Enterprise and Regulatory Reform Bill Debate
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Lord Whitty
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Enterprise and Regulatory Reform Bill
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Lord Whitty
Lord Whitty
My Lords, we now come to a part of the Bill which, at Second Reading, I said I regarded as in the “relatively good” category compared with some other parts of the Bill that we will be debating. Broadly speaking, that means that we approve of the objectives of this part of the Bill concerning the rationalisation of the competition structure. As we go on, I think we will find that the Government may well have overcomplicated some bits and missed out others, but in principle the merger between the CMA and the OFT will receive general support from this side—in particular, the prospect of it dealing with some of these issues more coherently, both within the new structure and in time, as well as with regard to the relationship between the new competition authority and the concurrent regulators, although we will have a number of queries on that.
Before we make the new organisation work, we need to know what it is there for. As with many Bills introduced by all Governments setting up new organisations, two or three years down the line it is not always easy to derive from the Bill or Act why the organisation was set up. We need an objective so that business knows how to relate to the organisation, so that there is some transparency for the public about its role and so that in particular—I emphasise this, as will my noble friend Lady Hayter—there is clarity about the role of consumers and the ultimate objective of the new organisation to provide choice, customer care and a generally consumer-friendly market in which to operate. The central means in achieving that market is enhancing competition. The organisation also has to be realistic about, and proactive in, responding to market failures.
However, there is one area where I think that the role of the body has been underestimated and that is in relation to explicitly referring to the benefit or detriment of consumers. The aim of the two amendments in this group which are in my name is to tell the public and the organisation what its role really is. Government really does need to set the objectives and scope of this new body, otherwise in 10 years’ time no one will know what is expected of it and we will no doubt be back here within that 10 years looking at whether the competition regime is working. In the mean time, Governments will have to assess its importance, its resourcing and its priorities for the coming few years, and therefore there will be reviews, which will need to go back to the objective of the organisation.
We have attempted to set out in Amendments 24ZA and 24ZC some of those objectives. The first one, in Amendment 24ZA, relates to the CMA’s role in establishing competition and examining market failure and market distortion. We often talk about monopolies in this situation, and mostly it is about monopoly, oligopoly and dominant positions in providing goods and services in particular markets. However, it is also necessary to refer to monopsony. The first competition or anti-trust Acts in this country in the 1940s were very insistent on that point, and there are situations where a potential distortion of the market or abuse of a dominant position relates to the buyer’s market as much as the seller’s market. The Government have indeed recognised this—somewhat belatedly, under both this and the previous Government—in the groceries code, for example, where the power of the oligopoly structure of the supermarkets has a tremendous effect on relatively small companies which are, directly or indirectly, suppliers to those sectors. Therefore, the issue of buying power, as well as of provision of goods and services, is important and that is what these two amendments address.
Amendment 24ZA spells that out briefly and Amendment 24ZC defines it in more detail. Mergers are obviously one distortion of a market, but there is a broader issue of dominant position in a market. We all know that there is no such thing as a perfect market, because all the players in that market are not equal, either in their resources, their skills or their knowledge. Therefore, an unusually dominant player in the market distorts the market as a whole and we need to provide for the new organisation to focus clearly on a dominant position which may not, strictly speaking, be a monopoly or create a monopoly through a new merger.
We need to broaden it a bit and if we look at the areas which are probably those of most frequent consumer complaint, they are dominated by relatively few players. Consumers may experience different effects of the abuse of that market power in different sectors. There are so many sectors now in which there are, effectively, between four and eight companies which dominate and which—if there is not, strictly speaking, any provable cartel—tend to move in unison rather more frequently than a proper market would allow. There is an obvious current example in the energy market; the banking sector is similar. I have mentioned the supermarkets, which work both ways for customers and suppliers. There are other markets, such as the mobile phone market, in which not that many players dominate the market and quite a lot of apparent choice actually limits the range and scope of consumers’ choice.
I think that we need to define this, as I say, so that future generations will understand why it was set up. We need to define it for the new governance of the organisation, and we need to define it for the Minister, successive Ministers—although I wish Ministers a long life in these responsibilities—and for Parliament and the public, so that the new body can be held to account. I am not saying that the form of words we have used here is the be-all and end-all, but I want the Government to consider putting in such a clause to define the role of the organisation. I beg to move.
Lord Lucas
My Lords, I address my amendment in this group, Amendment 24ZCA. I am not sure that we really know how to deal with monopsonies, it has been so long since we had one that was truly powerful. I am not sure that the Bill gives us the ability to deal with them properly. My amendment will make sure that we can, because we can now observe one of these monopsonies in action and in the process of growing, and that is Amazon.
