HC Deb 17 May 1973 vol 856 cc1804-16
Mr. Millan

I beg to move Amendment No. 54, in page 45, line 39, at beginning insert: ' Subject to subsections (3)(a) and (3)(b) of this section '. I suggest that it will be for the convenience of the House if we can also discuss the following amendments: No. 58, in page 46, line 30, at end insert: '(3A) A merger reference shall be made to the Commission by the Secretary of State in circumstances where subsections (1) to (3) of this section apply and the value of the assets taken over exceeds £20 million. (3B) A merger reference shall be made to the Commission by the Secretary of State in circumstances where subsections (1) to (3) of this section apply and the merger concerned is a conglomerate merger '. No. 64, in Clause 83, page 61, line 44, at end insert: ' (1A) Where, under the provisions of this Act, the Commission find that a merger situation qualifying for investigation has been created and the value of the assets taken over or to be taken over exceeds £20 million, or the merger concerned is a conglomerate merger, such a situation shall be taken by the Commission as operating or expected to operate against the public interest unless it has been shown to the satisfaction of the Commission that the situation has made or may reasonably be expected to make a positive contribution towards the objectives outlined in paragraphs (a) to (e) of subsection (1) of this section'. We are now dealing with the question of references of mergers to the Monopolies Commission. The purpose of these amendments is to provide that in certain circumstances there will be automatic references to the commission. Amendment No. 54 is a paving amendment. The substantial amendments are Nos. 58 and 64. Amendment No. 58 provides that where the assets to be taken over in any merger operation exceed £20 million, or where a merger is a conglomerate merger, there will be an automatic reference to the commission.

Amendment No. 64 provides for an amendment to Clause 83 of the Bill. It changes a presumption of the public interest in the two cases which I have mentioned. It provides in those cases that there has to be demonstrated a definite gain to the public interest before the merger is allowed to go through. I shall not argue these amendments at any length because this area was well traversed in Committee.

I accept that there has to be a certain element of flexibility over the question of whether a reference of a merger should be made to the commission. It is not the intention in these amendments to introduce a rigidity into the situation generally. It is difficult to take account of all the circumstances which ought to be considered when the decision whether to make a merger reference to the commission is taken. In the nature of things, even with a very much better defined merger policy than we now have, there is bound to be considerable uncertainty in business and elsewhere about the considerations which have weighed most heavily with the Government in deciding whether to make a merger reference in any case.

8.15 p.m.

It is a common criticism of the present situation that mergers raising apparently similar considerations are treated differently by Ministers. In one case a reference is made but in another the merger is allowed to go through in a way which, to put it no higher, is extremely puzzling to business, industry, financial journalists and others who take an interest in these matters. I do not believe that this area of uncertainty can be completely eliminated, although I take the view that a much more coherent statement of merger policy is required than anything we have so far had. If that were provided for—in Committee we tried to insert the relevant provision in the Bill —a good deal of uncertainty would be removed.

It is not possible to remove uncertainty generally. It seems that there are certain mergers which we should now treat as being prima facie subjects for investigation. In other words they are likely in the vast majority of cases, or in every case, to raise issues of such importance that it would be wrong that they should be allowed to go through without examination by the commission. The two areas defined in this set of amendments are mergers which are of a scale where the assets taken over are more than £20 million—these cases are likely to be the most important ones and raise the most important issues of public interest, including matters of employment, concentra- tion of industry and of economic power— and, secondly, the conglomerate merger in which the dangers of financial manoeuvring with little real economic justification are at their highest. The Minister knows how I feel about this.

In these two areas there ought to be automatic reference to the Monopolies Commission. This kind of provision would not overburden the work of the commission, at least not if it is strengthened as I would like to see it strengthened. It is not impractical in the sense that it imposes a number of references which would be beyond the commission. It strikes a balance between what I would like to see by way of references and what I believe to be practical.

