the case in the railways and Network Rail, and to some extent it is the case in the water and power industries
The ability for a Government just to come along, admittedly with a bit of consultation, and say, “We’re going to take these powers away”, will affect confidence in the market and the ability of the sector regulators to set the structure of what they are doing with their boards to get the best out of the industry in terms of efficiency, cost reductions and everything else. We have come a long way since the first regulator, Mr Tom Winsor, who was an eminent lawyer, did this job on his own. There was no board. I remember attending one of his presentations where, in the course of a 20-minute speech, he used the word “I” 64 times, which indicates a collegiate approach that we have not seen in more recent times. However, things have got a lot better since then. We have to be very careful about suddenly making these changes.
I do not think that the Minister is trying to remove the sectoral regulators’ powers and give them to Ministers —I think that the Government are trying to give them to the CMA—because if he did give them to Ministers there would be a complete conflict of interest with the regulated monopolies, some of which the Government have a financial interest in. What does the European Commission think about this clause? I do not know whether the Minister has consulted it. However, I suppose my real concern is: why do it this way rather than try to improve the quality of any sectoral regulator that people, or the Government, believe is not performing properly, as my noble friend Lord Whitty said? I think that the Office of Rail Regulation is doing pretty well now.
As we know, there has been a lot of fuss about the water services and the gas and electricity markets. However, one can debate how much of it is the fault of the regulator and how much is the fault of government policy. I do not want to go into that today but there are always two sides to these arguments. Why is Monitor not included? Sadly, I was not in my place when this matter was debated before, but it is a regulator and what is good for one is surely good for the other. I hope that, not just in today’s debate but at future stages, we will look more closely at how to improve the performance of some of the regulators that we feel are not doing as good a job as they might be rather than taking this draconian action, as I see it, of removing their ability to look at the competition issues with their specialist knowledge of their industry as at least a first step—
We have a Division in the Chamber. The Committee will stand adjourned until Members have returned or for 10 minutes, whichever is the sooner.
Sitting suspended for a Division in the House.
My Lords, before the Division, we were debating Amendment 26BA.
My Lords, I had just about finished, but want to conclude by saying that I hope that the Minister and our other colleagues will look at the proposed new clause very carefully before Report, because there are some serious things wrong with it. I commend the amendments of my noble friend Lord Whitty for consideration.
I endorse what has been said by the noble Lord, Lord Berkeley. The proposed new clause states:
“The Secretary of State may by order made by statutory instrument amend any enactment so as to remove from a sectoral regulator either or both”.
How long is that going to take? If there is a weakness in the regulation, which is apparent, and even if the Secretary of State can recognise it, how long is the remedial action which is set in the Bill likely to take to bring into force? If a regulator is incompetent, surely there must be other ways of getting him to move over. He has a board of his own which, if he is exaggerated in his actions, can take action to rein him in. However, the whole edifice which is built here is wrong. I know two of the regulators involved and I have known some of the regulators in the past. Generally speaking, they are extremely competent people and probably more competent than the people who would advise the Secretary of State to use these powers. I believe that the powers are heavy-handed and very long-winded into the bargain.
What would the noble Lord, Lord Bradshaw, think if there developed a debate between the Office of Rail Regulation, which is the regulator that we probably both know best, and the Government, and the Government said to the ORR, “You’re not pursuing this competition case in the way that we think you should, and it should go to somebody else who, like the CMA, could do it better.”? Is that not serious interference in the independence of the regulator?
Yes. Perhaps I may take another example; the Civil Aviation Authority, which I do know something about. It has a most excellent regulator—it is somebody whom I know personally, although I have never had any dealings with him as regulator of that industry—but issues of competition are likely to emerge in the airports business. He is a really independent person, and I cannot believe that somebody whose functions are created according to the mechanism set down here is likely to do the job any better.
The noble Lord, Lord Whitty, indicated that he was minded not to support our amendment and what I am about to say is therefore largely academic because I will not support his amendment. However, let me explain, because there is not an awful lot between me and the noble Lord, Lord Berkeley.
We expect the CMA to work closely with the regulator. That is best, and we totally agree that government would be wrong to intervene in that process, as the noble Lord rightly said. That is something in which I strongly believe. Most organisations are better when government does not interfere in them. They are full of competent people, as the noble Lord, Lord Bradshaw, said, who have served us well over a period of time. We are a very well regulated society, certainly compared with most other countries.
However, there needs to be a clear signal that if this does not work or there is abuse of the system, the Government have the opportunity to invade in this area, and that is exactly how it should be. In that way you are protecting the consumer—the customer—against bad practice, not interpreting the rules properly and so on. If the Secretary of State were to intervene, he would almost certainly have to put that before Parliament to seek its approval. We are all on the same side as regards the spirit of the amendment. “We are all in this together” is the phrase that we like to use most.
I would be disappointed if the noble Lord, Lord Whitty, could not agree to our amendment and invited me to withdraw it. However, we are all singing from the same hymn sheet, and I totally respect the views of noble Lords who have spoken because this issue is important. It is absolutely fundamental that the system works without government intervening aggressively in it.
