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House of Lords Hansard
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Competition (Amendment etc.) (EU Exit) Regulations 2019
04 December 2018
Volume 794

Motion to Approve

Moved by

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That the draft Regulations laid before the House on 29 October be approved.

Relevant document: 5th Report from the Secondary Legislation Scrutiny Committee (Sub-Committee A)

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My Lords, the UK has a world-renowned competition regime, but currently the domestic system is highly integrated with the EU competition system. The primary aim of this SI, therefore, is to remove provisions in domestic legislation associated with being part of the EU competition system. While the draft withdrawal agreement with the EU sets out separation arrangements on competition, the Government are preparing for all contingencies. Should we leave the EU without an agreement in place, this statutory instrument will minimise the litigation risk for the Competition and Markets Authority and provide legal clarity and certainty for businesses and consumers; that is why the statutory instrument is before the House today.

The Secondary Legislation Scrutiny Committee has drawn this SI to the special attention of the House on the ground that it gives rise to issues of public policy likely to be of special interest. As the Scrutiny Committee correctly noted in its report, this statutory instrument makes amendments to the Competition Act 1998 and the Enterprise Act 2002, and makes provision for incorporating European block exemption regulations. I will set out the main changes made by the SI, including those raised by the Scrutiny Committee.

First, the Competition Act 1998 sets out prohibitions against anticompetitive conduct in the UK and empowers the CMA and sector regulators to investigate and take enforcement action against infringements of those prohibitions. The Competition Act, together with EU regulations, also empowers the CMA to investigate and take enforcement action against infringements of EU competition law and provides for investigation co-operation between the CMA, the European Commission and member states’ national competition authorities. This SI amends the Competition Act to remove the CMA’s power to investigate anticompetitive agreements under EU competition law, as it will investigate solely under UK law after exit.

The Scrutiny Committee noted that the SI makes provision for the continued application of pre-exit EU competition case law of the Court of Justice of the European Union after exit. The committee is referring to changes the Government have made to Section 60 of the Competition Act. Currently, Section 60 of the Competition Act provides that competition regulators and UK courts must interpret UK competition law in a manner consistent with EU competition law. The statutory instrument revokes Section 60, as it is inappropriate and contrary to the withdrawal Act to require UK courts to follow ECJ case law after exit. It introduces a new Section 60A, which provides that UK courts and regulators will continue to ensure consistency with pre-exit EU competition case law when interpreting UK competition law, but they may depart from that case law where appropriate in specified circumstances. This approach aims to provide consistency and clarity in the law for courts, regulators and businesses, which look to legal precedent when interpreting the law, while also allowing the competition regulators and UK courts to depart, where appropriate, from EU case law.

With respect to private damages claims, claimants can currently pursue follow-on claims in UK courts, based on enforcement decisions of the European Commission and the CMA. After exit, claimants will still be able to bring private damages claims in UK courts; however, UK courts will not be bound, as a matter of statute, by European Commission decisions. This approach aligns with the European Union (Withdrawal) Act, which provides that UK courts will not be bound by decisions of EU courts after exit.

Under the current system, the European Commission makes block exemption regulations, which exempt certain categories of agreements from EU competition law, where they are believed to have a neutral or beneficial effect on competition. Agreements which benefit from an EU block exemption are also exempt from UK competition law. At exit, all of the seven current block exemptions will be incorporated into UK law, as retained block exemptions. Agreements that meet the terms of the retained block exemptions will continue to be exempt from domestic competition law. This statutory instrument amends the retained block exemptions so that they operate effectively in domestic law. It also empowers the Secretary of State to vary or revoke the retained exemptions.

I turn to the Enterprise Act 2002, which contains the rules on mergers. Currently the CMA is responsible for investigating mergers to ensure that they do not have anti-competitive effects in the UK market. However, if a merger triggers the turnover thresholds set out in the EU Merger Regulation, it is reviewed by the European Commission, including the UK aspects of the merger. After exit, the EU Merger Regulation will no longer apply in the UK, and the UK dimensions of mergers will be reviewed solely by the CMA. The statutory instrument amends the Enterprise Act to remove references to the EU Merger Regulation and other provisions related to being part of the EU’s one-stop shop for merger clearance in the single market. This statutory instrument also makes transitional arrangements for CMA anti-trust and merger cases that are live at the point of exit, so that those cases can continue to be managed effectively.