Amazon now has some 90% of the e-book market in the UK; it has something like 50% of the entire book market, e-books and physical books, in the US and close to that in the UK. However, when I have asked the OFT if it will look at some of the practices that Amazon employs in getting to where it is, it says, “No, because none of the major publishers has brought us any evidence”. The publishers will not even come into this House to have tea with me to discuss what is going on. They will not talk to the Guardian. They will not talk to anyone because Amazon is rough, hits hard, has its teeth into publishers’ necks and is sucking their lifeblood. There is no answer. If we are to do something as a nation, we need to equip ourselves with a system that is capable of going to the publishers and saying, “We think there might be something going on here. Please give us some evidence”. At the moment, the OFT is hamstrung and cannot do that. It has to wait until someone brings evidence to it. I would like to see a situation whereby this new body had the power to go out and look on its own account and not wait for evidence to be brought to it, because it is in the nature of monopsonies, particularly the powerful ones, to tie up the people who are involved in them and make it extremely difficult for any of those people to bring a complaint or evidence to the OFT, as it is, on their own accord.
Amazon is no friend to the UK. We may all think that it is a great place to buy—indeed it is, and I am having an interesting Christmas not buying from it. It treats us just as a distribution depot. It is not building a business here. It has no interest in the great history of British intellectual content. It is not like our publishers, who have a care for the nation and the part that the UK played in the world of books. We are just a source of a commodity to Amazon. It pays no tax, as is well known. It abuses VAT whenever it gets the opportunity. It has had a scam going on in Luxembourg for ages, which, thank goodness, the European Union is putting an end to, whereby it paid only 3% tax, rather than 20%. The company has been allowing sellers to hide their identities, so that they can operate VAT scams. It was an active participant in the abuse of low-value consignment relief. It is not a company with morality and it is not a nice organisation. As was said by the publisher who spoke anonymously to the Guardian, you dare not go against it because it would kill you.
Amazon’s terms on e-books are fascinating. As a publisher, you can get 35% of the price that it sells for, if you set the price. If you want more than that, Amazon gets to choose the price and you end up with less. If you are a big publisher, you may end up with only 10% of the price that Amazon is charging for an e-book. If you are selling through Amazon Marketplace, Amazon gets to know your customers, suppliers, prices and volumes; and if something is selling well, Amazon then does it itself. It goes straight to the manufacturer and undercuts you. That is all based on Amazon’s knowledge of your business. If you are selling on Amazon Marketplace, you are forbidden to sell anywhere else at a lower price or you are chucked off. Amazon is a very difficult company to live with.
What we are seeing is a monopsony in its growth phase. It is running on very low net margins in order to destroy the competition and increase its market power. If we act now, there are viable alternatives that will spring up to compete with it. If we leave it, we risk a situation where there is no competition, where there are no publishers any more because Amazon is the only place to publish direct, and where there is no ability to sell e-books other than through Kindles because Amazon controls them, and you cannot put outside software on them. We must give ourselves an opportunity to act, and act sensibly, and we cannot hamstring ourselves by sitting here and waiting for one of this company’s victims to complain before we act.
Viscount Younger of Leckie
I thank noble Lords for their suggested amendments and I appreciate the sentiments expressed by the noble Lord, Lord Whitty, regarding this part of the Bill.
Beginning with the amendments in the names of the noble Baroness, Lady Hayter, and the noble Lord, Lord Whitty, Amendments 24ZA and 24ZC seek to add specific references to some of the CMA’s competition functions and duties into its overarching duty, which is,
“to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
These include, for example, references to the CMA’s role in tackling mergers and abuse of dominant positions, and in reducing cartels and monopolies.
The CMA’s duty to promote competition reflects its unique position as the UK’s principal competition body, its leadership role in tackling anti-competitive behaviour as part of ensuring markets work well for consumers, and its domestic and international advocacy role. It does not seek to set out all the CMA’s functions. In addition to this overarching duty, the CMA will inherit the full range of the competition functions of the OFT and the Competition Commission, as well as additional consumer enforcement powers.
These functions and powers include: strengthened Competition Act enforcement powers to enable the CMA to tackle anti-competitive monopolies, monopsonies and cartels; strengthened merger controls to enable the new authority to address more effectively anti-competitive mergers that can lead to high prices and poor quality for consumers; a wide range of investigative and remedy-making powers to ensure that markets work well for consumers; and finally, the use of consumer enforcement powers to address business practices that distort competition or impact on consumer choice, even where markets are competitive. We are also providing more speed and rigour in market studies and investigations, and anti-trust cases, to give consumers faster and more robust decisions.
Given that the CMA will have a range of powers to ensure that competition and markets work well, it would not be appropriate to legislate for the CMA’s overarching duty to focus on one of these important competition and consumer tools over another. It is also important to preserve the independence of the CMA to choose the right tool to promote competition and tackle anti-competitive practices. We therefore do not consider that it is necessary or right to specify the particular kinds of anti-competitive features set out in these amendments.
There is also a particular concern over the way in which Amendment 24ZC seeks to gloss the meaning of a dominant position by specifying that it is normally to mean control over a quarter or more of a market. This would contradict European Union jurisprudence on dominance and therefore introduce, by way of a provision in the CMA’s overarching duty, a conflict with the CMA’s actual powers and responsibilities and with the European Union law which underlies them.
Determining whether an undertaking is dominant requires an economic analysis of the state of competition in a market as it is best defined. Market shares can be important indicators but may not be decisive—for example, where there is significant buyer power or low barriers to entry such that the undertaking’s exercise of its power is constrained by the threat of new entry. By introducing this more mechanistic approach to dominance, the amendment would conflict with the way dominance is assessed under European competition law. So it would be wrong for us to introduce this scope for inconsistency and uncertainty by way of an amendment to the CMA’s overarching duty. I hope that noble Lords will accept my explanation, which has taken a little time, for why the overarching duty is just that and why I do not believe that more specific additions are appropriate.
