Enterprise and Regulatory Reform Bill Debate
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Viscount Younger of Leckie
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Enterprise and Regulatory Reform Bill
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Viscount Younger of Leckie
I thank noble Lords for their suggested amendments and I appreciate the sentiments expressed by the noble Lord, Lord Whitty, regarding this part of the Bill.
Beginning with the amendments in the names of the noble Baroness, Lady Hayter, and the noble Lord, Lord Whitty, Amendments 24ZA and 24ZC seek to add specific references to some of the CMA’s competition functions and duties into its overarching duty, which is,
“to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
These include, for example, references to the CMA’s role in tackling mergers and abuse of dominant positions, and in reducing cartels and monopolies.
The CMA’s duty to promote competition reflects its unique position as the UK’s principal competition body, its leadership role in tackling anti-competitive behaviour as part of ensuring markets work well for consumers, and its domestic and international advocacy role. It does not seek to set out all the CMA’s functions. In addition to this overarching duty, the CMA will inherit the full range of the competition functions of the OFT and the Competition Commission, as well as additional consumer enforcement powers.
These functions and powers include: strengthened Competition Act enforcement powers to enable the CMA to tackle anti-competitive monopolies, monopsonies and cartels; strengthened merger controls to enable the new authority to address more effectively anti-competitive mergers that can lead to high prices and poor quality for consumers; a wide range of investigative and remedy-making powers to ensure that markets work well for consumers; and finally, the use of consumer enforcement powers to address business practices that distort competition or impact on consumer choice, even where markets are competitive. We are also providing more speed and rigour in market studies and investigations, and anti-trust cases, to give consumers faster and more robust decisions.
Given that the CMA will have a range of powers to ensure that competition and markets work well, it would not be appropriate to legislate for the CMA’s overarching duty to focus on one of these important competition and consumer tools over another. It is also important to preserve the independence of the CMA to choose the right tool to promote competition and tackle anti-competitive practices. We therefore do not consider that it is necessary or right to specify the particular kinds of anti-competitive features set out in these amendments.
There is also a particular concern over the way in which Amendment 24ZC seeks to gloss the meaning of a dominant position by specifying that it is normally to mean control over a quarter or more of a market. This would contradict European Union jurisprudence on dominance and therefore introduce, by way of a provision in the CMA’s overarching duty, a conflict with the CMA’s actual powers and responsibilities and with the European Union law which underlies them.
Determining whether an undertaking is dominant requires an economic analysis of the state of competition in a market as it is best defined. Market shares can be important indicators but may not be decisive—for example, where there is significant buyer power or low barriers to entry such that the undertaking’s exercise of its power is constrained by the threat of new entry. By introducing this more mechanistic approach to dominance, the amendment would conflict with the way dominance is assessed under European competition law. So it would be wrong for us to introduce this scope for inconsistency and uncertainty by way of an amendment to the CMA’s overarching duty. I hope that noble Lords will accept my explanation, which has taken a little time, for why the overarching duty is just that and why I do not believe that more specific additions are appropriate.
Amendment 24ZCA, tabled by my noble friend Lord Lucas, and bearing in mind his reference to and comments about Amazon and its great buying power, seeks to empower the CMA to investigate any company or arrangement to establish whether a cartel, monopoly or monopsony exists or is being abused without receiving prior complaint. The CMA will, as the OFT can now do, be able to make inquiries whether or not it has received a complaint and will be able to take action on its own initiative in markets where it observes a problem. Indeed, it will inherit the function of obtaining, compiling and keeping under review information about matters relating to the carrying out of its functions under Section 5 of the Enterprise Act 2002.
However, for the authority to use its far-reaching powers of investigation under the Competition Act 1998—such as powers to require the production of specified documentation or information and powers to enter business premises with or without a warrant—Section 25 of the Competition Act 1998 requires it to have reasonable grounds for suspecting that an anti-trust prohibition has been infringed. This strikes the right balance between giving competition authorities effective powers and protecting businesses from overzealous enforcement. If the amendment is intended to undermine this threshold, it would represent a significant weakening of a protection for businesses. As such, as the noble Lord, Lord Borrie, mentioned, I do not consider that the amendment is required. I understand the noble Lord’s concern that allegations of anti-competitive behaviour should be properly investigated and the facts established. Decisions on individual cases and priorities will be for the CMA, which will of course be independent of government.
At the end of the day, it will be for the management of the CMA to ensure that it is a highly effective competition authority, vigorous in the pursuit of anti-competitive behaviour, and the provisions of the Bill, including the creation of the CMA, will assist in this. They are designed to deliver greater coherence in competition policy and practice and a more streamlined approach to decision-making through stronger oversight of the end-to-end case management process, more flexibility in resource utilisation and better incentives and powers to apply the anti-trust and markets tools to deal efficiently with competition problems. In addition, this clause will give the CMA a duty to promote competition, something which neither the OFT nor the Competition Commission have. I hope that my noble friend Lord Lucas will accept that these changes should go a long way to securing that the CMA will be the active champion of competition that we all wish to see.
In the light of my explanation, I ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Whitty
My Lords, I thank all noble Lords who have spoken, in particular the noble Lord, Lord Lucas, because he gave an example that I should have thought of. It is clear that Amazon has a dominant position in a buying and selling market. It is exactly the kind of case that we need to be absolutely sure that the provisions of the Bill cover. My noble friend Lord Borrie and the Minister both said that it already does and I hope that is right, but we need to underline the Minister’s words for future use. In a situation such as that of Amazon, in relation to both the suppliers or subcontractors from whom it derives its products and the people to whom it sells, this is a growingly dominant force in all our lives. That is a good example and one we need to test against all the provisions of the Bill.
My thanks also to my noble friend Lord Borrie and to the Minister for rightly saying that monopolies and market dominance are not always a bad thing. That would usually be my line because the assumption that a free market will ultimately always deliver the best outcomes for consumers is not necessarily true. Nevertheless, I would argue that there is a tendency for the less competitive markets to give consumers a worse deal and that improving competition in almost all circumstances—not all, I agree—will give consumers a wider choice. There are situations where broadening competition in practice reduces choice, but in general the consumer benefits from more competition and choice and less market dominance. That means that we have to be quite subtle in defining the overarching role of the CMA. I was slightly puzzled by the Minister saying that we should not augment or unduly prescribe the overarching role. The problem with the way that the Bill is currently set out is that, whereas the OFT and the CMA had clearly defined major roles in the beginning of their respective statutes, this does not. All it says is:
“The CMA must seek to promote competition, both within and outside the United Kingdom, for the benefit of consumers”.
Nobody will argue with that. It is one and a half lines. It does not say what the CMA should look into and how it should judge it. I certainly agree that all market situations into which it looks should be judged as to whether they are an abuse of power to the detriment of consumers.
There are other issues involved in looking at market structures, including international competitiveness et cetera. There are wider issues as well but my amendments attempt to say what the subject matter of the new CMA would be. I do not think that we have yet got that situation. However, clearly my amendments as drafted do not meet universal acclaim. I hope that the Government will, before the Bill finishes, think about whether they need to be a bit more definitive in this area so that we in Parliament and the public in general know exactly what this new organisation is setting out to do.
