HC Deb 30 November 1992 vol 215 cc21-9 3.31 pm
The President of the Board of Trade and Secretary of State for Trade and Industry (Mr. Michael Heseltine)

With permission, I should like to make a statement about possible options for strengthening the law to curb anti-competitive practices in the marketplace.

The Government are already committed to improving the law against price fixing, market sharing and other cartels. Following extensive consultation in 1988, the Government set out their proposals in the 1989 White Paper, "Opening Markets: New Policy on Restrictive Trade Practices". Our manifesto confirmed our intention to legislate on this basis.

I am today publishing a Green Paper which looks at whether changes to the law on monopolies and anti-competitive behaviour should be made at the same time as changes to the law on cartels. Copies of the Green Paper, and a summary of it, are available in the Vote Office.

The Green Paper addresses the behaviour of companies that abuse their power in the marketplace. This includes such practices as refusal to supply or driving out competitors through loss-making pricing. It also covers companies that use their market power to take unfair advantage of their customers, for example, by excessive prices or refusing to sell one product unless one buys several others.

The current law on monopolies and anti-competitive behaviour is largely effective and has served us well, but it has shortcomings. In particular, there is a lack of deterrence against anti-competitive conduct. There are no penalties for past misconduct and no scope for interim relief for injured parties. Competitors can—and do—go out of business before action can be taken.

The Green Paper sets out three possible ways in which the law might be improved. The first option is to strengthen the existing legislation. That would involve strengthening the monopoly provisions of the Fair Trading Act 1973 and the anti-competitive provisions of the Competition Act 1980.

The second option in the Green Paper would be to replace the current legislation with a prohibition system. That would be consistent with our proposals for dealing with cartels. By making abuse of market power unlawful, such a system would permit penalties for past misconduct. That would strengthen deterrence and encourage vigorous, but fair, competition. The third option would be to introduce a prohibition, while at the same time retaining key elements of the current legislation.

Most companies compete fairly and should benefit from these possible changes. Small firms in particular, should welcome more effective powers to prevent suppliers and others from abusing their market dominance.

The regulated utilities and nationalised industries operate in a somewhat different environment from the rest of industry, 'with their own statutory and regulatory framework. The Green Paper therefore proposes arrangements under which they should be as fully subject to competition legislation as is consistent with this framework.

The Government are looking for a wide-ranging and genuine consultation on the three options in the Green Paper between now and mid-February. We are particularly inviting industry's views on the likely compliance costs and benefits of the legislative options, in line with our commitment to keeping regulatory burdens to a minimum.

Competition policy is good for industry, good for commerce, good for small firms and good for consumers. It stimulates enterprise and innovation. It promotes efficiency and encourages wider choice and lower prices. Our proposals are designed to meet those objectives and do so in a more responsive way than the present regime. My announcement today concerns the publication of the Green Paper on the abuse of market power. This is an important consultation document. We await the views of industry, consumers and others and I commend the Green Paper to the House.

Mr. Robin Cook (Livingston)

There will be a broad welcome for the document, which, on the basis of the statement, appears to fill a gap in the Government's original proposals on restrictive practices which were identified in many of the responses to the 1988 Green Paper. There will be a particular welcome from small businesses if the proposed measures oblige suppliers to treat them on the same footing as major outlets and end practices that end up with small businesses having to pay higher prices than enterprises that have larger economies of scale.

On the options as outlined today, the President of the Board of Trade would not want the House to anticipate consultation by closing down those options. Our present preference would be for a prohibition system. So that we may establish whether that preference is misplaced, will the President of the Board of Trade clarify what deterrence will be provided by the first option, which involves strenthening existing legislation, particularly as he himself rightly identified a major criticism of present competition policy as the absence of suitable deterrence?

The House will be impressed that the President of the Board of Trade attaches such priority to competition policy that he felt moved to make an oral statement on it. As he has volunteered the statement on competition policy, may I press him to express a view on one issue that has caused considerable controversy on competition policy, particularly as I can tell him that an exhaustive three-hour research has failed to produce previous guidance on the point?

