Competition

HC Deb 14 April 1993 vol 222 cc842-50 4.17 pm

The Parliamentary Under-Secretary of State for Corporate Affairs (Mr. Neil Hamilton)

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

Last November my right hon. Friend the President of the Board of Trade announced to the House the publication of a Green Paper on "Abuse of Market Power" which outlined three possible options for strengthening the law. Those options were to strengthen the existing legislation, to replace it with a prohibition, or to run the two systems in parallel.

We received 143 responses to the Green Paper. Copies of a summary of them have been placed in the Vote Office. There was no consensus amongst those who responded on which of the options represented the best way forward. Each of the options received roughly equal support. This contrasts with the overwhelming support for introducing a prohibition on restrictive trade practices. I can assure the House that the Government remain committed to introducing such a prohibition when legislative time permits.

Having carefully considered the arguments advanced for and against each of the options, the Government have decided that the best choice is to strengthen the existing system. With this strengthened regime we can retain the current wide scope and flexibility of powers without increasing the regulatory burden on firms.

It is proposed to strengthen the current legislation in four ways: stronger powers of investigation; additional scope for enforceable undertakings; provision of interim orders to suspend anti-competitive practices; and some coverage of property rights. Stronger investigative powers for the Director General of Fair Trading should enable him to establish more quickly whether there should be a full-scale investigation.

The director general currently has discretion to accept enforceable undertakings in lieu of a Competition Act reference to the Monopolies and Mergers Commission. It is proposed to extend this ability to enable him to accept such undertakings, subject to suitable safeguards, before his formal investigation under the Competition Act, and in lieu of a monopoly reference under the Fair Trading Act 1973. Breaches of these undertakings would be enforceable in the courts. This proposal received considerable support from respondents.

The Green Paper suggested that companies might be made liable for penalties and damages from the point at which an MMC reference was made if they continued with a practice that was subsequently found to be against the public interest. A number of respondents argued that would be unjust and that it might lead a company to abandon a practice that was later found not to be against the public interest. That argument is accepted. But there can be cases in which immediate action is necessary. We therefore intend to take up the suggestion made by some respondents that we should be able to make interim orders under the Competition Act. These would prohibit specified activities by a firm if there was good reason to believe that a competitor, customer or supplier ran the risk of suffering serious damage during the period of the MMC's investigation.

The Green Paper considered the very limited scope of both the Fair Trading Act and the Competition Act to deal with competition problems concerning property rights. Fundamental change is not proposed in this area, but it is important to be able to deal with some limited situations in which specific property rights—for example, rights of access—are exercised in a way that damages competition. We shall hold further discussions with interested parties to resolve how best to deal with those problems.

As regards the other options in the Green Paper, the Government are not convinced that a compelling case for repealing the current legislation and replacing it with a prohibition on abuse of market power has been made. Nor are we convinced that such a prohibition should be added on top of the existing monopoly controls.

It is clear from the consultation that a prohibition would increase the regulatory burden on companies and introduce uncertainty for business. Despite experience of EC law, the identificatiiton of abuses of market power in many cases remains a matter of fine judgment. It can be very difficult to assess in advance what will be regarded as anti-competitive and what as acceptable business behaviour. That inherent uncertainty, coupled with the possibility of fines and private actions, could run the risk of inhibiting rather than promoting competition. In contrast, restrictive agreements can be more readily defined and prohibited, as set out in the 1989 White Paper.

When my right hon. Friend the President of the Board of Trade introduced the Green Paper to the House last November, a number of hon. Members raised particular areas of concern, such as relations between the high street banks and business customers. In addition, a number of the Green Paper responses that supported a prohibition implied that this support was conditional on the prohibition being able to deal with alleged unfair practices in their particular markets. One of the tests we applied when considering the various options was the extent to which they would be able to meet those concerns. The conclusion is that a prohibition would bite on fewer market situations than our present legislation does. That is especially true in markets in which there is more than one major player.

The changes I have outlined today will enable us to build on the strengths of the existing legislation. commend them to the House as they will provide the benefits of vigorous competition without stifling wealth creation. It is intended to include the changes in legislation to introduce the prohibition on restrictive trade practices.

Mr. Derek Fatchett (Leeds, Central)

Does the Minister understand that consumers will be disappointed that the Government have accepted the most timid of the three options set out in the Green Paper? Can he explain, for instance, why the Government have rejected the advice of the Consumers Association, which favoured clear prohibitions arid substantial penalties for breaching them, and full rights for third-party redress?

Why have the Government failed to deal with the shortcomings in the existing legislation, which the President of the Board of Trade himself identified in his November statement? Why, for example, are there no penalties for past misconduct—a weakness which the President of the Board of Trade referred to in that statement?

In what ways will the Minister's statement help small businesses that complain about the abuse of market power by the high street banks? Is it not true that not a single small business will be helped by the Minister's statement today? Is it not the case that, after five months, we have again had words from the Minister but no action to help small businesses?

Would the Minister's statement in any way have changed the refusal by the President of the Board of Trade to refer to the Monopolies and Mergers Commission the hostile bid by Airtours for Owners Abroad? Will the Government be under any obligation after today's statement to accept the advice of the Office of Fair Trading? Why give additional powers of investigation when there is no need for the Government to accept the recommendations of the Office of Fair Trading or the Director General of Fair Trading?

Not once in his statement did the Minister refer to the interests or wishes of consumers. In adopting the option that has been announced, the Government can be accused of putting vested interests before the interests of consumers. This Government do not represent consumers' interests.

Mr. Hamilton

As a representative of a party that cannot even change its constitution, clause 4 of which advocates statutory monopolies throughout the country, the hon. Gentleman makes an unconvincing proponent of competition.

