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The Minister must be aware that there is concern in the industry about the effect of the orders on the part of no less a body than the CBI. As noble Lords are aware, these orders originated from the Competition Act 1998, which states that the penalty for contravention of Chapter I, which covers cartels and price fixing, and Chapter II--abusing a dominant position--will result in fines of 10 per cent of the UK turnover for up to a maximum of three years. Perhaps the Minister will confirm that. That will no doubt force industry to think very carefully about how its actions will affect its competitors. It will be able, of course, to apply to the Director-General of Fair Trading for guidance on its actions. That could result in any number of applications. Can the Minister tell the House whether it is planned for a fee to be paid on such applications? If so, how much will that be?
As regards any fine, will the Minister confirm that the figure is 10 per cent of UK turnover over the maximum period of three years; or is it 10 per cent per year? I do not argue that there should not be a penalty. However, do the Government realise the knock-on effect of imposing such onerous burdens on industry?
I understand that part of the reason for the orders is to bring us into line with the European Union. However, its imposition of fines is limited to one year and, if imposed, is subject to extensive consultation throughout the Commission, and final approval by the entire Commission. Has there been any indication from the Commission that the one-year period is not enough? Even though the fines imposed by the Commission will be worldwide, UK companies with a large turnover could be disproportionately affected. A fine of 10 per cent of turnover could easily turn a profit into a loss and could even force substantial companies into liquidation.
As regards the Competition Act 1988 (Land and Vertical Agreements Exclusion) Order 2000, that is once again a very significant measure. It would emasculate the Competition Act in relation to distribution agreements and agreements relating to land, including tenancies of tied outlets such as pubs and petrol stations. That could be contrary to the public interest.
The proposed order would exclude exclusive and other restrictive agreements between suppliers and retailers from the Act's prohibition on anti-competitive agreements. It would thus permit a wide range of anti-competitive agreements restricting competition between both distributors and suppliers,
Lord Avebury: My Lords, perhaps I may ask one question before the Minister replies. As I understand it the figure of 10 per cent is the maximum and that it is not an automatic fine. The Minister said that the punishment would be made to fit the crime. Presumably, therefore, where it is imposed, if the fine was of such a nature that it put a company into a serious financial position then presumably there would be some leeway and mitigation of the 10 per cent maximum.
I am ashamed to have to ask the next question because I was not here when we dealt with the Bill itself. Can the Minister say whether there is an appeal against the fine? If a company believes that the amount imposed is unreasonable, can it go anywhere else to get a judicial or any other kind of review?
Lord Sainsbury of Turville: My Lords, if the infringement has continued for three years the 10 per cent maximum level of fine applies to that period. As has been pointed out, the fine is placed only on UK trade as opposed to the situation in the EC, where it is placed on worldwide turnover. We have made adjustments both ways. Our view is that in these circumstances, if there is a long period of infringement, that should be taken into account when deciding the penalty. That suggests that the punishment should be proportionate to the crime. The point must also be made that there is a 10 per cent maximum fine. Whether it reaches that maximum depends on the nature of the infringement. I gave some of the reasons why it may vary.
The fees are £5,000 for guidance or £13,000 for a decision. Clearly, where companies believe that they may be trespassing, they will take very careful account of the matter. There is also a right of appeal to the Commission.
The final point that I should make is that as regards EC law, and in America also, very substantial fines are being imposed by the Justice Department and the Commission in order to make it very clear that infringements will be taken very seriously. I believe that everyone agrees that American law has probably been the most effective. In the case of the company Hoffman La-Roche, there was a fine of 500 million dollars.
We believe that firms as well as consumers will benefit from a strong Competition Act. Competition is the life-blood of a competitive economy. We cannot afford weak, uncompetitive domestic markets. We allow cartels, abuses of dominance and other anti-competitive behaviour to hold back business at our peril.
That is why the Government embarked on a radical strengthening of our competition laws. A key part of that strengthening is provision for penalties. Under the competition regime we inherited, when a cartel is uncovered, all that happens is that the businesses concerned are asked to stop.
By contrast, our proposals, of which the Determination of Turnover for Penalties Order provides an important part, will give the new regime real teeth. As I have said, the penalties in any case will depend on the particular circumstances, but they are intended to act as a deterrent. They should encourage firms to think twice before entering into anti-competitive agreements or abusing a dominant market position. By taking into account the period of the infringement, the Determination of Turnover for Penalties Order will discourage a cynical cost-benefit analysis that the potential profits might outweigh the penalties provided that the anti-competitive behaviour can remain secret long enough.
I do not accept the proposition that such an approach will be bad for business. On the contrary, strong competition in our domestic markets makes for strong businesses. It provides a spur for firms to innovate, increase productivity, and provide real choice for consumers. It equips them to compete in the global market place. Conversely, anti-competitive behaviour is a burden on the economy and on businesses which want to grow by offering better
The US economy shows that strong competition laws vigorously enforced can contribute to growth, innovation and investment. Is it suggested that American businesses have been made less competitive by their authorities' long-standing, tough approach to anti-trust enforcement? I believe that we all know the answer. It is the rigour of the competition authorities in pursuing anti-competitive practices which has contributed to the success of US businesses. Furthermore, fines there are seen as an essential component of anti-trust enforcement. Certainly, that is the lesson drawn by the US Department of Justice, which has been increasing the level of the fines it imposes.
I hope that the House will support these important proposals. They will help to make the new competition regime efficient and effective; and that regime is a key part of our strategy for modernising the British economy and helping it to become more competitive. I commend the orders to the House.
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