United Kingdom Internal Market Bill

Baroness Hayter of Kentish Town Excerpts

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th November 2020 Lords Chamber

[Baroness Hayter of Kentish Town (Lab)]

My Lords, this debate is perhaps even more important than some of the others that we have had. The real advantage of a stand part debate is that one can question the purpose of a clause rather than getting down into the weeds of amendments.

The issue that the noble Baroness, Lady Bowles, has raised is fundamental to how we have been looking at this. She asked—these are actually my words, although the noble Baroness, Lady Neville-Rolfe, said much the same—whether the competition regime was appropriate for work on the internal market. I am sorry that the noble Lord, Lord Callanan, gave away in an earlier debate that this may have been written hastily over the summer; it certainly sounds like a cut-and-paste job, done without stopping to think. Just because it is the same organisation at the same address in Holborn, or wherever the CMA is these days, you cannot just cut and paste it; as the noble Lord, Lord Fox, was saying, it is about the culture of that organisation as well as whether the structure is available. There is a fundamental question here, which my noble friend Lord Stevenson dealt with under Amendment 115, of whether the OIM should be within this framework, as well as the even broader subject of whether these sorts of penalties are appropriate for such a different role.

There are some specific issues in these clauses, such as whether it is appropriate for the Government to be able to amend the list of exclusions without any involvement of the devolved authorities. We have discussed such matters before, but under this legislation the fixing of penalties could again be altered without any involvement of the devolved authorities. This is serious stuff. They are a part of the overall governance and working of the new internal market, yet the Bill is written as if this is simply a Westminster responsibility.

I come to what the noble Baroness, Lady Neville-Rolfe, was saying: exactly what is covered by these clauses? In an earlier debate I asked the Minister to set out what services were covered, but obviously I was mumbling at the time because he wrote me a very nice letter on 2 November telling me about the services that are excluded, which of course already exist in the Bill. The question that I was trying to ask is: what services will be covered? I still cannot get a handle on that. This is really important given what has been said about whether the demands and penalties applying to services that are covered are appropriate.

Obviously I was not very clear about what I wanted but I had talked about housing and whether someone organising a register of housing would count as a service. I was talking about landlords but the letter refers to social housing. We are talking not about social housing but about landlords of private housing. I am involved with another part of the Government, the Ministry of Housing, Communities and Local Government, in chairing something to try to set up a code for property agents for when the Government are ready to fulfil what they have already promised—that is, to set up a regulator of property agents. They are already a service but the circumstances are different—buying and selling a house in Scotland is very different from England; if you buy there, you tend to go to a solicitor rather than an estate agent—so there are different ways of a service being developed or in existence. Once they are regulated, perhaps property agents will count as a profession, which is a different issue, but before then, as a service, are they going to be covered by these sorts of requirements?

If that is the case—and this is the main thrust of what I want to say on this group— how will these services know that they are covered by this provision? It is important for anyone risking breaking the law, in the sense of civil law, and being charged a penalty to know that that law applies to them. If they do not define what they are doing as a service and therefore do not know that they are captured by this provision, they may find it difficult to understand that they could be required to provide information. I can imagine that this could really affect property agencies. They need to know that it covers them, which is quite an issue, but it is also unclear to me whether the level of penalties is appropriate for this area. For a small housing management group, for example, this daily rate of £15,000 will basically wipe out its business if it has an £80,000 annual turnover. We are talking about levels of penalty.

It seems to me that those agents are covered by this, but I am unclear about the appeals process. If they are asked a question, how do they know that it has legal force behind it? Even if they are told that—most of these people will of course not have lawyers —and there is a penalty, do they have any appeal? I could not find one in the Bill but I am sure the Minister will be able to tell me; it is quite unusual to have a penalty without any sort of appeal. I could not work this out but I am sure the Minister will.

My main ask is: can we know the sort of services that will be covered? Perhaps we could hear more—not in legal language but in language that I can understand—about how they would know and about their rights to appeal any fixed penalty.

