Lord Berkeley
Main Page: Lord Berkeley (Labour - Life peer)Enterprise and Regulatory Reform Bill
Lord Berkeley Excerpts(11 years, 11 months ago)
Grand CommitteeRead Full debate Read Hansard Text
Lord Hunt of Wirral
My Lords, in proposing this new clause I am concerned about the impact of the current merger regime on small companies. I hope that every effort will be made by my noble friend to lighten the burden. Small companies wishing to grow through merger face a disproportionate cost in the professional fees that have to be incurred in dealing with an OFT investigation. I am seeking to highlight small mergers and to insert, after Clause 26, a new clause which would exempt such small mergers.
At the moment, the Bill misses a great opportunity to exempt or deregulate small mergers. I would have thought that there could be a simple measure based on turnover, which would allow small companies to merge and restructure without the threat of costly intervention by the proposed Competition and Markets Authority. Small companies just do not have the financial and management resources to justify responding to an in-depth CMA review, which I am told would cost between £50,000 and £100,000 or even more. The risk alone of an in-depth review, with the smaller risk of a phase 2 review, can lead to small and defensible mergers being abandoned at quite an early stage. I want the Committee to understand that I believe there is a point where the costs of reviewing a potentially anti-competitive merger exceed any likely damage to consumer interests.
On its own reports, the OFT has reviewed mergers where the turnover of the acquired company was about £100,000. I have also been made aware of a merger of two small companies where the target had a turnover of £500,000; with the OFT narrowly defining the share of supply, there were legal fees of over £100,000 in dealing with the OFT investigation. With the associated cost of professional fees and management time easily reaching a similar figure it must be clear that merger activity would be reduced and growth opportunities for small firms would be diminished unless this approach changes, and I hope that it will.
In this new Clause, I suggested that a turnover figure of £5 million for the acquisition could be applied. That is a proportionate and reasonable figure. This received strong endorsement from the consultation, when one analyses the responses. It is interesting that in Italy, Prime Minister Monti, who is still the Prime Minister and was formerly the EU Commissioner for Competition, has recently announced a liberalising measure that introduces a new turnover exemption of €47 million for the company being acquired. I do not want to say that we should follow that example, but I believe that it is possible to introduce a safeguard to limit the use of this exception over a certain time period to address the concerns of a large company increasing its market position. I leave it to my noble friend to decide what this safeguard should be. This amendment would allow more freedom for small companies to merge and grow without unnecessary regulatory cost. I beg to move.
Lord Berkeley
My Lords, I have a few worries about this amendment. It sounds fine for the companies. They will merge, grow and make more money. That is wonderful. What if you are a consumer at the other end of these events? I see something of this in the West Country where I live. There are a number of quite small companies there and occasionally they play around at trying to take each other over or merge, and you end up with monopoly situations. I do not know what the solution is.
A monopoly with a turnover of under £5 million is just as dangerous to the consumer as a monopoly with one of £100 million. Competition is key. I do not know whether there is a simple way for the new authority to look at this and possibly not get involved but suggest another route. It is wrong to put a figure on this and just allow companies to merge, because they are small, without looking at the consequence of the merger on the customer and whether there is still competition for whatever services that are provided rather than turning the company into a monopoly.
Viscount Eccles
My Lords, I very much support my noble friend Lord Hunt of Wirral’s amendment. Key to this is the definition of “market”. You can dance on the head of a pin and end up with a single supermarket in the Scilly Isles or somewhere and say that that is a market. First, this is a very good amendment and I hope that the Government will take it up. Secondly, the key is to be clear in the publications that are put out what a market is. I can remember occasions when we sat down and argued extensively over whether something that was said to be a market really was one. That is key to coming to the right judgment about whether something should be referred.
I doubt that there will ever be a market where a company has less than £5 million turnover and the anti-competitive effects are such that it should be referred. It comes back to one thing only. Are the public paying higher prices than they should reasonably expect to pay? The rest is fluff and twitter. It is the prices that the public are paying that matter. If there were examples, maybe there would have to be a review of a figure of £5 million, but £5 million is pretty safe on the basis of an accurate definition of “market”.