Amendment 24ZCA, tabled by my noble friend Lord Lucas, and bearing in mind his reference to and comments about Amazon and its great buying power, seeks to empower the CMA to investigate any company or arrangement to establish whether a cartel, monopoly or monopsony exists or is being abused without receiving prior complaint. The CMA will, as the OFT can now do, be able to make inquiries whether or not it has received a complaint and will be able to take action on its own initiative in markets where it observes a problem. Indeed, it will inherit the function of obtaining, compiling and keeping under review information about matters relating to the carrying out of its functions under Section 5 of the Enterprise Act 2002.
However, for the authority to use its far-reaching powers of investigation under the Competition Act 1998—such as powers to require the production of specified documentation or information and powers to enter business premises with or without a warrant—Section 25 of the Competition Act 1998 requires it to have reasonable grounds for suspecting that an anti-trust prohibition has been infringed. This strikes the right balance between giving competition authorities effective powers and protecting businesses from overzealous enforcement. If the amendment is intended to undermine this threshold, it would represent a significant weakening of a protection for businesses. As such, as the noble Lord, Lord Borrie, mentioned, I do not consider that the amendment is required. I understand the noble Lord’s concern that allegations of anti-competitive behaviour should be properly investigated and the facts established. Decisions on individual cases and priorities will be for the CMA, which will of course be independent of government.
At the end of the day, it will be for the management of the CMA to ensure that it is a highly effective competition authority, vigorous in the pursuit of anti-competitive behaviour, and the provisions of the Bill, including the creation of the CMA, will assist in this. They are designed to deliver greater coherence in competition policy and practice and a more streamlined approach to decision-making through stronger oversight of the end-to-end case management process, more flexibility in resource utilisation and better incentives and powers to apply the anti-trust and markets tools to deal efficiently with competition problems. In addition, this clause will give the CMA a duty to promote competition, something which neither the OFT nor the Competition Commission have. I hope that my noble friend Lord Lucas will accept that these changes should go a long way to securing that the CMA will be the active champion of competition that we all wish to see.
In the light of my explanation, I ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Whitty
My Lords, I thank all noble Lords who have spoken, in particular the noble Lord, Lord Lucas, because he gave an example that I should have thought of. It is clear that Amazon has a dominant position in a buying and selling market. It is exactly the kind of case that we need to be absolutely sure that the provisions of the Bill cover. My noble friend Lord Borrie and the Minister both said that it already does and I hope that is right, but we need to underline the Minister’s words for future use. In a situation such as that of Amazon, in relation to both the suppliers or subcontractors from whom it derives its products and the people to whom it sells, this is a growingly dominant force in all our lives. That is a good example and one we need to test against all the provisions of the Bill.
My thanks also to my noble friend Lord Borrie and to the Minister for rightly saying that monopolies and market dominance are not always a bad thing. That would usually be my line because the assumption that a free market will ultimately always deliver the best outcomes for consumers is not necessarily true. Nevertheless, I would argue that there is a tendency for the less competitive markets to give consumers a worse deal and that improving competition in almost all circumstances—not all, I agree—will give consumers a wider choice. There are situations where broadening competition in practice reduces choice, but in general the consumer benefits from more competition and choice and less market dominance. That means that we have to be quite subtle in defining the overarching role of the CMA. I was slightly puzzled by the Minister saying that we should not augment or unduly prescribe the overarching role. The problem with the way that the Bill is currently set out is that, whereas the OFT and the CMA had clearly defined major roles in the beginning of their respective statutes, this does not. All it says is:
“The CMA must seek to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
Nobody will argue with that. It is one and a half lines. It does not say what the CMA should look into and how it should judge it. I certainly agree that all market situations into which it looks should be judged as to whether they are an abuse of power to the detriment of consumers.
There are other issues involved in looking at market structures, including international competitiveness et cetera. There are wider issues as well but my amendments attempt to say what the subject matter of the new CMA would be. I do not think that we have yet got that situation. However, clearly my amendments as drafted do not meet universal acclaim. I hope that the Government will, before the Bill finishes, think about whether they need to be a bit more definitive in this area so that we in Parliament and the public in general know exactly what this new organisation is setting out to do.
On the threshold point, there are references in existing legislation to 25% so it is not a new thing. I accept that that should probably not be in the overarching aim. I suspect that we will return to the threshold as we move further into the Bill so I will not prolong that one. I have made the point. I hope the Government will at least give this some consideration and perhaps come up with a different drafting when we move to later stages of the Bill. For the mean time, I beg leave to withdraw the amendment.
Lord Whitty
“( ) The CMA shall have responsibility for the strategic direction of all statutory consumer support including—
(a) advocacy,(b) education,(c) advice,(d) enforcement of redress(e) guidance, and(f) consumer protection,as it relates to competition and fair trading, taking particular account of the interests of vulnerable consumers.”