[Lord Callanan (Con)]

I thank all noble Lords who have taken part in this debate. I apologise to the noble Baroness, Lady Hayter, if she found my letter disappointing; I will try to do better next time. The noble and learned Lord, Lord Falconer, looks disapproving; I am not going to write him any more letters if that is the case.

With regard to exclusions on services, all services subject to the authorisation requirements or the regulatory requirements are affected under the Bill unless they are specifically excluded from some or part of the rules under Part 2. I hope that that clarifies the noble Baroness’s question—if not, I will be happy to write her another letter. She is shaking her head in disbelief.

I say to the noble Baroness, Lady Bowles, with regard to her question on consultation, that we consulted on the general office, what enforcement provisions there should be and whether or not it should be included as part of an arm’s-length body. Once we had made the decision that it should be located within the CMA, there was of course extensive discussion between officials and the CMA on the powers and how they will be enforced. I say to my noble friend Lord Tyrie that I am of course aware of the proposals that he refers to on the CMA and I will be happy to take another look at them.

Addressing the specific questions on this clause stand part debate, I will set out the rationale for these clauses. Clause 38, as I believe we already discussed in the previous group, sets out the powers that the Competition and Markets Authority will have to gather information in support of its monitoring, advisory and reporting functions. As I said previously, in order to carry out its functions the OIM must have access to high-quality information to produce accurate, relevant and credible reports. Clause 38 will ensure that the CMA is able to require the assistance of third parties to perform its functions and is able to independently gather evidence in a timely manner.

I hope that the noble Baroness, Lady Bowles, agrees with me that presenting analysis based on partial or inaccurate information could be detrimental to the regulatory decisions taken as a result of OIM reporting and monitoring and would damage the reputation of the OIM among many key stakeholders in these fields. The powers in this clause are therefore put on a strong statutory footing. They will ensure that the reporting that the OIM undertakes will be as effective and comprehensive as possible for the benefit of policy-makers in the UK Government and the devolved Administrations, significantly strengthening existing stakeholders’ ability to navigate the new UK internal market.

Clause 39 describes what action the CMA is able to take in response to non-compliance with the information requests described in Clause 38. As noble Lords said, the CMA has existing powers under the Enterprise Act 2002 regarding non-compliance with its information requests. This is necessary to enable the CMA to carry out its functions effectively. As with Clause 38, the provision for the OIM in Clause 39 is modelled on those powers. The clause will allow the CMA to determine the most appropriate policy approach and the amount of any financial penalty to be imposed within the limits that have been prescribed. The clause also sets out the conditions where financial penalties may not be imposed because more than four weeks has expired since the CMA exercised its relevant functions.

Clause 40 sets the parameters that the CMA should consider for financial penalties in cases of non-compliance with an information-gathering request notice. Let me first say that I understand the concerns of noble Lords, but the preference and expectation will always be that information gathering is on a voluntary basis. The Government do not anticipate that the CMA will need regularly to fall back on the information-gathering and non-compliance powers. However, it is important to ensure that this facility is available to the CMA to detail how penalties will be set. As with other provisions, the Government have chosen to mirror the relevant provisions of the Enterprise Act 2002.

I can say to the noble Lord, Lord Tyrie, and my noble friend Lady Neville-Rolfe that the Secretary of State will make regulations specifying the maximum amounts in practice within the specified ceilings for these penalties in consultation with the CMA and other interested parties. I can confirm for the benefit of the noble Baroness, Lady Hayter, that the devolved Administrations will of course be consulted as part of this. In addition, and as noted in our debates on previous groups, I confirm to the noble Baroness, Lady Bowles, and the noble Lord, Lord Tyrie, that the CMA will not be able to issue a financial penalty against the UK Government or any devolved Government. Let me be very clear about that. Let me also assure the noble Baroness, Lady Bowles, that the Government are committed to not taking any steps to bring in the financial penalties until there is credible evidence that there is a need do so, so we will not commence these provisions without that credible need being demonstrated.

