Enterprise Bill

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Mr. Andrew Lansley (South Cambridgeshire): It is a pleasure to join the discussion of the Committee at this point. I do not want to detain the Committee for very long because, as my hon. Friends and other hon. Members have made clear, there is a connection between what we have to discuss now, and what is to come in relation to clause 20.

If we do not later consider amendments relating to the criteria that the OFT were to apply in

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circumstances where it would have a requirement to make a reference, and no discretion whether or not to do so, the issue of the requirement on the OFT will be given a particular weight. At this stage, we have to consider whether it is right to say, as my hon. Friend the Member for Huntingdon was contemplating, that there are no circumstances under which it would be appropriate for the OFT not to make a reference, even though it were satisfied that the current criteria set out in subsequent subsections would be satisfied. That is connected with the issue of the use of a substantial lessening of competition test.

The Government, in amendment No. 176, are trying to make their expression of substantial lessening of competition even clearer. There is, as we know from amendments such as No. 214, an arguable proposition that we need to think about other ways in which the absence of competition may not necessarily lead, in the OFT's view, to a requirement to make a reference.

It is conceivable that in the changes that are yet to come to the European Community's merger regulation, we would want discretion to allow the OFT to take account of those criteria in future decisions over references and incorporate them into its guidance, even though they may not be wholly on all fours with the structure of the statute. We are not trying to draft the clause in the same terms as the EC legislation, following how the European Commission would apply mergers policy, and we cannot know precisely how the Commission will do so in the future. It therefore seems all the more appropriate to leave ourselves a bolthole.

If merger policy at a European level were to consist of something subtly different from the clause, which the Government may change over time, the OFT should have a competition test, in the absence of something as vague as has been applied by Ministers; a public interest test with a political emphasis. None the less, having accepted those basic principles, there are technical and economic features of certain merger applications that would lead the OFT to conclude that it should not be necessarily the subject of a reference. On that basis, it seems to me that my hon. Friend the Member for Eastbourne and the hon. Member for Twickenham have done a service by bringing the issue forward so that the Under-Secretary can explain why that should not be the case.

The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson): The amendments relate to the obligations on the OFT when it becomes aware of a merger or plans for a merger. Although they relate to two different clauses in the Bill, they seek to achieve the same kind of effect. Therefore, I shall take them together, if I may, and answer hon. Members' points as I go along. There has been some misunderstanding and misinterpretation, so I will try to set the record straight.

Amendment No. 63 would give the OFT discretion over whether to refer anticipated mergers for investigation by the Competition Commission. Amendment No. 33 is a variation on the drafting but would also have the effect of removing the OFT's duty to refer in such cases. Amendment No. 64 would

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remove the parallel duty to refer in completed merger cases. In the light of hon. Members' remarks, it may be helpful if I set out why we think it is important to require the OFT to refer certain cases.

We are creating a new merger regime with a tighter focus on competition. By focusing intervention on safeguarding competition, we will ensure that the new regime is predictable, transparent and streamlined. I was glad to hear in some of the remarks that hon. Members are also keen to achieve that outcome. We are handing over responsibility for decisions to those with competition expertise, and we want the OFT to apply a competition-based test. Such a regime will give parties greater certainty of the criteria against which mergers are assessed and will contribute to predictability and transparency.

Broad discretion on whether to refer is appropriate under the Fair Trading Act 1973, under which decisions are taken against a broad public-interest test and lie in the hands of Ministers, who are accountable to Parliament for their actions. However, if there is a more focused test, such as the one that we propose of the substantial lessening of competition, and the decision lies in the hands of an independent body, there should be less discretion. I shall deal more with discretion in a moment. Moreover, it is desirable to ensure that decisions taken under the new regime are more predictable. Thus, we think it is sensible to set out as much as possible the criteria for reference. In that way, we can be confident that any competition concerns that cannot be dealt with effectively at stage one will be referred to the Competition Commission for a thorough investigation.

Mr. Field: I should be interested to know why the Government believe that predictability is such a desirable goal.

Miss Johnson: Predictability ensures that those who advise businesses and consider mergers are more likely to understand how the OFT and, ultimately, the Competition Commission may deal with matters. The aim is to provide predictability for business and not anyone else. I thought that that was understood in the remarks several hon. Members made about the proposal.

Mr. Ian Pearson (Dudley, South): Those are the rules of the game.

