EU Merger Control

Kelvin Hopkins Excerpts

Tuesday 3rd November 2015 General Committees

[Kelvin Hopkins (Luton North) (Lab)]

Thank you, and it is a pleasure to serve under your chairmanship, Mr Hanson. It may be helpful to the Committee if I take a few minutes to explain the background to the document and the reason why the European Scrutiny Committee recommended it for debate.

The EU system for merger control seeks to create a one-stop shop, with the Commission essentially having jurisdiction over mergers with an EU dimension, while those below the relevant thresholds are subject to member state control. Where a merger has been notified to the Commission, it may not proceed unless it is compatible with the Common Market.

In 2013, the Commission took the view that since the current arrangements had been in place since 2004, the time had come to consider possible improvements. It therefore sought to canvass views. As a result, in July 2014, it produced a White Paper—Document 11976/14—reviewing the operation of the controls over the past 10 years and proposing specific changes. The White Paper says that although the majority of cases investigated have not raised competition concerns, merger control nevertheless,

“makes an important contribution to the functioning of the internal market.”

It also says that in addition to the part played by the Commission on mergers with an EU dimension, member states have an important role, although it goes on to note that there is

“room for further co-operation and convergence”

in certain areas and that there should be a single substantive test on mergers applied by both the Commission and national competition authorities. However, as that would require an ambitious overhaul of the regime, it has for the time being concentrated on two issues identified in 2013: the need for controls to be extended to certain acquisitions of non-controlling minority shareholdings and the effectiveness of the system for transferring cases between member states and the Commission.

The Government do not see the latter issue as having more than limited policy implications but say that the changes regarding non-controlling acquisitions require further clarification. In view of this, and the review that the White Paper provides of the overall control system over the past 10 years, the European Scrutiny Committee decided on 3 September 2014 to recommend the document for debate in European Committee C. Given the time that has elapsed since then, it would be helpful if, in addition to any more general comments, the Minister said what developments have taken place in this area in the meantime.

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[Nick Boles]

That was a long question, and I am happy to give a short answer: yes, I can give my hon. Friend that assurance.

[Kelvin Hopkins]

I am pleased that the Government seem to be resisting more powers being transferred from our national Parliament to the EU. I think that the Minister made the point that many mergers relate to companies that are not based in the rest of the European Union. It is appropriate that they should be managed at national level, rather than EU level. Does he agree?

[Nick Boles]

Absolutely. Full-blown mergers—acquisitions of the control of other businesses—have to pass clear criteria on turnover both within the EU and within the respective countries to be reviewed at European level rather than the national level. The criteria are reasonably complicated. My hon. Friend will be more familiar with them than probably any of us. I think that they are set at roughly the right level. As a result, the overwhelming majority of mergers and acquisitions that take place are reviewed by our excellent Competition and Markets Authority, which has a very high reputation. It is absolutely appropriate that only a very small number of mergers and acquisitions are reviewed at European level.

[Kelvin Hopkins]

I think that the European Scrutiny Committee, in general and broad terms, would agree with the Government on this. The principle of subsidiarity is much talked about in European Union circles, but the EU seems reluctant actually to indulge in it much. Would the Minister not suggest that the EU should recognise that some things should be dealt with at national level to make subsidiarity more meaningful?

[Nick Boles]

I cannot pretend that everything involved in preparation for the Committee was absolutely gripping, but nevertheless I found myself intrigued by a debate on the vexed question of subsidiarity between, in particular, the noble Lord Boswell and my predecessor and then me—in reality, the officials who drafted my reply. I had the layman’s understanding of subsidiarity, which is shared, I suspect, by most of us and by most of our constituents: “Don’t do it at European level unless you need to; do it at national, regional or local level.” However, I understand from the correspondence that, within a legal framework, the principle of subsidiarity at European level is applied only in certain areas, where it is acknowledged in treaties that the EU does not have sole competence—only then does something become a question of subsidiarity.

To the extent that this power is necessary for the EU to make the internal market function, questions of subsidiarity would apparently not be raised under the legal framework. That is why we have emphasised proportionality. It would be disproportionate for the EU to start interfering in a small number of cases that rarely have a European-wide impact. In a sense, I rest with the layman’s view of subsidiarity as useful—in general, the EU should not interfere unless necessary, and unless doing so will dramatically add value to individual nation states and their citizens—but in this case we are clear that it would not be necessary or proportionate for the EU to do so.

[Kelvin Hopkins]

I have one more question. Is it not right to be extremely wary of any kind of merger? Mergers inevitably lead to more monopolistic powers for companies to exploit markets. If we are serious about competition, we should maintain a sufficient number of competing companies in any industry.

[Nick Boles]

We are probably straying slightly from the subject. In general, I have agreed with everything that the hon. Gentleman has said, but I suspect that there will be a slight note of difference here. There are many fragmented industries in which the merger of two participants would in no way undermine the consumer’s power and might even enable them to become more efficient and productive, thereby lowering costs to the benefit of the consumer. I completely agree with the hon. Gentleman, however, that in cases of relatively concentrated industries—we can all think of many, and they are often where mergers are most frequently proposed—it is important to have a robust regime. I am glad to say that we have such a regime in this country. We should therefore allow most decisions about mergers in the UK to take place under the jurisdiction of the UK authorities.

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[Kelvin Hopkins]

I will not speak for too long, but I would like to say a word or two about what the hon. Member for Bedford has said. Countries outside the eurozone are rather stronger in their economics than those inside the eurozone. There are those who think that the eurozone will not continue forever—people inside the eurozone, not just people who are, like us, outside it and who might take a more sceptical view. I do not think that the eurozone poses an economic threat to us. A much greater threat comes from places such as China and elsewhere.

In a merger, there are three interested parties: the shareholder company, the consumers and the workers. I had experience of representing a trade union delegation at the Monopolies and Mergers Commission many years ago, to make sure that workers were protected during significant industrial change. I promoted a private Member’s Bill some 15 years ago on the subject of giving workers more protection in situations of major industrial change, such as mergers.

It is important to retain powers at national level, because employees, in particular, will be represented by their Members of Parliament, or even by the Government and Opposition parties in their own Parliament, much more than by the more remote European Union and Commission. Retaining as much power as we can at national level over these matters is important, particularly for the worker interest. The consumer interest may be rather different, but the worker interest is certainly best served by keeping those powers at national level. We have seen some fairly serious mergers over the years in Britain, which have caused a certain amount of distress, and we want to make sure that workers are properly protected.

The European Scrutiny Committee, as I have said before, is happy that the Government have resisted the European Union’s pressure to take more powers to itself. I hope that that will continue and that the Government will recognise the interests of employees, in particular, in all merger situations.

We have to regard mergers with a degree of nervousness, because even when there are still several companies in a market—an “oligopoly”, for those of us who have studied economics—even a few companies can effectively have monopolistic powers, and of course they can collaborate privately and whatever else. If we want a competitive market, and not a socialised market, it is very important to have genuine competition between companies and not allow aggressive takeovers, which are more politely called “mergers”, for the purposes of exploiting markets, getting rid of workers and whatever else.

I hope that the Government will continue to take a strong view about how we manage mergers through legislation and Government. I imagine that the European Union is concerned as much as anything about the other nations—specifically the more recent members, whose legislation may not be so well developed as ours. They may not have the experience of industry that we have, and their industries may need a little more assistance from international bodies rather than just receiving assistance from their own Governments.

As I say, I hope that the Government will take merger powers and the legislation governing mergers very seriously in the future, and retain as much power to themselves as necessary.