Our suggested provision would remove a considerable area of uncertainty and would give notice to businessmen and others that certain types of merger would definitely be referred to the commission. It would therefore put them on their guard and make us much more certain than we can be at present that proposed mergers falling within these categories have substantial economic and other justification. It would automatically weed out a number of undesirable mergers which we now have, at the same time giving those concerned with other mergers falling within these categories the opportunity of arguing their case before the commission. If it was a good case, the commission would find in their favour.

Amendment No. 64, although it is related to the categories of mergers I have mentioned, introduces rather different and additional considerations.

There is considerable concern about the rate at which mergers go through. There has been a considerable acceleration in the number and value of assets involved in merger activities in the last 18 months, and there is no sign yet that that acceleration has exhausted itself. It is, therefore, likely to go on for some time.

This raises serious problems for the economy as a whole. As I said yesterday, I take the view that there is now a considerable economic case for slowing the rate down or putting obstacles in the way of these mergers at the rate they are taking place at present. I believe that they have gone beyond anything which can be reasonably justified in economic or social terms, and, of course, many of the individual cases cause considerable hardship to employees and others.

In these circumstances, there is a strong case for changing the whole emphasis of Clause 83 and providing that, in any case where a merger has been referred to the commission, it will be found to be against the public interest unless it can show positive advantages or otherwise. In Committee we moved an amendment which, while maintaining the substance of Clause 83—particularly subsection (l)(a) and (e)—would have changed the whole emphasis and provided that positive good would have to be proved before the commission would find in favour of the merger. That amendment was turned down, although it had a certain amount of support from Conservative Members.

Amendment No. 64 does not go as far as that, but it says, with this background in mind—the increasing concentration of economie power in private hands and the considerable disquiet and anxiety about mergers—that in these very large merger cases involving over £20 million, or in conglomerate cases which often raise questions of asset-stripping and the rest, there would have to be proved a positive public advantage before the merger was allowed to go through.

This is a more modest amendment than that which we moved in Committee, but it seems to me to be immediately required if we are to get a genuine safeguarding of the public interest and of the interests of workers and others in the companies concerned in this situation, when the whole movement towards mergers has gone beyond what can possibly be justified on any reasonable economic or any other grounds.

Mr. Emery

We are dealing with two different types of amendment. Nos. 54 and 58 would make it obligatory for the Secretary of State to refer mergers where the value of the assets to be taken over exceeded £20 million or where the merger was conglomerate. Amendment No. 64 would introduce a new onus of proof. I will try and delineate between the two types. Both on Second Reading and in Committee the hon. Member for Glasgow, Craigton (Mr. Millan) made this point. I accept that he feels strongly about the problems of the size and number of mergers. I have carefully con- sidered what he said. I do not see a good case for referring all large mergers.

Circumstances are bound to vary. Some large firms can, for example, face intense competition in the wider European or international market, while very much smaller mergers can to a much greater extent diminish competition. Therefore, automatic reference of all large measures could stultify necessary rationalisation.

As I said yesterday, the Government do not believe in bigness for its own sake. Nevertheless we want to ensure that small firms and businesses, which have been the backbone of British industry for a long time, are still able sensibly and properly to function in the industrial areas where they have proved so successful in the past.

The idea that one should automatically deal with the matter merely on ground of bigness does not seem to us to be the sensible approach to the overall circumstances of the way in which merger references should be judged. There is nothing in the Bill which inhibits an active policy of reference to the commission. Both my right hon. and learned Friend and I have said that the Government, in our consideration of cases for possible reference, are following a policy of ensuring that, where we are in any doubt, reference shall be made and certain factors given the very closest attention.

Those factors are as follows: any disadvantage which might arise from sheer size in itself; any significant reduction in competition which would seem to carry with it the danger of abuse of market power; the likely effect of the merger on efficiency; in the case of a conglomerate bid, the degree of industrial and commercial logic in the proposed merger and the extent of the bidder's market power already in particular sectors and in general; and, in addition, the problem of the vertical merger, where the power of the manufacturer moving into the marketing of his product might well have considerable influence in that sector. We also consider carefully any significant regional policy and the employment considerations which go with the companies being merged.

