|Previous Section||Index||Home Page|
30 Oct 2002 : Column 932continued
Mr. Redwood: I usually speak as a hawkish person on competition matters. I think that it is most important that the regulator and the Government are vigilant in ensuring that no market is damaged by any company having unreasonable market power. That is especially important when mergers or acquisitions are being planned.
I accept that it is possible for a company to seek dominance in a local area or region in the United Kingdom and that that might give the authorities reason to investigate mergers with relatively small turnovers. However, we should remember the context of the United Kingdom economy, which is the fourth largest economy in the world and is exposed to an enormous amount of overseas trading and huge competition from the five continents of the world. We are now talking about an economy with more than #1 trillion in national turnover. Therefore, even a business concern with a turnover of #100 million would represent 0.01 per cent. of total national income. If such a business were a national one, it would be unlikely to have a strong position unless it operated in a tiny marketplace, as in most of the larger marketplaces such turnover figures would be unlikely to attract the attention of the authorities.
It may be worth pointing out to my right hon. Friend that he might want to take into account in his speech the size of the public sector. For instance, it was disclosed to the Trade and Industry Committee only the other day that the public sector now accounts for 40 per cent.
Mr. Redwood: I get the drift of the comments of my hon. Friend the Member for Huntingdon (Mr. Djanogly) that it is important to understand the public sector context as well as the overall national income figures to which I have referred so far.
The Minister was right to point out that there are two tests. The lower the turnover threshold in the Bill, the more the reliance on the test of 25 per cent. or more of the market. The essence of good judgment will rest on the competition authorities and those contemplating the reference in defining the marketplace. That is always the crucial, difficult issue: is the marketplace all chocolate, specific chocolate bars, or a brand that is so well known that, sui generis, it has 100 per cent. of the market? How do we handle such issues? There have been famous cases over the years, with companies wanting as generous a definition as possible, and consumer groups and others preferring a narrow definition.
Mr. Mark Hoban (Fareham): My right hon. Friend makes an important point. Does he know how much time lawyers, accountants and other consultants spend on defining a market? From my experience, even in apparently straightforward matters, such as the supply of paper, the market can be fragmented in many different ways. Definition of the market is therefore so important that the turnover test may not be appropriate.
Narrowly defined markets in which dominance is a problem can exist, and one could gain a dominant position in parts of the national market because the services or goods are not easily transported beyond the boundaries of a specific area. In such circumstances, a lowish turnover threshold might be desirable. Therefore I do not approach the figure of #45 million from the position that it is definitely wrong because it is low and that, as a deregulator, I should like it to be higher.
I ask myself the question that the Minister rightly asked: will a turnover threshold of #45 million provide approximately the same as the 1994 #70 million asset threshold, with which I am happy? It has worked well, and the Government must also believe that, because they have not amended it since coming to office and the Minister said that she was trying to reach equivalence when shifting to turnover. I agree with her reasoning. It is right to move to turnover because it is more meaningful than assets when defining a market. After all, turnover affects consumers, whereas the size of the asset base makes little difference to consumers except through the mediation of price. The consumer wants to know how much turnover is being transacted, so turnover is the appropriate test.
The judgment is difficult to make. My first reaction on reading the amendments and the debate in another place was that #100 million was a better round number and closer to what one might calculate to achieve equivalence to the old assets test. However, the Minister and my hon. Friend the Member for Blaby (Mr. Robathan) have persuaded me that perhaps we should start with the figure of #70 million and a 1:1 ratio of assets to turnover in the hope that one day, activities will be more profitable and the figure will prove more realistic.
Mr. Robathan: I want my right hon. Friend to understand that I should prefer a threshold of #100 million. That was the CBI's broad assessment. However, the decision is subjective and perhaps we should not be too dogmatic in resisting the Government's amendment.
Mr. Mark Field: Perhaps there is some wisdom and method in the Government's madness. Given the state of the economy, a company with a turnover of #100 million this year is likely to have a turnover of #70 million next year.
Mr. Redwood: That introduces an irreverent political point into a hitherto elegant, non-partisan debate. However, I take my hon. Friend's point: business is not as profitable or successful in the round as one would like.
Although I understand the logic for the figure of #100 million, as a competition hawk, I appreciate the case for starting at #70 million. However, I want to probe the Minister a little more on her interesting point that the Government had been considering that the #70 million asset threshold that was set in 1994 might no longer be appropriate. There were clearly good years in the economy in the mid-1990s, and not all have been overwhelmed or eroded by events since 2000. It would therefore be interesting to know the extent of the Government's thinking about updating the assets test. If they conclude that #70 million is low for the assets test, they must also determine that #70 million is far too low for the turnover test. I cannot be persuaded that
Mr. Hoban : We are considering an important issue and I am grateful to my noble Friend Lord Hunt for pressing it in another place. In considering the competition law reform that the Government set in train in their first Parliament and the Minister's earlier comment that she believed that we had reached the end of the process, it is important to examine the threshold for the turnover test and ensure its fitness for today's business environment. The Government have chosen a turnover limit that is the equivalent of the gross asset test under the previous regime. That leads me to question the amount of research that the Government undertook before selecting #70 million as an appropriate turnover threshold.
Lord Hunt's amendment was based on the considerable research that the CBI carried out. It examined 500 companies in different sectors to determine the appropriate threshold for the turnover test. I wonder whether the figure of #70 million was arbitrary and based on the previous test. The Government should consider properly the right amount of turnover in today's business environment. The competition process will be greatly enhanced by a sensible threshold. Although, as the Minister said, many references are not made when a merger is called in under the turnover test, businesses are anxious about a deal being called in.
As I said in an intervention, consultants and others have spent much time examining the structure of a deal to ensure that it does not rise above the threshold. I should hate to believe that the Government are setting a low threshold for the turnover test without considering the costs that businesses will bear by reducing it from #100 million to #70 million.