The President of the Board of Trade will be aware that the Tebbit guidelines for referrals to the Monopolies and Mergers Commission have attracted considerable criticism. He will be aware that they have attracted widespread criticism that they are too narrow, that they have prevented referrals to the Monopolies and Mergers Commission of takeovers that were against the public interest, and that they have permitted takeovers that were destructive in their impact on both the industry that was taken over and the broader economy. The President of the Board of Trade will be aware also that, in December, the Trade and Industry Select Committee recommended that the public interest should be considered in referrals to the MMC.

As we have not detected any previous statement on the issue from the President of the Board of Trade, before we lose the opportunity provided by this statement, may we press him to tell us whether he intends to accept and abide by those guidelines, or whether, in keeping with his many statements about the need for a partnership with industry, he accepts that that would require a broader view to protect from takeovers by creditors industries that are vital to national technology and vital also to regional employment?

Mr. Heseltine

I am very grateful to the hon. Gentleman for the welcome that he has given the Green Paper. He is absolutely right in reflecting the mood that generally will attend upon our announcement. It is the case, as the hon. Gentleman suggested, that the need to address the abuse of market power flowed from the discussions that were associated with the White Paper which dealt with cartels. "Abuse of Market Power" deals, of course, with individual companies. I am sure that that is a logical step forward.

As for preferences, I agree with the hon. Gentleman that it would be quite wrong now to anticipate the consultation that we are launching today, but a number of things could be done in pursuit of option 1. One could strengthen powers in respect of penalties, and one could introduce powers to deal with interim relief, for example. There are things that could be done, but they do not go as far as the introduction of a general prohibition.

On the hon. Gentleman's point about the Tebbit guidelines, of course I have not made any suggestion that they should be changed. They are not as restrictive as has sometimes been suggested. Significant powers are in the hands of the Secretary of State, but they are procedures through which matters must progress before they can be exercised.

Sir Michael Grylls (Surrey, North-West)

Does my right hon. Friend accept that there will be a wide welcome for strengthening the Government's competition policy? Does he agree that one of the prime aims of that policy is, or should be, to strengthen the formation and growth of private businesses? The British economy, which has been over-concentrated, will benefit from such changes. The abuse of market power within the United Kingdom can be dealt with effectively by the United Kingdom authorities if the changes are made, as the powers are similar to those of the European Commission within Europe. Will he comment on that?

Mr. Heseltine

My hon. Friend is right. Articles 85 and 86 put powers in the hands of the European Commission to deal with restrictive practices and the abuse of market powers. Among the proposals that we are considering is the option to move domestic practices into line with those that are open to the Community, where there is intra-national trading. I am grateful to my hon. Friend for welcoming the proposals. I have no doubt that they represent a climate of opportunity for small companies to innovate, to come into the marketplace and to be able to resist, with a certain degree of confidence, pressures to drive them out again.

Mr. A. J. Beith (Berwick-upon-Tweed)

Are we not entitled to treat the welcome statement as a plea of guilty for all the private monopolies that the Government have created, and for all those cases in which they have failed to act on behalf of the consumer? Will the Green Paper deal with the position of regional electricity distribution companies, which have a monopoly and can charge consumers what they like for electricity that is generated by more expensive means than coal? Will it address the issues raised by the failure to refer the British Airways-Dan-Air takeover to the Monopolies and Mergers Commission? Is it not the case that too many of the Government's best friends are monopolists and that some of them owe their licence to print money to the Government?

Mr. Heseltine

That is a rather mean intervention by the right hon. Member for Berwick-upon-Tweed (Mr. Beith), and out of keeping with the broad welcome that the proposals I announced have attracted. On the right hon. Gentleman's latter point, I agree with the view of the Director General of Fair Trading that the merger of British Airways and Dan-Air raised concerns about competition. However, taking into account all the circumstances—in particular the likely consequence for services at Gatwick if the merger were not allowed to proceed—I agree that the public interest would be better served by not referring it to the MMC. I do not agree with the right hon. Gentleman's dismissive view of the transfer of large public organisations to the private marketplace. That has proved to be attractive to customers and to the British economy and we shall continue with that policy.

