Enterprise and Regulatory Reform Bill

Viscount Eccles Excerpts

Wednesday 12th December 2012 Grand Committee

Debate on whether Clause 20 should stand part of the Bill.

[Viscount Eccles]

I have found it pretty difficult to be sure that I understand exactly what the Bill is trying to do. You practically need a trolley for the papers. It is built on previous Bills, and is still extremely dependent on the 2002 and 1998 Acts. My position on the previous debate would be that if I cannot find it anywhere else it must still be in one of those Acts, and that must be the law of the land.

My interest is in Parts 3 and 4 doing different things. Part 3, in Clause 20, introduces institutional change, whereas Part 4 modifies the competition regime and, in doing so, has a very large number of schedules and is almost completely dependent on previous Acts. It does very little that is not an amendment to an existing Act. The question that I want to probe is why the Government have chosen this particular step of institutional change. There is to be a body corporate known as the Competition and Markets Authority. I thank the Bill team and the Minister very much for trying to settle some of my misunderstandings and doubts in a long correspondence, but I am not entirely reassured.

I go back to the Public Bodies Act, which is quite a recent Act—passed in 2011. Section 2 says:

“A Minister may by order merge any group of bodies or offices specified in Schedule 2 … In this section, to ‘merge’ a group means … to abolish all the bodies or offices in the group, create a new body corporate or office and transfer some or all of the functions of the abolished bodies or offices to the new one, or … to abolish all but one of the bodies or offices in the group and to transfer some or all of the functions of the abolished bodies or offices to the remaining one”.

My question is: why have the Government chosen subsection (2)(a) and not subsection (2)(b)? There does not seem to be a strong case for going any further than abolishing all but one of the bodies and transferring the functions to the remaining one. That is in effect what is happening. We are not getting a new body. I know that the noble Lord, Lord Whitty, was welcoming the new body and trying to make sure that it has new things to do, but that is not the Government’s intention. This is simply the Office of Fair Trading with its name changed. Following the scheme of the Public Bodies Act, which the Government have done, even though they say they are not depending on it, they have at some stage to take account of the reason, purpose and conditions, as in Section 8. In the exercise of public functions, they must have regard to efficiency, effectiveness, economy—the familiar three Es—and accountability. At the moment, I do not think there has been any attempt to describe to Parliament why the creation of this new body would achieve the purpose and conditions of the Public Bodies Act.

Indeed, that seems quite strange at a time when we have to try to restrain expenditure. We would all agree with that: if we saw a reasonable opportunity for restraining expenditure, we would take it. It is a time when, if we can have minimum disruption and allow as many people as possible to carry on doing the things with which they are familiar without being told that they face great change, we should. It is also a time when it is probably better to have the maximum of reality. The reality is that we are being presented with a beefed-up OFT. I have no objection to that as an idea but do not see why it should be sold as a new body. That does not seem to be what it is. I have a piece of evidence that leads to a question. Am I right that under Part 4 of the Bill—which deals with the modification of the competition regime—if the draftsman was to substitute “OFT” in every instance for “CMA”, the modification would be perfectly installed by Parliament and there would be absolutely nothing wrong with it? That demonstrates that what is happening is a change of name and a beefing up of the powers of the OFT, and not the creation of a new body.

[Lord Razzall]

My Lords, I obviously listened to what my noble friend Lord Eccles said at Second Reading when he made very similar points. I am not clear: does he accept the fundamental need to reform the structure and institutional nature of our competition regime? It is a very straightforward issue, with which—

[Viscount Eccles]

Perhaps I may just answer that question. I do not accept that, no.

[Lord Razzall]

Well, that seems to be the fundamental difference between my noble friend and other members of the coalition. I suspect, having heard the Second Reading remarks of a number of members of the Labour Party, that it is also their view that there is a need for such reform. I will not labour the point because it was made at Second Reading, but it is universally regarded throughout the world that our competition regime has all the attributes that every competition regime should have except for being the slowest. That is the real issue that this part of the Bill attempts to deal with. It does not matter if you call it a beefed-up OFT or a beefed-up Competition Commission. What is being reformed is the necessity for practitioners, companies and people involved in the whole competition process to go through two organisations to get the decision that they are likely to require. That is the purpose of the Bill. I am still puzzled as to whether my noble friend, Lord Eccles, who was a distinguished member of one of the bodies that is being abolished, wants to maintain the system as it was when he was that distinguished member.

