§ 10.5 p.m.
§ The Under-Secretary of State for Trade and Industry (Mr. Nicholas Ridley)
I beg to move,That the Restriction on Agreements (Estate Agents) Order 1970 (S.I., 1970, No. 1696), dated 10th November, 1970, a copy of which was laid before this House on 18th November, be approved.I will move the Order shortly and then attempt to reply with arguments of more substance after hon. Members have made their contributions.
The Order renders unlawful collective agreements which give rise to the practice of charging fees at standard rates in connection with the sale and purchase of unfurnished houses. The Order came into force on 20th November. Where arrangements were in operation at that date, they must be brought to an end before 30th June, 1971.
The Order is made under Section 3 of the Monopolies and Mergers Act, 1965. It gives effect to the recommendation of the Monopolies Commission in its Report on the Supply of Certain Services by Estate Agents—published in February, 1969—that such arrangements operated against the public interest and should be discontinued.
In reaching this conclusion the Commission said that the arguments advanced for charging estate agents fees at standard rates appeared to carry no more weight that those in the past advanced for avoiding price competition in the supply of goods. The disadvantages were very similar. The Commission considered that the charging of fees at standard rates meant that at least in some cases fees were likely to be higher than they otherwise would be; that resources were likely to be wasted; that the incentive to introduce or experiment with new methods was likely to be reduced; and that the customer was denied the option of a lower price if he did not want the full service which went with the standard price.
There was full discussion of these proposals. The Monopolies Commission sat from September, 1966, until February, 1969, and took both written and oral evidence from the seven societies of 176 estate agents, which combined into a single committee to present their case to the Commission. From February, 1969, up to the present time both the last Government and the present Administration have been in constant discussion with the agents about their representations.
The national societies have remained firmly against the Order throughout, but the former Government and this one have said that they are in favour of laying it. The consultations to which I have referred resulted in this Government making three concessions to the agents, to do with restrictions on advertising, compulsory purchase and the time for the implementation of the Order at six months. The national societies tried to persuade the Government to allow them to make it clear that the scales were not mandatory, but we considered that this was not sufficiently quick-acting or strong in its effect, and, moreover, it left out the many estate agents who were not members of any association and would, therefore, not have been caught by it.
The Order makes unlawful restrictions on charges or advertising but it does not make unlawful rules by the national societies to prevent undesirable forms of business such as harrying clients by telephone or the practice known as "coffin chasing." It does not apply to furnished lettings and to cases of compulsory purchase. The Government believe strongly in competition, and it would be meaningless to have a strong competition policy if charges of this sort were exempt from it. It applies equally to services as to goods. We believe that it will lead to innovation and experiment, to a wider choice and better standard of service for customers and eventually perhaps to rationalisation of an industry in which there are 7,000 firms. Perhaps it might also lead to fees being less high.
I know that there is some concern about those in the profession who do not have the highest standards of conduct. Some can only be described as "sharks." I recognise fully what the seven societies and many reputable and honourable firms of estate agents have tried to do to control standards in the past. It is unfortunate that the two attempts to legislate to set up an estate agents council have not come to anything, but it is clear that the question of the "sharks" in the profession can be dealt with only by control 177 of standards, and it may well be that more will need to be done if the very few who let down the reputation of the profession continue to thrive.
I believe that the Order is more likely to make it difficult rather than easy for such people. If there are people who are in the profession only for what pickings they can get and whose standards are not as high as they should be, they will thrive more easily in conditions in which there is a fixed scale of fees rather than in conditions where there is competition in fees offered by the agents. But there is a separate issue. The restrictions on entry due to standards will certainly not be greatly affected by the Order and the matter must be dealt with, if it is to be dealt with, by entirely different means. However, the Order may make a small contribution.
This is the first reference of a profession to the Monopolies Commission. It should not be confused with the general report on the professions which formed the second Monopolies Commission Report, which has recently been published. This raises wider considerations which it would not be in order for me to discuss tonight, but it is the Government's intention to treat each case on its merits. The merits differ as between one profession and another, and, therefore, the Order is laid only because we believe it has, on merit, a great deal to be said for it in relation to this profession.
We shall watch the operation of the Order and the way in which estate agency is carried on under it. If it leads to undesirable or unexpected results, the Government will always have an open mind and be prepared to consider whether further or different action should be taken. But we believe that it would be quite wrong to have a competition policy which did not apply to all. Therefore, as an earnest of the Government's belief that competition is the best thing to rely upon both to protect the consumer and to keep fees, charges and prices at their lowest level, I commend the Order to the House.
§ 10.13 p.m.
§ Mr. Arthur Jones (Northants, South)
I listened with interest to the case made by my hon. Friend the Under-Secretary of State. The conclusions which he and 178 the Government have drawn are open to challenge.
I have been associated with this matter for many years. I practise as an estate agent. Many hon. Members will remember the efforts of my hon. Friend the Member for the Isle of Ely (Sir H. Legge-Bourke) and myself to secure, under the private Members' procedure, the passage of estate agents Bills—that of my hon. Friend in 1963 and mine in 1966 which was lost on the dissolution of Parliament in that year.
I was a little surprised when my hon. Friend said that it was desirable that an estate agents council should be established. One was established by the previous Administration in October, 1967, and it received the personal support of those in the profession and in the business of estate agency. It enjoyed substantial financial support for two years from the various institutions engaged in this business and profession. In fact, in the report which was published of those who had registered with the Estate Agents Council in March, 1969, no fewer than 11,000 practising estate agents' names appeared. The unfortunate winding up this Estate Agents Council puts into question many of the hopes which there were for it, but its aims were frustrated, for a number of reasons.
One of them was the acceptance by the then President of the Board of Trade of the Monopolies Commission Report of 29th February last year. Paragraph 249 said thatarrangements for the registration of estate agents should not be such as to restrict entry".My hon. Friend, in referring to the rogue of estate agents—he did not use quite that word but it is a similar term—emphasised the problems with which the business of estate agents is faced where the market is free for anybody to start up as an estate agent, and this was essentially the difficulty which faced the members of the Estate Agents Council. Of course, this denied completely the professional competence which estate agents need to have if they are properly to advise those who wish to buy or sell houses.
