Enterprise and Regulatory Reform Bill
Debate between Lord Marland and Viscount Eccles
Viscount Eccles
I would like to detain the Committee briefly on a point of clarification that arose out of last week’s proceedings. Grand Committee Hansard for last week states:
“The creation of the CMA has also been welcomed by business groups and practitioners, including the CBI, the Federation of Small Businesses, the Institute of Directors, the Forum of Private Business and the City of London Law Society”.—[Official Report, 12/12/12; col. GC 335.]
The Committee will remember that we were debating the creation of the CMA under Clause 20. In col. 338, my noble friend Lord Razzall said that,
“all the major business organisations and the Law Society are in favour of this recommendation”.—[Official Report, 12/12/12; col. GC 338.]
That did not tally with my memory of the Government's response to the consultation on this matter.
Paragraph 317 of the consultation, which was admittedly published some time ago, states:
“A number of respondents expressed stronger concerns about the creation of the CMA and did not support it. Notably, the City of London Law Society and the Joint Working Party of the Bars and Law Societies of the UK on Competition Law (‘Joint Working Party’), echoed by many individual law firms in their responses, considered the proposed CMA to involve some real disadvantages that outweigh the potential efficiency benefits”.
So the government document published in March said in terms that neither the City of London Law Society nor the Law Society, which are two completely different organisations, supported the creation of the CMA.
Now I recognise that they may have changed their minds. When three Front Benches agree something it seems to become inevitable and in true British style they decided to make the best of it. But at that time it is quite clear that they did not agree.
I have gone over the ground with the Law Society. I confess that my impression is that it has not changed its mind. It repeats that,
“the merger is not expected to achieve any material cost savings; and, although there is potential for a single CMA to deliver efficiencies of the kind mentioned in the Consultation Paper, the [Joint Working Party] is very doubtful about the scale of such benefits. More importantly, the [Joint Working Party] sees a real risk that the benefits of the merger will in practice be more than outweighed by the loss of the benefits of independent decision-making by separate organisations”.
The Law Society ends by saying:
“The scale of these risks is such that the [Joint Working Party] is not persuaded of the case for a single CMA”.
As the whole burden of my own argument was that we were running into trouble with the legal profession if we created the CMA on a single-institution basis, it was quite important to clarify where these two important organisations now stand.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Lord Marland)
My Lords, as my noble friend said, we did not actually mention the Law Society, but he has responded with a statement from the Law Society. We mentioned the City of London Law Society, which, as he said, is a totally separate body. I quote from a statement made by Mr Robert Bell, the chairman, on 21 June 2012. The CMA,
“will help competition policy be more cohesive, and it will help streamline the regulatory process, which, in turn, will provide efficiencies and boost business confidence in the rigour of the competition system in this country”.
He also said:
“There are benefits to be gained. On the merger of the CC and the OFT, we do not really have a very strong position, but we are pleased to see in the Bill that the checks and balances between first-stage and second-stage merger investigations and market investigations have been retained. There is potential to streamline the regulatory process and make it faster”.
I am very content with that statement. It is unequivocal, and it is just one example, which was used by my noble friend on a previous day in Committee, of a number of institutions that supported it. I hope that that clarifies the position.
Viscount Eccles
My Lords, I want to probe the Government’s attitude towards penalties in this part of the Bill. My amendment would take out an order-making power which is there by virtue of an amendment to Section 94 of the 2002 Act. There is already, of course, a power to settle turnover and to levy damages. That power comes from Section 28(2) of the 2002 Act. Indeed a statutory instrument was laid in 2003—the Enterprise Act 2002 (Merger Fees and Determination of Turnover) Order 2003.
Why do we need a new power and why do we need the new power to run in parallel with the old power? The Government state in their submission to the Delegated Powers and Regulatory Reform Committee:
“This new penalty will run in parallel with the existing civil enforcement mechanism for failure to comply with interim measures under section 94 such that a person could potentially be liable to damages under Section 94 and a financial penalty under clause 25.”