Can the noble Lord expand a little on the reasons for when this would happen? He quoted bad practice and lack of interpretation of the rules, but it is not moving far away from the reasons for sacking, for example, the chairman of the board of the rail regulator if they have not behaved properly. If things have got that bad, one would expect them to resign anyway if this kind of thing came about. On that basis, I should have thought that there are already enough powers to change what the regulator is doing if it is really so ineffective. Given the proposed MoUs, the system would probably work much better. I am still not persuaded that there is a good enough reason for going through all this. Perhaps I have got it wrong.
All that is important is that the consumer or customer, by which we mean the general public, recognises that if there is malpractice—a rare event—misinterpretation or something like that, someone ultimately has to be able to intervene in that process to ensure that it is put on the right track. One would hope that people would do the honourable thing and resign. However, sadly, we are not entirely in that world any more; it passed us by a few years ago, to my great regret. One could not therefore ultimately rely on that happening and you need a deterrent for it. The noble Lord, Lord Berkeley, knows this better than I do. He knows regulators backwards and has been involved closely with them. I have huge respect for his knowledge in that area.
All this seeks to do is complement the existing reforms that we are putting in the Bill. As I have said, it is a good government amendment and the amendments enunciated by the noble Lord, Lord Whitty, are of interest and not unnecessarily unreasonable, but they could be clarified.
Perhaps the noble Lord would answer my question about how long it will take to bring the machinery into effect. If, for example, the Government are dissatisfied with the way an industry is being regulated, they presumably will make that clear. But if they have to resort subsequently to producing a statutory instrument, how long will it take for that to have an effect?
The Secretary of State would intervene only if an agreement had not been reached with the various parties on the direction of travel. As we all know, that is a big “if”. He then has to do an impact assessment and would have to consult for three months. I apologise, it would be for 12 weeks. Whether it is 12 weeks or three months is a very important differentiation because sometimes we work on working weeks and on others we do not. Therefore, let us say 12 weeks.
I do not think that any of this is unreasonable. If we have failed to determine through the channels of discussions why something is being done wrong, or are getting nowhere with it and feel that the public are better protected by the action that we are going to take, we have to have a way to be able to do it. That is all that we are seeking to do.
My Lords, I am grateful to the noble Lords, Lord Bradshaw and Lord Berkeley, and the Minister. That sounded fairly conciliatory from the Minister. I am not entirely sure that I should seize on “not unreasonable” or “not unnecessary” as indicating approval of my approach. Nevertheless, I think that it was generally positive.
However, probably neither of our amendments is ideal. I hope the main theme that the Minister is taking away from all this discussion is, if you want a reserved power, it has to be very clearly a reserved power in extremis. In order not to get there, you need some provisions of co-operation between the various regulators. All these regulators operate different types of market and you cannot have the CMA being asked to second-guess them every five minutes.
I am not quite as sanguine as the noble Lords, Lord Bradshaw and Lord Berkeley, are about some of the other regulators. It may all be fine in the railways, although I am not sure that I would agree with that as a consumer and passenger. Certainly, I have had my rows with Ofgem. I am not very happy about Ofwat and some aspects of even Ofcom, which generally speaking is a better regulator. I also had recent experience of the Northern Ireland regulator that regulates the energy industry except for the main supply of energy in the Province, which is the oil industry and definitely needs regulation.
I am not saying that everything in the garden is rosy with these independent regulators as they stand—it definitely is not. They all need to raise their game. But raising the game by having a prospect of an intervention by the Secretary of State and giving all their powers to someone else seems to be overkill. We must have an upfront co-operation and only a very distant reserve power in any alternative clause that the Minister may propose at a later stage. It would be sensible for him to consider mine and other representations that have been made.
The noble Lord, Lord Berkeley, raised a number of concerns, which are very important for the Government to take on board. The threat of this would undermine confidence in the markets. Key investment markets, such as energy, water, aviation, railways, telecoms and so on are key areas where we need to sustain a degree of confidence in the near permanence of the regulatory system.
The relationship between the regulators and the industry is very important. I am not talking about cosy relationships but about known, established and reasonably long-term relationships. The issue of the EU, which my noble friend Lord Berkeley raised, is also important. We need to be careful when we are intervening and what, at the end of the day, would be quite a draconian power.
I hope the Minister will take this away. It is important that we review the performance of regulators. But we should not do that on a case-by-case basis or because of suddenly saying that they are not doing their job 100%. Other forms of review could be built into the regulation—indeed, the Government are doing that in other areas—rather than taking a power that looks at first glance to be a draconian intervention by the Secretary of State.
I am sure that the Government and their Civil Service can come up with a better form of words for dealing with this if they wish to. It may be something that we should leave until much later. But if they intend to do so, I am happy to give my co-operation to them with my experience with regulators, as will my noble friends and the noble Lord, Lord Bradshaw. However, this will not work and it could be quite detrimental.