There has been also substantial criticism by members of the Estate Agents Council of the manner in which the Monopolies Commission conducted its proceedings. It gave the professional 179 bodies no opportunity to consider criticisms made against them, or any chance to make any representations to the inquiry, or to cross-examine witnesses, or deal in argument with objections posed by members of the Commission. This is quite exceptional in its incidence and, I think, a very grave defect in the proceedings. It denied the most elementary rights laid down by the rules of natural justice as generally understood in this country.
When we look at the Monopolies Commission's Report we see the considered opinion of the Hon. T. G. Roche, Q.C., in paragraph 268, and I think that for the record this ought to appear, and I quote paragraph 268 in which he said:I prefer therefore to express my conclusion in this way. I consider it wrong and unwise to condemn arrangements that are old established, working well and affording the public a reasonable service at a reasonable cost unless it is established by evidence that the abolition of the arrangements in question will produce an even better position. I do not consider that the evidence does establish that the new position will be even as good as the present let alone better.I think that those comments were soundly based, and that opinion was based on the evidence which had been submitted to the Monopolies Commission.
I myself saw Mrs. Dunwoody on 2nd October last year when she held her position at the Board of Trade, and I emphasised the highly competitive nature of the housing agency business and the new ideas on house transfer which had been tried out in recent years. Hon. Members will remember the local authority registration, multiple listing, the national property register. I pointed out that newcomers could enter estate agency without let or hindrance; only members of the society were asked to operate the recommended scale of fees; and new members were thus an important competitve element, being free to fix their own charges. Many agents regarded the scale of charges as a maximum guideline, but if this were to be removed far more people would charge what the market would bear and the effect might be the opposite of that intended by the Minister.
I quite agree with the Minister that estate agency needs a system of bonding so that there shall not be a substantial loss of public money because of defraud- 180 ing estate agents, but without licensing this could be a grave threat to the public in the hands of unscrupulous agents. There is widespread public concern on this question.
Although my hon. Friend says that both Government and Opposition are in favour of the Order, the test is that the previous Administration did not lay the Order. I do not know whether I was able to influence the previous Administration, and I wonder whether I shall have any joy in trying to influence this one. The previous Administration were hesitant, but my hon. Friend is now going back to the rigid and uncompromising position adopted by the Board of Trade 18 months ago and asking for an outright prohibition of scales. This is an unfortunate decision which I do not think will have the effect for which my hon. Friend hopes.
Scales of charges will have to be published. They are necessary and are not prohibited under the Order for the sale of commercial, shop and industrial property. The order relates only to unfurnished dwellings. The Government's purpose would be simply met by the publication of those scales with, perhaps, a footnote to the effect that they do not apply to unfurnished dwellings. This would be a simple solution which I know on good authority would be generally accepted by the profession. Instead of being dogmatic and striking at well-established principles, there should be a reservation included in the scales which are published for the sale of other types of property. Perhaps wording to this effect could appear below the scale:The above scale applies to commercial property. So far as unfurnished dwellings are concerned the scale is only a guide to the public and to house agents. Members of the profession are free to charge on any other basis or at any other rates either generally or in particular cases.I object to the Order on the ground that it is likely that the scales for the lower-paid properties are likely to increase. The owners of these properties perhaps do not have the commercial knowledge to enable them to do a deal with the local agent on his charges. The profession will go to the market for the standard of its charges rather than to recommended scales.
The scales applying in other countries are contained in Appendix 14 of the 181 Monopolies Commission's Report. From that it will be seen that our charges, almost without exception, are lower than those in any of the countries listed. The only exceptions are where urban and rural charges are compared. Where there is a gap between charges the Monopolies Commission's Report says:… it does show that expenses are treated as additional to the sale fee in at least two places where the sale fee is low (Amsterdam and Dublin).But if we consider the situation in France and Germany—in the light of our prospects of entering the Common Market—we find that in the Paris area the sale of a £5,000 house, for which the charge under the recommended scale is now £137 10s. in the United Kingdom, is £350, and in Nice it is no less than £400, while in Germany the national average is £235. There is substantial evidence that our scales are modest in comparison with charges made elsewhere, in comparative economic conditions.
My objection is that the Order may encourage unqualified and financially unsound people to enter the business of an estate agent on a cut-price basis. It will remove advice on the level of charges for which, over some years, there has been advocacy for increases. The present charges are about the lowest in the world.
I hope that the Minister will deal with the final sentence in paragraph 3(b) of the Order, which, relating to charges, says:Provided that this paragraph shall not prevent the acceptance of restrictions which relate solely to the making known of charges by personal call or telephone.My interpretation of that provision is that a person wishing to sell his house and wanting to know the agency fee will be able to ring up or inquire by personal call what the fee is likely to be, but if he writes to the estate agent he will not be able to get the information that he is seeking.
My final objection is that the absence of recommended scales will mean that agents will be encouraged by the Order to charge what the market will stand. That will bear heaviest on the owners of lower-prices properties. I am confident that the Order does not dispose of my fears, and for that reason I object to it.
§ 10.27 p.m.
§ Mr. Bernard Braine (Essex, South-East)
I entirely agree with my hon. Friend the Member for Northants, South (Mr. Arthur Jones). I share his misgivings about the Order. I am entirely in favour of competition in the manufacture and sale of goods and the Government are absolutely right to move in this direction. But one must have some reservations where the provision of a professional service is concerned, whether this in respect of medical treatment, the giving of advice in legal matters, or in the valuation and sale of property. I take the last case because that is what the Order is about.
