Enterprise Bill

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Mr. Harry Barnes (North-East Derbyshire): I am following my hon. Friend very carefully. His reservation about the amendments seems to be that in some way they undermine considerations that are important to the Bill. However, as he pointed out, there are in amendment No. 125(c) various items that do not reflect worker-dominated positions and (a) is worded in terms of competitive provisions. We can have add-ons to the provisions so far as competition is concerned without that necessarily detracting from the principle. It could be that different wording is required, but his concerns can still be met.

Mr. McWalter: I certainly did not want to give the impression that my hon. Friend was undermining the Bill. However, that could be the effect of widening the brief of the OFT. As we all know, many clauses deal with the public interest, although we have not yet arrived at them and do not know how well established the public interest is. My hon. Friend's proposals push a good principle a bit further, but the trouble is that he may make it inoperative.

My hon. Friend mentioned the Biwater case and asked us to refer to his proposals as the Biwater clauses. The case was very interesting, and the Bill would have acted as a real support to the Biwater workers had it existed at the time. I do not know the details of the case, but my hon. Friend described the enterprise as a hive of industry, with effective management and splendid products. It is crazy for us to try to foster such enterprises only to let them go to the wall, and the Bill provides us with some new instruments to protect them.

The debate is about whether the people who run the OFT will deliver on the promises in the Bill. My hon. Friend said that the OFT and a Labour Minister were not much help when he was faced with his problem. Had some of my other hon. Friends been at the OFT, they might have given the complaints of my hon. Friend and his constituents a better hearing. We may need to keep a closer weather eye on those who take such decisions, because there is clearly scope for people at the OFT to take a narrow, or a more generous, wider view of competition. If they take the more generous view, they will examine trading practices, advertising techniques and the foot-in-the-

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door ways of operating that some more dubious companies would like to use.

When it comes to stealing competitive advantage, the Bill may have it basically right. We want to ensure, however–I hope that the Minister can give us an assurance on this–that when the OFT conducts its deliberations, it has in mind not a very narrow definition of competition, but one that extends to the practices outlined in an Opposition amendment to clause 202. The question is what the OFT will consider. That does not have to be set out in the Bill, but the Minister's response to the amendment tabled by my hon. Friend the Member for North-East Derbyshire will provide those who study this legislation in the courts in the future with an understanding of how the Committee and Parliament understood the OFT's responsibilities and obligations.

My hon. Friend has done a great service by noting that there has historically been a narrow conception of what counts as an inquiry into competition and that that needs to change. I think that there is such an outlook in the Bill and that it could be incorporated in the guidance that is provided with the Bill, some of which could conform to the amendments to clause 202.

The overall result of all that is that the Bill is clearly about enterprise. We want to be more enterprising and more competitive than the rest of Europe, and I welcome the fact that the Bill looks like it might make a contribution to that end.

Miss Johnson: I am delighted to be able to respond to such a long and wide-ranging debate on a subject that is clearly of interest to all members of the Committee.

The issue of competition test may be the best starting point. The set of amendments is large and the amendments cover different areas, so I shall discuss other points in order. Before I do so, I should say that I have written to the hon. Member for Eastbourne (Mr. Waterson), and the hon. Member for Orkney and Shetland (Mr. Carmichael), who is not present, on matters related to Tuesday's debate. Copies of those letters will be available on the Table.

Mr. Waterson: I will put it on the Table myself.

Miss Johnson: I am deeply grateful to the hon. Gentleman for his co-operation.

We discussed the choice of competition test in the Government's consultation document on the reform of the merger regime that was initially published in August 1999. A further consultation was carried out through 1999 and 2000. In addition, my officials have had a series of face-to-face meetings with lawyers, economists and other experts about the new regime and about the most appropriate competition test to employ. A large majority of those who responded to the consultation favoured a substantial lessening of competition test in preference to the dominance test currently used under the European Community mergers regime.

The substantial lessening of competition test comes closest to the competition analysis that is applied by United Kingdom authorities. It has the key advantage of being more flexible, allowing the authorities to

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concentrate on the overall effect of a merger on competition, rather than on structures. It permits some of the sophistication and flexibility to which my hon. Friend the Member for Hemel Hempstead (Mr. McWalter) referred.

Mr. Mark Field (Cities of London and Westminster): It may be that the Under-Secretary will develop this argument, which is simply on a narrow point. The advantage of using a substantial lessening of contribution is its flexibility, yet, earlier in the debate and in the previous debate, we discussed the fact that one of the main tenets of Government policy on competition was to ensure predictability. Surely predictability and flexibility are in conflict?

Miss Johnson: I shall come on to say in which regards the test is flexible. For example, it will allow the authorities to act when there is an increase of sole, joint or collective market power resulting from a merger, which may be difficult otherwise. The dominance test, on the other hand, might create an uncertainty about whether it allowed the authorities to take action when a merger would not lead to a firm having a dominant position but would increase the likelihood of firms remaining in the market and acting in an anti-competitive way. That is the sort of point that my hon. Friend the Member for Hemel Hempstead made.