As I said quite specifically in Committee, any stripping, any tax avoidance or any short-term gain motives for mergers are factors which are looked for and would be matters which would immediately bring the consideration of a reference right to the fore.

Moreover, if in any case the issues are finely balanced, let me repeat that the decision will normally be taken in favour of a reference. We do not think it is necessary, therefore, to build in the automatic £20 million asset test. We believe it would give a degree of inflexibility to the consideration of merger policy which the Government would not welcome.

8.30 p.m.

I now turn to Amendment No. 64. As I said, here we see an amendment to shift the onus of proof in relation to two specific categories of merger referred to the commission—mergers involving the takeover of assets in excess of £20 million, and conglomerate mergers. If this amendment were carried, the commission would be required to report on the reference in these cases, not as the Bill or as the present legislation requires—in other words, whether the merger is contrary to the public interest—but on the ground of whether it would positively benefit the public interest. Initially this might seem to have some attraction. In Committee a number of hon. Gentlemen saw some possible benefits in this type of approach.

I remind the House that both the previous administration and the present Government have used their powers to refer mergers fairly sparingly. This is because the general view has been that not only are the majority of mergers not objectionable but that they are often beneficial to the national economy.

However, during the last six months the Government have made more frequent references to the commission than was the practice of the last administration. I underline that fact because certain criticism has come from the Opposition Dispatch Box at times which seems to neglect it. Only about 100 takeovers a year are caught by one or other of the two tests in the Bill—either the market share or the size of assets. Therefore, it is true that recent evidence suggests that the level of concentration in British industry has become higher.

The Government do not believe there is enough evidence to support the view that we have now reached a situation that mergers caught by the Bill, or even categories of mergers referred to the com- mission as suggested in the amendment, can be presumed to be unwelcome unless positive benefit to the public interest can be demonstrated.

The existing principles which I have outlined have worked efficiently. The Government consider that the powers in the Bill are already adequate to get any merger about which there are doubts referred and investigated. If there seems to be justifiable doubt about a merger, it is stopped. There is no need for fear that the commission will not in ail cases look carefully into the various points on which concern has been expressed.

The Government, and in future the Director General, will continue to keep a close watch on mergers and their effect on competition and the structure of the economy. It would be wrong for it to go out from this House that all mergers are automatically wrong and that many of those which have taken place have failed. On the whole the rationalisation within industry has been necessary in order for us to be able to compete within Europe and internationally. If changes need to be made in the future, they can be made. There is no justification for a basic change at this stage in the attitude to mergers, or even, as is suggested, to a certain limited category of mergers. What we want to try to ensure is that the criteria I outlined at the beginning of my speech are those which are considered and are those which the mergers have to overcome.

Therefore, while I understand the feeling behind the amendments, I am sorry to have to say to their sponsors that I cannot suggest that the Government should accept them.

Amendment negatived.

Mr. Millan

I beg to move Amendment No. 55, in page 45, line 40, after 'Secretary of State', insert 'or the Director'.

This amendment would give the Director General as well as the Secretary of State the power to make a merger reference. I want to put on record again our dissatisfaction at the fact that, having created this very important post and promised that the person appointed will be of considerable consequence, status and ability, the Government should have excluded the Director General from the important area of merger references.

This is wrong in principle. It is wrong that the Government should have a power of veto over monopoly references by the Director General, but to exclude him altogether from the merger area is even more of a mistake and likely to be even more detrimental to a coherent and active mergers policy.

If the amendment were accepted, consistent with the monopoly references provision, presumably the Government would want a veto power. I should be against that, but if that were part of the price of inserting the Director General at this point, it is a price that, despite my reservations, I should be willing to pay. But what is quite wrong, and what was not argued with conviction in Committee, is the Government view that from this important and sensitive area, the Director General should be eliminated altogether.