On the threshold point, there are references in existing legislation to 25% so it is not a new thing. I accept that that should probably not be in the overarching aim. I suspect that we will return to the threshold as we move further into the Bill so I will not prolong that one. I have made the point. I hope the Government will at least give this some consideration and perhaps come up with a different drafting when we move to later stages of the Bill. For the mean time, I beg leave to withdraw the amendment.
Viscount Younger of Leckie
My Lords, these amendments recognise the fundamental importance of consumer support and consumer protection, whether it comes in the form of education, advocacy, advice or enforcement of legislation. I therefore thank the noble Lord, Lord Whitty, for the opportunity to discuss this important issue.
Competition is one of the pillars of a strong and vibrant economy. It makes businesses efficient and innovative, allowing the best to grow, innovate and enter new markets. It also drives investments in new and better processes, pushing prices down and quality up for consumers, but competition is only one side of the coin. To reap fully its benefits, consumers must be informed and have the confidence to exercise choice effectively. Unless consumers have the ability to make effective choices, vibrant competition will be inhibited and the businesses offering the best price or the best quality will not necessarily grow.
The current landscape provides consumers with a bewildering array of public, private and voluntary bodies with overlapping responsibilities. Each individual organisation does a very good job and is highly regarded but, taken together, they form a complex landscape that can be difficult for consumers to understand. The complexity and split of responsibility on enforcement cases has also led to a gap in enforcement. The National Audit Office’s 2011 report, Protecting Consumers, which reviewed consumer protection in the UK, found that consumer detriment occurs at national and regional level but the incentives are weighted towards tackling local issues. This contributes to an enforcement gap where large regional and some national cases may not necessarily be addressed.
The OFT estimated the cost to those affected and to the wider economy of activities such as unfair commercial practices and scams to be at least £6.6 billion annually. Any gap in enforcement is therefore significant to consumers and to the economy. The combined competition and consumer landscape reforms aim to deliver a better deal overall for consumers by setting out clearer responsibilities and better co-ordination between enforcers and the consumer advisory bodies.
Specifically, we will better equip trading standards departments to take greater responsibility for consumer law enforcement, and we have created a new National Trading Standards Board with responsibility for prioritising national and cross-local-authority boundary enforcement, tackling issues such as scams, illegal moneylending and rogue and incompetent traders, to provide a more coherent approach to trading standards enforcement.
The CMA will have primary expertise in unfair contract terms legislation and additional consumer enforcement powers to tackle business practices that distort competition or impact on consumer choice, even when markets are generally competitive. This could take the form of tricking consumers into tie-in contracts that might inhibit them from switching suppliers, subjecting consumers to unclear surcharges, or using misleading reference pricing. The CMA will also operate the combined OFT and Competition Commission’s markets regime to ensure that markets work well for consumers. As such, it will have powers to investigate markets such as payment protection insurance, which is a live issue. Business education will be shared between trading standards departments, which will deal with most business-facing initiatives, and the CMA, which will lead on competition advocacy and business education on unfair contract terms legislation.
In addition, as mentioned by the noble Lord, Lord Whitty, we have created SIPEP, the Strategic Intelligence, Prevention and Enforcement Partnership, involving the CMA, the National Trading Standards Board, the new Financial Conduct Authority, Citizens Advice and representatives from Scotland and Northern Ireland collectively to identify issues causing consumer detriment and agree priorities for enforcement, information and education.
These landscape changes have been welcomed by a number of consumer experts. For example, Gillian Guy, chief executive of Citizens Advice, said that this reform, “is good news for consumers”. Ron Gainsford, chief executive of the Trading Standards Institute, said to the committee in the other place that the current proposals strike about the right balance on the relationship that the institute was seeking. Mike O’Connor, the chief executive of Consumer Focus, said of the new strategic partnership:
“Consumer Focus welcomes the creation of SIPEP and we believe that it can make an important contribution to promoting consumers’ interests”.
In order for this new landscape to work in practice, it is essential that there is clarity of responsibility and accountability. Requiring the CMA to provide strategic direction on consumer support functions for which other bodies will be responsible, as provided for by Amendment 24ZB, would undermine in this area and risk further confusion for consumers across the landscape.
I shall now address Amendments 24F, 24G, 24H and 24J collectively. They would widen the transfer scheme set out in Clause 22 to enable the transfer of the OFT and Competition Commission’s functions to bodies other than the CMA and a Minister of State. It would therefore be helpful for me to set out how we intend to enable the transfer. We will be relying on Clauses 20 and 22 and Schedules 4, 5 and 6 to create the CMA and transfer the functions, including those I set out earlier, from the OFT and Competition Commission to the new authority.
In addition, we will be using two orders under the Public Bodies Act to enact changes to the wider consumer landscape. The first order is being laid in draft before Parliament today and we hope that it will come into force in April 2013. This order will transfer the OFT’s function of supporting a public consumer advice scheme to Citizens Advice services in England, Wales and Scotland. We will then transfer the levy for this service. We are also making amendments to a range of consumer legislation to modify the enforcement functions of the OFT.
The second Public Bodies Act order will transfer Consumer Focus’s statutory functions and powers to the Citizens Advice service, and wind up Consumer Focus. It will also transfer the OFT’s estate agency functions to trading standards. We expect to lay this order late in 2013 for it to come into force in 2014.
Finally, Amendment 24 seeks to transfer the OFT’s function of “promoting good consumer practice” to the CMA. We do not consider that this function needs to be transferred to the CMA. In the current regime, Section 8 of the Enterprise Act 2002 gives the OFT a general function of promoting good consumer practice, which recognises its leading role in providing consumer education and its function in relation to approving consumer codes. It is also the provision on which the OFT relies to conduct its international consumer advocacy work.
The noble Lord, Lord Whitty, was concerned that Section 6 of the Enterprise Act 2002 would not be transferred to the CMA. Paragraph 61 of Schedule 5 to this Bill transfers to the CMA the OFT’s function for the provision of information to the public.
Lord Whitty
Either I mis-expressed myself or the noble Viscount has misunderstood. Section 6, which deals with education, is indeed being transferred and then devolved to Citizens Advice and, to some extent, trading standards offices, but Section 8 is being deleted in its entirety, as I understand it.
Viscount Younger of Leckie
I note the point that the noble Lord has made and I will come back to that technical issue shortly.
As I have mentioned, in the new consumer landscape, the Citizens Advice service will take on the lead role in providing consumer-facing education from the OFT, as well as taking over responsibility for consumer advocacy from Consumer Focus. The role of approving consumer codes will be transferred from the OFT to trading standards. The CMA will continue to have an international consumer role; for example, to represent the UK at the OECD’s Committee on Consumer Policy. A specific provision has been made for this in paragraph 19 of Schedule 4 to the Bill.
I will pick up the point made by the noble Lord, Lord Whitty, and the noble Baroness, Lady Crawley, about how trading standards offices will provide a high standard of support against a backdrop of reduced funding. Local authorities make their own decisions about what proportion of their budget to invest in local trading standards services. This had led to variations in the costs and resources allocated to trading standards services. While we are unable to pre-empt local funding decisions, in 2011 the National Audit Office assessed that local trading standards services vary significantly in capacity and annual budgets range from around £240,000 to more than £6 million.
The Government recognise the impact of the current financial climate and our structural reforms, supported by central government funding, for national leadership and co-ordination of enforcement activity will help local services to target high-priority cases for maximum effect. We will continue to ensure that national expenditure complements the local authority contributions and offers as much leverage as possible to ensure overall efficiency.
