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Lord Evans of Temple Guiting moved Amendment No. 295:


On Question, amendment agreed to.

Clause 344, as amended, agreed to.

Clause 345 agreed to.

Clause 346 [Changes of control of Channel 5]:

Lord Evans of Temple Guiting moved Amendments Nos. 296 and 297:


    Page 303, line 34, leave out from beginning to "in" in line 35 and insert—


"(ii) is involved, to a substantial extent, in the provision of the programmes included" Page 303, line 36, leave out "to be likely to be" and insert "is likely to become"

On Question, amendments agreed to.

Clause 346, as amended, agreed to.

Clause 347 agreed to.

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Clause 348 [Variation of local licence following change of control]:

Lord Evans of Temple Guiting moved Amendment Nos. 298 and 299:


    Page 305, line 20, leave out from beginning to "in" in line 21 and insert—


"(ii) is involved, to a substantial extent, in the provision of the programmes included" Page 305, line 22, leave out "to be likely to be" and insert "is likely to become"

On Question, amendments agreed to.

Clause 348, as amended, agreed to.

Clause 349 agreed to.

Baroness Buscombe moved Amendment No. 299A:


    Before Clause 350, insert the following new clause—


"MEANING OF "CONTROL"
(1) Paragraph 1 of Part I of Schedule 2 to the 1990 Act shall have effect subject to the following amendments.
(2) For sub-paragraphs (3) and (3A) there shall be substituted—
"(3) For the purposes of this Schedule a person has control of a body corporate if that person is able, or it is reasonable to expect that person to be able, directly or indirectly to ensure that the affairs of a body are conducted in accordance with that person's wishes.
(3A) In determining whether a person controls a body corporate all relevant circumstances shall be taken into account including the level of participation in the body corporate of that person and the level of participation of other participants in the body.
(3B) Without prejudice to the generality of sub-paragraph (3)—
(a) a person has control of a body corporate if that person is beneficially entitled to more than 50 per cent of the equity share capital in the body or possesses more than 50 per cent of the voting power in it, and
(b) a person has control of a body corporate if that person is beneficially entitled to 50 per cent of the equity share capital in the body or possesses 50 per cent of the voting power in it, and is party to an arrangement with another participant in the body corporate under which they agree to exercise their voting power or any of it in a particular way either generally or in relation to any particular issue or not to exercise their voting power or any of it in relation to any particular issue."
(3) After paragraph 3 there shall be inserted—
"3A (1) In this paragraph "guidance on control" means guidance on the matters which OFCOM consider should be taken into account in determining whether any person controls a body corporate within the meaning of paragraph 1(3) to (3A) above.
(2) In determining the question whether a person has control of a body corporate account shall be taken of any published guidance on control.
(3) OFCOM shall prepare guidance on control and shall publish a draft of the guidance in such manner as they consider appropriate for bringing it to the attention of persons who in OFCOM's opinion are likely to be affected by such guidance.
(4) OFCOM shall also publish, together with the draft, a notice that any person may make representations to OFCOM on the draft within such period as may be specified in the notice, not being less than one month from the date of publication.
(5) OFCOM shall take account of the representations made within the specified time in preparing the guidance on control and shall publish the guidance, not later than 3 months from the last day on which representations may be made under sub-paragraph

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(4), in such manner as they consider appropriate for bringing it to the attention of persons who in OFCOM's opinion are likely to be affected by such guidance.
(6) OFCOM shall keep the guidance on control under review and may publish revised guidance from time to time; and sub-paragraphs (3) to (5) above shall apply to any such revised guidance as they apply to the original guidance, with any necessary modifications.""

The noble Baroness said: I shall speak to Amendments Nos. 299A and 300 and the Question whether Clause 350 should stand part of the Bill.

In relation to Amendments Nos. 299A and 300, on Report in another place similar amendments were tabled by my honourable friend Mr John Greenway. Although there was time to hear the reason for tabling the amendments, there was no time available for the Minister's reply. Therefore I return to the issue. I shall begin with the Government's introduction in Clause 350(2) of a presumption of control in relation to any person with a holding of 20 per cent or more of shares or voting rights. As has been made clear in another place, there are significant concerns that the provision places on companies undue obligations that do not exist at present and that the 20 per cent figure is arbitrary and unjustified.

Starting at the level of general principle, it seems wrong to require companies to prove that they do not have control when they have an interest of between 20 and 50 per cent, rather than for the regulator to prove that they do, as is the case at present. It runs against the tried and tested principle that a person is innocent until proved guilty. For the principle to be reversed, some extremely important issue must be at stake, which we do not believe exists in this case.

The Government have already presented their justification for the change. In Committee in another place they argued that the 20 per cent figure was consistent with the application of the 20/20 cross-media ownership rule, and that it was in the range of shareholdings that the OFT and Competition Commission are likely to scrutinise as constituting a possible material influence under the mergers legislation of the Enterprise Act 2002. They also pointed out that, in the United States, persons with more than a 5 per cent stake in companies without a majority shareholder are deemed to have control.

However, those justifications are unconvincing. We have already debated today the 20/20 cross-media ownership rule, which in itself is arbitrary and unjustified. It is true that under the Enterprise Act 2002, there is the ability for the OFT to take into account more than a 20 per cent interest in deciding whether control exists, but it is still for the OFT to prove that it exists. In that respect, it is no different from the approach that the ITC can apply today. In neither case, however, is there a statutory presumption, which has to be proved to the contrary, that control exists at more than 20 per cent. The Government must explain why the difference in approach is justified. It is also true that in the US a 5 per cent presumption of control exists where companies do not have a major stakeholder. But that

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is hardly a justification for a rigid 20 per cent threshold in the UK, regardless of whether there is a major stakeholder.