For most people, buying or selling a house is the most important financial transaction that they are ever likely to make. It involves upheaval, family anxiety, and much expense. It is imperative that they should be assisted in such transactions by persons of impeccable character who observe recognised rules and whose fees are known in advance. There is, of course, competition in this field now. As far as I am aware, anybody can enter it. That leads me to express the view that the right way to tackle this business would be, first, to insist upon a proper system of registration, an essential feature of which would be that estate agents are bonded.
That step alone would give considerable security to the general public. Instead of that, it seems from what my hon. Friend has said that the Government believe that the outlawry of recommended scales of commission on the sale of unfurnished houses will automatically bring down prices and serve the public interest. There is nothing that my hon. Friend has said or that I have read on the subject that convinces me that this will prove to be the case. The only justification for the Order is that it will reduce fees, but there is no evidence at all that that will happen.
Even the Monopolies Commission itself was filled with doubt on the subject. It stated in paragraph 241:We cannot predict what changes are likely to occur…In paragraph 251 it states:… we do not think that the removal of the present restrictions would cause widespread competitive reduction of fees … In any case the Commission has no ground for suggesting 183 that the present method of charging is inherently objectionable or that any other methods that have been discussed would in general be preferable.On the Commission's own arguments it seems hardly worth introducing the abolition of recommended charges.
§ Mr. Ronald Bell (Buckinghamshire, South)
Does it not go even further? If the Commission could not predict what would happen, is it not a little difficult for the Commission to say that something is against the public interest?
§ Mr. Braine
With the succinctness that we always associate with him, my hon. and learned Friend has put his finger on the point.
In any event, as the Hon. Mr. T. G. Roche pointed out when dissenting from the Commission in this matter, the Commission's conclusions were not based on a sound study or a nationwide survey of agency practice. If that had been done perhaps we would not be debating the Order now. On the contrary, there is very good reason to believe that some fees will rise once the recommended scales are abolished, particularly those charged in relation to lower-priced houses.
The Seven Societies Committee in their comments on the Report had something to say on the subject, and I hope that my hon. Friend will tell us something about it. They say:The profit margin for house agency is relatively narrow. There is pressure in three respects for the charges to be raised. First, house agency is labour intensive and salary costs are going up at a higher rate than returns from commissions on house sales. Secondly, the house market is gradually becoming a buyers' market and tending to increase the standards of services expected of house agents. Thirdly, far more houses are now of a price range in which the existing scale tapers from 2½ per cent. to 1½ per cent. By giving a lower pro rata yield, these factors are leading to increased representations from members of the profession that charges should be raised.If the Order goes through, is that not precisely what will happen right across the board?
§ Mr. Edmund Dell (Birkenhead)
Is the hon. Gentleman in a position to say on behalf of the seven societies that if the Order does not go through charges will not be raised?
§ Mr. Braine
No, Sir. I am not in a position to say anything on behalf of the seven societies. I am the hon. Member for Essex, South-East, and have been for many years, and I am speaking on behalf of my constituents.
The seven societies go on:The existence of standard rates of commission have kept these representations within limits.Mr. Roche remarked in his note of dissent:… if the recommended scales had never existed vendors of houses would now be paying commissions higher than those that now prevail.What could prove the point more eloquently than that?
But let us look at the recommended scales. Do these compare unfavourably with those prevailing in countries comparable with our own? My hon. Friend the Member for Northants, South has given chapter and verse, and I will not go over the same ground, but Appendix 14 of the Monopolies Commission's Report provides the relevant information. I understand that the president of the equivalent professional society in Ireland said only last month that the scale of charges in that country—a flat rate of 5 per cent. for selling a house—was amongst the lowest in Europe. He was right. Anybody who doubts it should read Appendix 14 of the Report.
I am waiting to be convinced, but the seven societies have little doubt that if the recommended scales in this country are abolished fees for house agency services will go up rather than down, and it is at the lower end—that is, the houses of low value—where it will be more difficult to sell, because this is the least profitable sector in the market under the present scale of charges.
I do not think it is irrelevant to remark, particularly as my right hon. Friend the Secretary of State is here, that the impact of this upon the mobility of labour may be considerable. We should be making it easier for people, particularly those living in the cheaper houses, who wish to move and change their jobs, to sell rather than to make it more difficult. Moreover, once there is a free-for-all there may be less co-operation among estate agents. As I see it, the advantage of having a recommended scale is that everyone—the agent, 185 the vendor, the purchaser—knows where he stands. In any event, under the present arrangements the agent gets no commission unless he sells the property. It is well known that abroad agents derive a substantial part of the remuneration from sharing the profit. No wonder the Hon. Mr. Roche concluded with the words that were quoted by my hon. Friend. If I may put it another way—this is appropriate for me speaking as a Conservative—what Mr. Roche was saying was, "Why tamper with a well-tried system without the assurance that it will be replaced with something better?"
I shall therefore listen attentively to what my hon. Friend says, if he catches your eye, Mr. Deputy Speaker, to see whether he can allay the fears that I have expressed as to what the real effect of the Order will be. Will it create conditions which will increase prices or conditions which will reduce them? Has he any more certainty on this point than the Monopolies Commission?
I therefore seek from my hon. Friend three assurances. First, can he say with any certainty that if prices go down, this will not affect the quality of service the public is getting from the established members of the profession? Second, is it intended not to pick upon the estate agents alone but in due course to move in the same direction with the other professions; because, if it is not, this is grossly unfair?
Third, what remedies does my hon. Friend offer to people who may be cheated by some of the dubious folk to whom he referred earlier who are now given special encouragement to enter a profession which has, not without difficulty, been endeavouring to raise its ethical and business standards? This surely is the nub of the problem. It is of the essence of a profession that there is an element of trusteeship, that malpractices shall not be tolerated by its members. On this the Estates Gazette, which I believe is the most widely read journal in this field, said recently:The element of trusteeship, which governs much more than the care of deposits, is present in every transaction. Many agents include free advice as to purchase price in accepting intructions for sale. Many could themselves snap up under-valued properties and re-offer them at market prices: the law is powerless against such abuses, but the professional societies have 186 been able to prevent malpractice. Is all this gain to society to be thrown away with the bath-water of fixed scales, scales which are moderate in amount, known in quantity and strictly related to the benefits derived?I should like to have the answer to that question before I could possibly support the Order.