Lord Whitty
My Lords, this amendment puts the consumer interest at the centre of everything that we are doing. A number of organisations have, one way and another, had some changes proposed to them in the consumer field in recent years, since the advent of this Government, who call it the “consumer landscape”. They are changing the role of the OFT and slightly changing the role of the sector regulators; they have, somewhat to my distress, changed the role of Consumer Focus, the major consumer organisation, previously the National Consumer Council, of which I was chair and the noble Baroness, Lady Oppenheim-Barnes, was a distinguished chair at an early stage. They are not leaving a consumer voice in the same central way as was provided in the previous 37 years. Some of those functions will be done elsewhere, some will be inherited by different bodies and some will be in the public sector, but most will be in the third sector or somewhere in the ether.
That is not a satisfactory position. If the regulator and the industry are to deal with the consumer interest in the central way that the department continues to emphasise in all its publications—though its actions somewhat belie it—we have to be clear where the functions that used to exist now lie. In relation to this part of the Bill, the OFT already included a number of functions beyond the areas of market structure—in other words, beyond merger, monopoly and dominant position. It had general responsibilities to look after the consumer interest, consumer protection and duties and consumer law. Some of those duties are now to go out of the organisation; in fact, on the face of it, most of them are to go out of the organisation, and the new organisation will primarily be concerned with market structures. This could prove to be unsatisfactory. I appreciate that BIS is still issuing consultation papers, replies to consultation and new White Papers in the consumer area, but it would have been more appropriate if they had all been brought together in one Bill. Instead we have some of it in the Public Bodies Act, some of it in this Bill and some of it yet to come—so we do not get a very coherent position.
To be more specific, as the amendments are, the present duties of the OFT include responsibilities for general protection of consumers, including responsibilities for consumer education, information and advice. Section 6 of the Enterprise Act provides for information and advice and Section 8 for support for consumers in the market and the particular provisions in relation to consumer-facing codes of practice for different sectors. Those have been important roles for the OFT, and in addition it has developed other roles, such as the scam-busting role and other interventions in pursuit of consumer protection and acting against consumer detriment. Those roles, as far as I can see, are not to be part of the roles of the CMA.
Section 8 of the Enterprise Act is to be deleted entirely. Amendment 24F reverses that deletion, so that the OFT could continue to provide help to consumers in relation to their general protection and the codes of practice. Section 6 of the Enterprise Act, which deals with education, is still there. However, as I understand it, it will be devolved to Citizens Advice. Indeed, any of these powers can be devolved. However, whether or not the powers are devolved, the question is: which government organisation is responsible for ensuring that they are properly carried out and that consumer detriment is not increased but diminished as a result of the changes?
The amendments seek to deal with what I understand to be a situation that is not covered in the Bill. As I said, consumer education is now to be the responsibility of Citizens Advice. The codes are, vaguely, to be the responsibility of trading standards departments and a new body, the National Trading Standards Board, which is in the process of being established—however, it is not a statutory body or a body mentioned in statute—and another, rather shadowy, body to be established called the Strategic Intelligence, Prevention and Enforcement Partnership, which does not exactly trip off the tongue. Its acronym is SIPEP, which is a particularly apposite title.
It is to all these slightly shadowy bodies, based in part on trading standards and in part on the third sector organisations, that the powers which previously belonged to the OFT—and which were very important in establishing new benchmarks for the consumer interests—are to be devolved somewhere down the line. I am a great admirer of trading standards—indeed, I am a vice-president of the Trading Standards Institute—and have a great respect for it. However, it has for some time—not only under this Government, I am afraid—been deprived of resources and reduced in scope so that its ability to deal with major scams across the borders of local authorities is limited. Although the National Trading Standards Board may enhance that a little, it will not be able to do so without strong backing from the centre. However, that backing from the centre, which the OFT previously provided, is not in this Bill.
My amendments seek to provide a number of things. They seek to restore Section 8 and to ensure that these functions are robustly devolved—because these functions can be devolved; I am not necessarily objecting to that—and that it is made clear to Parliament that they are being devolved. Where they are devolved to public sector bodies such as trading standards departments at local authority level, or to third sector bodies such as Citizens Advice, Parliament should know and deliberately make those decisions.
It is also important that those decisions are reviewed and reversible, and these and later amendments provide for a review system. Much of this is new territory. Taking it away from the centre and pushing it down the line may be a dimension of localism, reducing the role of the state and increasing that of the third sector, but we need some means of judging whether it works or not. I therefore propose five-year reviews and an ability to reverse the devolution of responsibilities. However, we cannot reverse devolution if they are not referred back to either the Secretary of State to give the responsibilities to some other body or to the CMA. All this needs to be in the Bill.
If we do not do that, there is a real danger that we will dilute the achievements of the OFT. I know there have been criticisms—I have had criticisms—but the OFT has raised the standard of consumer protection in this country and is recognised by the consumer movement internationally and by other bodies as having done so. The danger is that the central regulator’s role will be diluted; that it will be differently effective in different parts of the country and in different sectors; and that the independent voice of the consumer will be less than it was previously. This all adds up to a serious diminution of the consumer influence on policy.
I hope we can ensure, even if we do not adopt my exact words, that the Bill makes clear where those responsibilities are going, how they are to be assessed and, if necessary, how they can be reversed and reallocated. I beg to move.