We should be clear that we are not arguing that control should never be shown to exist at 20 per cent, or even at 5 per cent. We argue that a system of regulation is needed whereby Ofcom investigates each case on its particular merits and has the onus of demonstrating such control where it concludes that it exists. On that point, I shall give an example of government ownership regulation that is inconsistent with the 20 per cent presumption. The intention to increase the limit on ITN ownership from 20 per cent to 40 per cent indicates in this instance that the Government believe that 40 per cent ownership will not give control. They have argued that a 40 per cent limit is still necessary because they do not want to see a single body in control of ITN. That contradicts the Government's position on Clause 350. I hope that the Minister will be able to provide clarification in that regard. It all seems so arbitrary; it does not make sense.

The second area of concern that my new clause seeks to address relates to the changes to the meaning of "control" introduced under Clause 350(1). Part I of Schedule 2 to the 1990 Act currently defines "control" as,


    "having regard to all the circumstances, to expect that he will be able, by whatever means and whether directly or indirectly, to achieve the result that the affairs of the body are conducted in accordance with his wishes".

That is, at 50 per cent. Clause 350(1)(a) changes that to the following:


    "although he does have such an interest in the body, it is reasonable, having regard to all the circumstances, to expect that he would (if he chose to) be able in most cases or in significant respects, by whatever means whether directly or indirectly, to achieve the result that affairs of the body are conducted in accordance with his wishes".

Our concern is that those changes give Ofcom much greater latitude in deciding whether a person controls a body. The phrase, "would (if he chose to)" would allow Ofcom to second-guess the behaviour of the person. "In most cases" could allow it to dismiss arguments that disprove a particular conclusion and in significant respects. Moreover, "affairs" (as opposed to "the affairs") would allow Ofcom to make judgments on only parts of a company's business. What is meant by the word "significant", for example? What will happen if individuals take a genuine view that something is not significant, but Ofcom takes the view that it is significant?

The much looser definition could, for example, mean that a chief financial officer or chairman of an audit committee was deemed to control a business simply because he would be able to expect that, in "significant respects", the company would do as he said. Indeed, any director with specific managerial responsibilities is likely to be able to make the company carry out his wishes so far as they relate to those responsibilities. Can that director be described seriously as controlling the company just because he has that kind of influence? We do not believe that such

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a significant loosening of the definition, and the greater degree of uncertainty in decision-making that it will cause, is either justified or proportionate.

As I noted previously, the Government claim that the revisions are justified because the previous definition was "insufficiently robust" and would,


    "make it too easy for people to set up arrangements that, under the rules, would not be deemed to give them control, even though in practice it would be clear that they had control".

Yet no evidence of such avoidance practices has been presented to justify those claims. Yes, the Government have reduced the number of ownership rules, as they pointed out during the debate on the issue in Committee in another place, but that is not on its own sufficient justification for the proposed changes. Such changes should be proportionate to the identified need, which has not up to now been identified. I hope that the Minister will be able to shed further light on the area, and not just repeat the arguments made in previous debates.

I have also tabled Amendment No. 300 in order to probe the Minister further on a point raised previously in Committee in another place. Rather than the Government's proposed changes to the meaning of control, the amendment proposes that the words,


    "to achieve the result that the affairs of the body are conducted in accordance with his wishes",

are replaced with,


    "to control or materially to influence the policy of the body".

That wording is the same as that used in Section 26(3) of the Enterprise Act 2002, which defines enterprises ceasing to be distinct enterprises.

Finally, I wish to press the Minister on the question of consultation on matters that will be taken into account by Ofcom when determining whether a person has control of a body. As drafted, Clause 350(4) simply requires Ofcom to publish guidance setting out its intentions in that area, which I think is insufficient. My new clause seeks to ensure that, before Ofcom publishes any guidance, or revised guidance, it issues that for consultation. That guidance will be of great importance, reflecting Ofcom's policy towards control and the factors that it will take into account when assessing whether there is control. In order to ensure that such guidance is appropriate and encompasses all relevant factors, and so that it has the support and understanding of those likely to be affected by it, their views should be considered prior to Ofcom's publication of such guidance.

The Government's reasons for rejecting the proposal in Committee in another place were unconvincing. I agree, as was argued, that the need for consultation depends on the importance of the issues at hand, but that is no reason why there should be no consultation at all on what is by any standards an important area of policy. Furthermore, just because the principles of better regulatory practice encourage consultation, they do not require it, and there is no certainty that such a route will be adopted in that area when the time comes—that is, unless we can change that on Report.

5 Jun 2003 : Column 1534

Finally, I would say that it verges on the paranoid to argue, as the Government have, that consultation will allow less scrupulous operators the opportunity of staying one step ahead of the game in respect of the new arrangements to get around the ownership rules. Such an argument could surely be applied to any form of consultation, which would be ludicrous. I urge the Government to think again on the proposal. The additional burden on the regulatory process would be entirely justified in this instance by gains in transparency and confidence in the regulatory process. I beg to move.

6.15 p.m.

Lord Gordon of Strathblane: I shall speak briefly to Amendment No. 300A, which is grouped with the noble Baroness's amendment.

I agree with the "innocent until proved guilty" point. I also think that 20 per cent is the wrong figure and could produce a degree of confusion. After all, the City regards 30 per cent as the trigger for requiring a full takeover bid. In other words, control lies at about 30 per cent. Likewise, over the years, the Radio Authority has regarded 30 per cent as the figure for control. There is a history of dealing with the 30 per cent figure, and I cannot see why we are suddenly reducing it to 20 per cent.


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