Anti-trust law protects consumers from anti-competitive behaviour. Similarly, merger control is an important component of a healthy and growing economy. It is vital that we safeguard the legal framework that protects consumers and our competitive market. This statutory instrument achieves these goals by maintaining the strength of the UK’s current competition system, while making only those changes designed to separate the UK competition system from that of Europe in a no-deal scenario. I commend the regulations to the House.

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My Lords, unlike my noble friend Lord Kirkwood, I have not sat on the scrutiny committee so some of my questions may appear a trifle naive to more learned Members, for which I apologise in advance. I ask the Minister to bear with me.

The regulations address deficiencies in competition legislation arising from our exit from the EU. As I understand it, we will no longer be part of the EU competition system. Can the Minister say how this is likely to affect our ability to tender for EU contracts? Currently we do very well in tendering for and obtaining EU contracts. Am I correct in supposing that we will lose our ability to tender for EU contracts? If so, what estimate have the Government made of the loss of value that this will have on the UK economy? Perhaps the Minister can help me; there is no impact assessment because, according to the text, the SI is supposed to have no effect on private businesses and charities.

The regulations come into force on exit day. But when, if ever, will exit day be? Unless the very worst happens, presumably it will not be 29 March 2019. We understand that we are not going to crash out—that is not going to be allowed—but, on the legal information to which we have not been privy and on which they are voting right now in the other place, presumably exit day could be years away, if ever. The only way that the British people can know is to have a say on the deal that Mrs May has negotiated and vote to the end the madness and remain.

We have the advice of the chief legal adviser to the EU that we could pull out of Brexit with no penalty right now. I appreciate that if Brexit continues to prevail, we have to have a plan. Having retained much existing EU law, we have to pick through the bits of legislation which will not apply or which are unlikely to work once we have left. These regulations relate to inconsistencies in competition law in the event of the worst possible piece of self-harm that the British people have done for generations—a no-deal Brexit.

The regulations relate to infringements of and exemptions from competition and merger law. Part 2 of the regulations is “Amendment of the Competition Act 1998”. Part 3 is “Amendment of the Enterprise Act 2002”. Part 4 is “Amendment of other primary legislation”. Part 5 is “Amendment of subordinate legislation”. Part 6 relates to amending and revoking retained EU law, and part 7 is “Saving and transitional provision”.

I am no legal expert, as I am sure has already become apparent to noble Lords, but the fact that no impact assessment has been produced because no significant impact on the voluntary or private sector is foreseen suggests to me that it is hoped that this is merely a tidying-up exercise. It may be technical, but I still fail to see why there is no impact assessment on what impact this competition crisis will have on our ability to trade and compete with our biggest market, indeed, the biggest single market in the world.

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My Lords, my understanding is that these draft regulations will apply only if we crash out or similar with no deal at the end of March next year. As the noble Baroness said, there are some interesting questions, to which we need answers.

I should like to get some answers from the Minister about what happens to some of the cases that are being considered at present by either the CMA or the European Commission competition authorities. Such cases run for years. They may have started now, but they certainly will not finish. Presumably anything that starts before 29 March next year will continue to some conclusion by the competition authority in the Commission. Is there a time limit on that? How will the relationships between the UK parties, if you like, and the Commission and the other parties be handled in that transition period, which may go on for a great deal longer than any transition that the Prime Minister may be negotiating? Some of these competition cases go on for years.

One case I have got slightly involved in watching is between two railway manufacturing companies, Siemens and Alstom. Siemens has its head office in Germany and Alstom has its head office in France, I think. They have been proposing a merger of all their businesses for several years now. The European Commission has got to the stage of issuing something that is not technically an opinion, but seems to me to be an opinion, which suggests that a merger would be a bad idea for competition across Europe in the whole railway sector. The companies appear to have been trying to promote the merger as a way of preventing Chinese industries taking over everything in Europe, including the UK. Both companies have subsidiaries in the UK; some make trains, some make signalling and some do other things. If that merger went ahead on the continent—within Europe—could the CMA stop a merger between their subsidiaries in this country, or vice versa? How would it work? If they wanted to merge in this country, would the CMA’s decision apply in Europe?