The noble Lord, Lord Borrie, asked whether the Citizens Advice service would receive additional funding for taking on the consumer advocacy function. Citizens Advice will be allocated an additional £3.72 million to carry out general consumer advocacy work and consumer education and information, previously undertaken by Consumer Focus and the OFT.
I hope that noble Lords will accept my explanation of the relationship between the competition and consumer reforms as to why additions to the CMA’s role and widening of the transfer schemes in this way would not be appropriate. Therefore, I ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Stevenson of Balmacara
My Lords, before I start on the detail of what has just been discussed, I welcome the noble Viscount, Lord Younger, to his Front Bench duties on the Bill. We have met on a number of other occasions across this space. I am pleased that he is now able to engage with us on this Bill, which we find of great importance. We look forward to working with him on this and other matters.
We had some doubts about whether we should join in on this clause stand part debate because we were not quite sure where it was coming from. Indeed, I am still not quite sure where the two halves conjoin. There seem to be two different discourses. We are obviously in a two-act drama. Maybe when we get to Clause 21 and hear the other part of the noble Baroness’s speech, we will be able to judge more closely how this comes together. In the debate we have had so far, as so often in clause stand part debates, we begin to distil some of the concerns that have bounced around in some earlier debates. It is worth just reflecting on what we have heard.
From the official Opposition’s point of view, as my noble friend Lord Whitty said, we are not against what is being proposed in principle but have a number of reservations that we will want to feel have been properly tested before we finally sign off on it. We will have opportunities both on Report and possibly at Third Reading to do that. At the moment, having listened to the debate on the first two groups, the jury must still be considered to be out. We have had a lot of confusing signals about what exactly is happening, how the Government wish to approach this and the timing. Very importantly—and it has been the substance of a number of contributions we have heard on this group—what exactly is happening to the functions that are not explicitly stated within the front part of the Bill? Where do they go and with what timing? Most importantly, will the funding required to deliver the functions that are currently being properly delivered be available to support that?
I was very struck by some of the points made by the noble Baroness, Lady Oppenheim-Barnes, about the problems that will come from currently having two separate bodies. The OFT and the Competition Commission have their separate focuses and cultures, one investigative and one judgmental. That careful construction of two separate operations patrolling a common area but with very different functions and levels has been judged over time to be very successful. How will they be brought together and how in particular will the phase one and phase two elements and splits work out? Like the noble Baroness, I looked at the diagram. I did not quite bring out the medical textbook or the nasty intestinal disease analogies that she did, but I can understand where she was coming from in that. It is a rather odd structure. It does not seem to fit any of the management textbooks that I am familiar with in terms of clarity of exposition or additional information that would not be provided by a textual analysis. It is jolly colourful and we should be grateful for that.
We are creating something quite different. As I said, we are not against this but we need to be satisfied about why the Government have chosen this particular route and method of doing it. As was mentioned by the noble Viscount, Lord Eccles, it includes the Public Bodies Bill but also ignores what that says about how to go about this, in creating a body which in a sense already exists. The chair of that body is available should he wish to speak. Perhaps he could share with us what he thinks of the colour diagram that we are talking about—but perhaps he will not. It would be helpful if we could get a little bit more from the Minister about some of the intertextual material that has been brought out in this discussion. I want a better feel for the timing, a sense of certainty about what is or is not being retained within the central core of the CMA and why stuff is being taken out and under what constraints that has been done. Particularly for trading standards and Citizens Advice, I want an absolute assertion from the Minister when he comes to respond that the funding will be available to deliver the sort of services to which we all aspire but which, I am afraid, will not be available in the time.
Viscount Younger of Leckie
My Lords, I say at the outset that I am very grateful for the comments of the noble Lord, Lord Stevenson. I am particularly grateful for the contributions from my noble friends Lady Oppenheim-Barnes and Lord Eccles, who bring a wealth of valuable experience to this debate. I also appreciate the useful meetings that they have had either with me or with officials, or indeed with both.
The UK has one of the best competition regimes in the world but in the current economic environment we need to strive for improvement and further embed conditions in which companies can operate freely in competitive markets that encourage innovation, investment and growth and in which consumers secure the benefits of competition.
Despite its world-class ranking, there are problems with the current regime. As my noble friend Lord Razzall recognises and as he said at Second Reading, the UK competition regime is among the slowest in the world. I am grateful that he has reiterated that point today. Data published in Global Competition Review show that we are one of the three slowest countries when it comes to conducting investigations into anti-competitive agreements, and in the bottom four for investigating abuse of dominance cases. The current regime has also led to problems in terms of the length of time that it takes to conduct market studies and market investigations, which prolongs consumer detriment and uncertainty in markets. For example, between 2002 and 2011, OFT market studies took between three and 21 months, and the end-to-end process of market investigation, including the time taken for the OFT to make a referral, as well as the appeals process, ranged between 33 and 67 months.
Another issue is the uneven nature of references made to the Competition Commission, making it difficult to manage resources. For much of 2006, the Competition Commission was working on five market investigations and in 2008 it was working on four, whereas no references were received in 2008 or 2009. The pattern of merger and regulatory references is also uneven, and that contributes to an overall work pattern of peaks and troughs.
This clause therefore establishes a new Competition and Markets Authority, which will bring together the Competition Commission and the competition and markets functions of the OFT into one body. Despite looking on paper like a medical student’s study sheet—a euphemism for what was mentioned by other noble Lords—the creation of the CMA will mean a single, strong voice for competition which can provide leadership for the sector regulators on competition enforcement. It will mean less duplication and greater consistency of information requests between phase 1 and phase 2, and more flexible deployment of resources and specialist expertise across all its competition tools. It will also mean prompter referrals to phase 2 where necessary, and greater certainty for business from faster and clearer timeframes and more robust decision-making. Finally, it will also mean a one-stop shop for businesses to help them to understand and comply with competition law.
The creation of the CMA has also been welcomed by business groups and practitioners, including the CBI, the Federation of Small Businesses, the Institute of Directors, the Forum of Private Business and the City of London Law Society, which all consider that it will provide efficiencies and boost business confidence. The CMA will be the UK’s premier competition authority and will have at its disposal a full range of approaches to tackle anti-competitive behaviour and make markets work better for consumers and businesses.
This clause therefore gives the CMA a duty to seek to promote competition for the benefit of consumers, both within the UK and internationally. It will be concerned with how firms interact with each other—that is, the supply side—and how firms interact with customers, which is the demand side.
In creating the CMA, we have drawn from the best of the OFT and the Competition Commission. The CMA will therefore retain the separation of decision-making between phase 1 and phase 2 in merger and markets cases, with independent expert panellists taking the phase 2 decisions. These features were highlighted as key strengths of the current regime by Sir John Vickers and some of the other witnesses to the Committee in the other place, and we shall protect those features. The provisions are set out in detail in Schedule 4.