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[Viscount Eccles]

Perhaps I may reply to the Minister. I thank everyone who has taken part in the debate. Although there is Clause 21, I was speaking only to Clause 20, which creates a certain difficulty because it is about the creation of the CMA. I asked a specific question: why did the Government choose to form the CMA instead of simply giving additional powers to the OFT? Does this new body amount to anything more than a change in the name of the OFT? With great respect to my noble friend, I did not get an answer to that question.

I quite understand that if you start to debate Clause 20, you are inevitably drawn into the things that are being done by Clause 21 and other parts of the Bill. On the question of whether I am against the structural change, I am here to be convinced—this is Committee. As my noble friend quite correctly said, at Second Reading I cast great doubt over whether this structural change was sensible; I am here to be convinced—or not—and we will see what happens.

One way in which my noble friend tried to convince me—indeed, so did my noble friend on the Front Bench—was through the “slowest” argument. There are plenty of time limits in the 2002 and 1998 Acts. It is not that the existing law does not provide time limits; it is just, it is said, that they have not been kept to. Nobody has explained why they have not been kept to. Understanding that is quite complicated. There are provisions for extensions and there are clever lawyers who are good at arguing for extensions. There is the European competition regime, which quite often can lead you into needing an extension. The regime of time limits is already in existence. I do not see why a statutory change to that regime is going to make any difference to what happens on the ground.

What happens on the ground depends upon the circumstances of each case, the behaviour of the participants in that case and the way in which the case is handled. It may well be that our regime should be quicker, and I would not dissent from that, but it does not need additional legislation. That is one argument that has been put forward as to why we need this institutional change, but I do not accept it. I quite accept that there may have to be competent discussions between professionals—round tables—in the light of the existing legislation and that things should be done in a more expeditious way. Indeed, in the 2002 Act there is a general duty to do everything as expeditiously as possible. I just think that it is another piece of make-believe to say that, if you write it into a law, it is going to happen.

[Lord Razzall]

I am sorry to interrupt the noble Viscount’s flow. What is his answer to the argument that all the major business organisations and the Law Society are in favour of this recommendation?

[Viscount Eccles]

My Lords, I have looked quite carefully at what has been said, and it has been quite qualified. In fact, I have had a bit of dialogue with the CBI over recent weeks, and it seems to have been in the same position as me when it started out: it did not understand the Bill. I am not overimpressed—I am never overimpressed—by what lobby groups are said to have said. One has to try to make up one’s own mind—that is possibly why we are here.

The other point made by my noble friend on the Front Bench concerned the varying workload on the Competition Commission. Of course, I completely take that point on board. It has been referred to that I was a member of the Monopolies and Mergers Commission. At one time, I was on three days’ equivalent and I was there all five days; I was on five inquiries and I was chairing three of them. When we had a heavy load of work, we just worked harder. When we did not have such a heavy load of work, we did not work quite so hard. To be serious, that question comes down to what you do about the cost of the commission at times when it is not so busy.

I have not consulted the commission at all on this; I have done all my own research. It has reduced its costs by 23% since the onset of the crisis. I have no doubt that there are ways in which the costs of the commission, if it really does not have so much work, could be reduced further. It has a board and it tends to have more deputy chairmen than it did in my day, and they are rather better paid than we were in my day, even if you go into real terms. Therefore, there are ways in which the cost could be flexed by both the OFT and the Competition Commission. It does not necessarily follow that putting them under one roof and cutting some back-office expenses—and I do not remember that we had much of a back office in the monopolies commission—will do the trick. So I am not persuaded that the opportunity to reduce the cost of the Competition Commission from £17.7 million net to something else is adequate to match the risk being taken if this regime falls to pieces.

Clause 20 agreed.

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Moved by

[Viscount Eccles]

24A: Schedule 4, page 87, line 22, leave out sub-paragraph (iii)

[Viscount Eccles]

My Lords, this is another attempt to be reassured and comforted. There has been a lot of talk about the continuity of the practice that has been followed by the combination of the OFT and the Competition Commission. It has been described as phase 1 and phase 2. Although these are not in the Bill, and I suspect that they will not find their way into it, there is no doubt that the duty to continue to see whether something should be referred is there, as is the duty to investigate the reference.