Mr. David Harris (St. Ives)

Can my right hon. Friend be more specific about how the Green Paper proposals might help small businesses? Would he care to say whether the excessive discounts given by some suppliers to supermarkets—to the detriment of small traders—will be within the scope of his review, as well as the practice of some supermarkets to delay payments to their suppliers, especially to farmers? Will the measures cover banks' charges to small companies, which many of us regard as unfair practices?

Mr. Heseltine

My hon. Friend has drawn attention to the reasons why the proposals could be extremely interesting in the wider context of competition policy. Excessive discounts are exactly the sort of issue that can make it extremely difficult for small businesses to compete and they could be considered if they were improperly applied. Delays in payment and bank charges are matters to consider in the light of the consultation and the final proposals.

Mr. Ken Purchase (Wolverhampton, North-East)

I welcome the statement because it is important that we attack monopolies wherever we find them. It would have been interesting to hear from the right hon. Gentleman whether banks are to be included in the review, because, as the hon. Member for St. Ives (Mr. Harris) said, small companies are frequently the innovators in manufacturing, but they face considerable difficulties in obtaining from the banks the long-term finance that helps that innovative process.

It would also have been helpful if the President of the Board of Trade had referred to last week's statement from the Engineering Employers Federation, which called on the Government and, in particular, the right hon. Gentleman to be a better champion of industry. The west midlands knows a great deal about the problems caused by not having a proper champion for industry, because, for 13 long years, we have suffered from redundancies and the slimming down of industries. The Engineering Employers Federation said that without a proper industrial strategy, strategic thinking and basic information, market forces—

Madam Speaker

Order. The hon. Gentleman is at last coming to market forces, so perhaps he would also come to the question, which I have not yet heard.

Mr. Purchase

The question of market forces is central to the debate. The Engineering Employers Federation stated categorically that market forces cannot be expected to function as intended without the broader view that an industrial strategy would provide. Would the President of the Board of Trade please come to the House, post haste, with an industrial strategy for the recovery of manufacturing in this country?

Mr. Heseltine

The hon. Gentleman, along with other hon. Members who I could mention, might have failed to notice that the Chancellor reduced interest rates to save industry about £10 billion a year. We have also seen the introduction of extra capital allowances, increases in capital expenditure and more flexible public sector rules governing how to deal with private money in the public sector. All those changes are part of the industrial strategy of the Government.

Mr. Robert Adley (Christchurch)

I congratulate my right hon. Friend on both the matter and the manner of his statement. May I ask him specifically whether he is aware that the hon. Member for Leeds, Central (Mr. Fatchett) and I—I should declare an interest in this matter—have tried and failed to persuade Yorkshire Water to honour the original quotation given by its predecessor, Yorkshire water authority, relating to connection charges to an hotel in Leeds? That quotation has increased from £3,000 to £208,000. Does my right hon. Friend agree that that matter is entirely within his remit and that it would be an appropriate example for the imposition of penalties for past misconduct, as suggested in the Green Paper?

I also commend the statement by my right hon. Friend the Secretary of State for National Heritage last week, who also produced a Green Paper. Does the President of the Board of Trade accept that many of his hon. Friends welcome the proposition of producing Green Papers for genuine consultation? Will he commend that practice to his right hon. Friend the Secretary of State for Transport in relation to the future of railways?

Mr. Heseltine

I will ensure that the views of my hon. Friend are made available to those of my right hon. Friends to whom he has drawn my attention. Long experience of my hon. Friend, however, has meant that I have discovered that he is rather good at making sure that his views are known without any intervention by myself, but he has my assurance that I will use my intervention.

As to how the public utilities will be affected by the Green Paper proposals on the abuse of market power, broadly speaking, they are not caught if they are carrying out their responsibilities as required either by statute or by licence. The sectoral regulators, however, will, under certain of the proposals, he given concurrent powers with those of the Director General of Fair Trading. It will be possible for private actions to be brought against the public utilities in the event that it is felt that an abuse has taken place. If such an action is brought by a private individual or a private company, the sectoral regulator will have the right to be heard in any proceedings.