Baroness Oppenheim-Barnes
I would like to make clear at this point that I agree with every single word that the noble Lord said. I hope to have similar support from him when the time comes.
Viscount Younger of Leckie
My Lords, these amendments recognise the fundamental importance of consumer support and consumer protection, whether it comes in the form of education, advocacy, advice or enforcement of legislation. I therefore thank the noble Lord, Lord Whitty, for the opportunity to discuss this important issue.
Competition is one of the pillars of a strong and vibrant economy. It makes businesses efficient and innovative, allowing the best to grow, innovate and enter new markets. It also drives investments in new and better processes, pushing prices down and quality up for consumers, but competition is only one side of the coin. To reap fully its benefits, consumers must be informed and have the confidence to exercise choice effectively. Unless consumers have the ability to make effective choices, vibrant competition will be inhibited and the businesses offering the best price or the best quality will not necessarily grow.
The current landscape provides consumers with a bewildering array of public, private and voluntary bodies with overlapping responsibilities. Each individual organisation does a very good job and is highly regarded but, taken together, they form a complex landscape that can be difficult for consumers to understand. The complexity and split of responsibility on enforcement cases has also led to a gap in enforcement. The National Audit Office’s 2011 report, Protecting Consumers, which reviewed consumer protection in the UK, found that consumer detriment occurs at national and regional level but the incentives are weighted towards tackling local issues. This contributes to an enforcement gap where large regional and some national cases may not necessarily be addressed.
The OFT estimated the cost to those affected and to the wider economy of activities such as unfair commercial practices and scams to be at least £6.6 billion annually. Any gap in enforcement is therefore significant to consumers and to the economy. The combined competition and consumer landscape reforms aim to deliver a better deal overall for consumers by setting out clearer responsibilities and better co-ordination between enforcers and the consumer advisory bodies.
Specifically, we will better equip trading standards departments to take greater responsibility for consumer law enforcement, and we have created a new National Trading Standards Board with responsibility for prioritising national and cross-local-authority boundary enforcement, tackling issues such as scams, illegal moneylending and rogue and incompetent traders, to provide a more coherent approach to trading standards enforcement.
The CMA will have primary expertise in unfair contract terms legislation and additional consumer enforcement powers to tackle business practices that distort competition or impact on consumer choice, even when markets are generally competitive. This could take the form of tricking consumers into tie-in contracts that might inhibit them from switching suppliers, subjecting consumers to unclear surcharges, or using misleading reference pricing. The CMA will also operate the combined OFT and Competition Commission’s markets regime to ensure that markets work well for consumers. As such, it will have powers to investigate markets such as payment protection insurance, which is a live issue. Business education will be shared between trading standards departments, which will deal with most business-facing initiatives, and the CMA, which will lead on competition advocacy and business education on unfair contract terms legislation.
In addition, as mentioned by the noble Lord, Lord Whitty, we have created SIPEP, the Strategic Intelligence, Prevention and Enforcement Partnership, involving the CMA, the National Trading Standards Board, the new Financial Conduct Authority, Citizens Advice and representatives from Scotland and Northern Ireland collectively to identify issues causing consumer detriment and agree priorities for enforcement, information and education.
These landscape changes have been welcomed by a number of consumer experts. For example, Gillian Guy, chief executive of Citizens Advice, said that this reform, “is good news for consumers”. Ron Gainsford, chief executive of the Trading Standards Institute, said to the committee in the other place that the current proposals strike about the right balance on the relationship that the institute was seeking. Mike O’Connor, the chief executive of Consumer Focus, said of the new strategic partnership:
“Consumer Focus welcomes the creation of SIPEP and we believe that it can make an important contribution to promoting consumers’ interests”.
In order for this new landscape to work in practice, it is essential that there is clarity of responsibility and accountability. Requiring the CMA to provide strategic direction on consumer support functions for which other bodies will be responsible, as provided for by Amendment 24ZB, would undermine in this area and risk further confusion for consumers across the landscape.
I shall now address Amendments 24F, 24G, 24H and 24J collectively. They would widen the transfer scheme set out in Clause 22 to enable the transfer of the OFT and Competition Commission’s functions to bodies other than the CMA and a Minister of State. It would therefore be helpful for me to set out how we intend to enable the transfer. We will be relying on Clauses 20 and 22 and Schedules 4, 5 and 6 to create the CMA and transfer the functions, including those I set out earlier, from the OFT and Competition Commission to the new authority.
In addition, we will be using two orders under the Public Bodies Act to enact changes to the wider consumer landscape. The first order is being laid in draft before Parliament today and we hope that it will come into force in April 2013. This order will transfer the OFT’s function of supporting a public consumer advice scheme to Citizens Advice services in England, Wales and Scotland. We will then transfer the levy for this service. We are also making amendments to a range of consumer legislation to modify the enforcement functions of the OFT.
The second Public Bodies Act order will transfer Consumer Focus’s statutory functions and powers to the Citizens Advice service, and wind up Consumer Focus. It will also transfer the OFT’s estate agency functions to trading standards. We expect to lay this order late in 2013 for it to come into force in 2014.