The first phase is investigative and the second is quasi-judicial, as has been mentioned by the noble Lord, Lord Stevenson. However, it is proposed that this should be done under one management, and that creates problems. It is not completely dissimilar to our arguments about clearing banking and investment banking. There is on occasion a need for a Chinese wall, but that is difficult if everyone is in one building. I should like to understand more clearly how we are going to keep that feature of the regime in such a way that the new regime is not challenged—or not constantly challenged.

We have a powerful legal profession in the UK. I am now thinking about business and the ease with which it is apparently being reassured that everything will go much more sweetly. We had some very bright QCs in front of the monopolies commission in my day. They were paid to represent the interests of their clients and they were very good at it. Therefore, I think that the Bill is in danger of knocking down a Chinese wall.

I know that my noble friend has already made some references to what I think he is going to tell me are the safeguards. There will not be the contamination of bias and there will not be conflicts of interest, but I am not at all certain about that and I need to be much more reassured than I am at present.

The effect of these two amendments would be to make a start in separating the board from the panel and not having an overlap between the two. They are perhaps just an effort to put one or two bricks in the bottom of the Chinese wall. I beg to move.

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[Viscount Younger of Leckie]

My Lords, these amendments affect the provisions that provide for a partial overlap of the CMA board, which is responsible for the CMA overall and phase 1 decisions in mergers and markets in particular, and the CMA panel, whose members are responsible for phase 2 decisions in mergers and markets and regulatory appeals. The governance and decision-making arrangements in Schedule 4 are designed to establish a single, coherent competition authority while retaining the separation of decision-making between phase 1 and phase 2; in particular, merger and markets cases.

Paragraph 1 of Schedule 4 provides that at least one person be appointed to both the board and the panel. In the Government’s response to the competition reform consultation, we said that we intend to appoint two or three such people to the board and the panel. The membership provisions being debated here are designed to ensure that the board includes members with experience of the phase 2 processes, and so to address any reluctance of the board to have a matter referred to a group of independent panellists whose decisions are, under paragraph 49, to be taken independently of it and over which it will have no direct control. Ensuring that there is a steady flow of appropriate market investigation is one of the key intended benefits of the creation of the CMA, so the provisions will play an important role.

I believe that the provisions in the amendment in the name of the noble Baroness, Lady Hayter, will undermine the separation of decision-making by allowing board members to take phase 2 decisions. I assure her that the Government would also be concerned about the risks resulting from some of the same people involved in a decision to make a referral also being involved in final decisions at phase 2. It is for this reason that paragraph 33 prevents this from happening.

Paragraph 33 works prospectively, so that where the board will be considering whether a matter should be referred to the chair of the CMA for the constitution of a group of panellists who will be responsible for a phase 2 inquiry, the chair must first determine whether a member of the board might be expected to be appointed to a resulting group. In these circumstances, the person so identified must not participate in the board’s consideration of the referral.

Finally, because the Government intend to appoint two or three people who will be board members and panellists, even where one board member is excluded from considering a referral, other panellists—who will not be involved in the group taking on an inquiry if the matter is referred—will still be able to participate in the board discussion. This provision therefore protects independence of decision-making, while also ensuring that the board includes members with responsibilities across the CMA’s range of functions, and is therefore able to act, at a strategic level, as a coherent body. I therefore ask my noble friend to withdraw his amendment.

[Viscount Eccles]

My Lords, I am afraid that I am not comforted by that description, least of all by the even flow of work. If that is going to be continually put forward as a serious reason for the structure we are going into, it is very regrettable.

All businesses have to be prepared to flex, to take on more work at some times and less at others. If things are still as they were, quite a lot of the staff of the Competition Commission are seconded; they can be taken back; there is the possibility of bringing in consultancy advice, or not bringing it in; there is a very considerable ability within the present system to flex the resources. If we are going to be told that this even flow is very important, we need to have something in support of the regulatory impact assessment as to how much money we are actually going to save.

We have dismissed the Public Bodies Act, which was about reducing the number of quangos when we could and saving money. That is where this thing started from—we should not forget that. All the rest of it has been tagged on, no doubt as a result of long-term planning inside BIS, which may indeed have seen the Public Bodies Bill as quite an interesting challenge—“Let us see what we can put forward”.

