Enterprise Bill

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Mr. Waterson: Is it not all rather simple? One goes to a company and simply asks what the costs o he investigation were for it. The company can send in its lawyers' fees and the costs can be re-submitted. I do not think that it is that complicated.

4.45 pm

Dr. Pugh: If the hon. Gentleman had listened to me earlier, he would realise that I said that much of the costs were opportunity costs. If it was just a question of lawyers' bills, it would be extremely straightforward, but we will hear about management time taken up in dealing with the issue. In the case of

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big firms with highly paid managements, that is an appreciable cost. It is a lost opportunity cost to them and establishing and quantifying that will never be easy. Although I am in favour of the principle of amendment No. 4, it may achieve less than one thinks and cost more than one imagines.

Dr. Vincent Cable (Twickenham): I welcome you to the Chair, Mr. Beard. I apologise for missing the last section of the discussion. I certainly do not want to waste the Committee's time by duplicating comments that have already been made. Since amendment No. 3 stands in my name, I feel that I should say a little about the rationale behind it. I should also like to say a few words about all the amendments in the group.

It is extremely important to have specific reporting on each of the major decisions that is made by the OFT and that the annual report does not contain just a general statement in the annual report of what it did, but a specific analysis of why particular decisions were reached. There are two reasons for that. First, part of the spirit of the legislation should be about transparency. As Members of Parliament, we can inject two elements into the debate; accountability and transparency. We should always insist on transparency and make it clear why decisions have been reached. That is important partly for people who are out in the markets and in companies who are trying to anticipate what will happen if they go into a merger or takeover. They need to understand the thinking of the board and the Director General of the OFT. The only way of assessing how that thinking is evolving is by understanding, case by case, how decisions are reached.

The Bill sets out some general principles such as competition, which is fine, but there are tough choices to make in determining competition. How does one balance competition against monopoly in cases where there are innovations? How does one deal with a takeover case involving a natural monopoly such as a regional electricity company? The thinking of the OFT will be clear only case by case. It is important that it reports in detail, publicly, on the rationale behind its decisions.

The second reason why reporting is important is because we need some performance measure of the board and the director general. We should have some basis for assessing how well they are doing their jobs. I was not entirely clear from some of the answers that the Minister gave this morning about what the executive board would do. I got a sense that it would be involved in individual decisions. There may be split votes on some of those key merger and takeover decisions. If that were the case, as with the Monetary Policy Committee, it would be important for transparency, clarity and understanding that the outside world, particularly the business that is involved in takeovers, understood where the different members of the OFT were coming from. That can be done only through transparency and by setting out, case by case, how decisions have been reached.

I take a slightly different tack on amendment No. 4 from my hon. Friend the Member for Southport (Dr. Pugh). I do not want to open up splits in the Liberal Democrats over clause 4, but I am rather more

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sympathetic to some of the Conservative suggestions on the need for being very upfront about the costs of compliance. It can be approached in several ways.

The Government, rightly, have been bullied into accepting a regime of regulatory impact assessment; trying to assess, wherever possible, the cost of regulation. I am unsure what sort of regulatory impact assessment was carried out before the Bill was published, but it is surely right to assess costs imposed on companies being investigated or, more generally, the costs of compliance. That is consistent with the principle of transparency and keeping a check on regulation. I put my name to the starred amendment on this subject on those grounds.

The final amendment relates to parliamentary reporting. It would strengthen the legislation if the requirement to report to Parliament were beefed up and made much more explicit. The period of time appropriate for that has been debated. I would go further and prefer the Select Committee to have the power to call the Director General of the OFT and its members to quiz them on the annual report and the decisions that they have taken. It is for the Under-Secretary to face that issue, as she did membership approvals. Some explicit measures should be built into the Bill to give parliamentary reporting and debate a much clearer focus. I support the spirit of all three amendments.

Miss Johnson: First, I agree with Opposition Members that the OFT's annual report should include information about its decisions and investigations. However, the level of specific detail proposed in amendment No. 3 is inappropriate for primary legislation. We intentionally included just the broad minimum criteria that the annual report must fulfil for a reason; to allow flexibility and ensure that the primary legislation stands the test of time. I do not disagree with many of the general remarks of Opposition Members.