I should like to bring up a matter raised by the noble Viscount, Lord Eccles. He asked what the relationship or distinction was between this Bill and the Public Bodies Act. Section 5 of the Public Bodies Act provides for the modification of the functions of the Office of Fair Trading and the transfer of functions to other bodies. The PBA also allows for the OFT’s functions to be abolished. Further, Section 2 of the PBA provides that the OFT and the Competition Commission may be merged. However, we will not use the Public Bodies Act to enact reforms to the competition regime or to abolish the OFT or CC. Instead, we will be relying on Clause 21, which provides for the abolition of both the OFT and the CC. This is because while the Public Bodies Act allows us to abolish both bodies, and modify and transfer their functions, it does not allow us to create wholly new competition functions and powers for the successor body, the CMA.
I should also like to address a point made by the noble Baroness, Lady Oppenheim-Barnes, on the separation of decision-making in markets and mergers—a matter also raised by the noble Lord, Lord Stevenson. The independence of the phases will be preserved, in as much as paragraph 28 of Schedule 4 specifies that unless otherwise specified, functions of the CMA are exercisable by the CMA board. Similarly to the Competition Commission’s arrangements, paragraph 36 of Schedule 4 requires that where under any enactment—the Enterprise Act or sectoral legislation—the chair of the CMA is required to constitute a group to carry out an inquiry. He must appoint members of the CMA’s panel to an inquiry group in accordance with that enactment and Part 3 of Schedule 4. I hope that that goes some way to reassuring noble Lords.
Finally, I should like to address an issue raised by the noble Lord, Lord Stevenson, about the funding of trading standards departments; this matter was brought up earlier. I covered in our previous debate the issue of where the funding will be. The noble Lord, Lord Whitty, asked specifically about trading standards funding. Perhaps I may add that in 2011-12, we allocated a total of £10.6 million for national and cross-border enforcement in England, Wales and Scotland. However, looking ahead to 2012-13, we have allocated £12.1 million. This is in recognition of the additional responsibilities that trading standards will take on as functions are transitioned from the OFT. This funding is subject to budgets being agreed and the effects which any emerging central pressures may have on the proposed levels of funding. I hope that this goes a little way to answering the comments of the noble Lord, Lord Whitty.
Lord Stevenson of Balmacara
I want to ensure that the record is correct. The previous figure of £10.6 million has now been superseded by £12.1 million. I think that was the sense of what the Minister said. I notice that he has not given us the comparable figures raised by the noble Baroness, Lady Oppenheim-Barnes. What exactly is the Citizen Advice component of that? It would be helpful, if he does not have them, if he could write to us and make sure that we have the figures because several have been floated. It would be nice to have them on the record.
Viscount Younger of Leckie
I note what the noble Lord said, and I will return to him in writing. I commend this clause to the Committee.
Lord Skelmersdale
My Lords, before the Minister responds, I note that the noble Baroness, Lady Hayter, has tabled Amendment 24BA, which is obviously a second string to her bow in this matter. I am rather surprised that it has not been grouped with this amendment. Be that as it may, it seems to me that rather than having another panel under the CMA, it would be far preferable to have a consumer representative on the panel that already exists under the Bill.
Viscount Younger of Leckie
My Lords, I thank the noble Baroness, Lady Hayter, for this amendment, which seeks to establish a CMA consumer panel, and I note her very considerable experience in chairing consumer panels over many years.
Close co-operation between the CMA and consumer organisations will be essential to ensure that the CMA is well informed on issues that cause consumer detriment, and that it takes action in the right areas. Competition authorities are well used to taking account of consumer welfare in their activities and this will be the case for the CMA in particular, given its objective to promote competition in the interest of consumers. This is why we have established SIPEP, a new strategic intelligence, prevention and enforcement partnership, which will bring together key consumer bodies, including Citizens Advice and representatives from Scotland and Northern Ireland, to work together to identify those issues that impact on consumers and collectively agree priorities for enforcement, information and education. These will assist in guiding the CMA’s policies and priorities.
In addition to this, the Bill already has extensive provisions on transparency and consultation with consumers and other bodies. The CMA must consult stakeholders, including consumer representative bodies and the general public, on a range of issues that guide its policy. For example, paragraph 12 of Schedule 4 to the Bill provides that as part of its annual plan, the CMA must consult on its main objectives for the year and the relative priorities of each of those objectives. The CMA must also consult on statutory and non-statutory guidance which sets out much of the CMA’s policy and processes. The super-complaint process, in which the OFT is required to provide a fast-track response to certain consumer bodies, will also be retained for the CMA.
Given the consultation requirements, the new approach to enhanced working between the CMA and bodies across the consumer landscape, and the super-complaint process, I hope that the noble Baroness will consider that the arrangements for consulting consumers are already sufficient and will agree to withdraw this amendment.
Baroness Hayter of Kentish Town
I thank the Minister for that response and my noble friend Lord Borrie and the noble Lord, Lord Skelmersdale, for their comments. As usual, my noble friend Lord Borrie goes straight to the point that the name is wrong. Maybe we can negotiate on “consumer forum” or “consumer round table”. However, right as he is on that, wrong are the Government in their response.
Before I turn to the Minister’s comments, perhaps I may say that the comment made by the noble Lord, Lord Skelmersdale, was interesting. It is about whether one person on a board is sufficient to represent all consumers, an issue which the consumer movement has discussed a great deal. It is like being the only woman in a committee and people assuming that you can speak on behalf of all women. When the noble Baroness, Lady Oppenheim-Barnes, was first at meetings—I hope she does not take this badly—she was very often probably the only woman present. Even women of my age are still experiencing that situation now. As the one woman, it was somehow expected that you would speak for all women. It can be the same with consumers. However, as I found on panels, there were BME consumers, rural consumers, old consumers and young consumers, and you need a broad panel, if you like, to reach in, understand and get to a hearing in that way. A middle-class woman such as myself as a consumer rep does not do it, but a much broader-based panel does.
I hope the noble Lord, Lord Skelmersdale, understands that it makes it easier for one consumer representative on a board if there are mechanisms for a much broader consultation.
Baroness Hayter of Kentish Town
My Lords, the noble Lord has raised some really important issues. Certainly we would like to hear from the Minister why the Government have chosen this particular set-up, which is an argument that we have just been having in relation to the Financial Services Bill. The question remains as to why any panels under this Bill are not hearing cases completely independently of the CMA board.
I am sorry that I went on earlier about my consumer panel experience but I also have to say that I was a member of the determinations panel of the Pensions Regulator. We were completely independent of the Pensions Regulator. We were appointed by it to ensure that we knew something about pensions but that was about it. Other than that, we were completely independent. We did not work there and we did not know the staff, other than bumping into them in the loo and so on, but we were very independent of them. It was therefore more than a Chinese wall—it amounted to a gap of a good few miles.
Similarly, in our discussions on the Financial Services Bill, we have been trying to ensure that the Regulatory Decisions Committee of the FSA is equally independent of and separate from the FSA. That is partly to do with independence but also because it seems that we should look at whether there is a difference between the two roles of serving on the CMA board and doing hearings and taking decisions. The role of serving on the board is really about setting strategy and policy, whereas the work of the panels is often quite different and calls on a slightly different skill set. Therefore, we are interested in knowing why the Government have not made sure that the investigators are separate from the decision-makers and that their roles are not blurred— I think that was the word used earlier by the noble Baroness, Lady Oppenheim-Barnes, in quoting a former chair of the monopolies commission.
I assume that we all want a strong firewall between investigations and decision-making, so perhaps it is better to make them absolutely separate from the start, rather than going through convoluted ways of achieving that end.
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.