So I am not comforted, but it gets worse than that. I do not want to go through the whole string; I have drafted a series of amendments to try to reassure myself that it is possible to build a Chinese wall. I have not put them down yet and I am not going to talk about them today, but I am going to talk about the panel. It is becoming a technocratic panel under this Bill. It has 11 members; I expect that there may well be more. The composition of this panel and the way in which its prospective members are appointed is very different from the way in which panels have been appointed to the Competition Commission in the past.

This panel has no one in charge—it cannot have anyone in charge. As my noble friend has said, it cannot have the chairman of the CMA in charge because that would knock down the Chinese wall. So who is in charge? No one is in charge. If there was an away day for the panel, who would sit in the chair, for example, if it wanted to discuss how it is to operate as a Competition and Markets Authority group? The panel does not set any rules for that; the rules are set by the CMA. It does not have any staff, so how does it know that it will get the people that it wants?

I remember very well someone who was absolutely gripped by cost-benefit analyses and, when I was looking at a proposed merger between a Canadian whisky company and a Scottish whisky company, I said, “For goodness’ sake, do not send me that cost-benefit analysis”. He was a splendid fellow, but not on this merger inquiry. The way this is structured there will be no one on the panel who will be in a position to behave like that. The panel will have no management authority and no executive responsibility; those will be delivered to it by the CMA.

It may be that noble Lords are glad that I am not a lawyer representing someone coming in front of one of these panels, but I assure the Committee that I could make a seamless argument which said, “This panel is not independent”. At least I would get an adjournment, which would upset my noble friend Lord Razzall because the thing would take longer.

For now, I shall withdraw my amendment, as the Committee would expect. However, I shall revert to the subject and there are other amendments in front of the Committee that offer the opportunity to discuss these matters. At the moment, this phase 1/phase 2 is completely unconvincing. I beg leave to withdraw the amendment.

Amendment 24A withdrawn.

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Debate on whether Clause 21 should stand part of the Bill.

[Viscount Eccles]

My Lords, this is a draconian clause. It follows a scheme of the Public Bodies Act in abolishing the Competition Commission and the Office of Fair Trading. It is not an even-handed abolition, because, as I have argued previously, the Office of Fair Trading really continues. It is changing its name to the Competition and Markets Authority, but it is in effect the OFT. I asked about Part 4 and did not get an answer to it. I asked why the Government had made the choice of creating a new body as opposed to continuing with the OFT, and did not get an answer to that either.

At the moment, I am yet to be convinced that these dramatic changes to the structure of the competition regime are justified. That needs to be seen against a background in which the annual cost of the OFT is somewhat over £70 million and the cost of the Competition Commission is somewhat over £15 million. So in the actual money figures, it is 80% the OFT and 20% the Competition Commission. I cannot accept that any argument has been made about money. It is not really claimed in the impact assessment—“ultimately” is the word that is used. I simply do not see that this is an important consideration in the change in structure, and I am conscious of the need to restrain public expenditure. It is said in several places in the Bill that all that this provision is intended to do is to make it somewhat more straightforward for the two organisations to reduce their costs in line with the existing government public spending targets.

We are left with a situation whereby the OFT is taking over the Competition Commission. The commission is disappearing as an executive body and will have no management role—it will not manage itself. It is being turned into panel of mostly, if not all, part-time members—we have not been told—who are part of the Office of Fair Trading. The risk that this will go wrong greatly outweighs any benefits. We have already talked about the need to do things in a more timely fashion. How could I disagree with that? I remember carrying out investigations and coming up with an answer pretty quickly, and it can of course be done under the existing regime. There is nothing wrong with the law.

The money and the timeliness have gone. What else is left? Something is said about the duplication of the provision of information but, unfortunately, I do not see how that holds because if you make a reference, surely the people who will come to some form of judicial judgment have to start from a zero base. They simply cannot rely on what has been done before. Of course they will gather as much information as they can, but that will not stop them needing to obtain self-standing information of their own, in order to come to a semi-judicial decision.

I ask my noble friend: has the department taken legal advice? Has it been to the Attorney-General? The risk that this regime will be challenged is real. I am not just making it up. I cannot see where the benefits outweigh the risk. It seems to me that the risk outweighs the benefits by many times in terms of both time and money. I urge my noble friend to go back and give this another thought because, quite honestly, the game is not worth the candle, the risk is far too great, and the benefits do not exist—and if they do, I have not been told about them. I cannot even imagine what they will be when I am told about them, but I should like to hear them.