Mr. Emery

I immediately accept that the judgment here is pretty finely balanced, as I made clear in Committee. But even after reconsideration, I still have to say that the Government have come down in favour of the power to refer mergers being reserved to the Secretary of State. There are four reasons, two more important than the others.

The first is experience. After all, experience of dealing with mergers has only been accumulated since 1965. It is much shorter than the experience of monopolies, which dates from the 1948 Act. Thus the policy on mergers is more fluid. If one looks back over the short period of our memories about mergers, one can recall that, when the last Government created the Industrial Reorganisation Corporation, different views were expressed from their Front Bench from those which the hon. Member for Glasgow, Craigton (Mr. Millan) has expressed tonight. When the right hon. Member for Bristol, South-East (Mr. Benn) was Minister of Technology, the philosophy was to have mergers here, there and everywhere. The climate has considerably altered, as was obvious from my speech on the last amendment.

The situation regarding mergers is therefore more fluid and less settled than that on monopolies. The merger situation is dynamic and immediate and may raise urgent issues. As we have seen all too frequently, mergers can even fall through because of a reference.

The concept is that in a dynamic and immediate situation—which is exactly the opposite of the situation as regards monopolies, which is very static and often goes on and will continue to go on— this is a responsibility which should appropriately be taken by Ministers. Therefore, whilst I see the point and accept that there is something in the argument being put forward by the hon. Gentleman, for the reasons I enunciated we have reached the view that it is better to hold to the present position that reference should be made by the Minister and not by the Director General.

Mr. Millan

The Minister said that, unlike a monopoly, a merger is a dynamic situation. There is a certain amount of truth in that, although it is amazing how quickly dynamism goes out of these situations when the parties concerned are called upon to prove their case with a reference to the Monopolies Commission. It is amazing also how rapidly the dynamism goes out of some of these mergers which are not referred, actually go through and prove disastrous to everybody concerned, including the shareholders of the companies involved.

But that is not the main point I want to make. The Minister seems to be arguing that because this is a dynamic and sensitive area Ministers are somehow or other peculiarly well fitted to deal with it, whereas the poor old fuddy-duddy Director General will not be capable of dealing with anything as difficult as that. If the Minister's argument does not mean that, I am not sure that it means anything at all. I want to put on record that I completely reject an argument which, it seems to me, is rather offensive to the no doubt distinguished person who will ultimately be appointed Director General under the Bill.

Mr. Emery

By leave of the House, may I just make one point which I think shows that the Government do not consider that the Director General will be a fuddy-duddy.

As the hon. Gentleman knows, although I did not mention it in the debate, we have given specific responsibility to the Director General in the matter of mergers. He will in fact be chairman of the mergers committee dealing with the consideration of advice to the Secretary of State. We are not sweeping the Director General to one side. He will have a specific rôle to play in merger cases.

Amendment negatived.

Mr. Cyril Smith (Rochdale)

I beg to move Amendment No. 56, in page 46, line 5, leave out 'either'.

With this I understand we are to consider the following amendments:

No. 57, in page 46, line 10, leave out 'assets taken over' and insert: 'combined assets which would result from the merger'. No. 11, in page 46, line 10, at end insert 'or '(c) as a result significant redundancies will be created in an area of high unemployment'. I noticed that in his answer a few minutes ago the Minister said that the Government were not in favour of bigness for the sake of bigness. I trust that the inference, since he was looking at me as he said it, was not that I should go on some sort of diet.

The amendment which I have just moved and the amendments which we are considering with it are important because they seek to widen the ministerial powers contained in the proposed Act. I think that when considering delegating to a Minister powers under an Act we should be extremely careful and sure that in fact it is a good thing. I would stress, however, in moving the amendment that all we seek to do is to increase the scope of the power of the Minister, because the Bill clearly says "may" and not "must". Therefore all this amendment would do is increase the scope of his ability to refer proposed mergers to the commission, not necessaily requiring him to do so.