Some explanation is needed of the Government’s approach to penalties in this part of the Bill. In following a policy of simplifying and deregulating things, and creating more certainty for business, it could be argued that this overlap between two penalty regimes is going in the opposite direction. In thinking about that, I would be interested to know from my noble friend, what has been the experience under Section 28(2) and the statutory instrument which flowed from it. Are we absolutely sure that we need both? I beg to move.
Lord Marland
My Lords, I am grateful to my noble friend for raising this complex issue. In terms of the methodology, I undertake to look at it in some detail. This will come along in secondary legislation, once we have had a chance to look at it, because it is not a straightforward matter. We are applying rules in terms of financial turnover and in terms of percentage of the market. We then need to know how to enforce the penalties. Clause 25 provides the CMA with the power to impose a fine of up to 5% of the worldwide turnover. That is the effect of the clause that we have created. It is complex and my noble friend has drawn our attention to it. We will look at it in secondary legislation rather than having something in the Bill. I hope that that will encourage my noble friend to withdraw his amendment.
Viscount Eccles
I am grateful to my noble friend for that reply. It probably needs to be looked at because it seems to me that here we have some sort of tightening of the screw. If you believe in tightening the screws—frankly, I do not—and you believe in civil sanctions and administrative fining, which I find a difficult subject, one has to justify why one is hardening up the regime. I do not have up-to-date information so I do not know whether any damages have been levied under the existing statutory instrument. If there have not been any, which seems quite likely, it is even more important that this hardening of the position be justified. I beg leave to withdraw the amendment.
Viscount Eccles
My Lords, I am very grateful to the noble Lord, Lord Whitty, because his contribution means I do not really have to say much about Clause 26 stand part. The real effect of knocking out Clause 26 would be to knock out Schedule 8, so perhaps we can elide the two.
This is a very tricky area and I am sure that it should be thought about again. There is already a time-limit regime—lots of it from 1998 and 2002—and there is a clear general duty of expedition, which is referred to in Clause 26:
“duty of expedition in relation to references”.
It is clear in the current legislation that everyone is supposed to do things in as timely manner as possible. The question then arises of why the Secretary of State thinks that his or her intervention is helpful in this matter, which was very much the line along which the noble Lord, Lord Whitty, was going. I cannot see that it is helpful, nor that it is consistent with the coalition’s policy towards these matters. I thought that we believed in decentralisation, deregulation and trusting the professionals. It seems quite strange to introduce this regime, and of course it has to be hedged about with all sorts of escape clauses. If something gets as far as Brussels, all time limits are off the table; it says so in the schedule. The 40 days can be extended by 20 days, you can stop the clock in certain circumstances and—again I agree with the noble Lord, Lord Whitty—the lawyers will have great fun, as they always do, with this kind of overcomplicated and apparently statutorily enforceable system because they find ways around it. I am very much in support of the noble Lord’s amendment—if it is not to be accepted as it is, I very much support the way in which he put it across.
Lord Marland
We have had two excellent points of view, but the reality is as follows. Britain is seventh worst out of eight regimes in the world in terms of speed, in a review carried out by KPMG. That is a terrible place to be. We are seeking here to give some real clout to the process. Yes, the OFT exists on a 40-day rule but it is not statutory, and as a result 15 out of 76 cases have exceeded that time limit. We want to enforce that limit because it is absolutely no good being seventh out of eight in the world. We are enforcing the 40 days and we have put a period of undertaking in lieu of 50 days, as opposed to nil, and a period of implementation of 12 weeks, as opposed to nil. That is a very big step forward.
Often you are damned if you do and damned if you don’t, but one thing is for certain: we have to get our speed and efficiency up in getting these deals sorted, because that sends a clear message to industries that are merging. As we know, businesses want one thing, and that is clear messages. I therefore feel that this is the right approach for this Government. I do not totally disagree with the noble Lord, Lord Whitty, as on many occasions—I have rarely disagreed with him—we could perhaps have taken a more aggressive stance. This is a very good start, though; we will of course keep these things under review, but this is progress. On that basis, I hope that the noble Lord will withdraw his amendment and, when we come to it, that my noble friend Lord Eccles will do the same.
Lord Marland
My Lords, I will break with tradition and, much to my officials’ relief, read from a prepared script on this one, because it is way above my unpaid grade.