Finally, Amendment 24 seeks to transfer the OFT’s function of “promoting good consumer practice” to the CMA. We do not consider that this function needs to be transferred to the CMA. In the current regime, Section 8 of the Enterprise Act 2002 gives the OFT a general function of promoting good consumer practice, which recognises its leading role in providing consumer education and its function in relation to approving consumer codes. It is also the provision on which the OFT relies to conduct its international consumer advocacy work.
The noble Lord, Lord Whitty, was concerned that Section 6 of the Enterprise Act 2002 would not be transferred to the CMA. Paragraph 61 of Schedule 5 to this Bill transfers to the CMA the OFT’s function for the provision of information to the public.
Lord Whitty
Either I mis-expressed myself or the noble Viscount has misunderstood. Section 6, which deals with education, is indeed being transferred and then devolved to Citizens Advice and, to some extent, trading standards offices, but Section 8 is being deleted in its entirety, as I understand it.
Viscount Younger of Leckie
I note the point that the noble Lord has made and I will come back to that technical issue shortly.
As I have mentioned, in the new consumer landscape, the Citizens Advice service will take on the lead role in providing consumer-facing education from the OFT, as well as taking over responsibility for consumer advocacy from Consumer Focus. The role of approving consumer codes will be transferred from the OFT to trading standards. The CMA will continue to have an international consumer role; for example, to represent the UK at the OECD’s Committee on Consumer Policy. A specific provision has been made for this in paragraph 19 of Schedule 4 to the Bill.
I will pick up the point made by the noble Lord, Lord Whitty, and the noble Baroness, Lady Crawley, about how trading standards offices will provide a high standard of support against a backdrop of reduced funding. Local authorities make their own decisions about what proportion of their budget to invest in local trading standards services. This had led to variations in the costs and resources allocated to trading standards services. While we are unable to pre-empt local funding decisions, in 2011 the National Audit Office assessed that local trading standards services vary significantly in capacity and annual budgets range from around £240,000 to more than £6 million.
The Government recognise the impact of the current financial climate and our structural reforms, supported by central government funding, for national leadership and co-ordination of enforcement activity will help local services to target high-priority cases for maximum effect. We will continue to ensure that national expenditure complements the local authority contributions and offers as much leverage as possible to ensure overall efficiency.
The noble Lord, Lord Borrie, asked whether the Citizens Advice service would receive additional funding for taking on the consumer advocacy function. Citizens Advice will be allocated an additional £3.72 million to carry out general consumer advocacy work and consumer education and information, previously undertaken by Consumer Focus and the OFT.
I hope that noble Lords will accept my explanation of the relationship between the competition and consumer reforms as to why additions to the CMA’s role and widening of the transfer schemes in this way would not be appropriate. Therefore, I ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Whitty
My Lords, I thank the Minister and other noble Lords who have spoken. I thank, in particular, the noble Baroness, Lady Oppenheim-Barnes, for her support. I hope that I will be able to reciprocate but I shall have to wait to hear what she says.
My noble friend Lady Crawley has done a lot in relation to the trading standards organisation. It is important to recognise that the TSI and trading standards offices up and down the country have been engaged with the Government and others in considering what the new landscape looks like. There are two aspects to this. One is that the Minister referred to strengthening and better equipping trading standards bodies to perform the enforcement role, as well as the educational role, which will now also become part of their responsibilities. However, that cannot be done in an atmosphere of fewer resources. The Minister quite rightly said that we are starting from a position of hugely differential funding for trading standards bodies up and down the country, and the NAO also rightly pointed that out, but there is no clarity on how we will address that, let alone on increasing the aggregate amount of resources for the increased level of responsibility and some previously central functions which trading standards are about to take on.
The noble Lord accused my amendments of being likely to create greater confusion. However, at present there is no mention of most of what he went through in some detail. I need to read his words carefully but I think that it needs to be set out more carefully in the public document. There is no mention of the words “national trading standards”, SIPEP, Citizens Advice, or indeed Consumer Focus for that matter. To get clarity, we need a better understanding of where previously central statutory functions are now going. To go back to the money point, we also need to ensure that, when the transfers are made, at least commensurate resources are transferred with them. In the area of consumer advocacy, for example, I know that Citizens Advice has been asked to take on the role of Consumer Focus and, prior to that, activities that came under the NCC.
The Minister referred to £3.7 million. My recollection is that in the last year of the National Consumer Council and the first year of Consumer Focus, the budget for that role—the non-regulated industries part of Consumer Focus—was around £6 million. That was four years ago. Therefore, there is a serious cut and Citizens Advice is not being given a commensurate amount of money to perform the function previously carried out by Consumer Focus.
I fear that the same is likely to be applied to trading standards offices and that they will be asked to do more in a different way—in some cases, starting from scratch—without commensurate resources. At the very least, the Government ought to put in the Bill clarity about where all those responsibilities are going. They should be obliged to produce regulations at a later stage when the transfers are taking place and attach to the resources that they are handing over those that related to responsibilities which were previously central and are now to be carried out at local or third sector level.