Mr. Geoffrey Hoon (Ashfield)

In strengthening competition policy, will the President of the Board of Trade ensure that an investigation is held into the geographical cartels that currently control the wholesale distribution of newspapers? As part of that investigation, will he guarantee that all small businesses that want a regular supply of newspapers can receive them?

Mr. Heseltine

The hon. Gentleman may be aware that the Monopolies and Mergers Commission is already examining that issue. It would therefore be inappropriate for me to comment on it.

Mr. Ian Bruce (South Dorset)

I welcome my right hon. Friend's Green Paper—Hansard readers may like to know that it is fluorescent green. How does he see monopoly policies being developed in a European context? On 1 January, we shall have a completely free market, and the way in which we legislate on monopolies needs to be brought into line with our European partners' proposals. Do we intend to proceed in a communautaire way with those proposals?

Mr. Heseltine

I am delighted that my hon. Friend confirms that the Green Paper is in the Vote Office. One of the nightmares of Ministers making a statement to the House is to say that the document is there, only to discover that it is not. I am reassured to discover that the document is there.

On the relationship between domestic and European Community practices for monopoly legislation, one of the arguments for moving in the direction of either option 2 or option 3 of the Green Paper is that they bring the practices for domestic purposes closer to those of articles 85 and 86 of the treaty of Rome. Many in industry perceive that as a useful streamlining.

Mrs. Margaret Ewing (Moray)

When the President of the Board of Trade responded to the hon. Member for St. Ives (Mr. Harris), he said that the issue of late payment by large organisations to small companies could come within the scope of the consultation. Does he envisage the possibility of a legalistic framework ensuing from the consultation period, whereby payments by those large organisations can be enforced? Late payments have been very much to the detriment of small companies and are surely one of the biggest abuses of power in the marketplace.

Mr. Heseltine

The hon. Lady touches on the essence of the issue: those matters are now subject to consultation as a result of our Green Paper. However, it would be necessary to put such a process under way to establish the fact that it was an abuse of market power and an exercise of a dominant position, with the purpose of restricting competition. The announcement that I made today is not without constraints, although they are clear constraints.

Mr. Gary Streeter (Plymouth, Sutton)

Is my right hon. Friend aware that his statement will be warmly welcomed by many of my small business constituents in Plymouth, many of whom have suffered the burden of anticompetitive practices by large companies? Is he further aware that they will be heartened to learn that the review's scope will include the practice of high street banks, many of which have now become less popular than estate agents? Will he say a little more about the sanctions that he has in mind? He will be aware that the current deterrents and sanctions set out by the Fair Trading Act 1973 are toothless and that often, by the time an anti-competitive practice is spotted, it is far too late for the small business that has already gone to the wall.

Mr. Heseltine

My hon. Friend is absolutely right, but I must make a qualification to his first point. I have not said that the arrangements will enable the banks' practices to be examined. That matter will flow from the consultation and the ultimate decisions. However, I note what he said in the context of a wider message.

The sanctions are set out for consultation in the Green Paper and the possibility of fines in certain circumstances is envisaged, ranging from up to 10 per cent. of turnover with a ceiling of £1 million; it is possible to go beyond that provided that certain circumstances are fulfilled. So there is an escalating set of procedures through which fines can be imposed in the event of conviction.

Mr. D. N. Campbell-Savours (Workington)

I should like to ask about anti-competitive practices, especially the practice of refusing to supply, about which the Director General of Fair Trading has not been too good in recent years. Will the review look specifically at the refusal to supply to shopkeepers hi-fi equipment, white goods, furniture, textiles and clothing, and chemists' supplies? Anti-competitive practices are clearly being exercised in relation to those goods and too often in the past the Office of Fair Trading has taken no action.