Viscount Younger of Leckie
My Lords, I thank the noble Baroness, Lady Hayter, for her amendments, which propose changes to Schedule 4. The Government are committed to increasing transparency and accountability in the public appointments process.
The amendment seeks to make it a statutory requirement for the appointment of the chair of the CMA to be approved by a Select Committee of Parliament. There is already a system in place, introduced by the previous Administration, for agreeing between Parliament and the Executive which of the Government’s public appointments will be subject to a pre-appointment scrutiny hearing. Under this system, the Secretary of State discusses and agrees with the chairman of the relevant Select Committee which appointments will have such a hearing. The Cabinet Office publishes a list of these appointments, most recently in August 2009.
The Government, in their response to the Liaison Committee’s report on Select Committees and public appointments, encouraged Ministers to engage with Select Committee chairs to ensure that the right appointments are receiving Select Committee scrutiny prior to appointment. The current system works well and the Government do not believe that there is any advantage in formalising this process in legislation in respect of individual roles such as that of the chair of the CMA. Indeed, under the current system, a pre-appointment hearing process is already in place for the chairs of the Competition Commission and the OFT.
Amendment 24AB seeks to make it a statutory requirement for the Secretary of State, in appointing the chair of the CMA, to be satisfied that that person has demonstrated an understanding of the impact on consumers of competition and its absence, particularly on vulnerable consumers, as well as of relevant experience in wholesale and retail markets. The appointment of the chair of the CMA is regulated by a code through the Commissioner for Public Appointments, which clearly states that ultimate responsibility for public appointments rests with Ministers. As such, the Secretary of State has been involved in the appointment process for the CMA chair-designate from the beginning and has agreed the selection process and criteria. The published person specification for the CMA chair-designate appointment made clear that knowledge of competition and consumer policy issues, and their implications, was a key requirement.
As noble Lords are aware, at the conclusion of the appointment process, the noble Lord, Lord Currie of Marylebone, was appointed as the chair-designate to the CMA. I am pleased to note that he is in his place. His formal appointment, assuming that the present Bill receives Royal Assent, will entail a pre-appointment hearing by the BIS parliamentary Select Committee. I am sure that noble Lords will agree that since his appointment as CMA chair-designate, the noble Lord has amply demonstrated his knowledge and understanding of the impact of competition and the effects of its absence on consumers.
I agree that it is important that any candidate for the CMA chair role demonstrates their knowledge of competition and consumer policy, as well as relevant experience in wholesale retail markets. However, formalising in legislation that the Secretary of State must be satisfied as to a candidate’s understanding of these issues is unnecessary in practice. It would also give unbalanced prominence in statute to these, albeit important, areas at the expense of other, equally important areas of understanding or qualities that any candidate for the CMA chair role should be able to demonstrate. For this reason, we do not think it necessary or appropriate for there to be such a statutory requirement.
Finally, Amendment 24BB concerns the pay structures of the CMA. Fair pay in the public sector is evidently more essential than ever in the current climate, as is openness of public bodies in their mandates and resource allocation. In light of this, the Government have implemented a number of measures to support recommendations made in Will Hutton’s report on fair pay in the public sector. For example, public bodies are required to publish in the remuneration reports of their annual resource accounts the pay multiple or ratio between the total remuneration of the highest-paid director and the median total remuneration of the staff excluding the highest-paid director. Public bodies, including the OFT and the Competition Commission, are also required to publish pay details, including names, of their most senior civil servants with a salary of more than £150,000. We do not, however, agree with placing a ban on managers earning more than 20 times the pay of the lowest-paid full-time employee in their organisation, as suggested in proposed new sub-paragraph (4) of this amendment. This was rejected by the Hutton review of fair pay in the public sector.
In light of this, we do not consider that a specific statutory requirement is needed for the CMA to ensure fair pay. We also disagree with the part of the amendment that apparently seeks to require that all CMA members appointed for more than three months be in the direct employment of the CMA. It is quite right that the staff of the CMA who are in full-time employment should not be employed through personal service companies, or similar, and therefore be able to avoid paying full national insurance contributions. However, the membership of the CMA will include both non-executive directors and independent panel members. Both of these types of member are needed to bring external expertise to the management of the CMA or particular inquiries. It is an accepted principle of good corporate governance that non-executive directors should scrutinise the performance of the executive management while providing them with external advice, support and scrutiny. I therefore ask the noble Lords to withdraw these amendments.
Baroness Hayter of Kentish Town
My Lords, the good news for the Committee is that this is the last it will hear from me for a bit. I will hand over to my noble friend Lord Mitchell, whose great success in the Financial Services Bill will, I hope, make the Minister quake as he receives my noble friend’s amendments.
The first of the two amendments in this group, which I move on behalf of my noble friend Lord Whitty and me, concerns the make up of the CMA board, and ensures that, as has already been mentioned, at least one of its members has expertise in representing the interests of consumers. There is a large pool on which to draw for this. For example, they may be former employees or board members of ombudsman schemes or consumer bodies or panels, or else active in the wider consumer movement. I know from the testimony of the financial industry and not just the consumer movement how well received Mick McAteer’s appointment has been, in his work at both the Financial Reporting Council and now the Financial Services Authority. He was formerly with Which?, has been a consumer advocate with long experience of representing consumers at both UK and EU levels, and has brought realism grounded in consumer experience, expertise and a clear consumer focus to the FSA for the past three years—to widespread acclaim. Earlier, a former chair of the National Consumer Council—not one of the two with us today—proved herself to be so invaluable to the FSA that it promoted her to become its vice-chair. Other examples abound.
Our proposal is modest. It is for just one such person, but having that in the Bill also reinforces the fact that the CMA is all about consumer interests and that consumers’ voices must be heard at the highest level. As I said previously in response to a question by the noble Lord, Lord Skelmersdale, this is not instead of a consumer panel. No one person can represent all consumer interests. What is interesting is that that person can be a channel and focus, albeit that they take the full corporate responsibility for the whole board.
The second amendment in the group, Amendment 24BK, is based on the assumption, which we do not necessarily share, about the proposed panels and the tiers mechanism in the new architecture. We have argued that that might not be for the best. For the moment, accepting that that structure is there, our proposal is again to emphasise the need for consumer and competition experts on CMA panels to avoid the risk of making their deliberations insufficiently consumer focused. That would make sure that the CMA and its decision-making panels represented the interests of consumers throughout their work. I beg to move.
Viscount Younger of Leckie
My Lords, Amendment 24BA adds a requirement to appoint at least one person with consumer representative expertise to the CMA board. A similar amendment was proposed by the Opposition in Committee in another place. We share the concern of noble Lords opposite that the reforms promote consumer interests, as mentioned in an earlier debate today. Consumer interests will be at the heart of the CMA. Given this, the amendment is not necessary. It could also undermine the perceived fairness of the CMA. We agree with the point made in the previous Government’s 2001 White Paper on a world-class competition regime that decisions should be made independently on the basis of sound economic analysis of the effects on competition. Independence of government and between the phases enables better decisions, greater certainty for business and more clarity in the regime.
Viscount Younger of Leckie
My Lords, I am grateful for these amendments, initiated by the noble Lord, Lord Mitchell, which highlight the importance of competitive markets to small and medium-sized enterprises. I welcome the noble Lord to the Dispatch Box and I hope that I can do a little better, in his eyes, in addressing his issues and concerns than perhaps I did before.