I think that the last thing the Bill provides is clarity, and I will be coming back to that point in other contexts, as I am sure others will. The new consumer landscape, or new trading standards landscape, is not spelt out in the Bill. There is some support for some of the measures that the Government are introducing—there is no doubt about that—and there are those who would like to see them set out slightly differently. However, the point I am making is that that is not in the Bill—there is no clarity. Parliament has not been asked to approve or sanction the way in which these transfers are likely to take place and the way in which those responsibilities are in future likely to be delivered and effected. So I do not really accept much of what the Minister says about this part of the Bill. We will undoubtedly return to it.
In reply to my noble friend Lord Borrie, who asked about the fair trading dimension, I am all in favour of the fair trade label and what it does to improve the conditions of workers, particularly in the third world, and the conditions of the environment. That was not what I intended here, and perhaps some better wording would convey the fact that we are concerned not just about market structures but about how providers and buyers of services and goods treat their consumers and suppliers. We need a term that is probably no longer “fair trading”—that is confusing—that reflects the range of responsibilities relating to market abuse in this Bill.
I am sorry to say that the Minister did not entirely convince me. He has not really satisfied me that, under the new set-up, consumer protection—however much of an advantage it is in the market structure areas—will be carried out as effectively, efficiently and in as good a way as it was under the previous structure. Therefore, I am in no doubt that, while I am withdrawing the amendment now, we will return to something like these propositions at a later stage.
Lord Whitty
Lord Whitty
My Lords, we now come to what may prove next week to be an interesting area: the relationship between the CMA and the sector regulators. This is the first point where it arises in the Bill, and it relates to the list of sector regulators. It is not a substantive point in terms of the nature of that relationship, but because the Government seem to think that that relationship is not entirely right at the moment and we know that we will be getting a hefty amendment in the name of the noble Lord, Lord Marland, next week on the Secretary of State’s powers in relation to the sector regulators and the CMA, it is important that the list of designated sector regulators is in fact the right list.
This amendment and a later one on the more substantive issues attempt to alter the list as set out in the Bill in two ways. The first is to remove Monitor from the list. The second, which I will deal with first, is the issue of how we will deal with the Financial Services Bill, which has yet to receive Royal Assent, and the establishment of the Financial Conduct Authority, because that will be the equivalent sector regulator for financial services and its powers will not be quite the same in some respects as those of the sector regulators that regulate the one-time nationalised industries such as water and gas. Nevertheless, it is the equivalent body and should therefore have an equivalent relationship with the CMA. There is no reference to any financial regulator in any of these lists. That may simply be for the technical and probably constitutional reason that the Financial Services Bill is not yet in law but, if that is the case, then presumably the FSA should appear there. I would like to know the Government’s intentions on that.
There is another complication regarding that Bill: in some respects, the prudential regulator could have an effect on the structure of markets as well. There is therefore a crossover there with the role of the CMA. We will come back to the substance of that, but it would be interesting to know the Government’s intention in that respect.
The other point relates to Monitor. Monitor is the economic regulator, and various other things, under the new National Health Service regime. The issue of competition in the health service was one of enormous complexity during the passage of the NHS reform Bill. It was one over which the Government gave substantial reassurances that the role of competition would not cut across the primary concern of NHS patients, which was that they would be treated effectively, resources would be deployed effectively for them and there would be seamless integration of the health service regarding their treatment. That will cut across the competition criteria that apply to the other sectors covered by the other regulators. Indeed, Monitor itself in its own objectives set out that integration and co-operation are its main priorities.
I think I am right in saying that at least once during the course of the NHS Bill the noble Earl, Lord Howe, indicated that in issues where there was conflict between competition and co-operation in providing a seamless service to the patient, then co-operation would trump competition. I am not arguing that the role of Monitor in increasing competition in the health service should be reopened, but I am saying that it is an entirely different situation from that which applies, for example, to Ofgem or the railways, where there are clear criteria, either continuously or at the point of franchise, about competition. Here, though, it is not the main aim of the health service to maximise choice; choice can be a contributor to patient comfort and outcomes but the main purpose is actually to provide an effective service for the treatment of that patient. The interaction between the CMA and Monitor in the health service, therefore, would be entirely different from the interaction between it and the other sector regulators. That is why I wish to remove Monitor from the list. There may be a separate reason for a relationship, but it is not the same as the rules being proposed for the overall relationship between the CMA and the sector regulators.
I advise the Government, gently, not to reopen this matter—health service reform was difficult enough for them. People are settling down now to make it work but the idea that another authority might come in under this Bill and overrule a health service body trying to square off competition and co-operation would reopen huge anxieties among health service professionals, patient groups and the new commissioning body. The Government would be wise to take it out. They can do it at this point without too much attention but if what they are proposing gets out there, they will be in serious trouble. I beg to move.
Viscount Younger of Leckie
I thank the noble Lord, Lord Whitty, for tabling Amendments 24BFA and 24BG.
Amendment 24BFA would remove Monitor from the list of sector regulators covered by the CMA’s duty to publish an annual concurrency report. The concurrency arrangements to be reported on are the arrangements for co-operation between the CMA and sector regulators in relation to their functions under the Competition Act 1998, in other words anti-trust cases, and under Part 4 of the Enterprise Act 2002, in other words market investigation references.