I remain unconvinced, as my noble friend Lord Razzall, who is no longer in his place, said. I conclude by saying that I am not in any way casting the smallest of aspersions on the noble Lord, Lord Currie of Marylebone. How could I do that? I was born in the borough of Marylebone. What he has done was done in good faith—being taken on as chairman-designate of something that, at the moment, I believe to be a greatly mistaken structure.

[Baroness Oppenheim-Barnes]

My Lords, the Committee will be delighted to hear that because I have already made a number of points regarding Clause 20, which obviously related to Clause 21 also, I will not repeat them. However, I must continue to express the concern that was not answered, although I made the point, about the period of hiatus between enactment and the appointment of the new board. None of that can take place. I do not know what the housekeeping requirements are regarding new buildings or offices, but the fact remains that it will be a very damaging hiatus. In particular, as I mentioned at the time, is the effect that the Bill will have on the Consumer Credit Act. Appeals that are brought under the Consumer Credit Act will be in some sort of abeyance. Nothing will happen until the new legislation is enacted and all parts of the various appointments to the two bodies that we have been discussing this afternoon have been made. A lot of concern has been expressed by those in the financial sector about this and we deserve some sort of answer at this stage.

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[Baroness Hayter of Kentish Town]

I shall try to resist temptation. As to spectacles, of course it was the consumers who most wanted opticians not to be regulated. It has benefited us all because we have been able to buy much cheaper glasses than we used to.

I would like to ask the Minister, in the complete secrecy of this room, with only a few Hansard writers and television watchers present, that if his Government had not wanted a bonfire of the quangos, would this merger ever have gone ahead? Was it just another number in the bonfire of the quangos or did BIS always want this?

[Viscount Eccles]

Before the Minister replies, I would like to thank the noble Baroness for her comment. There may well be another, very general, explanation. I have worked in the public sector in a number of different bodies. I once received a letter saying that the Minister understood that I did not wish to be reappointed to this body because I was too busy—it was a Department of Trade and Industry body—but that was not the reason. The reason was that I had attended a meeting and voted against a grant to a company because I thought it was not a sound company. However, the grant was passed and paid out and the business went bust. I was too clever because I had got it right and so I had to be removed.

There are few of us here but this important general explanation will be reported in Hansard. There is a strong wish in departments—this is a general comment—to reduce the independence of public bodies, to centralise their activities and to get them back as close to the Ministry as they can. The Competition Commission has been an independent body for 60-something years, so how did it get into the Public Bodies Act that these two organisations would be merged? It cannot have got in as a result of the Cabinet Office saying, “Have you got any good ideas?” There must have been somewhere in the purlieus of BIS a document saying, “Would it not be a good idea to reform the competition regime?”

I believe that this merger has not ever been given the proper consideration by the Government that it needs to assess the risk in what is proposed, and to offset that risk against the apparently negligible benefits.

[Baroness Oppenheim-Barnes]

To add to what my noble friend has said—we are fortunate to have him here today—I would like to know whether the Bill ever went through Cabinet. I find it difficult to believe that some of these points would not have been raised at that time, and properly so.

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[Viscount Younger of Leckie]

My Lords, the CMA will be equipped with a wide range of tools to remedy anti-competitive practices and to promote effective competition in markets across the UK economy. It has been somewhat of a challenge today to answer the questions raised by my noble friend Lord Eccles, but I am prepared to have another go.

At the beginning and at the end of the day, my noble friend raised the question: why reform the current institutional structure; why make the change? I reiterate that bringing the Competition Commission and the competition functions of the Office of Fair Trading together in a single body provides the opportunity for greater coherence in competition policy and practice, a more streamlined approach to decision making, a stronger oversight of the end-to-end case management process, as I mentioned earlier, more flexibility in resource utilisation and better incentives to use anti-trust and markets tools to deal efficiently with competition problems.

Furthermore, it provides a single powerful advocate to speak for competition across the economy in Europe and globally. While it is not a central driver for the creation of the new CMA, there will be scope for some long-term savings, in particular in corporate governance, back-office functions and accommodation costs. I reiterate that this process is not solely about saving on costs. Some costs will be saved, and it is fully expected that some synergies will be made, but a vast number of skills will be transferred over to the new CMA. I hope that that helps somewhat to allay my noble friend’s fears.