I agree that Britain’s small businesses are absolutely vital in leading the economic recovery, and the Government take its role in this area very seriously. This Bill contains a number of measures that will deliver real benefits to SMEs by strengthening and streamlining the competition regime; for example, it will make entry into markets easier, deter anti-competitive practices and speed up competition cases. While I support the overarching intention behind Amendment 24BC—to support SMEs—I do not believe that a dedicated SME unit within the CMA is necessary.
First, the competition authorities already undertake a range of work that directly benefits SMEs. For example, following an OFT market study into the retail pharmacy sector, a number of administrative restrictions on entry were removed, which enabled more competitors, including SMEs, to enter the market. Another example is in banking, which I know the noble Lord, Lord Mitchell, is particularly focused on. OFT interventions in markets such as personal current accounts, small and medium-sized enterprise banking and cash ISAs have found long-standing problems, such as high concentration, low transparency of fees, low levels of switching and high barriers to entry, which hamper effective competition.
The OFT has launched a programme of work designed to achieve a more competitive and customer-focused retail banking sector, and this will consider both personal and SME banking. The OFT also works actively with bodies representing SMEs, such as the Federation of Small Businesses and the British Chambers of Commerce, to identify competition problems faced by SMEs. The Government expect this engagement to continue when the CMA is established.
I urge caution against restricting the CMA’s ability to allocate its resource independently, according to the priorities of the day. There is also a risk that a dedicated SME unit would be inundated with complaints about competitors, rather than competition issues. This would take vital resources away from competition enforcement itself.
The new clause inserted by Amendment 25G would have the effect of bringing small businesses within the definition of “consumer” in Part 4 of the Enterprise Act, which deals with market investigations. This means that super-complaints could also be brought to the CMA about potential competition issues affecting small businesses.
We need to take care when thinking about small businesses within competitive markets, so that the line between consumers and competitors is very clear. The Government consulted on whether to extend the super-complaint system to SME bodies, as the noble Lord’s amendment proposes. The consultation asked for evidence of the type of issues that may be brought to the CMA as a potential super-complaint by small business organisations, but we did not receive any. Furthermore, the majority of responses to the consultation on this question actually opposed the proposal. Respondents felt strongly that SMEs should not be given special status, which could allow them to challenge business practices that might be pro-competition and efficiency-enhancing.
Amendment 26E would have the effect of bringing small businesses within the definition of “consumers” for the purpose of Part 4 of the Bill, which deals with competition reform. This would have the effect of enabling the CMA to launch a market study into a market which seemed not to be working well for small businesses.
I agree with the sentiment behind this amendment, that the CMA should be able to look at markets that are not working well either for consumers or small businesses. I do not believe that it is necessary because the existing legislation has not to date constrained the OFT from considering business-to-business markets. If there are competition issues in these markets, they will usually ultimately affect end consumers as well.
For example, the OFT’s current review of retail banking will look at SME banking as well as personal consumer banking. The OFT’s aggregates market study, which has now been considered in more detail by the Competition Commission for a market investigation, considered how easy it was for small ready-mixed concrete businesses to source cement and aggregates competitively. I hope that noble Lords will see that the competition authorities already carefully consider competition issues that affect SMEs in the existing regime and that legislating to assign resources to a particular area may prevent the CMA from focusing where enforcement is most needed. I would, therefore, ask the noble Lord to withdraw his amendment.
Lord Mitchell
I thank the Minister for his comprehensive reply. There is a need for a dedicated unit; small and medium-sized enterprises need a particular focus point to which they can refer. Our amendments are a “may”, not a “must”. The Minister gave an example of banking and the OFT. That may be, but here we are today, with high street banks still dominating and other types of banking organisations only just coming through.
In summary, we are trying to set up a mechanism that will enable the CMA as it progresses to take actions in favour of the SME sector—to enable it specifically in that area. I ask the Minister to think about what I have said. We will think about what we have said, and with that, I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town
My Lords, these amendments speak for themselves, so I hope that I can be brief. They are to remind the CMA, and to be certain that it includes in its reports, that it must set out the consumer benefit to be achieved and then monitor and evaluate it in its objectives and priorities. That will make its accountability for achieving this easier to ensure and will enable Parliament, the public, consumer groups and others to have clear evidence on which to assess progress.
Amendment 24BE means checking that the staff are up to the task set for them and that the resources are properly allocated to meet key objectives. Amendment 24BF is to allow Parliament and others to evaluate the cost of this merger into a single body, not just in money, important though that is, but on whether competition is healthier and that cases are being heard more quickly. We all, I assume, support post-legislative scrutiny. This amendment would produce the evidence on which to base that work. I beg to move.
Viscount Younger of Leckie
I am grateful once again to the noble Baroness, Lady Hayter, for the suggested amendments. Amendment 24BD would impose a requirement on the CMA that its annual plan for a forthcoming financial year should contain the consumer benefit that will be achieved as a result of the CMA’s main objectives for the year, and the prioritisation of those objectives.
Under the OFT spending review settlement, the OFT is currently required to provide an estimate of direct savings to consumers from its activities and to assess the associated benefit cost ratio against the current target of 5:1. In 2011 this figure was exceeded to deliver a benefit to cost ratio of 7:1. For the OFT, such a requirement serves to encourage it to maximise benefits to consumers in deciding what work to take forward. By comparison, however, a requirement for the CMA to assess the impact of its future work would be considerably less precise. As well as difficulties in assessing the future benefits of particular cases, the CMA’s caseload itself is not predictable. This amendment could therefore incentivise the CMA to underestimate and underachieve and could also potentially leave the CMA at risk of judicial review if forecasted consumer benefits were not realised.
Amendment 24BE seeks to provide a statutory requirement for the CMA to report in its annual performance report on the skills of its staff and to estimate the resources needed to perform its functions in the following two financial years. As drafted, the Bill provides a statutory requirement for the CMA to produce an annual plan and performance report in which it must set out its objectives for the coming year and the relative priorities, and how it has delivered against these. In addition, both the OFT and the Competition Commission already publish information relating to their staff, such as the development, diversity and engagement of their staff. We expect the same of the CMA. While it is imperative that the CMA has a skilled workforce to carry out its functions, to report on the skills of its workforce on an annual basis will be unnecessarily burdensome to the CMA, we believe.
Finally, Amendment 24BF proposes that the CMA’s first performance report provides an assessment of the transition costs and the impact of reforms on the speed of referrals. Evaluating whether the policy delivers the objectives is essential to ensuring that the CMA is getting it right, as is an assessment of the transitional costs against benefits. However, such an evaluation must provide an assessment of the costs against benefits over an appropriate time period: to do otherwise would not provide an accurate picture of the impact of the policy. A requirement to assess the costs and benefits to the competition regime within the first financial year of the reforms would be far too soon for a realistic assessment of the transition costs and benefits in either financial or competition terms. The Government’s impact assessment of the proposed reforms to the UK competition regime, which includes the transition to the CMA, commits government to a review of the policy in 2018. That is an appropriate point at which to consider the impact of the transition to the CMA in both financial and competition terms. For this reason, we do not consider that it is right for there to be a statutory requirement for the CMA to include within its first annual performance report an assessment of transition costs in both financial and competition terms.
