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30 Oct 2002 : Column 929—continued

7.15 pm

The share of supply test can be useful in the context of horizontal mergers, but it is more complex and cannot be used to bring vertical mergers within the scope of the regime. For example, a merger that was scrutinised last year, the Dynergy/BG Storage merger, would not have qualified under a #100 million turnover threshold, or under the share of supply test. The merger could have affected domestic gas prices and is therefore the sort of case that we would want investigated.

With a very high turnover threshold, we risk missing mergers of small but potentially significant companies with lower market shares, such as IT or biotech companies, which none the less represent a significant threat to established firms. It is because of such examples that the Competition Commission has expressed serious concerns about the impact that a turnover threshold of #100 million might have.

We recognise, however, that the threshold figure is an issue around which there are strong feelings. We have no desire to increase unnecessary regulation in this area, or in any other. We have also noted that the assets threshold of #70 million has not been adjusted since 1994. A review of that figure might have been appropriate before long. We recognise that estimating the practical impact of the new turnover threshold is necessarily an imperfect science, and that it would be unfortunate if we had unintentionally caught too many cases. In the light of pressures for a higher figure, we therefore propose amending the Lords amendment so that the turnover threshold is initially set at #70 million.

We offer this raised threshold amendment with some unease. If it proved subsequently that a significant number of harmful anti-competitive mergers were escaping scrutiny altogether, the Government would have no choice but to reduce the threshold to an appropriate level. We will need to keep the matter under review. I hope that the #70 million threshold will be acceptable to the House.

Mr. Djanogly: In the same way as the Government intend to keep the matter under review with a view to moving the figure downwards, does the Minister accept that it may be more appropriate to move the figure upwards? Will the Government keep an open mind about what the appropriate figure should be after the Bill is enacted?

Miss Johnson: Yes, indeed. We will keep an open mind. The entire discussion is about the methodology of

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achieving in turnover terms the same effect as the asset threshold had before. We want neither to relax the regime nor to tighten it. We need to achieve equivalence; the question is which figure would achieve that. All our research suggested #45 million, but we have not managed to convince others of that, so we are suggesting moving to #70 million. There is a clear indication that were we to move to #100 million, there would be a significant relaxation of the merger control regime, which would be highly undesirable, as I am sure the hon. Gentleman would agree. That is why we have arrived at the #70 million figure.

Mr. Djanogly indicated dissent.

Miss Johnson: The hon. Gentleman shakes his head in a worrying way, but does not wish to elaborate.

The remaining amendments in the group are all primarily technical changes to the Bill to improve its functioning. They reflect work that has been done in the other place to respond to points raised by noble Lords and to check the Bill for accuracy. Unless hon. Members wish me to go through any of the amendments in detail, I do not propose to do so at this point.

Mr. Robathan: It is unfortunate that on such an extraordinarily important and complex issue, which has taken up a great deal of the time of both Houses, with the exception of the hon. Member for North-East Derbyshire (Mr. Barnes) and his supporter, the hon. Member for Hayes and Harlington (John McDonnell), no hon. Member has been willing to speak in support of the Government.

John McDonnell: I was not supporting the Government.

Mr. Robathan: I apologise to the hon. Gentleman for suggesting that he was supporting his Front-Bench colleagues. [Interruption.] I know that he has a reputation to protect. I meant that it is a pity that no Government Back Benchers who served on the Committee or others wished to take part in the debate.

On Lords amendment No. 20, the Government have been pragmatic and sensible, and we shall not oppose the change. Of course, we would prefer to stick with a #100 million threshold. None the less, I think that that is a moot point and a matter of judgment, so perhaps the compromise is a happy one. It is possible that the Government's acceptance of a #70 million threshold represents a recognition that turnovers are currently falling, so fewer people might be caught in that threshold as well.

In the House of Lords, the Government committed themselves to reviewing the level within three years of implementation. The Minister has mentioned reviewing. Will there be a rolling review? Does she believe that she could raise the threshold if the provision proves not to work, as my hon. Friend the Member for Huntingdon (Mr. Djanogly) suggested?

Apart from that, I think that we are happy to accept the amendments.

Dr. Cable: I shall speak very much in the same spirit as the hon. Member for Blaby (Mr. Robathan).

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I accept that the Minister has moved a considerable way towards acknowledging the criticisms about size levelled by the business sector. The worrying aspect of the original discussion was a sense that a number had merely been written on the back of an envelope and that it did not satisfy any scientific tests. I do not know whether the figure is right or wrong, as I am going by the information that I have been given. None the less, I gather that the CBI conducted an extensive survey of UK companies that might come within the Bill's scope in which it cited a ratio of the order of 1.2:1 in describing the relationship between turnover and assets. If that had been applied as an average, the appropriate turnover figure would have been about #85 million. I do not know whether those figures are right or wrong. Clearly, market capitalisation is very volatile and big changes have occurred in the past two years, but that seems a plausible order of magnitude to people in the industry, and I am inclined to accept their judgment.

The key point is that the Government are keeping the matter under review and are committed to the principle of maintaining after the Bill is enacted a number of merger investigations that is roughly equivalent to the number that were conducted previously. I am not entirely clear about when the review will take place. My understanding had been that the Government would reconsider the issue after a year, rather than three years. Perhaps the Minister could clarify that point.

In general, however, I think that the compromise that is being offered is helpful and is a move in the right direction. I am sure that most people in the business sector will accept that the provision is a useful move towards meeting their concerns about over-regulation.

Mr. Djanogly: In supporting the comments of my hon. Friend the Member for Blaby (Mr. Robathan), and having examined the debate on these matters that occurred in the other place, I should like to say that there seemed to be some justification for the #100 million figure. However, I was happy to hear the Minister say that an open mind would be kept on the matter and that it would be reviewed.

In introducing the Bill, the Government's clear intention was to help enterprise by inducing a competitive environment and a level playing field. That has been accepted in all parts of the House. On the other hand, at various stages in the Bill's passage, Opposition Members have stated our concern that, rather than helping competition, the Bill borders on restricting the ability of companies to trade and is unnecessarily onerous for directors.

The turnover benchmark key in that context is obviously a very important issue. The merger rules are very complicated. Companies and directors that become involved in any sort of investigation must contend with enormously significant costs and a massive amount of time will be taken from them in running their businesses. There is always a fear in respect of such legislation that the OFT and the Serious Fraud Office, which will now get the same powers, will embark on fishing expeditions.

After the Committee proceedings, the Minister should know that, having spoken to a competition legal practitioner, my understanding is that the OFT has recently changed its procedure. The OFT is not only investigating companies, but putting in place a new

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procedure in which it asks companies to conduct its investigations on its behalf. It will basically send the companies lists of matters for investigation and ask them to come up with the goods. That is a serious development. Instead of having a certain amount of costs carried by the OFT, companies will now have to cover those costs themselves. In other words, they will have to employ professionals to do the OFT's work. Such concerns are very serious and are becoming more so.

The turnover threshold is extremely important in that context. The concern is that, if we do not get the level right, it could stunt the growth of some of our fastest growing companies. We should want to encourage those companies, instead of restricting them with unnecessary regulation and cost. Obviously, stopping their growth will be bad for the economy overall.

While I certainly appreciate that the #70 million figure is better than the original one, companies and practitioners have communicated genuine concerns to me. I therefore hope that the Minister and the Government will keep to what they have said about reviewing the figure carefully and seeing how it works in practice.

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