The concurrency report is part of a wider package of concurrency reforms designed to give the CMA stronger powers to co-ordinate competition work. The Bill will also give the regulators more explicit duties to consider using their general competition powers instead of sector-specific powers. The concurrency report ensures that there is transparency about how the CMA and sector regulators have worked together and how concurrent powers have been used in the regulated sectors. Monitor, whose role is to protect and promote the interests of patients, as the noble Lord, Lord Whitty, has mentioned, will have both regulatory powers—for example, the provider licence—and concurrent powers to address anti-competitive behaviour that is against the interests of patients.
The regulatory powers will reflect the Government’s commitment to retain sector-specific rules for health, building on those put in place by the previous Administration. Monitor will be subject to the new arrangements on the co-ordination of concurrent powers provided for in Clause 45, subject to one exception. The Government have been clear in response to the consultation on competition reform that Monitor’s new explicit duty to consider Competition Act enforcement before taking enforcement action through the provider licence provided under Schedule 14 to the Enterprise Bill will not be commenced until a future date, reflecting the unique characteristics of the health sector.
Subject to this, Monitor will become part of the same concurrency regime as the other sector regulators. So it is right that the concurrency arrangements between the CMA and Monitor and the use of concurrent powers in the health sector should be covered by the concurrency report. This will provide greater transparency and assurance that concurrent competition powers are being used effectively and in the interests of users of health care services.
Turning now to Amendment 24BG, I believe the amendment is intended to ensure that the CMA will have to report on how concurrency arrangements and co-operation and scrutiny of financial services more generally have worked with the FCA and the PRA. However, neither the FCA nor the PRA will have concurrent powers, so the amendment will in practice have no effect.
I know that noble Lords have questioned whether the FCA should have concurrent competition powers. However, the Government accepted the recommendation of the Treasury Select Committee that the case for market investigation reference powers had not yet been made and that the issue should be reviewed when the FCA had bedded into its new role. The Financial Services Bill instead gives the FCA a new competition remit which provides the mandate for the FCA to use its powers to promote effective competition and it will be able to carry out reviews of financial markets. The Financial Conduct Authority will have a tailored power to refer matters to the CMA, which may conduct market investigation or bring Competition Act enforcement proceedings. This mechanism was widely supported by consumer groups and industry and by the Treasury Select Committee.
In addition, the Financial Services Bill includes provision for the competition authorities independently to scrutinise the impact of both the FCA’s and the PRA’s actions on competition. It will of course be important that the FCA and OFT co-ordinate. The FSA and OFT already have an MoU in place and a new one will be put in place between the FCA and the CMA. The CMA, FCA and PRA will be required to report on their performance in their annual reports. I therefore ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Whitty
My Lords, I am afraid I do not really accept either of those two propositions. On the financial side, it is true that the FCA does not have the whole range of concurrent powers that all the other regulators do, or in the same form, but it has a substantial number of powers in relation to its treatment of market abuse and consumers and its ability to conduct market studies. I hoped the Minister would say, “We will wait until the Financial Services Bill has passed and then at a later stage in this Bill we will produce a clause that deals with the relationship between the CMA and the FSA as will be, and possibly other parts of the financial regulation side”. I fear that what he actually said is that the abyss has been rolled over by the Treasury.
Quite often in consumer law, we find that general consumer propositions are deemed by the Treasury and the Bank of England not to apply to them. That may indeed be part of the reason why the previous system of regulation of the banking system fell flat on its face. The Minister and his colleagues in this need to be a bit braver in facing up to the Treasury and ensuring that it is subject to the same possibilities of market and consumer abuse as other sectors and therefore should be covered by the same propositions, even though there would be some slight variation in the range of powers. I hope that at some stage in the Bill there will be a point where we take on board the final version of the Financial Services Bill and put that back in.
On Monitor, I fear the Minister is making a serious political misjudgment. It is true that during the course of the NHS Bill the House eventually accepted that there should be a significant increase in competition within the health service structure, but when you look at the actual decisions that will have to be taken by the individual bodies within the health service, their prime concern is that patients and patient groups get the best integrated service for their condition. Therefore, for example, commissioning bodies will need to ensure that, where they commission services from one particular trust or specialist service, that will continue without competitive challenge through the course of treatment for those patients for a number of years. Otherwise, the specialisms within the health service will be destroyed and the seamless journey that is part of Monitor’s objectives for the individual patient will be interrupted by somebody saying, “Actually, you have not observed competition rules in this respect”.
That is not to say that there are not some aspects where there is an overlap. I am saying that the relationship between the CMA and Monitor is different from that for the other sector regulators. I would take it out of that list and the other lists that appear here. If there needs to be a separate memorandum of understanding, let us provide for that, but it will not be the same. If the Government hint that it is the same, I am afraid that there will be a reaction out there that they will find difficult to contain. That will be at best an embarrassment and at worst a threat to the other changes they are trying to make within the health service. I plead with them on this. It is in the interests of Monitor to devise its own structures and relationships and not to assume that it will operate in the same way as a competition authority in other markets. I hope that the Government will change their attitude on this in the course of the Bill. Meanwhile, I beg leave to withdraw the amendment.