Enterprise Bill

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Mr. Waterson: This issue may be very important in certain circumstances, although I accept that those may not be common. Does the Minister envisage that the OFT will issue guidelines on the question?

Mr. Alexander: We had a discussion earlier this morning about what guidelines and information would be made available. The hon. Member for Twickenham is no longer in the Committee. He upbraided me for saying that I would write and tell hon. Members what was in the Bill. In fact, I gave an undertaking to explore the issue of when guidelines would be made available, and I am happy to add this issue to the list of matters on which I will be in touch with the hon. Member for Eastbourne.

Mr. Waterson: The Minister has taken our concerns seriously, and there appears to be an element of unanimity on the issue. That may be because only one Liberal Democrat Member is here, and we would have to take a poll of all three to be sure that they agreed. None the less, there is concern about this important issue not only among Conservatives and Liberal Democrats but in industry and business.

I am grateful to the Minister for saying that he will investigate whether there will be any guidelines. It would be depressing if the answer to what I might call the Lord Simon point was no. We strongly believe that the restriction in clause 123(1), in particular, should be stronger. We may return to the issue later, but for now I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Waterson: I beg to move amendment No. 300, in page 90, line 13, at end insert—

    '(1A) In making its decision the OFT shall take into account countervailing benefits to customers or to innovation.'.

This is another amendment inspired by our friends at the CBI. It deals with countervailing benefits to customers or to innovation, and echoes an issue that we discussed in a different context the other day. The Competition Commission is required to take

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countervailing benefits to customers into account when undertaking investigations once a reference has been made, and the OFT should be given a similar duty if we are to limit unnecessary references.

I have already dwelt on the cost to industry of references that get nowhere and are not justified to begin with. There can be a superficial, short-term impact on the market structure and conduct of industries that depend on rapid innovation, particularly in a global market, and that must be considered in the context of countervailing benefits. One example from the CBI is the formation of consortiums of competitors to bid for major Government contracts that no one supplier can handle alone. A current example is the contract for new aircraft carriers, which almost by definition is beyond the capacity of a single contractor, because of the different technical skills and the number of shipyards that would needed for the work. We should also consider the situations described in the OFT and DTI report ''Innovation and Competition Policy'', which notes that traditional competition regulation is seriously flawed when applied to high-technology markets.

For all those reasons, it is important that the Bill provides that the OFT, like the Competition Commission in a different context, should take into account countervailing benefits of the sort that I described.

Mr. Alexander: In contrast to the mergers reference test, there is no need to specify countervailing benefits in the markets reference test. The OFT has a duty to refer qualifying mergers to the Competition Commission, and we must therefore specify that it need not refer such mergers if it believes that the adverse effects of the resulting substantial lessening of competition are outweighed by any customer benefits.

Let me deal first with the hon. Gentleman's reference to consortiums and with the treatment of individual joint ventures and consortiums. Those will almost always be examined under chapter 1 of the 1998 Act or the merger control regime, rather than by means of the market investigations under the Bill. In any event, the competition authorities will have discretion under all three regimes to allow arrangements that can be seen as restricting competition, where such arrangements bring sufficiently wide economic benefits to justify the anti-competitive outcome.

The substance of my other point in response to the hon. Gentleman's query is that the Competition Commission is not required to consider customer benefits, but only has discretion to do so. The amendment would impose a requirement on the OFT to take account of countervailing benefits in the markets regime, whereas it only has discretion to take account of customer benefits in the mergers regime. In contrast to the position in the mergers regime, the amendment would require the OFT actively to search out potential countervailing benefits and to assess their importance relative to competition concerns in the market, making it significantly more difficult to refer a market to the Competition Commission. That might also encourage

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parties to delay the OFT's investigation by making frivolous claims that are evidently not worthy of further consideration but are none the less cumulatively time-consuming for the OFT to examine in turn.

The amendment also contains a wider definition of customer benefits than that used elsewhere in parts 3 and 4. It refers to

    ''countervailing benefits to customers or to innovation''

rather than solely to customer benefits. That phrase would include benefits to innovation per se, even if they did not benefit customers, and that is not right. In markets where competition is not working well, customers may suffer significant detriment. A benefit, however large, that does not accrue to them should not prevent the market from being referred to the Competition Commission with a view to making it work more effectively.

The amendment would undermine the flexibility of the market investigations regime. It would make the pre-reference investigation process longer and more complicated, without making it any fairer or significantly improving the quality of the OFT's substantive decision making. That would make market investigations more costly and time-consuming for the firms involved. I am sure that no one on the Committee would want that.

5.45 pm

Mr. Lansley: Before the Minister concludes, I hope that he will make it clear that the OFT will be expected to strike the right balance. On the one hand, it has an obligation to avoid long, complex and costly pre-reference investigations. On the other, I hope that it will not simply consider competition aspects—in relation to supermarkets, for example—or the level of concentration in the market, and say that there must be a reference. There may be substantial evidence, in whatever form, to show that customer benefits are being derived from the market's structure.

Mr. Alexander: I would not wish my remarks to fetter the discretion that is exercised. In that sense, I am not convinced that the amendment would achieve its purpose without unbalancing the consideration that needs to be given to the OFT's market investigations. I therefore ask the hon. Member for Eastbourne to withdraw the amendment.

Mr. Waterson: I am far from convinced, but in the interests of progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Waterson: I beg to move amendment No. 258, in page 90, line 14, leave out from 'reference' to 'services' in line 15 and insert 'to conduct'.

The Chairman: With this we may discuss the following amendments: No. 156, in page 90, line 14, leave out from 'to' to 'shall' in line 15 and insert 'conduct'.

No. 301, in page 90, line 14, leave out from 'to' to 'shall' in line 15 and insert 'conduct'.

Mr. Waterson: I am interested only in amendments Nos. 258 and 301, and I shall leave the hon. Member

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for Orkney and Shetland to tell us about the merits of amendment No. 156.

Again, our amendments are blatant attempts to restrict the basis on which references will be made. We tabled them out of a general wish to assist business, and to ensure that we do not end up with costly references that result in no further action. Amendment No. 258 would remove the words

    ''reference to a feature of a market in the United Kingdom for goods or services'',

referring instead to ''conduct''. We are trying to narrow down the provision by removing the rather woolly phrase ''feature of a market''—whatever that may mean—and referring to actual conduct.

Even more significant is the fact that amendment No. 301 would delete the phrase ''whether or not''. Unless we remove those words, grounds for making a reference could arise as a result of conduct outside the market concerned, although I am not sure what that means. The wording may simply be an example of sloppy draftsmanship—but it would be unfair to say so, and I withdraw the suggestion unreservedly, so it must represent a calculated effort by the Government to create a large gap through which whole markets and industries will be drawn before becoming the subject of references. The wording of the clause does not focus on specific, narrow references, which this part of the Bill is supposedly about. My hon. Friends and I are concerned about the inclusion of the words

    ''whether or not in the market concerned''.

I do not know what the Government are thinking of—I assume that they have thought about it. Why have they included those words?

Mr. Carmichael: I associate myself with the hon. Gentleman's remarks. Amendment No. 156 is virtually identical to No. 258, although I believe that it has a slight edge in elegance of drafting. It would take out some unwanted words and leave the phrase ''to conduct services''. I am not sure what it means, but it is all semantics and I suspect that it will not be accepted, so it does not make much difference.

 
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