Enterprise and Regulatory Reform Bill

Viscount Eccles Excerpts

Wednesday 14th November 2012 Lords Chamber

[Viscount Eccles]

My Lords, as many noble Lords have done, I am going to concentrate on one part of this Bill—a very narrow part on competition. I am somewhat comforted by the Government’s assurance that the fundamental pillars of competition will remain unchanged, but only somewhat comforted. If the noble Lord, Lord Currie of Marylebone, was in his place, I would be congratulating him on taking on the restructured competition regime which will follow from the creation of the Competition and Markets Authority. However, I will in part be following the noble Lord, Lord Borrie, though I think I have a more astringent view of what is proposed than the noble Lord.

Part 3 is one and a half pages; it is followed by 180 pages to implement the decision made in Part 3 —180 pages out of 260. I am not proposing to talk about the 180 pages today, but no doubt that will follow in Committee. Part 3 provides for the abolition of the Office of Fair Trading and the Competition Commission and the transfer of their functions to the CMA. This was foreshadowed in the Public Bodies Act 2011. The test in the Act of making such a transfer by way of merger is the usual one: efficiency, effectiveness, economy and proper accountability. Arrangements of this nature are to be carried out under Section 2 of the Public Bodies Act—“Power to merge”—and this section cross-refers to the Competition Commission and the OFT in Schedule 2. My one real question to my noble friend on the Front Bench is, when can we expect to see the draft orders effecting these changes under the Public Bodies Act?

More seriously, why are these changes being made? I think naively we could consider from the proceedings on the Public Bodies Bill that it was something to do with saving money. I think that that was probably one of the driving forces in the drafting of that Bill, which of course suffered major changes that were engendered in your Lordships’ House, not least the dropping of Schedule 7. It perhaps started because there was a wish in the Cabinet Office to reduce the number of quangos by one or, as the CMA is to be a non-departmental ministerial office, we may be able to reduce the number by two, but that depends on the classification.

However, much more seriously, the Government have said that a one-stop shop will bring benefits. It will be able to simplify, to shorten and to avoid duplication within the competition regime. But, in order to inspect these rather abstract claims, we need to understand how it is expected that the system will work. What else in Part 4 will affect the answer to the test under the Public Bodies Act? On reading Part 4, in one frame of mind and at first sight, practically none of it needs primary legislation. It could almost all be done by administration. It may be that the removal of the word dishonesty requires legislation, for which there seems to be quite a welcome.

As to how the system of establishing whether a reference should be made about a merger or some market practice, and then when made the reference is investigated, the answer is that there is not to be any change in those procedures. Instead of the OFT and the Competition Commission, we would have phase 1 and phase 2. Indeed, much is made in the literature produced by the Government about the importance of continuity and, as has been referred to in this House today, the high respect with which the competition regime in this country is viewed internationally.

Perhaps at this point I should say that, unlike the noble Lord, Lord Borrie, who was with the OFT, I was for a while a member of the Monopolies and Mergers Commission. That name will tell your Lordships that I am history. Nevertheless, it was a very interesting thing to do and I think that we had, on the whole, very good success under the most brilliant chairman, Godfrey Le Quesne.

As regards the Government’s claims, the first one about the one-stop shop is clearly wrong. It will remain a two-stop shop. If we think about duplication, which has been mentioned, you would have a system for deciding whether to make a reference and then for an investigation. How can people who have been asked to give information to determine whether a reference should be made, and then have to be investigated, expect not to deliver two sets of information? The questions will be different and the information needed for the investigation is bound to be much more complex than the information given in the first instance. I do not believe that duplication will be in any way removed. Since we will still have phases one and two, and some additional powers in this Bill, how will the competition regime be simplified? I do not understand how anyone would claim that it is.

As for the shortening, you can put it in statute that there are different time limits and ask for best endeavours, but noble Lords will also notice that there is always provision for providing an extension. When things get complicated, there will not be much shortening. It is all rather unconvincing that there are benefits from these changes. What evidence have others given? There is no out-and-out enthusiasm for this move anywhere. It has just sort of been accepted. The witnesses to the House of Commons committee pointed out that the two organisations did different things, the risk that their culture would not merge satisfactorily was always there and we would need to wait to see what happened. The chairman of the Competition Commission said that if you are going to subsume—that was his word—that body into the CMA, you had better be rather careful how you do it. The Office of Fair Trading said that the Bill casts a long shadow. It is happy that it will not become effective until 2014. So, where are we? The Government no longer claim that this measure will save money. It might in the long run but in the short run it will cost money.

Finally, in the response to the consultation, which was delphically delivered by the Government, there is a wonderful sentence which says that some respondents questioned

“whether the Government’s objectives could be delivered without institutional change”.

However, we are not told who said that or how much weight we should attach to the evidence given by the witnesses. This is a very risky endeavour. Mergers are always tricky. The Competition Commission has 138 staff and a net expenditure of £17 million. The Office of Fair Trading has 635 staff and a £74 million budget. It is four times the size of the Competition Commission. Somehow the cultures of the two organisations have to be maintained by some sort of Chinese wall between phase 1 and phase 2. However, this is not the experience of most people who have been taken over by an organisation four times their size. We should be in no doubt that this is not a merger but a takeover. I look forward to a much more detailed explanation of the rights and wrongs of this proposal than we have received so far.