My noble friend Lady Oppenheim-Barnes also raised some questions about the fundamental concept of setting up the CMA. Ministers consider competitive markets to be vital to the economy. That has been said many times in recent weeks and months. BIS Ministers have consistently made it clear that the main purpose of the exercise is to strengthen the competition regime and to support growth rather than to cut costs. The new CMA will be sufficiently resourced to deliver its functions but will not be immune from wider pressures to help deal with the UK’s massive deficit. Savings delivered by the creation of the CMA will mainly be from streamlining, which I mentioned earlier, and eliminating overlaps between phase 1 and phase 2 of investigations. These savings will help to deliver the Government’s existing spending review targets.

The Government are committed to ensuring a smooth transition process and will work closely with the OFT and the Competition Commission to minimise disruption to the organisations while they continue to carry out their important roles and services. I wish to reassure the noble Baroness, Lady Hayter, that this whole process was looked at most carefully in Cabinet.

In response to a question raised by my noble friend Lady Oppenheim-Barnes on the transition, as we are aware, the Government have appointed the noble Lord, Lord Currie of Marylebone, as chair designate of the new CMA and is in the process of recruiting the chief executive designate. Together they will lead the transition to the new CMA. During our Second Reading debate, the noble Lord, Lord Currie, said that in addition to creating a high-performance organisation he was committed, in transition terms, to ensuring,

“that the casework of both the Office of Fair Trading and the Competition Commission continues unimpeded and that the transition of work in progress to the new authority is entirely seamless”.

He assured noble Lords:

“We will safeguard business as usual.’—[Official Report, 14/11/12; col. 1561.]

Finally, I shall answer a question raised by my noble friend Lord Deben about what will happen to the Financial Services and Markets Act in relation to the OFT oversight of the regulatory regime, if I read him correctly. Consideration of competition must be a central feature of the new financial services regulatory regime so we will therefore retain a regime for scrutiny of the regulation of financial services by the CMA. This will apply to both the Financial Conduct Authority and the Prudential Regulation Authority.

Clause 21 and Schedules 5 and 6 provide for the transfer of relevant tools and functions of the OFT and the functions of the Competition Commission to the CMA. The new authority will operate the anti-trust mergers and markets regimes and will determine regulatory appeals and references made to it in the major regulated sectors. It will carry out various ancillary competition scrutiny functions and provide businesses with advice and guidance to help them to understand and comply with competition law. Schedule 5 also provides that certain functions under the Enterprise Act, in particular phase 2 of the mergers and markets processes, will be the responsibility of groups of independent panellists. I commend Clause 21 to the Committee.

[Viscount Eccles]

Before my noble friend sits down, could I ask that my questions that have not been answered are dealt with in writing? I would appreciate that. As far as I am concerned, this is definitely not the end of the matter. I will review my very real worries about what is being done here and no doubt come back to them at the next stage of the Bill.

[Viscount Younger of Leckie]

I did not necessarily expect to answer all my noble friend’s questions. However, I have attempted to address on many occasions the question that he has put in terms of the fundamentals of setting up the CMA. I hoped that I had answered him. Clearly I have not and I will certainly write to my noble friend to address the questions that he feels are unanswered.

[Viscount Eccles]

For the last time, the fundamental question is: are the Government sure that the supposed benefits outweigh the risks? We have not really coped with that at all today. There is a real risk. When the thing is not broken, why try to mend it? The competition regime has been very good over many years. In my opinion, the Government are taking a quite unjustifiable risk of running that regime into a brick wall. That is the question and that is why I am not satisfied that the Government have really thought this through if they cannot tell me that they have taken proper legal advice about the risk they are running. For a very long time, the whole of business and industry has understood that this was done in two places. There was a reference from here and an investigation and determination over there. Change that and—believe you me—a lot of people, when they find out that that is what has happened, are not going to like it. If their lawyers come with them, there could be real trouble. I feel very strongly that the matter of risk needs to be dealt with. It is not a matter of efficiency or effectiveness—you can imagine all sorts of efficiencies, effectiveness and even economies—but a matter of risk.

Clause 21 agreed.