§ 10.40 p.m.
§ Mrs. Jill Knight (Birmingham, Edgbaston)
Nobody is more vehement than I am in furthering the cause of competition and private enterprise, and I do so for a variety of reasons, none more cogent than that the system is in the best interest of the consumer. If I thought that this Order was presented simply and solely in the hallowed name of private enterprise and competition, I would support it. But investigation of the effect of the Order, and, indeed, the tenor of the speeches made by my two hon. Friends, indicate quite clearly that this is not the case.
If the publication of a recommended scale of charges meant that no estate agent could charge other than the scale of charges, if it were a sort of seven societies' tables of Moses, this Order might be in the best interests of private enterprise. But, as I understand it, these scales are not mandatory and never have been mandatory. They are entirely permissive. Nobody is drummed out of the profession if he charges less than that which the scale prescribes. Indeed, I understand that many estate agents charge below the prescribed fee. I dare say that a few even charge above it. Some people sell their own houses, without the services of estate agents, anyway. Indeed, it is an entirely free market.
I dislike the Order because it fails to recognise that the publication of recommended scale charges is part of a parcel which benefits the consumer. Paragraph 2(b) states:'association of estate agents' means a body (whether incorporated or not) whose purpose is to further the business interests of its members and which has for or amongst its members persons who are or who represent estate agents".There is nothing wrong with that. But it seems to me—and the Minister fails to understand this—that there is very much more to an association of estate agents than merely the aim of furthering their business interests. Over the years the profession has made positive and effective efforts to put its own house in order.
187 Of course, there are "sharks", as the Minister called them, in this business. But I think the estate agents themselves have been quick to recognise the existence of these "sharks" and have done their utmost to get rid of them. They have, indeed, tried hard to recognise their responsibilities as a profession to the public. In some areas estate agents band together, and in the area where I live there is such a banding together. Part of the effect of this is that there is a scale of charges which one pays whether one goes to an estate agent at one end of the town or to one at the other end of the town. What happens is that if one wishes to sell one's house, as a result of this banding together if one goes to one estate agent the house is on the books of 14 or 15 others automatically. It is very much easier for the seller. A buyer can go to one estate agent and get the whole picture, right across the area, of the houses which are on the market. This is of very read benefit to the consumer.
If right across the association or band of estate agents one pays the same amount of money to whomsoever sells one's house, I think it is a fairly cheap price to pay. All this will go when this Order becomes effective. There is nothing in the Order to stop such banding together; but it must go. It would not be possible to have a sort of association of estate agents working as they do at the moment if some were to charge one fee and others charged another. It is part of a parcel which certainly helps the consumer, as I have said.
What will happen in the future? A person wishing to sell a house, I presume, will shop around all the estate agents in the area and find out whether one agent will charge a little less than another. If after he has put his house on the books of one estate agent it comes to the vendor's ears that another agent—in most areas, there are many estate agents—will sell his house more cheaply, does he withdraw it from the first agent? Surely, this system will give the person who wishes to sell a great deal of extra trouble in finding out whether it would be advisable to take the services of one estate agent rather than another. The scale of charges is only a guide, and I believe that it has been of benefit both to the seller and to the buyer.
188 Not nearly enough thought has been given to this whole matter. The Minister said that the Monopolies Commission took evidence, both written and oral. I know that there is a feeling in the estate agents' profession—of which I am not a member, I hasten to say—that there was not sufficient consultation. From the consumer's point of view, there is certainly a feeling that we have here something which has been of benefit, an element of consumer protection, but it seems that that must now go.
I was interested to hear the solution offered by my hon. Friend the Member for Northants, South (Mr. Arthur Jones). I was interested also to hear what the Minister said, suggesting that he would keep his eyes open, and if the effect of the Order was not as he hoped, it might be changed or revoked. I should prefer neither my hon. Friend's solution nor the Minister's solution. I should prefer the Order not to be made at all.
§ 10.46 p.m.
§ Mr. Edmund Dell (Birkenhead)
May I intervene in this family quarrel? It shows how hard is the path of those who wish to promote competition, particularly in the Conservative Party. All hon. Members who have spoken from the benches opposite have begun their speeches by saying how much they favour competition—except in this case. Competition is always an easy slogan, until one actually comes to the point of applying it in the particular instance, at which point every argument against it can be discovered by vested interests. So it is tonight.
I hope that the Minister will say something about the comments of the hon. Member for Northants, South (Mr. Arthur Jones) on the way the Monopolies Commission conducted its inquiry. I do not think that what the hon. Gentleman said was true. I suspect that he was confusing this inquiry with the other inquiry into professional services generally which the Commission made. If that is so, as I believe it to be, and if the Minister confirms it, I hope that the hon. Gentleman will withdraw what he said.
§ Mr. Arthur Jones
I am not confusing the issue. As I understand it, the representatives of the professional institutions 189 in estate agency did not have an opportunity to comment on the evidence which had been submitted to the Monopolies Commission; neither were they asked, or given the opportunity, to give oral evidence against it. I think that the right hon. Gentleman will find that he is at fault.
§ Mr. Dell
I leave it to the Minister to deal with the point. No doubt, he will have advice on the question. My own impression is that this inquiry was properly conducted, the whole matter was properly investigated, and there is no justification for making charges against the Monopolies Commission.
When the Report on estate agents was published, my right hon. Friend the Member for Grimsby (Mr. Crosland), then President of the Board of Trade, said in a Written Answer on 25th February, 1969, after summarising the content of the Report:The Commission have produced a useful report and I accept in principle their conclusions. In particular, I think it undesirable that estate agents should not feel free to offer alternative methods of charging, or to experiment with different combinations of service and charge. My Department will now discuss with the estate agents how the Commission's recommendations might best be implemented."—[OFFICIAL REPORT, 25th February, 1969; Vol. 778, c. 289.]That was the position taken by my right hon. Friend when the Report was published, and he took it on the basis that the Report was, in his judgment, clearly a good Report.