While I welcome the intention behind these amendments, their practical impact could serve to hinder the efficient and smooth working of the CMA as a high-performance organisation. I therefore request that the noble Baroness withdraw these amendments.
Baroness Hayter of Kentish Town
I thank the Minister for that. I assume from what he just said that the requirement on the OFT to measure the balance of its saving to consumers will continue into the CMA.
Baroness Hayter of Kentish Town
In case Hansard did not record that, the answer was a very welcome “yes”, for which I thank him.
The Minister talked about the requirement for reporting on diversity of staff. Needless to say, we welcome that, but it seems to me that if you set up an organisation to do a job, making sure that it has the appropriate staff is central. Its human resources department will know if it is not got enough IT people, it will know if it is short of various staff. All we are asking is that it should share that knowledge with us. For those who say that this is extra work, I believe that a well run organisation knows about staff turnover, who it is recruiting and who it cannot recruit.
Finally, I welcome the fact that there will be a review in 2018. Of course, it is a bit late by then to do anything about it if the Government have made a mistake in doing this. I suppose that it is better late than never, but I hope that the Ministers at the time will at least be asking those questions, even if it is not a statutory requirement. I beg leave to withdraw the amendment.
Lord Whitty
My Lords, we now come to what may prove next week to be an interesting area: the relationship between the CMA and the sector regulators. This is the first point where it arises in the Bill, and it relates to the list of sector regulators. It is not a substantive point in terms of the nature of that relationship, but because the Government seem to think that that relationship is not entirely right at the moment and we know that we will be getting a hefty amendment in the name of the noble Lord, Lord Marland, next week on the Secretary of State’s powers in relation to the sector regulators and the CMA, it is important that the list of designated sector regulators is in fact the right list.
This amendment and a later one on the more substantive issues attempt to alter the list as set out in the Bill in two ways. The first is to remove Monitor from the list. The second, which I will deal with first, is the issue of how we will deal with the Financial Services Bill, which has yet to receive Royal Assent, and the establishment of the Financial Conduct Authority, because that will be the equivalent sector regulator for financial services and its powers will not be quite the same in some respects as those of the sector regulators that regulate the one-time nationalised industries such as water and gas. Nevertheless, it is the equivalent body and should therefore have an equivalent relationship with the CMA. There is no reference to any financial regulator in any of these lists. That may simply be for the technical and probably constitutional reason that the Financial Services Bill is not yet in law but, if that is the case, then presumably the FSA should appear there. I would like to know the Government’s intentions on that.
There is another complication regarding that Bill: in some respects, the prudential regulator could have an effect on the structure of markets as well. There is therefore a crossover there with the role of the CMA. We will come back to the substance of that, but it would be interesting to know the Government’s intention in that respect.
The other point relates to Monitor. Monitor is the economic regulator, and various other things, under the new National Health Service regime. The issue of competition in the health service was one of enormous complexity during the passage of the NHS reform Bill. It was one over which the Government gave substantial reassurances that the role of competition would not cut across the primary concern of NHS patients, which was that they would be treated effectively, resources would be deployed effectively for them and there would be seamless integration of the health service regarding their treatment. That will cut across the competition criteria that apply to the other sectors covered by the other regulators. Indeed, Monitor itself in its own objectives set out that integration and co-operation are its main priorities.
I think I am right in saying that at least once during the course of the NHS Bill the noble Earl, Lord Howe, indicated that in issues where there was conflict between competition and co-operation in providing a seamless service to the patient, then co-operation would trump competition. I am not arguing that the role of Monitor in increasing competition in the health service should be reopened, but I am saying that it is an entirely different situation from that which applies, for example, to Ofgem or the railways, where there are clear criteria, either continuously or at the point of franchise, about competition. Here, though, it is not the main aim of the health service to maximise choice; choice can be a contributor to patient comfort and outcomes but the main purpose is actually to provide an effective service for the treatment of that patient. The interaction between the CMA and Monitor in the health service, therefore, would be entirely different from the interaction between it and the other sector regulators. That is why I wish to remove Monitor from the list. There may be a separate reason for a relationship, but it is not the same as the rules being proposed for the overall relationship between the CMA and the sector regulators.
I advise the Government, gently, not to reopen this matter—health service reform was difficult enough for them. People are settling down now to make it work but the idea that another authority might come in under this Bill and overrule a health service body trying to square off competition and co-operation would reopen huge anxieties among health service professionals, patient groups and the new commissioning body. The Government would be wise to take it out. They can do it at this point without too much attention but if what they are proposing gets out there, they will be in serious trouble. I beg to move.
Viscount Younger of Leckie
I thank the noble Lord, Lord Whitty, for tabling Amendments 24BFA and 24BG.
Amendment 24BFA would remove Monitor from the list of sector regulators covered by the CMA’s duty to publish an annual concurrency report. The concurrency arrangements to be reported on are the arrangements for co-operation between the CMA and sector regulators in relation to their functions under the Competition Act 1998, in other words anti-trust cases, and under Part 4 of the Enterprise Act 2002, in other words market investigation references.
The concurrency report is part of a wider package of concurrency reforms designed to give the CMA stronger powers to co-ordinate competition work. The Bill will also give the regulators more explicit duties to consider using their general competition powers instead of sector-specific powers. The concurrency report ensures that there is transparency about how the CMA and sector regulators have worked together and how concurrent powers have been used in the regulated sectors. Monitor, whose role is to protect and promote the interests of patients, as the noble Lord, Lord Whitty, has mentioned, will have both regulatory powers—for example, the provider licence—and concurrent powers to address anti-competitive behaviour that is against the interests of patients.
The regulatory powers will reflect the Government’s commitment to retain sector-specific rules for health, building on those put in place by the previous Administration. Monitor will be subject to the new arrangements on the co-ordination of concurrent powers provided for in Clause 45, subject to one exception. The Government have been clear in response to the consultation on competition reform that Monitor’s new explicit duty to consider Competition Act enforcement before taking enforcement action through the provider licence provided under Schedule 14 to the Enterprise Bill will not be commenced until a future date, reflecting the unique characteristics of the health sector.
Subject to this, Monitor will become part of the same concurrency regime as the other sector regulators. So it is right that the concurrency arrangements between the CMA and Monitor and the use of concurrent powers in the health sector should be covered by the concurrency report. This will provide greater transparency and assurance that concurrent competition powers are being used effectively and in the interests of users of health care services.
Turning now to Amendment 24BG, I believe the amendment is intended to ensure that the CMA will have to report on how concurrency arrangements and co-operation and scrutiny of financial services more generally have worked with the FCA and the PRA. However, neither the FCA nor the PRA will have concurrent powers, so the amendment will in practice have no effect.
I know that noble Lords have questioned whether the FCA should have concurrent competition powers. However, the Government accepted the recommendation of the Treasury Select Committee that the case for market investigation reference powers had not yet been made and that the issue should be reviewed when the FCA had bedded into its new role. The Financial Services Bill instead gives the FCA a new competition remit which provides the mandate for the FCA to use its powers to promote effective competition and it will be able to carry out reviews of financial markets. The Financial Conduct Authority will have a tailored power to refer matters to the CMA, which may conduct market investigation or bring Competition Act enforcement proceedings. This mechanism was widely supported by consumer groups and industry and by the Treasury Select Committee.