Lord Berkeley
My Lords, this is a very quick, probing amendment. It gives the CMA powers to seek information in support of a market study. That is useful. I imagine this is where one occasionally reads about dawn raids on companies that allegedly may have transgressed—it makes interesting reading. However, when one talks about the sector regulators, it is not clear to me whether they would also have the same powers of investigation in Clause 30 as the CMA would have.
I have been talking to one or two of them and will bring some of the issues up in a later amendment. It would be useful to know the position on this. I think they would find it useful to have such powers in the initial stages of their investigations. It certainly is not clear to me whether they do have these powers and I look forward to the Minister’s comments.
Lord Marland
My Lords, we are trying to streamline the processes, as the noble Lord, Lord Berkeley, would acknowledge. We are trying to speed them up, as we have already debated. That is central to the Bill. As a result the CMA needs access to the relevant information, which it has. There have been a number of cases where the OFT has had difficulty getting to the information that it requires from the market-study stage, so this is being done to make sure that it does. The clause extends the powers to request the information and ask parties to give evidence so that consistent powers will cover the whole piece. They are subject to statutory limits. The most important thing is that business has clarity of vision and knows the direction of travel, and that is why speed, time limits and penalties send a clear message to business.
The noble Lord, Lord Berkeley, asked quite rightly if sector regulators have Clause 30 powers. We need to look at this more carefully. We have not come to a firm landing on it, but we could perhaps have dialogue on this together before Report. If we can bottom that out we will, but if we cannot we will make a commitment to look at it in secondary legislation. I commend this clause.
Lord Berkeley
I am grateful to the Minister for his comments. As we discussed in a previous amendment, one of the objectives of the Bill is to streamline things and reduce the costs of activities connected to investigations. I am sure that he is aware that the better sector regulators—I will talk about them later—are probably able to undertake this work cheaply and quickly, and with sectoral special knowledge that you would not expect the CMA to have. I welcome his interest in looking at this, and perhaps we will be in touch before the next stage. On that basis, I am happy to see the clause stand part.
Lord Marland
I have to disagree with my noble friend Lord Eccles because I believe that you should have deterrents. I think that the general public would want us to impose deterrents for those who do not comply with statutory rules, so I am afraid that he and I do not converge on that.
The noble Lord, Lord Whitty, is right to talk about deterrents. First, I point out that this is not just £30,000, it is £30,000 or 10% of turnover, so that deals with some of those companies that did not fall into the net that he was talking about. For very large companies, the Competition Commission can fine a daily rate of £15,000 per day with no limits, which is a serious deterrent.
The other point that I emphasise is that the Competition Commission has never had to impose a fine for non-compliance with a request, which shows that the system is working and has worked. I hope that on that basis the noble Lord will withdraw the amendment.
Lord Berkeley
Before the noble Lord sits down, I was interested in his comments about the £30,000, the £15,000, or whatever it is plus the 10%, plus a daily rate of £15,000 or something.
Lord Marland
Can I just clarify that? I did not say plus. It is £30,000 or 10% of turnover, and the Competition Commission can charge a daily rate of £15,000.
Lord Berkeley
I am grateful to the Minister. I am wondering why the daily rate should not be a percentage as well. One is talking about a big range between small companies and multinationals. Frankly, £15,000 a day for a big company is really nothing.
Lord Marland
I have made a mistake. It is not “or 10% of turnover”; it is a fixed rate of £30,000—not 10% of turnover—and £15,000 per day. The noble Lord, Lord Berkeley, asked where the deterrents are. The deterrents are the £15,000 per day, which has no limit on it unless the Competition Commission determines that it should have. So it lies within its power, if the noble Lord understands me.
Lord Berkeley
I am grateful to the Minister for that clarification. I still think that £15,000 a day for a big company is chicken feed; they will not notice it, even if it goes on for several years. I am no expert at levelling fines but I have been investigating the potential level of fine, admittedly on the Government, but it concerns the Thames Water tunnel outside here. The figure being bandied around there is £1 billion if we are lucky. That is a project that is worth £4 billion, and maybe there is a company with a turnover of £4 billion involved in this competition issue. The figure seems to be slightly low and out of proportion. I do not know whether it is a deterrent. Perhaps the Minister could reflect on whether a percentage for a daily rate would not be an additional deterrent.
