HC Deb 22 January 1980 vol 977 cc320-8


'Section 36 of the Restrictive Trade Practices Act 1976 is hereby amended by the deletion of the word "reasonable" in the first line thereof.'.—[Mr. John Fraser.]

Brought up, and read the First time.

Mr. John Fraser

I beg to move, That the clause be read a Second time.

The clause deals with an unsatisfactory position which has existed since the case of the Registrar of Restrictive Trading Agreements v W. H. Smith, reported in 1969 Appeal Cases. I shall leave my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) to develop the argument.

Mr. J. W. Rooker (Birmingham, Perry Barr)

I wish to explain to the House some of the reasons for the amendment. The clause looks fairly innocuous. The Restrictive Trade Practices Act 1976 was a consolidation measure. The antecedents of the clause are in section 14 of the Restrictive Trade Practices Act 1956. No change was made to that legislation in 1976.

Almost two years ago I moved a Ten-Minute Bill on this subject. The House gave me permission to introduce a Bill to put right what we considered to be a wrong and an unnecessary restriction on the powers of the Director General of Fair Trading, who was referred to in the 1956 legislation as the Registrar of Restrictive Trade Practices.

Briefly, I should like to explain the clause by giving three examples of where we think the powers of the Director General of Fair Trading are curtailed in the area of price fixing, because that is the subject matter of this part of the Restrictive Practices Act.

It is interesting to go back to some of the news cuttings of 1978 when the issue of price fixing, because of the behaviour of one or two large well-known companies, came to the attention of the press and the House. I can do no better than cite a couple of examples which put the issue in a nutshell for the benefit of the ordinary person in the street. The first example is from The Timesof 25 April 1978: Walk into Marks and Spencer's Oxford Street store in London, steal half a dozen shirts and you are likely to find yourself in Marlborough Street Magistrates' Court with a hefty fine. Sit around a table with three or four other business men and agree to rig local authority contracts, thereby relieving the public purse of large sums of money and you will probably end up with nothing more than a judicial wigging and a warning not to be so naughty in future.

Mr. Arthur Lewis (Newham, North-West)

Or a peerage.

Mr. Rooker

Perhaps a peerage. The Guardian described the gentleman who was responsible for price-fixing operations on a very large scale in a leader on 14 June 1978 entitled "Our League of Gentlemen". The first paragraph of the leader said: If Mr. Bloggs of Clapham found a way of improperly removing £9 million of the Post Office's money, he would no doubt end up behind bars. To the ordinary man-in-the-street, the sight of BICC, Pirelli General, Standard Telephones and Cables and Telephone Cables getting away with a hefty out-of-court settlement for operating an unregistered and secret price-fixing agreement must look very much like one law for the private individual and another for the corporation". There are dual standards. This is why we wish to give more powers to the Director General of Fair Trading. It has not happened since, but 1978 was a particularly good year for shining the spotlight on this area of defect in our law. In 1978, hundreds of secret, illegal price-fixing arrangements in the area of ready-mixed concrete came to light. Many of the purchasers would be local authorities and public corporations. The companies involved, as is well known, were those such as Ready Mixed Concrete, Tarmac, Tilling and Amey Roadstone.

In the same year, in the road surfacing industry or, as it is called, the black top industry, about 1,000 previously secret agreements were registered with the Office of Fair Trading—registered, of course, after they had been found out. One of the more blatant examples of large, allegedly private, corporations ripping off the public purse was the telephone cables industry. In an out-of-court settlement, the sum of £9 million had to be paid back to the Post Office.

The common thread running through these three industries was that the existence of the price-fixing arrangements did not come to notice because of the investigatory powers of the Director General of Fair Trading. They came about by accident, as a by-product of other investigations. The Ready Mixed Concrete example came about following action by a Leicestershire farmer. The black top arrangements came about through someone from the industry going to the Office of Fair Trading. The telephone cables saga came about as a by-product of a monopolies inquiry into the supply of telephone cables to the Post Office.

