Previous SectionIndexHome Page

Mr. David Ruffley (Bury St. Edmunds): Will the right hon. Lady clarify the concepts of dishonesty and recklessness that are, I understand, at the heart of the culpability test? Will they be defined according to the criminal standard of proof—that is, beyond reasonable doubt?

Ms Hewitt: This part of the Bill deals with civil proceedings, so we are talking about a civil standard of proof. The same applies to the new bankruptcy restriction orders.

10 Apr 2002 : Column 53

I stress that we also want to ensure that companies do not go to the wall unnecessarily. That is why the Bill would restrict in future the use of administrative receivership, which places effective control in the hands of a single secured creditor. Instead, we shall shift the balance in favour of the new streamlined administration procedure that aims, as I said, to facilitate company rescue and to produce better returns for creditors as a whole. The reforms will ensure that account is taken of the interests of all creditors, including small firms and other trade creditors whose claims are unsecured.

The Bill will abolish the Crown's preferential rights to recover unpaid taxes ahead of other creditors. That, too, will bring real benefits to unsecured creditors. We are also including measures that contribute towards reforming the Insolvency Service's financial regime, to bring increased transparency and simplicity. That will ensure that money does not flow, in effect, from the coffers of the creditors into the coffers of the Treasury. The reforms will ensure that the maximum possible return goes to insolvent estates. Together with the abolition of Crown preference, those two provisions will make up to £110 million available for distribution to all creditors.

The measures in the Bill are radical and bold, but based on careful and extensive consultation. They will benefit businesses and consumers by hundreds of millions of pounds. They will boost productivity and enterprise, help our international competitiveness and make the United Kingdom an even better place in which to do business and to be a consumer.

As I have emphasised, the Bill has attracted widespread support which will, I hope, be reflected in our discussions today and during its passage. I commend the Bill to the House.

5.27 pm

Mr. John Whittingdale (Maldon and East Chelmsford): The measure has been described as the flagship Bill of the Department of Trade and Industry. It consists of 269 clauses and 26 schedules, running to 333 pages; and there are 139 pages of explanatory notes.

It is true that many of the main principles of the Bill are not matters of controversy between us. However, I am sure that the Secretary of State will agree that the effects of the Bill are likely to be far reaching—across the whole of industry; and that the measure represents a major change in the law governing commerce and business in the UK which is likely to affect every company in the land.

Given those facts, it is extraordinary that a Bill of such complexity is to be pushed through Parliament with so little opportunity for detailed scrutiny and debate. In her speech, the Secretary of State made much of the fact that business had welcomed the amount of consultation that had taken place while the Bill was being drawn up. I think that she specifically referred to the CBI, so I draw her attention to a speech given a few days ago by the deputy director general of the CBI, especially the section entitled "Lack of real consultation". He said:

10 Apr 2002 : Column 54

The innovation for which the Government are responsible—subjecting Bills to pre-legislative scrutiny—has undoubtedly improved the process of law making, but if ever there was a Bill that would have benefited from such scrutiny, it was this one. Instead, however, its publication was delayed and delayed until finally it appeared on the very day that the House went into recess for Easter. Just 15 days later we are giving the Bill a Second Reading, with almost no time for those with an interest to study it and make comments. Worse still, the motion on the Order Paper requires its Committee stage to be completed by 14 May, less than five weeks from today. By any consideration, that gives remarkably little time for proper scrutiny of what the Government themselves claim is a measure of great importance.

It is not entirely clear why there is any such need for haste, as only a few years ago the Government passed the Competition Act 1998, which was described at the time as the most radical overhaul of our competition laws for 50 years. Indeed, on Third Reading, the then Minister of State said:

Here we are, however, a few years later, debating a Bill that overturns several of the principles contained in the Competition Act and establishes new rules and powers that go far further than those allowed for under that Act.

Can we conclude, therefore, that the regime established by the Government, which has only recently come into force, has proved to be neither modern nor effective? If so, what is the evidence for that? Will the Secretary of State tell us which anti-competitive practices have continued to occur that the powers contained in the Competition Act 1998 have proved inadequate to prevent?

Lest there be any doubt, I should say that we are strongly in favour of a strong and effective competition regime. Although I am a believer in free and competitive markets as the ultimate protection for the consumer, I fully accept the need for tough laws to prevent abuse of market power and anti-competitive practices. Just as the vast majority of people in this country are law-abiding, so are most firms happy to win business by offering customers what they want at the best available price. However, there will be some who try to take advantage of their market strength to seek to eliminate their competitors by predatory pricing or by collusion with competitors to fix prices or markets behind closed doors.