I am grateful to everyone who has participated. I am sure that we will return to this in some form or other at the next stage. I beg leave to withdraw my amendment.
Amendment 26BA (to Amendment 26B) withdrawn.
Amendments 26BB and 26BC not moved.
Amendment 26B agreed.
Amendment 26BD not moved.
Clause 46: Recovery of CMA’s costs in respect of price control references
26BE: Clause 46, page 42, line 13, at end insert—
“(1) There shall be established a separate section of the CMA where the CMA acts as an appeal body in respect of decisions of sectoral regulators, and each individual appeal shall be headed by a member of the CMA Board.
My Lords, this last amendment—which we will all be grateful about—deals with a separate issue of the relationship between the future CMA and the sector regulators. It is entirely different from the use of competition powers. It deals with the situation of appeals against decisions of the sector regulator to what is now the Competition Commission, which will be the CMA. That is a different function. In effect it is the Competition Commission becoming the CMA and acting as the Court of Appeal.
This role is only briefly recognised in the Bill. It is arguable that such arrangements should not be maintained in the new situation, since it is in effect one regulator second guessing another. Indeed, if the previous amendment stands, the potential conflict of interest in this area is actually quite acute. For the moment, that appeals system remains and is separate from the harmonious relationship that we wish to see on competition matters between the CMA and sector regulators.
These appeals are usually about price control decisions or the costs that are taken into account by regulators in setting the frameworks. Those decisions can be appealed by the industry as with the decisions of Ofwat in its price review, or current decisions by Ofgem in terms of how much it has allowed the National Grid as regards its area investment programme and so forth.
I am not sure whether the statistics will show this but I understand that the number of appeals has increased. That is surprising because there has been a decrease in the direct and specific price control regimes. My experience suggests that of the recent decisions by the Northern Ireland utility regulator, almost all of them are in appeal now or were recently.
I also know that Ofwat’s five-yearly price review is always subject to threats of appeal, although there are relatively few actual appeals. As I say, I know that there now is an issue in relation to National Grid and Ofgem’s decisions, so there are a lot of these about. We have to be clear that the expertise is there in the CMA to deal with them.
Because these cases are so different from market investigations and references, they need a special unit within the CMA. It is arguable that they may need a special group of the board or panels of the CMA to deal with them, because they need different skills, but they certainly need a separate location of expertise. This amendment deals only with the staff element of setting up such a unit, which for conflict-of-interest purposes clearly should not be working simultaneously on a market reference for the same sector. It is a dimension of the CMA’s role that probably needs more recognition in the new regime and therefore in its eventual organisational structure. If this amendment were adopted, it would give the basis for doing that. I beg to move.
My Lords, let me assure the noble Lord, Lord Whitty, that we totally recognise the need for specialist advice, which already exists in the Competition Commission. The CMA would take that expert body of experience and there is no intention of this being delegated to the staff. The CMA will have independent panellists, who will take on specialist areas, and we will ensure that those panellists take their decisions independently of their parties, of the regulators, of the Government and, indeed, of the CMA board if necessary. They will then deliver their advice to the CMA board, which will make the decision. I believe that this amendment is not necessary and I hope the noble Lord would agree that this deals with his concern. I therefore invite him to withdraw his amendment.
My Lords, I appreciate what the Minister says about the panels. I am not sure that I can identify where that is in the Bill, which was one reason for putting this down. In a sense, it is not about whether you leave it to the staff; it is about whether there is within the organisation the expertise—procedural and legal, as well as sector-specific—that is needed to take these appeals.
As this is the last amendment today, I thank the Minister for his patience, as I thank those of your Lordships who have persevered through the whole of this afternoon on this. I hope that we have at least given the Government some thoughts for improving the Bill. There will be a few issues to which we will return. I would welcome it if someone could write to me about where the panels bit is in the Bill and how the CMA is likely to deal with these appeals in future. For the moment, however, a happy Christmas to everybody and I beg leave to withdraw the amendment.
Amendment 26BE withdrawn.
Clause 46 agreed.
Clause 47 agreed.
Clause 48: Review of certain provisions of Chapters 1 and 2
Amendment 26BF not moved.
Clause 48 agreed.
Clause 49 agreed.
Schedule 15: Minor and consequential amendments: Part 4
Amendments 26C and 26D
26C: Schedule 15, page 231, line 38, leave out “Omit”
26D: Schedule 15, page 231, line 39, at end insert “is amended as follows.
( ) Omit subsections (1) to (3).
( ) In subsection (4), omit “or subsection (3)(a) above”.
( ) In the heading, for “sections 25 and 31” substitute “section 25”.”
Amendments 26C and 26D agreed.
Schedule 15, as amended, agreed.
Clause 50: Interpretation
Amendment 26E not moved.
Clause 50 agreed.
My Lords, this may be a convenient moment for the Committee to adjourn until Wednesday 9 January at 3.45 pm.
Committee adjourned at 7.05 pm.