Presumably, if any of this is to work at all, there has to be some communication between the CMA and the European Commission’s competition department on issues such as this. I would welcome a comment from the Minister as to how that conversation—it may be only a conversation—would happen and the extent to which a decision by one party would be binding on the other. I look forward to his comments.

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My Lords, I am very grateful to the Minister for letting me have a letter before this debate; it came in good time and was correctly addressed. I am sure he will be delighted to know that our discussion across the Dispatch Box in the Moses Room on our previous SI has borne perfect fruit, and I have enjoyed being able to get myself up to speed before dealing with the matter at hand.

I am looking forward to the Minister’s comments on the points raised by the noble Baroness, Lady Burt, and my noble friend Lord Berkeley. Between them, they have exposed some of the difficulties with this SI. Although there is very little that one would object to in what it tries to set out, it raises a number of doubts and concerns about the process that has been going on which are not entirely related to Brexit. Many of the SIs that we are seeing under the general heading of “EU exit regulations” are effectively cut-and-paste, substituting “UK and its institutions and authorities” for “EU”. But in a case such as this, which, as my noble friend says, could go on for years and may have to be transferred across and dealt with under joint arrangements, there is material that is subject to fine investigation and discussion. It affects thousands of consumers in many countries and many areas, and there are difficulties in trying to calibrate that effectively. It is not quite the same as the general ones. I just wanted to make that point.

There are general questions here as well as specific ones about the documentation, and I will cover both sets of questions as I go through it. My main concern relates to paragraphs 7.3 and 7.4 of the Explanatory Memorandum, which is otherwise very good and very clear. I thank the officials for their work on it. We miss impact statements, which are often a source of much more information about the issues before us, but in their absence the Explanatory Memorandum is very good. The first and main point here is the Government’s decision—there are other ways of dealing with this issue—to repeal Section 60 of the Competition Act, which provides that, as far as possible, the CMA and UK courts must interpret UK competition law in a manner consistent with EU competition law. There is a straightforward issue here about whether that would be appropriate in a no-deal Brexit situation. The Government could have had a number of options here, one of which would have been to be more generous in terms of the wish to see the best jurisprudence brought to bear on any cases that might be in front of the CMA. They could choose not to disallow the interpretive obligation but would take it as appropriate, or some other wording. That would have been a way of ensuring that the best decisions were reached even though it might transgress a red line on the role of the courts in the EU post a no-deal Brexit.

If that is the issue, have the Government got it right by repealing Section 60 and bringing forward a modified section, Section 60A, to replace it, which provides in some detail that the competition regulators and the UK courts will continue to be bound by an obligation to ensure that there is no inconsistency with pre-exit EU competition case law but makes it impossible to bring in any jurisprudence that takes place afterwards except in limited circumstances? I am sure that Ministers have thought about this carefully and I would be grateful if the Minister would share with us a little of that thinking. It seems to me that, in an attempt to give expression to the red-line areas, they are causing what might turn out to be a legal—I am trying to think of the appropriate word—

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Minefield?

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Feast, for those who have interests in these matters. This is a bit of a dripping roast, if you do not mind me mixing my metaphors.

The point is that, in attempting to find a way of arguing that there should be no leakage of EU jurisprudence into decisions post-crash-out Brexit, the wording used—the solution mentioned in new Section 60A(7)—provides that the relevant court or decision-maker may disapply the interpretative obligation if they consider that to be appropriate in the light of various criteria, one of which is a post-Brexit development in EU law. However, it goes on to say that other criteria may include—these are terms used in the regulations but there is no apparent way of checking back to see what they mean in fact—differences between EU and UK markets, development in economic activity, generally accepted principles of competition analysis, and the particular circumstances under consideration. Like the noble Baroness, Lady Burt, I am no lawyer, and I am not trying to pretend to be one, but that wording is very open and, presumably, will be subject to a lot of discussion and debate.