I think it is generally accepted that mergers in industry can be good things. It is equally accepted that they can be bad.

8.45 p.m.

What matters is to make certain that when mergers take place they are in the best interests of all concerned, including not only the State and the shareholders in the company, but also the employees. Amendment No. 11 says specifically that if as a consequence of a merger unem- ployment may result in areas which already have high levels of unemployment, the Minister may refer the proposal to the commission.

The second amendment is important. It is possibly subtle, but certainly it is sweeping in its consequences, because whereas the Bill says that mergers may be referred to the commission where the assets to be taken over exceed £5 million, the amendment says that the Minister shall have such power where, as a consequence of the merger, the total assets may exceed £5 million. There is a subtle and distinct difference between the two points of view.

The CBI said today that it is in favour of works councils. The Prime Minister in addressing meetings is now using the phrase "worker participation". I think the Minister will agree that there is a growing interest in this matter. Employees' interests are as important in this situation as are those of shareholders. Therefore, the amendments seek to ensure that in virtually all circumstances of mergers the Minister has power to refer them to the commission.

We believe that this power would considerably strengthen the Bill. We believe that the Bill would benefit as a consequence of it. We believe that it may prevent the Minister from having to attempt to seek new powers or find ways round the existing powers at later stages, and I shall be surprised if the hon. Gentleman finds himself unable graciously to accept the amendments.

Mr. Emery

I think that when, on a previous amendment on the question of mergers, I said that the Government were not in favour of bigness for bigness' sake, the hon. Member for Rochdale (Mr. Cyril Smith) would not have been surprised if, on looking at the benches opposite, my glance had fallen on himself. I did not know then that he was giving notice of any merging, but we take that as an indication of a happy event for the future.

The hon. Gentleman beguilingly suggested that I should find it easy to accept the amendments, but I have no doubt that he said that very much with his tongue in his cheek. The first amendment is a paving amendment. Amendment No. 11 states: as a result significant redundancies will be created in an area of high unemployment. This is a definitive factor. The hon. Member for Rochdale was kind enough to be in his place during our previous debates on the merger situation. I said then that we took into account the employment and redundancy situation, not only in areas of high unemployment but throughout the country.

There is a significant factor which the hon. Gentleman has perhaps neglected to consider. Certain types of merger are essential for the saving of the companies concerned. A merger may bring redundancies, but if a particular merger does not take place both companies may go out of business, thus causing an even greater amount of redundancy than might be brought about by a merger.

The hon. Gentleman would not want any limitation in that respect, particularly if it was in his constituency of Rochdale that two plants might close and create unemployment when bringing the two together could save, perhaps, 60 per cent. or 70 per cent. of the joint jobs.

Mr. Cyril Smith

As the clause says that a reference "may" be made, and not "must", does not the Minister agree that those are the sort of circumstances in which the Secretary of State would exercise his prerogative not to make a reference?

Mr. Emery

I concede that possibility. But the situation is that we would also want to ensure that the reference was made in a way which did not pick out a specific or significant factor above many of the others I have listed.

The right hon. Member for Manchester, Cheetham (Mr. Harold Lever) once gave some very good advice. He said that, when one changed the law, people believed that one meant something different. The considerations behind the amendment are being borne in mind at present. If we spelt them out, as the hon. Gentleman is suggesting, it would appear that we were giving this matter more significance than others of the considerations I have listed, because the change would be considered to mean something. Therefore, in these circumstances the amendment is not necessary and I cannot accept it.

Amendment negatived.

Mr. Emery

I beg to move Amendment No. 59, in page 47, line 14, after 'sum', insert: '(not being less than £5 million)'. This amendment relates to the power by order to vary the £5 million figure. In Committee my hon. Friend the Member for Bedford (Mr. Skeet) asked about the movement of the figure up and down and whether we had any intention of lowering the figure to below £5 million. I said that that was not so, and undertook to table an amendment. This amendment fulfils that undertaking.

Amendment agreed to.

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