Section 36, the crucial section of the Act that we seek to amend, begins: If the Director has reasonable cause to believe that a person being". Lord Denning, in the 1969 judgment to which my hon. Friend the Member for Norwood (Mr. Fraser) referred in moving the clause, said That"— meaning that particular power of the Director— does not make the Registrar —it was the Registrar then— the judge of the matter. The words are not: '…if the Registrar thinks he has resonable cause to believe.' They are: If [he] has reasonable cause to believe', i.e., in fact. I shall quote two more sentences by Lord Denning. I have great hopes that the Government may accept this new clause. Lord Denning said: And it is for the judge to find whether or not reasonable cause did in fact exist. The registrar can, of course, act on information from credible people and the like, but if he seeks an order from the court, he must place his information before the court so that the court can see whether in fact there is reasonable cause to believe". The reference to seeking an order from the court is to get the documents from the companies to see whether they have been engaged in illegal price-fixing arrangements. The Director General of Fair Trading and his staff cannot act on a hunch or on an informal tip-off. They cannot, I suppose, to put it simply, go on "fishing expeditions". That is a term that would fit the situation.

The Director General has made clear that this is a restriction on the particular powers of his office. On 25 April 1978, according to The Times, he said: I dare not issue a formal inquiry notice unless I am really confident that I could if necessary show the court that there is a restrictive agreement". Until the Director General has the documents from the companies, he cannot prove that there is a restrictive agreement, yet in order to issue a notice to get the document he must have "reasonable cause to believe."

We have unduly fettered that public official who does an important job. One of the Government's policies is to make competition work. That does not mean that suppliers of concrete to local authorities should get together to rig the contracts. It does not mean that large companies supplying the Post Office should agree which of them should supply the low tender for cables so that they can share the work. That is not what is meant by competition.

The original proposers of the Restrictive Practices Act 1956—a Conservative Government—did not believe that that would happen. The Minister in charge of the Restrictive Practices Bill, the then President of the Board of Trade, said on Second Reading: The purpose of any Bill on this topic must be to secure that the virtues of free enterprise—initiative, adaptability and risk-taking—are not throttled by restrictions imposed by industry upon itself. He was talking about secret agreements. The Minister continued: Agreements between traders about the prices that they will charge, or the markets or consumers to whom they will sell, or the quantities that they will produce, are all tempting ways of avoiding competition.—[Official Report, 6 March 1956; Vol. 549, c. 1927.] The same Minister on Third Reading stated: We on this side believe in a system of free competitive enterprise."—[Official Report, 14 June 1956; Vol. 554, c. 863.] The Minister did not know that a few years later Lord Denning would put a restrictive interpretation on that clause. The Minister was the then Mr. Peter Thorneycroft, now Lord Thorneycroft and chairman of the Conservative Party. I am surprised that he is not in the Cabinet.

As a result of the telephone cable saga, four companies had to pay back £9 million to the Post Office. When I raised this matter originally I fell foul of Mr. Speaker—and rightly so. I attacked a Member of another place. As an elected representative of the people, one cannot cast aspersions on Members of the Chamber down the Corridor. One of my hon. Friends was actually named and sent out of the Chamber for what he said about Lord Thorneycroft. I do not intend to fall into that trap.

When the illegal, secret price-fixing ring was operating against the Post Office and telephone users, Lord Watkinson was on the board of British Insulated Callender's Cables, Lord Aldington was vice-chairman of GEC, which controls telephone cables, and Lord Caccia, a former head of the Diplomatic Service, was on the board of Standard Telephones and Cables. Each of those companies had a Lord on the board. They preached the virtues of free enterprise, competition and inititiative and yet they controlled companies which were caught out. They put the matter right and paid the Post Office back. It is important that they should have done that.

We should not take the chance of the House and the public finding out about such deals by accident. The Director General of Fair Trading should be able to act on a hunch. He should be able to operate on the basis of fishing expeditions. I like the idea of the Director General deciding, for no good reason and on no evidence, that he will call for documents from companies in a particular industry to see whether clause 36 is working propertly. If he were able to do that, it would be rather like the system of self-assessment of income tax that operates in America.

9.15 pm

It is fear that makes the American citizen fill in his tax returns correctly. When there is a check and he is caught out, everything is in the open. There do not have to be reasons for an investigation. I think that the sanction of fear in the context of big business is an important one and this House should give it to the Director General of Fair Trading. Though my hon. Friend's new clause is slightly different from the Ten-Minute Bill which the House of Commons gave me permission to introduce, it has the same effect. It removes the word "reasonable". Those who opposed my Ten-Minute Bill said that I was being unfair because I wished to give the Director General powers which related only to big business. I was asked about unfair practices in the trade unions. That hoary argument is being trotted out again but it is a separate issue.