Miss Johnson: As my hon. Friend says from a sedentary position, it is much easier if one understands the rules of the game. Predictability is a key element of doing so.

Clauses 20 and 31 set out clearly the circumstances under which the OFT should refer a completed or anticipated merger. The duty to refer is not unbending; specific provision has been made for instances in which it would be appropriate for the OFT to exercise some discretion. In particular, the OFT should be able to choose not to refer a merger if it believes that the market concerned is not of sufficient importance to merit a full stage two inquiry, or if it believes that customer benefits flowing from the merger outweigh the competition concerns.

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We have also sought to ensure that the OFT will not refer if the case is being dealt with in another way. Examples include cases that fall under other regimes, such as mergers that qualify as concentrations under the European merger regulations. The OFT is also prevented from making a reference if it is seeking undertakings in lieu of reference from the parties, or if the case is the subject of an intervention notice because it raises public interest considerations that go beyond competition. Overall, we expect a similar number of mergers to be referred under the new regime as have been referred under the current regime. We do not anticipate that the targeted duty proposed will lead to an increase in references, and nor does the OFT.

I turn now to other points that hon. Members have made. First, on the question of the duty, we already expect a similar number of cases. That will provide greater security for business and the duty will ensure that the regime is applied even-handedly, which is another important element of predictability and understanding the rules. A merger is always a specific commercial decision, with a potential impact on the structure of the market. We need to look at the impact at that point, subject to sensible flexibility, of a decision not to refer.

Mention was made of the markets investigations. They are subject to a discretionary power of reference. They are not triggered by a specific transaction as in the case of a merger. I can tell the hon. Member for Twickenham that we will continue to pursue a neutral mergers policy. We believe that commercial decisions should be left up to business. The only check is to look at the competition impacts and part of the role of the duty is to reflect the switch from Ministers to the OFT, not to discourage mergers or to affect the numbers.

I was surprised by the remarks that the hon. Member for Cities of London and Westminster (Mr. Field) made about possible ministerial involvement or interference behind the scenes. The regime will operate transparently. There is no scope for political influence and none would be exercised. The duty and the specified exceptions ensure that. Leaving Ministers out simply reflects that the OFT is expert on this and it is important to deal with it in this way. The OFT does not have a rubber-stamping role. Its duty will involve economic assessment, as the Bill makes clear.

I turn now to the points made by the hon. Member for South Cambridgeshire (Mr. Lansley). The OFT will refer mergers. However—this point seems to have been missed—it will refer only where it believes that there has been a substantial lessening of competition. That is where the real discretion lies, and where the judgment must be exercised. We expect that that judgment will be exercised, largely as now, in line with the advice and information that has been published by the authorities. I hope that that clarifies hon. Members' concerns.

Mr. Waterson: I am grateful to the Under-Secretary for explaining at least some of the thinking behind the clause and the regime that is set out. We have teased the philosophy out of her; a similar number of

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references to the present number is envisaged. That will probably come as a surprise to the hon. Member for Twickenham, among others. She put it rather well when she suggested that there was some discretion, in a way, because it is quite difficult to see where the discretion lies. She set out the various headings, which are specific; the importance of the market, benefits to customers, separate regimes and undertakings in lieu of reference.

That is fine. We will look at those more closely and we can certainly see the logic of that. We can see the argument for certainty but once one has established the criteria for not referring on the face of the Bill, the discretion that we are talking about, although important, is only within a narrow compass. It is unlikely to undermine the certainty that she is right to suggest business would like to see. It seems slightly odd not to give more discretion than is currently given in the legislation.

I do not accept that there is a significant philosophical difference between this matter and clause 123 on market investigations. The fact that an individual event triggers it—in other words, a deal or a merger—does not make any difference. These are similar provisions and it seems odd, within the philosophy of the Bill, that there is limited discretion in one case and more extensive discretion in the other.

The Under-Secretary did not deal with pre-clearances. Does she accept the view held not just by us, but by such bodies as the CBI, that companies thinking of a merger will now routinely clear it in advance simply because they think that the merger will be almost inevitably referred? The Under-Secretary is looking at me in a puzzled way. I may not be able to express the point comprehensibly, but I do not think that I can improve on what I have just said or what I said in my original remarks. The proposal will give the OFT a significantly increased work load and place a significant extra burden on business trying to pre-clear mergers.

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