Those criteria are wide-ranging and broadly expressed and their interpretation is likely to be the subject of considerable debate in many quarters up and down the land. My point is narrow in the sense that the Explanatory Memorandum is perhaps, as I hope the Minister will agree, somewhat optimistic in stating that the provision,

“will provide UK courts and competition regulators with clarity as to how Chapters I and II are to be interpreted after exit”.

I do not think that it is clear at all. I think it is raising a huge amount of interpretative, probably good and proper, debate but it is not providing the sorts of certainty that businesses want as the transition goes ahead. I will leave that point there.

The other relevant point is that there will be transition from a system which is largely co-operative and run across national boundaries under an EU regulatory regime to one that is UK-only, based on UK legislation and UK activities, in this case by the CMA and by other regulatory bodies that have authority.

I do not want to overegg the case but the worry is whether the CMA will be properly resourced to undertake its antitrust responsibilities as well as the responsibilities relating to the new state aid rules. The CMA itself has said that it will need to carry out a lot more work on more complex cases. It is apparently working on secondary legislation that will facilitate that, and is also increasing staff numbers. That is probably the right response to the problem—both previous speakers raised these issues—but, if that is the case, we are not seeing the last of the legislation that will relate to this. Presumably, we are being promised further secondary legislation to tie up some of the issues that the CMA may wish to raise on its own. Therefore, we are not doing the cut-and-paste job that I criticised the Government for doing. Will the Minister confirm that that is the case? If so, what is the likely timetable and change that we can expect? In particular, will there be more statutory instruments on this set of laws before we reach exit day? It would be nice to know if that is to happen.

My other points are relatively minor. They also relate to the Explanatory Memorandum, in particular, the question raised in paragraph 7.7. There is a slightly convoluted expression of how timetables work on transitions. It states:

“For the purposes of calculating the limitation period to bring these claims in respect of a case which the European Commission has not concluded before exit day, the period before exit during which the European Commission was investigating will not be counted when calculating whether the time period to bring a standalone claim has expired”.

That may make sense in the real world, but I could not understand it. Can the Minister explain it to me from the Despatch Box or, if necessary, write to me, so we can be clear?

The point here is that there are implied restricted timetables for people who want to make claims in any case over which the UK authorities have control. How do they fit in to where we will have got to at exit day in relation to claims being held under the European Commission? Is there an issue there which we should be aware of? There may not be, but I should like that confirmed.

The Minister spent a lot of time on the block exemption regulations. I do not have much to say on that. It is a difficult area of law because of its subjective nature, but there is another issue about timescale in paragraph 7.18. I do not want to go into detail about it now, but again, if the Minister could write to me about it, I should be very satisfied.

Finally—this is a particularly narrow point—paragraph 7.21 states that the regulations amend secondary legislation related to the Enterprise Act, as the Minister said. It states:

“These changes include amending the definition of insurance undertaking and financial institution so that the statute book is functional after exit”.

I have no complaint about that. But it continues:

“These amended definitions correct deficiencies but do not contain any substantive changes to the definitions”.

I have read them. I do not see many changes. Perhaps the Minister could respond to that now or write to me about it. I want to be sure that the exact nature of the changes is clear and that they have been exposed in this House.

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My Lords, I thank all three speakers for their comments and questions and shall endeavour to answer as many as possible. First, I emphasise that, as with other statutory instruments that will be coming before the House, these are no-deal regulations. If there is a deal—if everything goes through—they will not be necessary. I do not know where they will sit, but they will gradually perish, die or whatever.

There will be more regulations—I am not absolutely sure whether there will be more regulations on this specific subject—and the noble Lord, Lord Stevenson, and others will be debating them with me in due course, and I am sure we will have a busy time over the coming months. I hope that we will at least get a break for Christmas.

I can assure the noble Baroness, Lady Burt, that the regulations will not affect our ability to tender for contracts. They are merely about mergers and anti-competitive behaviour. Ability to tender for contracts is a matter for debate on another day. She also asked about the impact of the regulations. I can assure her that they will have minimal impact on the taxpayer and businesses, as the changes in the instrument only remove deficiencies and enable the statute book to continue to function after exit. This statutory instrument aims to create clarity in law, which would minimise litigation risks. Most of the costs associated with the changes to the competition regime flow directly from EU exit, not from this statutory instrument. There may be some cost to business associated with familiarisation with the regulations, but that is the case with any legislation.