Hon. Members have referred to the fact that the Report was not unanimous, that one member of the Commission disagreed with his colleagues. This is true, but the large majority of the eminent persons on the Commission took the view explained in the Report. There were one dissentient but something like six in favour, and the arguments which Mr. Roche advanced, and which hon. Members have advanced, were considered fully by the Commission, which made its judgment despite them.
There was, for example, the argument that unqualified and financially unsound people might enter the business on a cut-price basis. The Commission considered this. The first thing we have to notice is that this is happening now. I have noted the remarks of the seven societies. They point out that a large number of 190 cut-price agencies have gone bankrupt. The Commission claimed that the entry of such people into the profession is made easier by the scale charges. Thus the Commission thought that the argument about the entry of cut-price people into the business was precisely a reason for the conclusion to which it eventually came.
It was also argued that there might be malpractices by people coming into the business. But there are malpractices at the moment, and the Commission reported on them. Surely the hon. Member for Northants, South attempted to do something about them some time ago. The thing to do if one has a malpractice is to take steps to deal with it and not eliminate competition from a business in which, in the judgment of the Commission—and of the Government, I am glad to see—competition is desirable.
What does the Minister intend to do about the Estate Agents Council? I do not accept the argument of the hon. Member for Northants, South about why the council failed. I think it is a grave reflection on the seven societies that it did fail. We would have been in a better situation today if they had continued to support it. What will the Government do? It is clear that some regulation of conduct is necessary, and, in view of the situation for clearly explained by hon. Members opposite, it is surely desirable for the Government to introduce legislation to deal with it, the voluntary system unfortunately having failed.
The Government believe in frameworks. We have frameworks for industrial relations and frameworks for competition. One creates a framework and then sits back and watches. The Under-Secretary of State said that the Government will watch what happens. I think it is necessary to watch what happens. Competition does work—and I am glad that hon. Members opposite are learning this too—but it sometimes has a curious way. We recently had the Report of the Prices and Incomes Board which showed that competition worked to put up the price of tea. When the price of the leading brand was increased, the others had to go up too because otherwise their quality would not have been regarded as respectable.
The seven societies argued that if competition is introduced into this business, prices will go up. I accept the vigorous 191 assertion of the hon. Member fo Essex, South-East (Mr. Braine) that he was speaking on behalf of his constituents and not on behalf of the seven societies. But I notice with interest the reference in the report of the seven societies to the pressure that they were under to increase the scale of charges. It is interesting to note that they are under this pressure and that, clearly, they are not prepared to give any assurance that those charges will not be increased if the Government do not put through this Order. Therefore, if subsequent to this Order the level of charges goes up, at any rate the Government should be interested in whether they have gone up for good or bad reasons.
In prosecuting our competition policy, we believed that it was necessary not just to create a framework but to have instruments of investigation to see how competition was operating. That is why we had the National Board for Prices and Incomes, which was a useful instrument for such investigations. That is why we were in process of creating the Commission for Industry and Manpower, which would have been a similar instrument for investigating how competition was working. It does not always work in the ideal fashion that hon. Gentlemen opposite think—except in the case of estate agents. It may act in different ways on certain occasions, as it has evidently in the case of tea.
I ask the Minister to elucidate a little on what he told us about keeping a watch on this matter. How will he do it? What instrument will he use? If he finds that competition, having been engendered in this situation, does not operate in the way that he foresaw, what will he do about it?
§ Mr. Arthur Jones
Before the right hon. sits down, will he say why the previous Government did not introduce this Order in the 16 months between the publication of the Monopolies Commission's Report and the General Election?
§ Mr. Dell
We were in the course of detailed and lengthy discussions with the seven societies, during which we hoped that some way of handling the matter which was acceptable to them could be found. For that purpose, we gave as much time as we thought reasonable. Unfortunately, by the General Election we had 192 not yet found such a way. I notice that the present Government, too, have not found such a way.
§ 10.58 p.m.
§ Mr. Tom Boardman (Leicester, South-West)
The right hon. Member for Birkenhead (Mr. Dell) spoke about this debate being a family quarrel, but he has sadly misinterpreted the mood of hon, Members on this side of the House.
For my part, I welcome the assurance given by my hon. Friend the Under-Secretary of State for Trade and Industry when he spoke of supporting the aspect of competition and the sharpening of the edge of competition, and added that he will watch the effects of it. It is on the possible effects of competition that we want to give him warning of the dangers and pitfalls which may lie ahead.
It is not just a matter of watching whether prices go up. It is also one of watching whether service goes down. I agree about the danger signals seen by Mr. Roche in his note of dissent. Those are dangers which I am sure that my hon. Friend will look for and, if they are apparent, will act to avert. His assurance on this point is extremely helpful.
In its Report, the Monopolies Commission appears to have directed its attention too much to what has happened to goods, and too little to what might happen to services. It says that there has been no substantial evidence of the effect of the removal of restrictions from services, and certainly it quotes no evidence. It is to be hoped that this is a case which my hon. Friend will watch with care, in order to see the impact of this Order.
The effect of the removal of this type of restriction on goods could be very different. Removing controls on the price of a tin of baked beans is a quite different proposition from removing restrictions on charges for an essential personal service. One can look in the shop window next door to see whether the price of a tin of baked beans is different, but the kind of service rendered by estate agents is very much a one-off operation. Great reliance is placed on the expert knowledge of the person one consults and the charge for it is relatively small in relation to the amount involved in the sale of the house.
193 I hold no brief for the estate agents. When I was in practice as a solicitor, I had dealings with many estate agents in all parts of the country and in places like Nice which have been quoted as comparisons. There are the good, the bad and the indifferent. The good are very good, the bad are very bad. I am not canvassing for them: the good will look after themselves, and the bad I do not care about. But I share the Minister's concern for the customer, because it is the customer with whom we are concerned.
