Enterprise and Regulatory Reform Bill

Debate between Lord Whitty and Lord Lucas

Wednesday 12th December 2012 Grand Committee

[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.