Brexit: Competition and State Aid (EUC Report)

Lord Stevenson of Balmacara Excerpts

Thursday 24th May 2018 Lords Chamber

[Lord Stevenson of Balmacara (Lab)]

My Lords, I start by thanking he whom we must call “the master of the universe”, my noble friend Lord Whitty, for his skill in bringing forward a committee report which I think meets the test of committee reports which I have observed over the years. I do not think that any particular measure for that test has as yet been defined, but if a report is good enough to bring not only those who participated in it but others to the debate, that is obviously a tick; if it gets a quick response from Ministers, that is another tick; and if the combination of the report and the ministerial response produces a good debate then you have a winner. I think that “master of the universe” should be the routine accolade for those who chair these committees and are able to fulfil ticks in all three boxes. In passing, as others have mentioned, it is quite unusual to get a quick response from any department, and I congratulate the noble Lord and his department on producing one. To get one which allows an early debate is a double win.

My noble friend Lady Donaghy said that she thought you could read this report on a number of levels. First, it is an analysis of a series of problems thrown up by the decision to exit the European Union. Secondly, it is a disquisition on where this country has got to in its own measured way in coming up with a set of procedures for the complex area of dealing with companies and how they operate, and in a sense the report also fulfils that. Thirdly, it reveals the way in which we have failed to grapple with some of the deeper issues surrounding the whole policy area of state aid and state companies, and the questions of why and under what conditions mergers should be allowed. Fourthly, it is also about consumer choice. Both this country and the EU have been very bad at making sure that consumers are involved in these matters and that they are the ultimate beneficiaries of the policy choices made. I am grateful to my noble friend for that because, without that point being made, some of this debate might not have had quite the resonance that it should.

I have only three major areas that I want to cover. One is whether we will be able to work with our European colleagues—currently our partners—in the future. There is also the narrow question of whether the references in our current law explicitly linking us to the jurisprudence of the European Commission and the European Court of Justice will continue in some form or other. It is not clear from the current Government’s present position whether that is the case and they are struggling to get out of that. A measure of success in terms of Brexit seems to be whether any policy announced or to be announced will continue to be covered by ECJ jurisprudence. Even if that is not the case, it is quite clear from this report that there will be a continuing need to keep in step with our colleagues, not least because there will be mergers involving companies which trade either to or from the European Union and we will need to have some regard to the jurisprudence.

Emerging leaks about the withdrawal agreement and transitional agreement seem to suggest that the European Court of Justice will continue to have a direct role, at least until the end of the transitional period in December 2020. Can the Minister indicate whether this might be a longer-term issue, with particular reference to competition and the need to work closely with our European partners?

There is then the question of how we will manage the divergence that will inevitably set in once we separate from the European Union. The divergence will partly be statutory and will therefore presumably be under our own control, but it will also partly emerge from judgments of courts and statements in cases that come before various authorities, whether in this country or in others. However, we will also have to adapt to the fact that it might be necessary to have a more flexible approach to many of our industrial sectors—certainly the ones that feature heavily in our industrial strategy—than would perhaps be the case with some of the more traditional ones. We will be diverging in an evolutionary way but there might need to be a bit of revolution about that, particularly as we get a sense of how these new technology companies and the new sectors that emerge from them work in practice.

In a sense, this may be a problem that we cannot solve today or have any views about, but it would be helpful if the Government could confirm for us when they can that this is an issue that they are on to and to which special attention will be paid. In passing, I notice, for instance, that we are now getting some frameworks for the future EU-UK partnership, and I have here the one on data protection. It is quite interesting that we are now making policy by spreadsheet rather than by papers—this is a series of slides that you can riffle through in a matter of seconds, although it is supposed to tell you the entirety of our negotiating position. It is a funny way of going about it, but will there be one on the question of how competition law will be developed? It is not mentioned in either of the two reports that have come out, one of which is on science and research and the other of which is on data protection, but it is alluded to in both of them. It would be helpful if the Minister could share his thoughts on that.

