Enterprise and Regulatory Reform Bill

Debate between Viscount Eccles and Viscount Younger of Leckie

Wednesday 12th December 2012 Grand Committee

[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.

--- Later in debate ---

[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.