Lord Whitty
My Lords, I am grateful to the Minister for clarifying that; I was getting a bit confused myself. If he had been right first time, my amendments would not have been necessary. I accept that there is a daily rate and that is an important consideration. I am sorry to part company with the noble Viscount—I am sure that we will be back on the same course at some point—but you need a deterrent in these cases. The question is what level of deterrent is effective enough to ensure that you will never have to impose it. It seems to me that these amounts are a bit low, given the size of the markets that we may be talking about.
I hope that the Government look at this again. Among other things, they will probably find that some of the sector regulators have tighter powers on the disclosure of information than this. I think I am right in saying that Ofwat does, for example, in relation to misleading information. I declare a brief past interest: I was on the board of Ofwat for a short period. We will probably find that these are rather minimalist maxima and they could do with further review. I beg leave to withdraw the amendment.
Lord Marland
I cannot tell the noble Lord why not; I asked the very same question of my officials. It is a perfectly reasonable comment for him to make. If we can work together to see where the dynamics exist, we might be able to see if it is practical to improve this a little. I do not think that we will be able to do anything too dramatic, but the noble Lord makes a good point. We have said all along that this is all about speed of process. As I have agreed with his overall point, I hope that the noble Lord will agree for the moment to withdraw his amendment so that we can discuss this later.
Lord Berkeley
Before the noble Lord sits down, I have a question in relation to these time periods. I have had a little experience of trying to do something like this in the railway sector. My recollection is that a long time is taken between when the notice is issued saying that the authority will conduct such a study and when it has sufficient information to allow the clock to start running. Reading the Bill and my noble friend’s amendments, I am not sure whether these numbers—from six months to four months—apply to the time between the notice being issued or where the clock starts ticking and the authority believes that it has sufficient information. Maybe my noble friend has more information on this, but it is a point worth looking at when we come back to it.
Lord Whitty
My Lords, in reply to my noble friend, Lord Berkeley, the point would be from when the clock starts rather than just a twinkle in the eye of the regulator. I accept that everything is a little arbitrary to some extent, but if we are trying to turn the screws and stop us from being seventh out of eight of the competition authorities within the larger countries in Europe, we should take every opportunity to speed things up. If the Minister wishes to have another look at this, I would be grateful. I beg leave to withdraw the amendment.
Lord Berkeley
Lord Berkeley
This is a probing amendment. Subsection 36(4) of the Bill provides for one or more of the CMA’s functions to be delegated to one or more members of a panel—for example, decisions in competition cases. It would be useful to hear the Minister’s comments as to whether this is something that the Government envisage for the sector regulators. There is an option, which was discussed in the Government’s consultation, but which was not set out in the Bill, for regulators to be relieved of their decision-making powers in competition cases. Is that still an option on the table, possibly through secondary legislation and for the decision then to be vested with the panels that are set up for that purpose under this clause? Some of the sector regulators are concerned about exactly what the intention is. I beg to move.
Lord Marland
The noble Lord, Lord Berkeley, gets to the point. I am grateful for his brevity. I am reliably informed that the rules under Section 51 will apply to the sector regulators. The same principles will apply but the rules may differ a little in detail. Of course, as he would say, the devil is in the detail but I am sure that within the detail there is quite a wide canvas. I hope that clarifies the situation for the noble Lord.
Lord Berkeley
I am grateful to the Minister but I wonder whether, within his broad canvas, or whatever, he has any views about whether any secondary legislation will be introduced on the issue which may or may not be helpful. I noticed that within this group there is the Question that Clause 40 stand part and Amendment 26BF, in the name of my noble friend Lord Whitty. I would be pleased to hear what he says about that because I have some comments on it too.
Lord Whitty
My Lords, I was going to leave that because my Amendment 26BF is an attempt to tidy up the provisions on review, along with another amendment that I cannot find immediately. There are separate provisions on the mergers, the markets and the anti-trust provisions, as to when we review them. I am in favour of the Government’s policy that we review legislation every so often but I think that it should be done simply and that we should look at the whole of the legislation. Essentially, that is what Amendment 26BF to Clause 48 is about. I was not going to move it today because I think that it requires the interplay of other parts of the Bill but I think a review of the totality of the Bill, all at the same time, would be helpful and should be built into the Bill in some way at a later stage.