In addition, the Financial Services Bill includes provision for the competition authorities independently to scrutinise the impact of both the FCA’s and the PRA’s actions on competition. It will of course be important that the FCA and OFT co-ordinate. The FSA and OFT already have an MoU in place and a new one will be put in place between the FCA and the CMA. The CMA, FCA and PRA will be required to report on their performance in their annual reports. I therefore ask the noble Lord, Lord Whitty, to withdraw his amendment.
Lord Whitty
My Lords, I am afraid I do not really accept either of those two propositions. On the financial side, it is true that the FCA does not have the whole range of concurrent powers that all the other regulators do, or in the same form, but it has a substantial number of powers in relation to its treatment of market abuse and consumers and its ability to conduct market studies. I hoped the Minister would say, “We will wait until the Financial Services Bill has passed and then at a later stage in this Bill we will produce a clause that deals with the relationship between the CMA and the FSA as will be, and possibly other parts of the financial regulation side”. I fear that what he actually said is that the abyss has been rolled over by the Treasury.
Quite often in consumer law, we find that general consumer propositions are deemed by the Treasury and the Bank of England not to apply to them. That may indeed be part of the reason why the previous system of regulation of the banking system fell flat on its face. The Minister and his colleagues in this need to be a bit braver in facing up to the Treasury and ensuring that it is subject to the same possibilities of market and consumer abuse as other sectors and therefore should be covered by the same propositions, even though there would be some slight variation in the range of powers. I hope that at some stage in the Bill there will be a point where we take on board the final version of the Financial Services Bill and put that back in.
On Monitor, I fear the Minister is making a serious political misjudgment. It is true that during the course of the NHS Bill the House eventually accepted that there should be a significant increase in competition within the health service structure, but when you look at the actual decisions that will have to be taken by the individual bodies within the health service, their prime concern is that patients and patient groups get the best integrated service for their condition. Therefore, for example, commissioning bodies will need to ensure that, where they commission services from one particular trust or specialist service, that will continue without competitive challenge through the course of treatment for those patients for a number of years. Otherwise, the specialisms within the health service will be destroyed and the seamless journey that is part of Monitor’s objectives for the individual patient will be interrupted by somebody saying, “Actually, you have not observed competition rules in this respect”.
That is not to say that there are not some aspects where there is an overlap. I am saying that the relationship between the CMA and Monitor is different from that for the other sector regulators. I would take it out of that list and the other lists that appear here. If there needs to be a separate memorandum of understanding, let us provide for that, but it will not be the same. If the Government hint that it is the same, I am afraid that there will be a reaction out there that they will find difficult to contain. That will be at best an embarrassment and at worst a threat to the other changes they are trying to make within the health service. I plead with them on this. It is in the interests of Monitor to devise its own structures and relationships and not to assume that it will operate in the same way as a competition authority in other markets. I hope that the Government will change their attitude on this in the course of the Bill. Meanwhile, I beg leave to withdraw the amendment.
Baroness Hayter of Kentish Town
My Lords, despite the financial sector nominally being competitive—in that there is a choice of banks—we have seen a real lack of satisfaction with banks among consumers.
We do not need to rehearse the mis-selling scandals, with unwitting customers, including small businesses, being sold—as a nice little earner—products that they do not need. We have a reminder of the banks’ record in the newspapers today. Furthermore, we know how hard it has been for people to switch bank accounts— a case made very strongly by the noble Lord, Lord Flight, who is not in his place now, during the discussions on the Financial Services Bill. We know that banks have been unbelievably slow to react to complaints about bank charges—in fact, without the OFT a number of malpractices would still be going on—and that they remain resistant to transparency on fees and charges. Indeed, what I find odd is that no other supplier of a service can simply remove money from one’s bank account without first submitting an invoice or agreeing the amount with the customer.
Banks are slow to deal with complaints, they are resistant to the ombudsman’s activity, and it sometimes feels as though they exist for their staff and their bonuses, rather than to serve the consumer. This smacks of a failing market. Therefore, Amendment 24BH seeks to test that allegation by asking the CMA not to rely on a collection of anecdotes—which does not evidence make—but to undertake some serious consumer research into this market, and to present that, together with any recommendations flowing from it, to the Secretary of State, who should then report back to Parliament.
The other evidence of the lack of a functioning competitive market is the virtual seizing up of finance for small and medium-sized enterprises, and indeed for high-growth businesses, as set out earlier by my noble friend Lord Mitchell. Yet we know that our economic regeneration, and our future, rest on their shoulders. Something is amiss.
This does not feel like a competitive industry when customers cannot get what they want: money for investment. Thus Amendment 24BJ seeks to force the CMA to undertake some serious research on competition in the financial services sector. When we discussed these issues during our debates on the Financial Services Bill, we were told that the CMA would be the lead regulator on competition—the FCA’s role being to promote competition, it seems, rather than deal with its absence—so now we ask the CMA to do just that. I beg to move.
Viscount Younger of Leckie
I thank the noble Baroness, Lady Hayter, for these amendments.
To be effective, the CMA needs to be able to independently determine its own priorities, but its ability to do this would be undermined by the obligation under Amendment 24BH to undertake regular reviews of one particular sector. As we have discussed, the Government are of course determined to improve financial regulation. Markets and market regulation evolve and, by requiring the CMA to carry out studies every two years, this amendment might have the effect of limiting the ability of the CMA to carry out higher-priority work.
The CMA also needs to be able to choose which tool to deploy. During the course of a targeted investigation, Amendment 24BH could require the CMA to produce a general report on the financial sector. In these circumstances, the reporting requirement could waste resources, interfere with an investigation or even act as a disincentive to initiate a separate investigation in the first place.
Finally, while the CMA will be the central competition authority, the FCA will be the lead regulator in the financial services sector, funded by an industry levy. It would be duplicative for the CMA to be required to carry out detailed scrutiny of conduct in the financial services sector at taxpayers’ expense, as required by Amendment 24BH. The OFT and the Competition Commission’s scrutiny powers will be transferred to the CMA by order, under this Bill. New arrangements for co-operation between the CMA and the Financial Conduct Authority will ensure that the two bodies work well together. They will both, of course, have the power to carry out research and publish reports, as envisaged by these amendments. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Hayter of Kentish Town
I thank the Minister for that. There is one bit of that which I can accept—that it may not be necessary to do this every two years. But there is a major problem in this sector of financial services, and it is time that the Government accepted that. In the Financial Services Bill they are rejigging the architecture, a bit like this, taking the FSA and splitting it in two, sending one bit to Threadneedle Street and letting the other bit stay in Canary Wharf. None of that will seize the problem of the banking industry. I wonder whether the Government are ever going to do it. This was another way to say that this is an industry, and a market, that needs looking at. If it is not going to be done by the FCA, which is not going to have the same powers, surely it should be done by the CMA—if not every two years, even as a one-off now—to see whether we can sort this industry.
This is something that we will certainly need to come back to. The Minister referred to arrangements between the CMA and FCA, but so far the Government have absolutely refused even to accept the obligation to have an MoU between those two. We will come back to that in this Bill. There is something fundamentally wrong in this enormously important sector, which is failing to serve consumers and industry, small companies in particular, and no one seems willing to do anything about it. We will come back to this, maybe without the reference to “two years”. For the moment, I withdraw the amendment.
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.