I ask the Minister to watch the situation carefully, because the removal of the recommended scale, which was not a fixed scale, which also involves the removal of the ceiling, may present certain hazards. There may be a danger of the "sharks" in the business advertising price cutting and then making a quick sale at not necessarily the best price in order to achieve their margin without giving the customer or client the right service.
My hon. Friend the Member for Northants, South (Mr. Arthur Jones), who has left the Chamber, would join me in condemning the "sharks". Certain members of the profession adopt standards which are unacceptable to hon. Members on both sides of the House. There is the practice adopted when someone advertises his house for sale in his own name and the estate agent arrives and says that he has a potential buyer, no fee is payable, and the price asked is reasonable. He produces a form, and a few days later he says that his client has decided that he does not want the house but he knows that he can find someone else at no less a price. He then gets a sole agency form signed and has the opportunity of selling the house at a much lower price than the original asking price.
That sort of practice and many others are adopted by the disreputable agents. It is this aspect of estate agency which must be put into order. I am sure that the Minister will watch the situation to see whether the Order gives such agents encouragement. If it does, we welcome his assurance that he will take whatever action is necessary to put the matter right.
The Report concedes that the Order is unlikely to lead to any substantial general reduction in fees, and experience over- 194 seas, referred to in a footnote—Washington is the only place where the scale of fees appears to have been removed—indicates that there is not likely to be a general reduction in fees. Therefore, it is important that my right hon. Friend the Secretary of State should see that if there is not a substantial reduction in fees so that customers benefit that way, there is certainly an improvement in the services that go with them. I am confident that he will keep his eye on this to ensure that standards are maintained.
In supporting the promotion of competition which the Order is designed to achieve, and which I welcome, I also ask my hon. Friend the Under-Secretary to say, when he replies to the debate, that he will watch those points—and there are many more valid points than merely those which I have raised—in achieving the objective of this side of the House of increased competition, and not merely competition in price, but competition in service, recognising that we are here to serve the general public and not to protect a section of the community at the expense of the public. If my hon. Friend can assure us about this, he will reinforce my wish to support him, as I do in the Order.
§ 11.6 p.m.
§ Sir Harry Legge-Bourke (Isle of Ely)
My only reason for intervening is that in March, 1963, I attempted to introduce a Bill to try to help the profession of estate agency to clean up its own house. Heaven knows, there was need for it to be cleaned.
What I find most regrettable about the Monopolies Commission's Report on this matter is that it has failed to comprehend the extent to which the best elements in the profession have tried to pursue the purposes of my Bill, and that of my hon. Friend the Member for Northants, South (Mr. Arthur Jones), in attempting to get some discipline into the profession, which at one time had some very disreputable members who engaged in the most appalling exploitation of a great many innocent people, very often at an age when they were least able to defend themselves.
The right hon. Member for Birkenhead (Mr. Dell) was entitled to tease us a little bit about our love of competition and our readiness to find difficulties of implementing it in a certain direction. If, however, the purpose, as I hope it is, is to ensure that so far as possible, through 195 the Order or any other form of legislation, we enable the best deal to be given to the public—which ought to be the purpose of competition—I would say to the right hon. Gentleman that it is rather too easy for him to make the debating point which he sought to make.
As I understand the position, there is very little doubt that as a result of the Order, some of those who seek to acquire the smaller properties will probably have to pay more than they do today. This is a pity.
In seeking to introduce my Bill in 1963, I started from scratch. I knew very little about the profession but, as I approached it, I realised how extremely complex and sophisticated the whole question of estate agency was. The need for qualifications in itself is worthy of a great deal more study than the Monopolies Commission appears to have given it in its Report. Although I sympathise very much with any of my right hon. or hon. Friends who find themselves in office suddenly having to take on a subject as complex as this, I suggest that they should be very careful indeed before they rush to conclusions in a subject of this kind.
I fear a little bit that in drawing up the Order, certain people had done some work before they came into office and now, having come into office, have been somewhat stampeded into introducing the Order. We know that there are many reasons why this has come about, not least the death of the late lain Macleod. The shifting of responsibilities in Departments consequent upon that has led to great difficulties, and I fully appreciate them.
The Order needs a great deal more time fully to contemplate than my right hon. Friend the Secretary of State or my hon. Friend the Under-Secretary, who introduced it tonight, has had. I sympathise with them not having had more time. I realise that to some extent this Order has been introduced somewhat precipitately. I have studied this problem over the years since my Bill was defeated, not on merit but simply because, after an all-night sitting we were unable to command enough votes to force the Closure on a Friday afternoon.
However much I have studied the matter I am absolutely convinced that the ordinary laws of competition do not 196 apply here. We have to give this much more sophisticated study. What we are dealing with is often the biggest capital expenditure to which an individual ever commits himself. Because of this, factors enter the picture which are not present when a person buys sweets, or any other form of commodity. It is not a consumer commodity exercise at all; it deals with something quite different. Because of that it demands a sense of dedication by the profession, an expertise among those carrying it out which does not normally apply.
It is because of this that I am disturbed by the Order. That is why I was relieved to hear the Under-Secretary say categorically that the Government would consider carefully how this worked out and would be prepared to reconsider it should the prognostications, both of the Monopolies Commission and the Department, prove to be wrong. This is not a matter where we ought to start guessing and taking chances on a somewhat hazardously calculated risk. This needs to be approached in the most scientific way possible. If we study the Monopolies Commission's Report, and if we study what the noble Lord, Lord Kinnoull, said in another place during the debate last week, I would say that there is absolutely no doubt that the Monopolies Commission has not fully comprehended what is really involved in this exercise.
Because I know how hurried the present Ministers have had to be in assessing all this and how complicated it is, and although I am prepared to let the Order go through, I do so with the greatest misgivings. I hope that my hon. Friend will ensure that the undertakings he has given to watch this carefully will be implemented. In my calculations this will almost certainly put up the prices to those for whom prices should be reduced.