We are not alone in having those concerns about the dominance test, which might not satisfactorily cover oligopolistic cases and markets, for example. Australia and New Zealand both switched from a dominance test to a substantial lessening of competition test–Australia in 1993 and New Zealand last year. It is noteworthy that the Green Paper on reforms to the European Community merger regulation, on the issue of the relationship with European Union provisions, raises the possibility of a substantial lessening of competition test as an option to replace dominance in the EC context. In economic terms, there is uncertainty about the ability of a dominance test to deal with the creation of non-collusive oligopolistic markets. The Commission and the courts developed the concept of ''collective dominance'' to bridge the gap, but the application of that concept remains uncertain in some situations. That is another powerful reason for changing to the substantial lessening of competition test.

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Some claim that the dominance test provides a more predictable outcome, but we do not agree. I am confident that the substantial lessening of competition test will provide the necessary certainty for business.

The concept of a substantial lessening of competition is used and well understood in a number of other major jurisdictions, including the United States, Canada, Australia and New Zealand. It is best understood by reference to the question of whether a merger will increase or facilitate the exercise of market power leading to reduced output, higher prices, less innovation or lower quality or choice. Thus, it is concerned with whether there will be a significant reduction of competitive pressure in a market as a

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result of a merger, not a simple numerical assessment of the numbers of participants in a market.

We expect that additional certainty as to the application of the test will be provided in the information and advice that the authorities will be required to produce under clause 102, which explains how they will consider references and how the relevant provisions will operate. Therefore, although there may not be flexibility from day to day, there is flexibility over time. If we had defined in more detail our understanding of how the test would work, the Bill would not stand the test of time, because economic preoccupations and issues change over time. Through the Bill, however, an interpretation is provided of how the provisions will operate that can be given in guidance and references.

The US regime has operated successfully on the basis of a substantial lessening of competition test, backed up by joint guidelines issued by the Department of Justice, and the Federal Trade Commission. I have every confidence that the United Kingdom system can operate with the same degree of certainty and predictability.

Before I pass off the questions about the European Union, I refer to the fact that the Government have contributed to the discussion under the ECMR and the Green Paper that the Commission produced. We wrote back to welcome the discussion of the substantive test and advocated the substantial lessening of competition test in response to the Green Paper.

Amendments Nos. 123, 126, and 129, tabled by my hon. Friend the Member for North-East Derbyshire, cover the issue of public interest. The amendments would restore a public interest test to the new merger regime. The amendments would require the OFT to refer a merger when it believed that a merger would operate against the public interest.

I am very grateful to my hon. Friend for tabling amendments that provide an opportunity to discuss these important points. The issues raised go to the heart of the rationale for the reforms to the merger regime, which merits a full explanation.

There are two core changes to the merger regime. The first is to depoliticise the merger regime by removing Ministers from the vast majority of decisions. The second is to replace the broad public interest test with a competition test. Focusing the legislation on competition will produce better merger regulation and improve the clarity of the framework for decisions and the predictability of decisions made under it. The wider the range of factors that can be taken into account, the less certain and predictable the outcome. The change will also update the statute and bring it into line with the major international jurisdictions–the US, the European Commission, France, Germany, Canada and Australia–all of whom apply a competition-based test.

We are introducing a competition test not only to increase the predictability of decisions or to align our regime with others, but because, in the vast majority of

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cases, the economy is best served if mergers are assessed solely on the basis of their effect on competition. Competition provides a spur for businesses to be more productive, innovative and efficient, and better able to provide long-term sustainable employment and better products and services for consumers.

The amendments, taken with the definition of the public interest, which we shall discuss later, would allow the authorities to take some account of the employment and regional effects of mergers. As my hon. Friend the Member for North-East Derbyshire noted, those matters are excluded from the new competition test, but we believe that that is right. Adding new factors into the test will create barriers to restructuring. It is wrong to do that unless there are significant anti-competitive effects, and restructuring must be possible if companies and markets are to remain dynamic and competitive.

I recognise, of course, that mergers can have short-term adverse regional and employment impacts. My hon. Friend has first-hand knowledge of the problems that can arise. The Stanton-Biwater merger and the resultant closure of the Clay Cross plant in his constituency was a case in point, and I know that he fought hard and energetically on behalf of his constituents. Indeed, we have evidence that he continues to fight. Those are hard cases, but we should not base our policy on them. The answer is not to block mergers.

The Government's task is to make sure that the economy as a whole is strong, to help people to adapt and to get new jobs, and to make sure that for every job and every business that disappears, new companies spring up, and small companies growing bigger. Indeed, I know from the visits that I paid a year or so ago to the constituency of my hon. Friend the Member for North-East Derbyshire and to a number of neighbouring constituencies, that many businesses are growing there, of many new kinds with all sorts of potential. Those changes have grown out of the support that has been given as a result of the difficulties caused not only by Biwater but by other difficulties that arose under the Conservative Government.

We have created those conditions across the country in order to achieve a vibrant, dynamic economy that can adjust to change. Those conditions are among the most important. We have the lowest unemployment rate since the 1970s, the lowest inflation and the lowest interest rates since the 1960s. We have a record number of people in work as a result of private sector employment increasing by 1.25 million during the past five years. We remain the number one destination for foreign direct investment into Europe.

Although I sympathise with what my hon. Friend says, and with the needs and difficulties that he rightly identifies, they are best served by the overall economic policies being pursued by my right hon. Friend the Chancellor of the Exchequer and other members of the Government.

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