I will deal with a couple of other questions. The noble Baroness, Lady Bowles, asked about third-party requests. Such requests would be permissible if they were within the scope of Clause 31 and the CMA thought that they were appropriate. As I confirmed earlier, the White Paper invited consultation responses on how the functions to be delivered should be implemented as well as on whether an existing arm’s-length body should deliver them or bespoke arrangements should be established. As is obvious, we decided after that consultation that the OIM should be situated within the CMA.

With the reasons I have set out, I hope that I have been able to reassure noble Lords on their legitimate concerns and on why this clause should stand part of the Bill. I hope that the noble Baroness will feel able to withdraw her amendment.

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Moved by

[Baroness Hayter of Kentish Town]

153: After Clause 40, insert the following new Clause—
“Duty to consider the internal market when considering mergers
In section 58 of the Enterprise Act 2002 (specified considerations) after subsection (2E) insert—“(2F) The need to promote the better operation and improvement of the United Kingdom internal market is specified in this section, having regard to—(a) the need to promote research and development and innovation in new and existing industries and enterprises, and(b) the need to act in the interests of United Kingdom public policy.””

[Baroness Hayter of Kentish Town (Lab)]

My Lords, before I speak to the amendment, I will slightly cheekily ask something about the previous group. At the very end the Minister said that the Government would not commence the powers unless they felt they needed to, or some words like that. As he indicated, each bit of the Bill can be brought into force on different days, as the Secretary of State may by regulation decide. When the Minister responds could he say whether that would be by the affirmative procedure and whether the House would consider the commencement date at that point? He could have some assistance if he does not know. How such things are done is beyond my understanding. It would be quite interesting to debate at that point whether the powers should be taken. I am sorry to ask the Committee’s indulgence to deal with the previous group, but I am sure that everyone is very forgiving.

Amendment 153 seeks to insert into the CMA’s powers a clear and specific reference to the need, when regulating takeovers in the new and initially demanding internal market, to promote research and development and innovation in new and existing industries and enterprises, as well as the need to act in the interests of UK public policy. The latter point is key to attracting long-term investment, as the CMA needs enhanced tools to intervene against hostile takeovers.

There has been a catalogue of such hostile takeovers, such as of GKN by Melrose in 2018—surely a bleak day for British industry, with perhaps 6,000 jobs with the UK’s third-largest engineering company suddenly in the hands of new owners following a very narrow vote by shareholders in favour of the takeover of a 250-year old company. That vote was swung by hedge funds and arbitrageurs who owned 25% of the shares, which had been very recently acquired. Their short-term interest in making a quick profit came at the expense of the jobs, skills, research and development of this major industrial company, to the detriment of UK plc. Needless to say, the result has not been good. Not all takeovers are bad, but when Melrose’s own website describes its strategy as “Buy Improve Sell”, with its objective to achieve a significant increase in shareholder value often in as little as three to five years, one has to ask whether this is in the interests of UK plc.

Last year, Unilever, our third-biggest company by market value, only just escaped a hostile takeover bid from Kraft, which took over Cadbury in 2010. Unilever’s proposed move of its registered office to Rotterdam, which did not actually take place, would have meant that Dutch law, which provides a public interest defence for the company from predators, would have been available. Sadly, we do not have that in UK law. We must now strengthen our laws against hostile takeovers and takeovers generally that are not in the public interest, not just because it is the right thing to do but to encourage long-term UK and overseas inward investors that their investment is safe from short-termism.

Until recently, the law provided only three grounds on which the Business Secretary could refer a takeover to the CMA, which then decides whether it should be blocked. The first is media plurality, the second UK financial stability, and the third national security. The addition of a fourth—public health—earlier this year was most welcome, as it allows for, in its words:

“The need to maintain … the capability to combat, and to mitigate the effects, of public health emergencies”.