§ 11.13 p.m.
§ Mr. James Allason (Hemel Hempstead)
I believe that there is a misconception as to what a standard charge means. The Royal Commission took it to mean a minimum charge. The Minority Report of Mr. Tom Roche clearly says that this is not so at all, that recommended charges are something very different from minimum charges. The standard charge of the estate agents is a recommended charge and it is not necessary 197 for an estate agent to stick to that charge. It is mentioned in the Minority Report that there has been no case since the war of anyone being disciplined by one of the professional bodies for breaching the standard charge. It is common knowledge that anyone can go to an estate agent and negotiate a charge. It is not necessary to accept the charge laid down as the standard charge. What is wrong with the recommended charge? What happens in a supermarket? A person sees something labelled "Recommended price 3s. 11d.—our price 3s. 10d." Is that so evil? Yet that is what is being legislated against by the Order.
Paragraph 3 of the Order says:It shall be unlawful to make any agreement or arrangement … to make any recommendation with respect to the charges made by estate agents …There is value in having a recommended price. If an individual is told by an estate agent that the price for a job is £60 and he regards that as excessive, he may go to a professional body and ask whether it is the sort of price which that body would recommend. But if the Order is passed, it will be a criminal offence for the professional body to give advice, and that seems to be tragic. The "sucker" will be the person to whom the biggest price is quoted, and that is not my idea of fair competition.
I do not believe that it is right to legislate against the recommended price, although it may be right to legislate against the minimum price. I appeal to my hon. Friend to reconsider whether the Order is right in its present form. I earnestly request him to withdraw it and to change the wording so as to avoid legislating against a recommended charge.
§ 11.17 p.m.
§ Mr. Richard Body (Holland with Boston)
In the previous debate, my right hon. Friend the Minister of Agriculture said that we were getting used to the view that "Auntie" did not know best. My hon. Friend the Under-Secretary does not look the part of an auntie, but certainly the hand of some auntie in Whitehall drafted the Order. It is designed to meddle in a profession which on the whole has high and honourable standards.
All of my hon. Friend's arguments have been answered, but he made one com- 198 ment which I should like to probe. He said, as if there were something wrong with it, that there were 7,000 firms of estate agents. I thought I heard him then say that the Order would have the effect of "rationalising" that number. I do not know what he meant by "rationalising". I suspect that it was a euphemism for exerting economic pressure on the profession.
I hope that my hon. Friend will consider what the consequences of that might be. We all know that the profession of estate agent has a commercial element as well as a substantial professional element, which is by far the larger. If my hon. Friend believes that the Order will drive out the commercial element, he is much mistaken. What is far more likely is that those who try to set high professional standards and who provide professional services and often give free advice, who are willing to do things which are not always commercial, which are not always quantifiable in profit terms, will be forced to lower their standards and give their clients lesser service. That is the danger of the Order and I hope that, if not tonight, my hon. Friend will think again about this decision.
§ 11.20 p.m.
§ Mr. J. R. Kinsey (Birmingham, Perry Barr)
I welcome this Order and I wholeheartedly agree with what the Minister is trying to do. I am rather dismayed that so many hon. Members praise competition but then contradict all the rules of competition, and suggest that as a consequence of the Order there will be increases in the prices of houses. I reject this. The rules of competition will work.
The Order comes at the finest time, because the profession is being offered the finest of all productivity deals. There is no doubt about it. We have an increasing market for the sale of houses, and an increasing turnover is being offered to the profession. Already we have wider property ownership; in our new policies we are going to increase home building; we are going to offer council houses for sale to sitting tenants. What a wonderful market is being provided for those who will increase proficiency in the profession.
It has been said that our prices and charges are the lowest in the world, but people who are selling houses in the range 199 from £3,000 to £5,000 have to pay professional fees, and it is not only estate agents whom they have to pay, but others as well, and they think that those charges are a quite considerable amount which they have to pay for simple transactions.
I for one shall be watching very carefully indeed to see which way prices go, and I shall be questioning Ministers if I find that prices are going in the wrong direction—and that is upwards; because, quite frankly, I think they should come down, and the small property owner must be protected.
I have said that I reject the idea that prices will increase. People must gear themselves to meet this increased market, and I am certain they will. We are told that those charging low prices will go out of business. If they do that will be because they fail to get continued turnover, but the larger and well-established companies, with their excellent and unequalled reputations of service to home buyers and sellers, can do wonderful service, and can give of their wider experience. If they do then the only chance of their going out of business, if they lower prices, will be that they fail to gear themselves to meet the increased number of sales there are and will be.
I welcome the Government's action in protecting the lower-wage earner—because that is what this amounts to. I think hon. Members must have faith in competition and I hope that they will not have so little faith in it that they will not do for this profession what they do for others, or say they will make some people put up with competition which they would deny themselves. If it works for others, it should for them.
§ 11.23 p.m.
§ Mr. Ridley
By leave of the House I will try to reply to the many points which have been raised. As I have so little time I hope my hon. Friends will forgive me if I deal with the points of lesser significance at a gallop before coming to the main burden of the arguments.
My hon. Friend the Member for Hemel Hempstead (Mr. Allason) will be glad to know that it will not be a criminal offence for a society to give advice to a person who inquires what is a reasonable fee. What will be unlawful will be ganging up to concert fees and to fix a scale of charges all the same.
200 My hon. Friend the Member for Northants, South (Mr. Arthur Jones) asked whether it would be unlawful to quote charges by telephone. The Order has the effect of making it lawful for the societies to make regulations which are binding on all members to prevent their harassing clients by telephone—the practice to which I referred and which is known as coffin chasing—to persuade the elderly or infirm or the uncertain to sell houses which they may not be willing to sell. That is the purpose of the passage which he quoted from the Order.