Public interest cases are particularly important to the UK, so it is right that the Secretary of State receives the best possible expert advice on these cases. This clause gives the Secretary of State the option to ask the CMA to look at public interest issues in the round with competition issues. I hope that that clarifies one of the points the noble Lord, Lord Whitty, made. This will enable the CMA to provide comprehensive recommendations on both issues. The Competition Commission can already do this in merger cases.
This clause does not give the Secretary of State additional powers to intervene in market investigations—he already has the power to intervene on certain public interest grounds, and these are not changing. Currently the Secretary of State can only intervene where there are issues of national security.
It will not be the CMA’s decision on where the balance is between competition issues and public interest issues. This will remain, as it should, a decision for Ministers who are accountable to Parliament. The CMA will be the UK’s primary competition authority and will therefore overwhelmingly be focused on competition enforcement.
The CMA, like the Competition Commission, will have expert staff and panel members with a wide range of experience. If the CMA does not have enough in-depth expertise on the specific public interest matter in question, the clause allows for a public interest expert, or experts, to be appointed, who would work alongside CMA teams.
To my way of thinking that gives a very clear understanding of the position on a quite complicated issue. I think the noble Lord, Lord Whitty, has initiated a very good debate. On that basis I commend this clause to the Committee.
Viscount Eccles
The trouble is that it does not tell us why it is there. It tells us something about what could happen under it, but not why it is there. I would enjoy a freedom of information application to find out where this started and what it really means.
Viscount Eccles
I quite agree about deterrents: a nuclear bomb is a deterrent. You have to provide a deterrent. Everyone will say, “Well we expected that, so now we’ll only go to 70 and not 90”. I am sorry, but I do not agree with the philosophy behind such a system. The minimum number of sanctions and penalties that you can achieve is the best, and the greatest degree of things working properly by consent is the best way to go.
Lord Marland
I have to disagree with my noble friend Lord Eccles because I believe that you should have deterrents. I think that the general public would want us to impose deterrents for those who do not comply with statutory rules, so I am afraid that he and I do not converge on that.
The noble Lord, Lord Whitty, is right to talk about deterrents. First, I point out that this is not just £30,000, it is £30,000 or 10% of turnover, so that deals with some of those companies that did not fall into the net that he was talking about. For very large companies, the Competition Commission can fine a daily rate of £15,000 per day with no limits, which is a serious deterrent.
The other point that I emphasise is that the Competition Commission has never had to impose a fine for non-compliance with a request, which shows that the system is working and has worked. I hope that on that basis the noble Lord will withdraw the amendment.
Lord Marland
Perhaps I could explain to the noble Lord, Lord Whitty, and to my noble friend Lord Eccles that all that the clause does is to allow the CMA to conduct a more effective and timely anti-trust investigation. We are imposing civil fines, to be quicker and more effective, which will have some bite to them. The reason for this is that not one criminal prosecution for non-compliance has been pursued. That shows either that the CMA does not want to pursue it because it is too complicated, or that it is in the margin.
We are retaining criminal sanctions for obstructing an officer exercising powers to enter premises, destroying or falsifying documents, or giving false or misleading information—they will remain. The imposition of civil fines rather than criminal sanctions to speed up the action on anti-trust is also in line with the European law that features that. On that basis, I hope that my noble friend might withdraw his amendment.
Viscount Eccles
I thank my noble friend. Can he deal, if not now then later, with this point about an individual having had a connection with an undertaking? As a provision in Section 26A, which is one of the new clauses covered by this enforcement power, it seems pretty wide-ranging. I am pleased to be told that the criminal sanctions are staying for certain parts of the 1998 Act regime. On that, the presentation of the Delegated Powers and Regulatory Reform Committee was rather ambiguous, but we have cleared that up.
In the argument that says that if people know that there are all sorts of horrendous and complicated penalties, with extensive legal costs attached to them—even if you go down the route of new Section 40A, costs will still be attached—we are basically, steadily saying that nobody can be trusted. We are losing touch with the idea that people do things by consent and because they trust each other. That is very regrettable. Meanwhile I beg to withdraw.