Ideally we should add a fifth—the need to foster and promote research and development and innovation in new and existing industries and enterprises—and a sixth: to act in the interests of UK public policy.

As the Business Secretary I think accepts, there remains a concern about foreign takeovers of British companies on the cheap. We need to ensure that, in considering relevant takeovers, the Business Secretary can refer a takeover bid, and the CMA should be able to consider whether the bid is in the interests of research and development or science and technology, or in the public interest generally. That would cover cases where the national interest should be considered, but where the definition happens not to fit neatly into one of the existing categories.

I acknowledge that any such new grounds for referral by the Business Secretary are outwith the Bill’s scope, but as the CMA now stands more alone in the world of competition regulators outside the EU family, we need to give it the tools, as it oversees the development of the internal market, to put the national interest and support for research and development clearly into its thinking and terms of reference. This will help UK plc to build back better after Covid, in the national interest. This is something the Bill allows us to do, adding a useful tool to what the CMA will do. I beg to move.

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[Lord Callanan (Con)]

It is forthcoming. Noble Lords will know that I cannot go further in terms of dates. It was flagged up in the Queen’s Speech and is forthcoming.

The grounds for ministerial intervention in mergers are deliberately precise and limited, in order to maximise transparency and predictability for businesses. The effect of the amendment would be to broaden the grounds upon which Ministers may make a public interest intervention in mergers. This would constitute a significant change to the UK’s approach to merger control which, as noble Lords observed, currently puts the emphasis on competition-based assessments by the Competition and Markets Authority, with narrow and specific grounds for ministerial intervention.

It is not clear how such a change would materially assist with the effective operation of the UK internal market which is, of course, the focus of this part of the Bill. The CMA already has significant powers and expertise to investigate the benefits and risks of mergers in relation to competition. An excessively broad power to intervene in the affairs of investors, shareholders and company boards risks stifling competition, innovation and creativity. This could lead to worse outcomes for both businesses and consumers, as well as stifling inward investment. For these reasons, I cannot accept the amendment and hope that the noble Baroness will withdraw it.

Before I sit down, I will answer the other question which the noble Baroness asked about the previous group. The power for the Secretary of State to specify the maximum penalties for breach of information-gathering notices will be brought in by negative SI. This mirrors Section 111(4) of the Enterprise Act 2002.

[Baroness Hayter of Kentish Town (Lab)]

The Minister is very polite. What he really wanted to say to me was: “Nice try”. There is a serious point here. As I said in my introduction, I know that the basic power is outwith the scope of this Bill, but there is some urgency to this question. The noble Baroness, Lady Ritchie, used the words “greater protections are needed against hostile takeovers”. They may not be exclusively from outwith the UK, but those are some of the ones where there have been particular problems. I think it is agreed that, as the noble Baroness, Lady Neville-Rolfe, said, there is a weakness in our armour because you cannot argue against them on the grounds of competition. I thank the noble Lord, Lord Naseby. The problem is that it is not within the tools of the CMA. It cannot use as a ground the need to either respond to public policy or promote particular industries. If it does not affect competition, it is not within its powers.

This does need to be added. The noble Lord, Lord Fox, is right that this is perhaps not quite the right mechanism, but we are delighted to know that there is a Bill coming and I look forward to the Minister accepting an equivalent to Amendment 153 at that point. I will, needless to say, use today’s Hansard to support that amendment to get this in then. I look forward to the noble Lord, Lord Naseby, and other noble Lords supporting me at that time.

I wanted to table the amendment to this Bill because of the changes there will be when we have got the internal market growing and we are looking for new investments. Even those who think everything is going to be wonderful after Brexit know that we are going to need a lot of support to get the economy going again after Covid. There is a slight weakness, so it would have been nice to have been able to put this clause in at this point. It was a nice try, but I beg leave to withdraw the amendment.

Amendment 153 withdrawn.