My hon. Friend also asked about the procedure of the Monopolies Commission, and I confirm that the Commission did hear oral evidence as well as taking written evidence from all the seven societies. The only reason why certain persons were not allowed to be cross-examined was that they gave evidence to the Monopolies Commission secretly because of the fear of victimisation which they themselves felt and expressed. I assure the House that there was absolutely no question of anything but the normal and proper procedures being followed by the Commission, and that full opportunity was given to the agents to make their case.
My hon. Friend the Member for Essex, South-East (Mr. Braine) asked me three specific questions, all of which I should like to answer. I will start with his second one: will other professions be treated in the same way? The answer is that the wider report on the professions in general has now been delivered, and my right hon. Friend the Secretary of State has written to all the professional societies asking them to give him their observations and letting them know what action he intends to take on the report. Each case will then be considered on its merits. The merits are very different; safety, health and other such factors will enter the consideration of each profession, and we shall judge each case on its merits. There is in no sense a vendetta against estate agents—quite the reverse; this happens to be the first case which has come forward, but it is by no means the last that will be considered.
I can answer my hon. Friend's other questions in relation to the general argument which developed. First, it is impossible to say whether, if the Order were not made, the fees of estate agents would 201 tend to go up or down. Therefore, it is impossible to say, if the Order is made, whether the situation will be better or worse than it would have been if it had not been made. The alternative must always be a hypothesis about which there can be no certainty.
On the other hand, if the Order is made, there are strong arguments which make it likely that fees will go up less than they would otherwise have done or come down more than they would otherwise have done. If fees are raised unreasonably, it will be open to somebody else to come into the market and to quote lower fees. If any group of agents tends to raise fees in an area, others are likely to try to undercut them. There is another discipline, which is that anyone may sell a house by advertising in the newspaper or simply putting up a postcard in the village shop. This is a strong deterrent to fees being raised. There is competition from processes which cost nothing, and this must act as a downward influence on fees as a whole. Thirdly, if we abolish the rigidity of the present system with its fixed scale of fees, new experimentation in techniques will be encouraged. Such techniques as sole agencies and others that my hon. Friends have mentioned will certainly have an effect.
Here I come to one of the main questions. It must be right to offer to people the opportunity to buy the standard of service which they wish to have. Several of my hon. Friends asked whether the standards of service would deteriorate as a result of the Order. A customer may wish a lesser standard of service and to pay less for it. This opportunity will be available to him. That is the answer to the first question of my hon. Friend the Member for Essex, South-East. Also my hon. Friend the Member for Leicester, South-West (Mr. Boardman) was very concerned that standards might drop. It is right that standards should remain high for those who wish to pay a higher charge but that for those who do not there should be a lesser service available. That is what the true nature of competition is about.
There is one other point which I am sure will be greeted with a certain scepticism; it seems to me that if the Order were thought to result in higher fees it 202 would not be opposed so vigorously by the profession. It seems prima facie that the profession would be inclined to give it a slightly less rough passage if it thought that it would mean higher fees and therefore higher profits. Whatever may be the pressure that exists for higher fees at present, the Order is bound to moderate it, and therefore I believe that my hon. Friends are not well founded in fearing the opposite course.
I must deal in some depth with the question whether the Order will have an adverse effect upon the fees charged for the sale of cheaper houses. The first point to make is that those who are not well off are more sensitive to levels of fees, because they are more determined to get the maximum they can for the house they sell than are those who are relatively affluent. Moreover, they form by far the bulk of the market. It is therefore likely that in order to secure a high share of the market any agent will have to make certain that his charges for the selling of cheaper houses are competitive.
Secondly, I would remind my hon. Friends that many cheaper houses are of standard design or shape, and that in many cases new houses on housing estates are exactly the same. There is no reason, therefore, why there should not be considerable economy of scale in their sale by agents. This will enable agents, if they wish, to take advantage of economy of scale to reduce the fees they charge for the sale of such houses. Further, the present scale of fees penalises the cheaper houses, because it starts at a higher rate for the lower brackets and tails off in the higher price ranges. There must therefore be some presumption that the effect of bringing in the Order will be to lower the fees charged for the cheaper houses rather than have the effect feared by my hon. Friends.
Many of my hon. Friends have made much of the suggestion that the fees are not mandatory but merely recommended. I quote first from the Monopolies Commission's Report which, in paragraph 244, says:Moreover such fee-cutters in the past have been regarded as not respectable, have been excluded from the national societies and in many cases have been refused co-operation by local agents.203 Where an agent has attempted to cut his fees or step out of line pressure has been brought to bear upon him by threatening him with expulsion from one of the societies. I quote anonymously from a letter from an agent, which says:We understand from our client that you have been offering his above property for sale and as we have been appointed his main agents we are writing to instruct you to withdraw the property from your books. As referred to in our letter of 22nd May, we regret that we are unable to co-operate with you in this matter as it is not our custom to co-operate with agents who are not members of one of the professional bodies or of the local association.That is typical of the sort of pressure put upon agents who have departed from the recommended scale of fees. I would point out to my hon. Friends the Members for Birmingham, Edgbaston (Mrs. Knight), Hemel Hempstead, and Northants, South, that it is not generally found possible to get agents to depart from the scale in the way they have suggested.
Finally, my hon. Friend the Member for Birmingham, Perry Barr (Mr. Kinsey) put his finger on the point in saying that no competition policy can be credible unless it applies to all. My hon. Friend the Member for Edgbaston said that it would be bound to cause people to shop around and take their pick as between various agents asking various charges. But this is surely what competition is about, and it is what every housewife does when she goes shopping to fill her basket. As the sums of money here involved are very much greater than those involved in the housewife's shopping, there must be every advantage in accepting the Order. But I give my assurance—
§ It being one and a half hours after the commencement of proceedings on the Motion, Mr. SPEAKER put the Question, pursuant to Standing Order No. 2 (Exempted Business).
§ Question agreed to.
That the Restriction on Agreements (Estate Agents) Order 1970 (S.I., 1970, No. 1696), dated 10th November, 1970, a copy of which was laid before this House on 18th November, be approved.