Lord Whitty
My Lords, I am extraordinarily grateful to the Minister for accepting that Monitor should come out. My amendment was to the original version of this amendment, and I thought that I would have to make that speech all over again. Luckily, as he has pointed out, it has been removed. I am glad that the Government took my advice on that; I think that they should remove any reference to Monitor anywhere in the Bill, and I hope that they will do so.
My only other point regarding the list was that we need to make some reference to financial regulators. Although, as I have said before, the Financial Services Bill has not yet received Her Majesty’s assent, we are in a position where we will have a Financial Conduct Authority and a Prudential Regulation Authority under the auspices of the Bank of England, which may well be taking measures that affect the structure of the financial sector. Therefore, although I am not suggesting that there be a reference to the FCA or the PRA, there should be some reference to the concurrency with the financial sector, albeit that the concurrent powers are not quite the same. So there is still a little issue with the list.
The more general problem with what the clause provides, however, is quite an important one. I am happier with the original clause that encouraged the sector regulators to use their competition powers. Actually, that clause merely requires them to consider using the competition powers; the noble Lord’s letter said “instead of” their sector powers, whereas they need to see which powers are best. The clause is fine on that, so I approve of the clause. However, I do not approve of the government clause that the Minister has just moved. It relates to the relationship between the sector regulators and the CMA, and that is clearly going to be crucial. We touched on this a few times earlier; indeed, my noble friend Lord Stevenson referred to it under the first amendment.
We need to change the present system. Frankly, some of the sector regulators have been overdefensive about their role with regard to using competition powers themselves, rather than their more familiar sector-specific powers relating to licences, franchising and so on, and very resistant to any suggestion that the Competition Commission should look at the competition structure of their sectors as a whole. On the other hand, it has also been true that both the Competition Commission and the OFT have been somewhat loath themselves to intervene in regulated markets, although I know that at one stage the Competition Commission was quite anxious to look at the energy market, with which the Minister is very familiar, but Ministers helped Ofgem to resist that. As I understand it, that was the position under both Administrations, and that needs to be addressed.
However, while the relationship between the two does need to be restated, the Minister has used the nuclear option. I assume that, like the nuclear deterrent, he is hoping that it will never be used, but it will mean compliance by the sector regulators, which will be using their competition powers more frequently, or they will meekly be prepared to hand over cases to the CMA under the threat in this amendment that their powers will be taken away by the Secretary of State completely, either on a particular issue or in total. That does not seem on its own to be the correct approach. We need the big print to be about co-operation between the CMA and sector regulators.
Amendment 26B would give the Secretary of State draconian powers to reduce the whole role of sector regulators and leave them with only their sector-specific powers. That is counterproductive to what we were trying to achieve, which was more use of competition powers with all regulators.
As my noble friend Lord Stevenson suggested this morning—or, rather, this afternoon; it just feels like this morning—we need a more co-operative approach between regulators. Unfortunately, the Minister rejected the particular option proposed by my noble friend at that stage.
In this group, we propose another option with Amendment 26BD. That requires a memorandum of understanding. Some of that exists already, but it will need to be boosted between each of the regulators and the CMA. It would eventually allow the CMA to ask the Secretary of State to require the CMA to take over provisions—again, either in a particular case or more generally—but that would be after a period when a co-operative and conciliatory memorandum of understanding had been working. That requires joint working, sharing of information, and so forth. This would still allow the CMA to conduct periodic reviews into how this was going with the sector regulators, but it would be far preferable to the nuclear powers that the Minister’s amendment gives to the Secretary of State.
I hope that we could accept this more conciliatory approach. I also hope that, even if the Minister’s amendment still stands and ours does not, the two amendments to his amendment, which would require the Secretary of State to give reasons for his action and to take note of the CMA's periodic reviews, would at least add a more objective context and require the Secretary of State to go through a significant number of hoops rather than jump straight into taking powers from the sector regulator. It is a more constructive approach. I prefer our amendment but, if the Minister is not prepared to accept that, the amendments to his amendment should be accepted.