We now have a Conservative Government proposing their own Bills. If they genuinely want to make competition work and allow it be seen to work, I cannot see why they will not accept this new clause. If they do not accept it, the first time that there is another outcry against—or sniff of—secret and illegal price-fixing rings, in whatever industry, their competition policy will be ineffective. They will have to admit that they found out about such rings by accident, because they had not given sufficient power to the Director General. The Government will have to defend the practices of such companies.

A Government in favour of competition would not wish to defend those noble Lords on the boards of companies that were seen to have stolen £9 million from the Post Office. That is an unsavoury aspect of big business. This Government are the Government of big business, and I hope that they can see their way to accepting this new clause.

Mr. Tebbit

It is fair to say—I hope that he will not take it too much amiss—that the hon. Member for Birmingham, Perry Barr (Mr. Rooker) is inclined to spoil a good case. He was making a reputable case and it was easy to spoil it by overdoing it. He involved himself in a degree of invective which had a certain unhappy background to it and which springs from the hon. Gentleman's style. Perhaps I have spoilt a good case in my time by doing the same thing, so the criticism is fairly directed, either way, across the Floor of the House.

We accepted in Committee that the decision of the Appeal Court on the meaning of section 36 has proved to be an obstacle in the path of the Director General of Fair Trading in carrying out investigations into registrable but unregistered agreements. There is general agreement about that. However, it is not so easy to deal with the matter as might appear on the surface.

In Committee we said that it was not appropriate to deal with this matter in the Bill. More thought must be given to the best way of tackling this problem. I accept that, as do the hon. Member for Norwood (Mr. Fraser) and the hon. Member for Perry Barr. Perhaps the problem would be best considered in the context of separate legislation on restrictive trade practices, and I hope that we shall have legislation of that kind before too long.

Even worse from the point of view of the House this evening, I am advised by the lawyers that it is highly likely that the new clause would achieve the complete opposite of its intentions. It would simply entrench the court's interpretation of the present provision. I see the right hon. Member for Lanarkshire, North (Mr. Smith) wrinkling his brow. I also wrinkled my brow when I first heard that. The case, essentially, is that the word "reasonable" could be held to dilute the concept of "cause to believe" no to some extent. It implies the test of the reasonable man coming to the same conclusion on balance. To remove it might imply that cause to believe had to be proved even more firmly than was suggested in the Appeal Court judgment to which the hon. Member for Perry Barr referred.

The Government would part company from the hon. Gentleman—I think that a good many would—when he suggested that it would be a good idea to have fishing expeditions on the basis of no evidence. He rightly argued that if somebody were to walk into a department store, help himself to some of the stock and walk out with it, he would rightly be prosecuted. It would be going too far to jump from that to suggest that it would be reasonable to believe that someone had pocketed some of the goods if there were no reason to come to that belief. It would be wrong to deem it the right and proper course to take to the police station on the off chance to search him, to make him turn out his pockets to ascertain whether he had pocketed goods. That would be going too far, and I think that the hon. Member for Perry Barr would be the first to accept that.

In some ways we must be harder on large corporations than on the private citizen. Their capacity for harm is much greater and their capacity to protect themselves is much greater, too. I accept that. However, fishing expeditions on the basis of no evidence would not be acceptable.

The hon. Member for Perry Barr may recollect that it is only recently that we have been legislating to protect ourselves against United States legislation, which would allow their enforcement authorities to go in for similar fishing expeditions in Britain on the basis of no evidence.

I ask the hon. Member for Norwood to accept that we have considerable sympathy with his argument. The Director General is faced with a difficulty with which we would like to deal. I hope that it will be possible to deal with it in a more comprehensive manner in a later Bill. I hope that once again I shall be able to persuade the hon. Gentleman to withdraw his clause. I am sorry to have to do so to such an extent—namely, to say that the Government accept the spirit of the clause but do not believe that this is the right place or the right way in which to take action. However, I find myself once again in that position.

Mr. John Fraser

As long as the Minister recognises that the Opposition are much tougher in favour of competition than the Conservative Party, as long as he promises to do something in future and as long as he recognises the widespread racket that amounts in some instances to little more than a conspiracy to defraud local authorities, I am prepared to beg to ask leave to withdraw the motion.

Mr. Tebbit

I cannot promise that something will be done in the near future. To do so would be to go beyond what I have said. However, it will be possible to do something. I accept that there are difficulties. I am anxious to secure that competition is not impaired in the areas that we have been discussing if that can possibly be avoided.

Question put and negatived.

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