In reporting on developments in respect of matters relating to its functions, and on the extent to which it has met its objectives and priorities, the OFT will doubtless need and wish to include the sort of information specified by Opposition

Members. Indeed, the DGFT already includes such information in his current annual reports, and I fully expect the new OFT to continue to do so. As I have explained, it is unnecessary to spell it out in the Bill in such detail.

The hon. Member for Huntingdon mentioned this morning that the annual report presently covers the overall costs of OFT activities and, where possible, breaks them down into consumer enforcement, competition activities and so forth. He asked how much detail on expenditure could be expected.

Mr. Djanogly: My point was rather more specific; that, particularly for larger investigations, there should be a breakdown by investigation.

Miss Johnson: I was going to come on to that in a few minutes and shall do so after I have dealt with the amendments.

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Amendment No. 4 would add a further requirement to the OFT's annual report; that it include in its assessment, along the lines suggested by Opposition Members, the costs to business of its activities. While it is right that OFT considers the effects on business of its action, it is inappropriate and unnecessary to include the sort of assessment within its annual report. As several Opposition Members noted this morning and as was argued in the recent debate between the hon. Members for Huntingdon and for Southport, the act of the OFT collecting information required to make such an assessment might well prove an additional cost to business. I agree with the hon. Member for Southport that an element of opportunity cost is relevant; it is not simply a question of adding up the formal bills that are submitted, as the hon. Member for Huntingdon said.

Mr. Waterson: I am sorry to interrupt the Under-Secretary, but it might be even more difficult if I tried to intervene after she had moved on to another issue. Does a regulatory impact assessment of a Bill such as this take account of opportunity costs? If so, is a formula readily available?

Miss Johnson: I am in danger of losing the thread of my argument, so hon. Members may not receive the answers that they require. I shall come back to regulatory impact assessments in a moment. Let me finish the point that I was making. The decision to investigate markets is taken on the basis of whether the OFT believes that there is a problem. As my hon. Friend the Member for Hemel Hempstead (Mr. McWalter) remarked this morning, such costs are partly determined by the relevant businesses. It is their decision, not the OFT's, whether to employ expensive lawyers and consultants.

Mr. Field: That simply does not face the reality of the position. If a business is going to be hit by an expensive and damaging OFT inquiry, it is perfectly understandable for it to employ the very best lawyers to ward off the potentially catastrophic results of a negative finding. Large companies have grave concerns regarding the broadest base of support. The Monopolies and Mergers Commission, for example–

The Chairman: Order. Will the hon. Gentleman curtail his intervention?

Mr. Field: I am sorry, Mr. Beard. The Monopolies and Mergers Commission has had repeated investigations of particular sectors. What assurance can the Under-Secretary give that the same will not happen with the OFT?

Miss Johnson: I do not accept the hon. Gentleman's intervention. Those who run both competition authorities–the OFT and the commission–say that legal resources are being deployed increasingly on the other side of investigations. It is a trend, but it is not under their control. It is not a fixed cost that can be quantified. Different elements will apply according to the particular investigation. The businesses will choose which lawyers and how many consultants will be employed. It is not the OFT's choice; that is my main point.

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The OFT is given powers for a purpose; to benefit consumers and other businesses where problems with the market are uncovered and remedies are made. As my hon. Friend the Member for Hemel Hempstead argued this morning, where the OFT uncovers a problem with a market and remedies that problem, the benefit goes to other businesses as well as consumers. It is well-nigh impossible to quantify such benefits. It is not simply a matter of sticking a figure into an annual report to provide such information.

As the hon. Member for Eastbourne acknowledged this morning, amendment No. 4 effectively would require the OFT to produce a regulatory impact assessment every year, covering the cost to business of its activities. The OFT will exercise only the powers granted by Parliament; it does not have powers to make regulations as such. As Opposition Members know, all legislation passed by this House is accompanied by a regulatory impact assessment. That is the appropriate time to consider the additional likely costs that new measures will impose.

This morning I was asked about guidance–

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