This is a delicate area and one in which the CMA’s relations with the sector regulators will be very important. We could get it horribly wrong. The big stick that the Minister’s amendment implies is probably not the right way to be going about it. I beg to move.
Lord Berkeley
My Lords, I share my noble friend Lord Whitty’s serious concern about Amendment 26B. It goes to the heart of independent regulation. As I recall, going back a long time now, these regulators were created to be demonstrably totally independent of the Government. The Secretary of State probably appoints the chairman, but he cannot remove him unless he does something very naughty, bad or financially uncertain.
The principle of independent regulation without government interference—and Governments of all hues have a pretty bad reputation about interfering in different things—is fundamental to the operation of a regulated monopoly or series of monopolies. That is certainly the case in the railways and Network Rail, and to some extent it is the case in the water and power industries
The Deputy Chairman of Committees
My Lords, before the Division, we were debating Amendment 26BA.
Lord Berkeley
My Lords, I had just about finished, but want to conclude by saying that I hope that the Minister and our other colleagues will look at the proposed new clause very carefully before Report, because there are some serious things wrong with it. I commend the amendments of my noble friend Lord Whitty for consideration.
Lord Bradshaw
I endorse what has been said by the noble Lord, Lord Berkeley. The proposed new clause states:
“The Secretary of State may by order made by statutory instrument amend any enactment so as to remove from a sectoral regulator either or both”.
How long is that going to take? If there is a weakness in the regulation, which is apparent, and even if the Secretary of State can recognise it, how long is the remedial action which is set in the Bill likely to take to bring into force? If a regulator is incompetent, surely there must be other ways of getting him to move over. He has a board of his own which, if he is exaggerated in his actions, can take action to rein him in. However, the whole edifice which is built here is wrong. I know two of the regulators involved and I have known some of the regulators in the past. Generally speaking, they are extremely competent people and probably more competent than the people who would advise the Secretary of State to use these powers. I believe that the powers are heavy-handed and very long-winded into the bargain.
Lord Berkeley
What would the noble Lord, Lord Bradshaw, think if there developed a debate between the Office of Rail Regulation, which is the regulator that we probably both know best, and the Government, and the Government said to the ORR, “You’re not pursuing this competition case in the way that we think you should, and it should go to somebody else who, like the CMA, could do it better.”? Is that not serious interference in the independence of the regulator?
Lord Marland
The noble Lord, Lord Whitty, indicated that he was minded not to support our amendment and what I am about to say is therefore largely academic because I will not support his amendment. However, let me explain, because there is not an awful lot between me and the noble Lord, Lord Berkeley.
We expect the CMA to work closely with the regulator. That is best, and we totally agree that government would be wrong to intervene in that process, as the noble Lord rightly said. That is something in which I strongly believe. Most organisations are better when government does not interfere in them. They are full of competent people, as the noble Lord, Lord Bradshaw, said, who have served us well over a period of time. We are a very well regulated society, certainly compared with most other countries.
However, there needs to be a clear signal that if this does not work or there is abuse of the system, the Government have the opportunity to invade in this area, and that is exactly how it should be. In that way you are protecting the consumer—the customer—against bad practice, not interpreting the rules properly and so on. If the Secretary of State were to intervene, he would almost certainly have to put that before Parliament to seek its approval. We are all on the same side as regards the spirit of the amendment. “We are all in this together” is the phrase that we like to use most.
I would be disappointed if the noble Lord, Lord Whitty, could not agree to our amendment and invited me to withdraw it. However, we are all singing from the same hymn sheet, and I totally respect the views of noble Lords who have spoken because this issue is important. It is absolutely fundamental that the system works without government intervening aggressively in it.
Lord Berkeley
Can the noble Lord expand a little on the reasons for when this would happen? He quoted bad practice and lack of interpretation of the rules, but it is not moving far away from the reasons for sacking, for example, the chairman of the board of the rail regulator if they have not behaved properly. If things have got that bad, one would expect them to resign anyway if this kind of thing came about. On that basis, I should have thought that there are already enough powers to change what the regulator is doing if it is really so ineffective. Given the proposed MoUs, the system would probably work much better. I am still not persuaded that there is a good enough reason for going through all this. Perhaps I have got it wrong.