The noble Lord, Lord Berkeley, asked what happens to live cases at exit. In a no-deal scenario—I re-emphasise that that is what we are talking about—there would be no agreement between the UK and the EU on jurisdiction over UK aspects of live cases. This instrument does all it can unilaterally to clarify jurisdiction and provide clarity and certainty in the event of that no-deal exit. After exit, the CMA may conduct investigations into breaches of UK competition law that occurred before or after exit day, including live European Commission cases. In practice, I believe that the CMA would undertake a review to ascertain, among other things, the litigation risk and impact on UK consumers of opening an investigation. But if the European Commission has reached a decision before exit, the CMA will not have the power to open a new case.

The noble Lord also asked what would happen to live merger cases. It does all it can to clarify the jurisdiction in the event of a no-deal exit. At the point of exit, the EU merger regulation no longer applies. Consequently, if the European Commission has not issued a decision before exit, that regulation will not prevent the CMA taking jurisdiction over the UK aspects of the merger. The Government recognise the importance of continued co-operation between the CMA, the European Commission and national enforcement agencies. In a no-deal scenario, the Government would seek to establish bilateral or multilateral co-operation agreements with key member states and the European Commission as soon as possible.

The noble Lord, Lord Stevenson, also asked about changes to Section 60. There is a deficiency in the wording of the current section, because it requires UK courts and regulators to act consistently with EU law. The Government have therefore removed the section and introduced the new Section 60A. This provides that UK courts will continue to be obliged to ensure consistency with pre-exit EU competition case law when interpreting UK competition law, but allows them to depart from such pre-exit law where it is considered appropriate. That would be a matter for the CMA in the light of specified circumstances. This approach will provide continuity and consistency in the law for businesses and consumers, as pre-exit EU competition law will form the bank of case law from which courts and regulators will draw, while also allowing them to diverge from old case law where appropriate.

The noble Lord, Lord Stevenson, also asked what regard the courts would have for decisions of the European courts after our exit. The withdrawal Act is clear that the UK courts will not be bound by any judgment of the European courts after the UK exits the EU. However, it will be possible for UK courts to have regard to such judgments, so far as they are relevant to the matter before the court. The noble Lord also asked about the clarity of the wording of the new section. We believe that the changes to Sections 60 and 60A are targeted, reasonable and proportionate. They will reduce litigation risk for the CMA and provide courts and businesses with legal clarity.

The noble Lord, Lord Stevenson, also asked about resourcing for the CMA. We are confident that it will be ready for exit day and it continues to plan for such an outcome. My department continues to work with the CMA to ensure that this is the case. It will obviously represent a significant challenge but it will also be an opportunity for it. The National Audit Office reviewed the CMA’s exit planning and readiness and concluded that it has robust plans in place to take on a larger competition case load. As part of the Spring Statement, the Chief Secretary to the Treasury announced that the CMA had been allocated an additional £20.3 million in 2018-19 for competition, in preparation for the EU exit. The Treasury has received the CMA’s bid for additional funding for EU exit preparations in 2019-20. We will be announcing further details in due course.

The noble Lord also asked about the time limits in paragraph 7.7 of the Explanatory Memorandum. If the noble Lord is content, I would prefer to write to him on that matter, and obviously I will write on any other matters that I have failed to address. But I think that I have picked up most of the points.

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Before the Minister sits down, can he confirm that these regulations are simply to ensure a smooth transition if we finish up with no deal, meaning that we would have a smooth transition in that eventuality? Is it appropriate for us to keep on calling it “crashing out”?

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I have never used the expression “crashing out”, but I am grateful to my noble friend for making that point. These regulations, and a whole series of other regulations which I and other colleagues will be bringing before the House, are entitled “EU exit regulations”, and they are for dealing with that eventuality. It is essential that we make the right preparations for a no-deal situation, and this statutory instrument is part of that. It provides clarity for businesses and the clarity that will reduce litigation risk, protect consumers, and provide for a smooth transition from the current system in the EU to a stand-alone UK competition regime.

Motion agreed.