The purest free market thinkers, with whom I have traditionally had some sympathy, believe that the market will always win, and that when a firm seeks to take advantage of its elimination of its competitors or a price is fixed by a cartel of producers, a new entrant will always come along to undercut it. However, that takes no account of the damage suffered in the meantime by competitive companies and consumers as a result of market abuse. Therefore, I agree with the Secretary of State that legal sanctions are required to deter such practices, and I do not oppose measures designed to achieve that.

There are several specific measures in the Bill to which we are happy to give unqualified support. The first is the decision to remove Ministers from the decision-making process on the clearance of mergers. I should declare that I had some experience of such matters when I worked as a special adviser to Norman Tebbit, the then Secretary of

10 Apr 2002 : Column 55

State. Lord Tebbit established the Tebbit guidelines, which required that merger references should be made primarily on competition grounds, rather than on any of the wider considerations contained in the Fair Trading Act 1973. The proposal to remove Ministers from the equation entirely and to leave matters to competition authorities is in some ways the ultimate application of the Tebbit guidelines, although knowing that may not increase the Secretary of State's enthusiasm for her policy.

Mr. Lansley: Will my hon. Friend give way?

Mr. Whittingdale: I am delighted to give way to my hon. Friend, who had the same experience as I did at that time.

Mr. Lansley: I am grateful to my hon. Friend, although for accuracy's sake I should point out that I was a civil servant at that time, not a special adviser. However, I did have the same experience. Would my hon. Friend agree that, whereas the Secretary of State implied that the measure should have been undertaken earlier, the whole point of the application of the Tebbit doctrine by subsequent Conservative Secretaries of State was that competition was given primacy? A degree of predictability in the market place was therefore engendered, which has been lost in recent years by the apparent unpredictability of decisions made by Labour Ministers. Is it not an implied criticism of her predecessors that the Secretary of State is taking this step?

Mr. Whittingdale: I agree with my hon. Friend. It is a matter of some sadness that subsequent Secretaries of State did not apply Lord Tebbit's guidelines with the same rigour as he always did.

Having welcomed some parts of the Bill, I shall explore some of the concerns that have been expressed, in particular by the CBI, about some aspects of the new competition regime—concerns that I think should be addressed. The new powers to be given to the Office of Fair Trading to investigate markets to identify and root out anti-competitive practices are considerable. Supporters of the Bill argue that those who are innocent of any such behaviour should have no reason to be concerned, but it is not true that those who are investigated and cleared of any wrongdoing face no penalty. The truth is that those who are subject to investigation are required to devote huge amounts of time and resources to proving their innocence. In some cases, they have had to do so repeatedly, as no sooner are they cleared of any malpractice in one investigation than they face another investigation—one that seeks to uncover evidence that the previous investigation failed to find.

That has certainly been the case in the record industry, which has repeatedly been accused of rigging the market to maintain an artificially high price for compact discs. In 1993, the industry was subjected to an investigation by the Monopolies and Mergers Commission which lasted for a year and which cleared the industry of any wrongdoing. The MMC's subsequent report ran to 350 pages, and the total cost of that investigation to the industry in terms of professional fees and management time was estimated to have been between £17 million and £20 million. None the less, in the past three years the

10 Apr 2002 : Column 56

industry has had to contend with five more separate investigations, none of which has overturned the MMC's original conclusions.

There is genuine anxiety that the OFT might come under pressure from consumer groups and the media to hound particular industries such as supermarkets, newspaper owners, petrol retailers, or indeed record companies, if there is a popular view that anti-competitive practices are rife, even when previous inquiries have found no evidence to support that view. I hope that the Secretary of State will consider the representations made by business about the need to set stricter criteria that have been satisfied before an investigation can be launched. I hope, too, that she will consider the case for allowing businesses that are subject to an investigation in which no evidence of inappropriate behaviour is found to seek compensation for the costs that they have incurred.

The provision of the Bill that has given rise to most controversy is the proposal to impose criminal sanctions on those found guilty of anti-competitive practices. I share the Government's view that those who participate in cartels or other anti-competitive practices are guilty of theft, both from consumers and often—and just as important—from other, small businesses. I therefore agree in principle that the penalties must be sufficient to act as a strong deterrent, and it may well be that fines—even at the punitive level provided for by the Competition Act—are not enough. However, we want the Government to tell us why they believe that that Act is failing in that respect, and why they think the fines now available to the courts are an insufficient deterrent. So far, only one fine has been imposed by the OFT under the Competition Act, so it seems a little early to conclude that it is not working.