The divergence that may come naturally because of the way in which the two bodies will separate, or will come organically because we need to move far faster and more smartly on those sectors that will cause us more trouble in this area, may or may not have a link to the third thing—the question that I mentioned at the beginning about how our overall policy will change. It should and could change towards a consumer focus—I hope that will be the case—but, as I will come to in a minute, the CMA has no consumer representatives on its board, so how will it access that new consumer interest? There have also been calls for a move towards a more prosecutorial approach to competition enforcement—that increasingly comes out as one reads the papers around this—and perhaps towards a more economics-focused, effects-based approach to competition decisions rather than simply market power. I would be grateful if the Minister could share some thoughts on that.

We had quite a few contributions in this debate about whether the move away from the one-stop shop under the EU merger control will have an effect. Clearly, it will have an effect. We are still in the shadow of the unfortunate circumstances of the Cadbury-Kraft and recent GKN-Melrose mergers, where public interest has not been seen to be either effective or enduring in how it was used to analyse and treat these mergers. My narrow point is not that work is not going on here—I know that it is. As my noble friend Lord Whitty mentioned, we have already passed in your Lordships’ House measures that have relaxed the shares element of merger analysis and changed the conditions under which the targeting company has to fulfil a certain share of the market amount. At the moment, these are narrowly confined to defence and security issues, but there is read-across to media and to the other exemption, which is financial stability.

In both these situations, the Government have hinted that they are still thinking about additional strategic considerations, such as economic, social or environmental policies. Can the Minister give us any more information about that? The last time he was asked, I think he said that something would be coming out soon. “Soon” is an elastic word, and I have not yet heard whether it will be before the Summer Recess or whether we are talking about Christmas. It would be helpful to know that to inform the debate. Has what we have seen recently been a ground-clearing exercise for that, or are we still waiting for more substantial thoughts on it?

Finally, on the question of institutions, it is clear that the Government have recognised that more work will be going to the CMA. It is good that they have increased the budgets so that it will be able to cope, particularly with the Brexit-related work that will come forward in the next year or two. However, as others have said, that was done before the recognition that a state aid authority is required and the CMA would be best placed to take on that role. However, three important points have been made, and the noble Baroness, Lady Noakes, was the first to make them. The whole issue, including state aid, raises the question of the independence of the CMA. We have to be clear that that will change, including changes to the way in which people are appointed, with particular reference to the chairman, which we also talked about. The model here might well be the ICO. Although that is clearly an agency created and supported by the Government, stress is placed in all the funding documents and in the legislation we have just seen—the Data Protection Bill—to ensure that the independence of the ICO herself is not in any sense threatened. I would be grateful for a response from the Minister on that.

The wider question here is whether we can see any problems. The idea is that the CMA is focused on third-party mergers, and in some senses anti-trust cases, and state aid, which will of course involve issues that will affect the Government both nationally and locally. Whether that requires additional independence is an issue on its own merits and is not to do with the organisational structure or, indeed, membership of the board of the CMA.

On state aid and the devolved institutions, the announcement that the CMA will be the state aid authority is interesting given what happened in the recent debates on the EU withdrawal Bill, as mentioned by the noble Lords, Lord Wigley and Lord German, and others. It will pour petrol on a large fire and will be a real problem if we do not sort it out. It is clear that some of the powers returning from Brussels will go straight to the devolved Assemblies and Parliament. The powers will include trade and the possibilities of state aid, and therefore they will prosecute this issue with considerable vigour. If it is already decided that the only agency able to make decisions on such matters is a UK-wide one, under what conditions does that follow the devolution structures? If everything that should be devolved is devolved when it is not specifically reserved, the Government will have to be agile in their arguments to ensure that people understand—even if they do not accept it initially—the case for the CMA being the state aid authority and a UK body.

Even if that is the case, the questions raised by the noble Lord, Lord Wigley, and others about how we set the formal structures around which these negotiations can take place are only the beginning of a huge discussion about what is effectively creating a federal state in the United Kingdom. This is not small beer. It is a matter of significance with which we need to grapple, and it will not help if decisions are taken piecemeal about elements of it—even though they are important elements—without having regard to the wider issues. This may be above the pay grade of the Minister—he is smiling, so he has obviously got prepared remarks—but I put on record that this issue needs a great deal more attention and discussion, and I look forward to hearing his response.