Mr. Heseltine

The hon. Gentleman enables me to clarify that under a prohibition system, if we choose that option, everybody, including Government, local government, industry and commerce, is covered. With certain exceptions that I have mentioned in terms of the nationalised industries and the regulated industries, which would not be excluded but subjected to certain disciplines, that prohibition will give comprehensive cover. Therefore, the proposals are comprehensive.

Mr. John Spellar (Warley, West)

Will the Minister say something stronger about the disgraceful failure of the banks cartel to pass on the reduction in interest rates to small business? Will he amplify his statement about loss-making pricing?

Will compulsory competitive tendering be covered, because there is a suspicion that some companies are pricing themselves into work in order to put the direct labour organisations out of business so that later profits can be made?

Mr. Heseltine

The hon. Gentleman will be aware that my right hon. Friend the Chancellor of the Exchequer recently met the Governor of the Bank of England to make sure that the anxieties to which the hon. Gentleman draws the attention of the House were clearly expressed. I have no doubt that that message from my right hon. Friend and from many other quarters was clearly heard.

The hon. Gentleman asked about the effect on direct labour organisations of the competitive environment in which they now trade. I am sure that the hon. Gentleman shares my satisfaction at the considerable improvement in efficiency that has been achieved by the new competitive pressures.

Mr. Dennis Skinner (Bolsover)

Does the President accept that there is no greater abuse of power than that which is exercised by the regional electricity companies, which have shares in gas and are using it to provide electricity which will undoubtedly be much dearer in a few years than electricity generated by coal? Will he answer the question that has been put to him about this matter? Will he ensure that in future the regional electricity companies will not be able to abuse their power? The Government and the Minister himself hold 40 per cent. of the shares in the electricity companies and could stop that abuse of power if they decided to exercise their tremendous strength.

Mr. Heseltine

The hon. Member will look forward as keenly as I do to the findings of the inquiry that is now under way and, of course, to the coal review about which I shall report to the House in the new year.

Mr. John Fraser (Norwood)

Does the President recognise that small firms will be at a considerable disadvantage if they have to have recourse to the civil courts on matters arising from an abuse of power or an anti-competitive practice? Will he confirm that the arbiter of whether there has been an anti-competitive practice or an abuse of power will continue to be, initially, the Office of Fair Trading and, ultimately, the Monopolies and Mergers Commission?

Mr. Heseltine

When the hon. Gentleman has a chance to look at the document, he will see that in many instances there is a concurrent power. However, it is considered likely that in many cases small firms will go to the director general because he provides a free service, whereas court actions are likely to cost such firms a significant amount. The hon. Gentleman will wish to make his own representations when he has read the Green Paper.

Mr. Bill Olner (Nuneaton)

Will the Secretary of State reinforce his intention to ensure that the current malpractice of the banks cartel against large, medium and small manufacturers will cease as a result of the Green Paper? Will he also assure the House that local authorities will operate on a level playing field so that they are able to compete more fairly with private companies for the supply of services needed by consumers?

Mr. Heseltine

The hon. Gentleman may feel that the concerns that have been expressed about the banks should be addressed a great deal more speedily than they would be by the flow of any legislation arising out of the consultation process that we are unleashing today. That does not in any way query the purpose that he put to the House, but the timing would be too delayed for the urgency with which some people have raised that matter. As to level playing fields in local authority provision of services, my experience is that the level playing fields are denied to the private sector, and not to the public sector.

Mr. Peter L. Pike (Burnley)

Does the President of the Board of Trade recognise that many members of the public are taken for a ride, particularly with regard to the repair of electrical goods, by having to pay excessive call-out charges and because, in many cases, small independent repairers are not able to get parts? Will he ensure that, as a result of the consultation, that monopoly is broken down so that the consumer is able to get the best possible repair at the cheapest possible price?

Mr. Heseltine

The hon. Gentleman will want to consider carefully whether that is an abuse of market power, and therefore would come within a regulatory system of the sort that we are talking about. As I have said, the prohibition proposals would cover the entire spectrum of services and we shall explore the extent of that as the Committee examines any legislation that we introduce.