The Government must also explain why they are now departing from the European model, in which criminal penalties are usually not available, and seldom applied if they are available. On Second Reading of the Competition Act, the then Secretary of State criticised the existing law, saying:

Yet that is precisely what might now result from the Bill. If a company is found to be in breach of EU competition law it may be subject to a civil administrative fine, while those found guilty of the same offence in the UK face criminal proceedings and imprisonment. As one European official has pointed out, that might mean that a double glazing salesman who fixes prices in the local pub can be sent to jail, while the biggest pan-European cartels risk at most administrative fines on their companies.

There is also concern that the provisions recently introduced by the Commission to encourage whistleblowing might be undermined if the Commission is unable to guarantee immunity from prosecution in the UK. The creation of a leniency regime allows this issue to be addressed, but the process lacks transparency and appears to give considerable discretion to the prosecuting authorities. We shall be looking to the Government to provide certainty in this area and for assurances that they will be willing to work with other competition authorities to ensure that whistleblowers are not deterred.

In large part we welcome the provisions that deal with consumer protection laws, but the increased powers for consumer groups give rise to some concern. The

10 Apr 2002 : Column 57

super-complaints provision should allow malpractice to be dealt with quickly, but it must not allow consumer groups to set the priorities of the OFT. Such complaints clearly merit urgent consideration, but the OFT must retain the right to decide whether immediate action is justified. It is clearly essential that such complaints be subjected to the same degree of scrutiny by the OFT as any others.

Perhaps of greater concern is the power to allow consumer groups to bring representative actions for damages. This risks turning consumer organisations from lobbying groups into prosecuting authorities, thus supplanting the role of the OFT. Should such actions be successful, it will be hugely difficult to quantify damages, and even harder to decide their distribution.

In the United States, which we are told is the model for the Bill, the original Sherman Act gave injured competitors the right to seek treble damages for any violation of anti-trust laws. Consumers, too, are able to bring actions in the US if they are directly and adversely affected by a price-fixing conspiracy. However, the power proposed in the Bill goes considerably further than that which exists in the US, and risks creating huge additional burdens on business.

The final part of the Bill is intended to reform and modernise the UK's insolvency and bankruptcy laws. Not being a lawyer, I admit that it is something that I struggled with when researching the Bill. However, it is of huge importance and a matter about which we have the most concerns. The Government's stated objective is to encourage a climate of entrepreneurship along American lines where business failure is not a mark of shame but evidence of economic dynamism and risk taking.

That is an aspiration that we understand and share. However, it is not possible to legislate to transplant an American-style entrepreneurial climate into the UK. There is a real danger that the Government's proposals may end up making it harder for fledgling businesses to attract support, while at the same time encouraging reckless personal behaviour.

We give an unqualified welcome to the abolition of Crown preference, which is long overdue. It is both absurd and unjust that the Government, who are better placed than any other creditor to absorb any losses incurred when a company becomes insolvent, should somehow take priority over ordinary trade creditors, many of whom may depend on being paid for their very survival. The provision has been widely welcomed by business organisations and lenders, and it is one that we are happy to support.

The case for the abolition of administrative receivership, except in specific circumstances as set out in the Bill, is less clear. It was not contained in the recommendations of the review of company rescues and business reconstruction mechanisms, which was set up by the Chancellor of the Exchequer and the Secretary of State and published in November 2000. Yet the Government's intention to abolish ARs was announced by the Chancellor only seven months later.

The Government's justification for doing so is that the AR procedure puts too much power into the hands of one group of creditors at the expense of those who are unsecured. It is claimed also that it gives the administrative receiver a primary obligation to recover the debts of the appointor rather than an obligation to treat all creditors equally. Yet there is considerable evidence that

10 Apr 2002 : Column 58

the AR procedure has worked quite well and that it has proved successful in many instances in rescuing companies in difficulties rather than burying them.

The ability of a lender to impose a floating charge, together with the power to appoint an administrative receiver if necessary, has encouraged lenders to be more flexible and to support companies that run into difficulties. By removing this power, the result may well be that lenders will be less flexible and more risk averse. It is therefore not only the businesses that go into administrative receivership each year that will be affected, but potentially every business that is seeking financial support. There is a real danger that as a result of this measure banks will be less inclined to lend, or will lend more expensively, and that the businesses that the Government are seeking to help will be the ones that suffer as a result.

Next Section

IndexHome Page