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Lord Simon of Highbury: My Lords, I rise to my feet both cautiously and with some humility, given the fact that the noble Lord, Lord McNally, has his eyes on my trousers. I do not wish to start my remarks with any feeling of levity at all. As an individual I am all for diversity and choice and I wish to state clearly that I share many of the feelings expressed during the debate. I add my regard to that expressed by my noble friend Lord Haskel in Committee for those, led by the noble Lord, Lord McNally, who have brought this debate to the level that it has reached this evening. I recognise that.

I respond immediately to the invitation offered to me by the noble and learned Lord, Lord Fraser of Carmyllie, as to whether the Bill covers predatory pricing. Clause 18(2)(a) refers to,

That constitutes one of the key elements in judging an abuse. Therefore, we should have no doubts in our minds that that is clearly covered.

When we discussed similar amendments in Committee my noble friend Lord Haskel made the position absolutely clear and that has been repeated by the noble and learned Lord, Lord Fraser. But he explained something else too which I should wish to repeat now. It would be wrong for the Government to take a view on whether or not the particular actions of an individual company, which have been the subject of complaint, are anti-competitive.

Newspapers have a very crucial role to play within our society. The discussion has been very interesting and has touched on extremely important matters. But our position remains the same as it was when my noble friend Lord Haskel spoke in Committee. I hope that the House will understand why I say that.

At the risk of being simplistic, as the noble and learned Lord, Lord Ackner, pointed out, when in government one has always to be very careful in what one says about specific competition complaints. Notwithstanding, as I said, the outstanding quality of many of the contributions that we have had this evening, many have centred on a specific competition case.

More to the point, the purpose of the Bill is to establish, as the noble and learned Lord, Lord Fraser of Carmyllie, said, a clear legal framework under which the Director General of Fair Trading, the competition commission and the courts can assess individual cases. It is important that Ministers avoid trespassing on their territory. Therefore, the question of whether a specific practice in the newspaper industry or elsewhere is or is not anti-competitive is not a matter about which I can properly express an opinion. If the noble Lord, Lord McNally, feels that

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his arguments in relation to a particular case are strong, he may take them to the Director General of Fair Trading.

Nevertheless, the amendment and the debate this evening raise issues of principle which I really do wish to address. The two prohibitions introduced by the Bill are general prohibitions intended to apply across the general economy. The basis of that approach is that the economic and competition principles they embody are common across the economy. We believe it is wrong in principle to have different prohibitions in different sectors. If we take predatory pricing as an example, the question of whether pricing is predatory turns on whether, for example, it has the effect of restricting or eliminating competition in the market. That is as true for the newspaper market as any other market.

Of course, subsection (2)(b) of the proposed new clause specifies that abuses can include other action which may reduce the diversity and independence of the national newspaper press. However, it is not at all clear what is meant by that. Would it cover an editor's decision to drop a particular columnist or a proprietor's decision to change his editor? It strikes me as being very difficult to extend the concept of abuse beyond the established economic principles covered by Clause 18 and Article 86. Prohibition is a very serious matter. There needs to be a clear framework in which business can operate. That seems to me to be absent from the prohibition proposed in the amendment.

For the same reason, we believe that it is wrong to adopt different definitions of dominance for different markets. Why should the test be different for newspapers alone? The economic principles underlying that market are the same as for other markets. Moreover, it is by no means clear how the test proposed in the amendment would be interpreted. How would the Office of Fair Trading and the courts interpret "substantial market power"? Once we move away from the principle of dominance, which is established in EC law, the application of the prohibition becomes more uncertain and that can lead only to confusion, unpredictability and unfairness.

I was asked by the noble Viscount, Lord Trenchard, to specify other ways in which the definitions within the proposed new clause prove difficult. I understand the desire to set out precise definitions of abuse in primary legislation. However, there are obvious difficulties in doing so and this amendment illustrates some of them.

I listened with interest to the immense amount of good advice from noble Lords who are economists. Many of them illustrated the difficulty in choosing a pricing basis. In purely theoretical terms, there may be a case for choosing the marginal cost of production as a bench-mark for predatory pricing. As has been said, in practice that is not always a workable measure.

Perhaps it would be a better bench-mark if we took average variable cost. I understand that many of the bases of European judgments take that to be a good

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indicator. It is not a perfect formula. We know that in some circumstances pricing above average variable costs may be predatory; in other cases it may not be. The problem with the belt and braces approach in the amendment, to which noble Lords have spoken, is that that has to fit all sizes to be useful. Here we would have a problem of how to size the belt and the braces. In short, much will depend on the specific economic circumstances of the case in question. The whole basis of the Bill is that it is effects-based, and gets away from the form-based nature of much of our existing legislation.

In conclusion, I should like to comment briefly on the Government's commitment under the Bill; indeed, my noble friend Lord Peston put it very clearly and I totally agree with him. The Government's commitment is to enhance competition. Why? The answer is that that enhances choice and brings the consumer lower prices. Much of the debate tonight has centred on the restriction of choice and whether prices are too low. I have not yet seen the evidence of restriction of choice, although I do understand the arguments about how low prices could go and their particular impact. However, that is something to which I shall return in just a moment.

Your Lordships' House should be in no doubt that the Government take the issue of predatory pricing extremely seriously. That is why I took care to read Clause 18 and to study its particular impact. Predatory pricing is bad for competition and the consumer. This Bill meets the Government's commitment to introduce stronger legislation against abuses of dominance, including predatory pricing. It is also a fact that the director general has confirmed that the required powers are in existence now under the monopoly provisions of the Fair Trading Act 1973, to enable an investigation of the pricing practices of a company which supplies 25 per cent. of a given market if a case for a reference were to be established.

Clearly there is always scope for debate about the precise limits of powers. Looking at the competition regime overall, there is a balance to be struck between, on the one hand, wishing to cover explicitly every conceivable anti-competitive action and, on the other hand, avoiding undue burden and uncertainty for business by following Article 86 closely.

However, having said that, I believe that we would be going off course if we started down the path of prohibiting conduct where there is no dominance or of having a different prohibition for one particular sector. There is no case for using the Bill to target an individual sector of the market, or one particular company; it is a broad framework of competition for all companies in all markets. Despite the seriousness of the debate, I hope that the noble Lord understands the issues that are at play and that he will see fit to withdraw the amendment.

Lord McNally: My Lords, if noble Lords did not know what the Minister was saying so eloquently, he was saying: "Get lost". The clause proposes a particular

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protection of the newspaper industry. For that very reason, the legislation of which the Minister is so proud could just as easily elicit the same response from the director general as Mr. Robin Cook received three-and-a-half years ago. I remind the House of that response:

    "At times there is a fine line between aggressive price competition and predatory pricing".

What I am asking the House to do this evening is to draw that line on predatory pricing.

Perhaps I may finish with one quote for the Benches opposite. It comes from Mr. Peter Kellner's article in the London Evening Standard, in which he said:

    "Competitive markets do not happen by chance. They are social constructions that need to be carefully designed and stoutly defended. A defeat tonight for the Government might prove a blessing in the longer term".

Mr. Kellner is no enemy of Labour, neither am I. Let us all do the Government a favour by passing the amendment tonight. I wish to test the opinion of the House.

7.44 p.m.

On Question, Whether the said amendment (No. 24) shall be agreed to?

Their Lordships divided: Contents, 121; Not-Contents, 93.

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