Let me answer the questions that the hon. Gentleman has put to me. In deciding which of the three options to adopt—principally, of course, in consumers' interests—we had to consider what would ultimately be likely to benefit consumers. We concluded that to introduce an unnecessarily complex, burdensome and bureaucratic system which, in certain circumstances, might stifle rather than enhance competition would not ultimately be to the benefit of consumers.

We decided instead to build upon the strength of the existing system—which, in my opinion, has been very effective over the years in defending the interests of consumers—and to plug certain gaps and close certain loopholes in that system. That is precisely what we have done: we have opted for certainty and flexibility; for the least burdensome option; and to build upon a system that is regarded as largely effective.

The Consumers Association principally wanted to ensure that we introduced a system that was certain and simple to understand. The option that the association selected—option 3—would have been the most complex and confusing of the various options. That is why we decided against it.

The hon. Gentleman asked me about the practices, which have been widely criticised, adopted by the banks. We are dealing here with the abuse of market power—in particular, in circumstances where one company has a large share of the market and abuses the power that that large share gives it. That is not the case with banks, which are already covered by the existing competition legislation.

Under the Fair Trading Act, a complex monopoly occurs where companies together act in a way that is contrary to the interests of consumers or against the public interest, in circumstances where those companies together have more than 25 per cent. of the market. It is perfectly open to anyone aggrieved by the practice adopted by the banks at present to make a complaint to the Office of Fair Trading, which can consider the matter. If the complaint appears to have substance, the Monopolies and Mergers Commission can be brought into play.

The hon. Gentleman asked about the Airtours bid. I cannot in any way speculate as to what the outcome of any application might have been if the law had been different. What I can say is that the President of the Board of Trade decided in the circumstances of the case—which was widely regarded as being a matter for fine judgment—that there was no case for investigation. The curious outcome—at which the hon. Gentleman may be rather surprised—is that the market, having been allowed to work in those circumstances, has reduced the level of uncertainty for the company that did not wish to be bid for. Hence the most speedy outcome has been determined as a consequence of the President's decision.

Mr. Dennis Skinner: (Bolsover)

Come on.

Mr. Hamilton

The hon. Member for Bolsover (Mr. Skinner) is complaining about the fact that I am treating the comments of the hon. Member for Leeds, Central (Mr. Fatchett) seriously. I know that the hon. Member for Bolsover does not treat his Opposition Front-Bench colleagues seriously, but I, at least, am paying them that compliment.

The official Opposition spokesman, the hon. Member for Leeds, Central, asked whether we should have changed the legislation to make it a requirement that Ministers should accept the advice of the Director General of Fair Trading. There would be no point in giving Ministers advice if they were obliged to accept it as it would not then be advice. The hon. Gentleman is asking us to remove his opportunity to hold Ministers accountable for the decisions of competition authorities. I do not know whether everyone would agree with that.

Mr. Rupert Allason (Torbay)

While I welcome the extension of investigatory powers under fair trading and competition legislation, does my hon. Friend the Minister accept that what he has announced this afternoon will be no consolation to the customers of high street banks who believe that they have been bilked by banks over the past two years? Does he also accept that his announcement will be no consolation to water ratepayers, particularly those in the south-west who will be paying increased charges of more than 16 per cent. this year? Frankly, water ratepayers have no confidence in the regulatory authorities or in Ofwat. Will my hon. Friend take this opportunity to give them some words of comfort?

Mr. Hamilton

All I can say to my hon. Friend is what I said to the hon. Member for Leeds, Central a moment ago. With regard to the banks, our current competition legislation is apt to cover the kinds of circumstances about which my hon. Friend complains. If the Director General of Fair Trading formed the view that certain practices were contrary to the public interest, he could make a recommendation that the matter should be investigated by the MMC. So far, he has chosen not to do that.

As my hon. Friend will be aware, the water industry, like all the privatised utilities, is subject to a significant degree of regulation in the interests of consumers. The Director General of Water Services has power to consider all matters that might adversely affect the interests of consumers and to take the necessary action accordingly. Once again, it is not for me to second-guess the decisions of the Director General of Water Services. However, it is open to anyone who is aggrieved to take a case to the director general and make the argument for it.

Mr. Alex Carlile (Montgomery)

The elegant but labyrinthine language of the Minister's statement has left many of us and some consumer groups puzzled. Why will the weakest of the three options stop some of the inexcusable bullying by large companies of smaller emerging companies? Why have the Government not taken the second or third option in the Green Paper—for a prohibition regime of a type which works extremely well in numerous other countries and which is the norm in the rest of the European Community?

Mr. Hamilton

I am afraid that the hon. and learned Gentleman's hearing aid must be defective. I have already answered that question twice. We have chosen the option that is likely to be the least burdensome and least costly and to build upon the effectiveness of the existing system.

Mr. David Shaw (Dover)

Can my hon. Friend assure me that the way in which his proposals will impact on small and medium-sized businesses will not increase bureaucracy, paperwork and regulation and that small and medium-sized businesses have something to look forward to under the proposals?

Mr. Hamilton

I think that I can confirm what my hon. Friend has asked. As Minister responsible for the deregulation initiative, I had very much in mind the impact of costs upon businesses. We must consider the proportionality of what we do in the House by way of imposing legislative burdens. For very small improvements in consumer benefits, we might impose significant costs on companies which, ultimately, have to be borne by consumers as well.

Mr. Bill Etherington (Sunderland, North)

As the Minister has taken a fairly soft option, and as we are all aware that where there is no competition, such as in the nationalised industries which have now become private monopolies, we rely on the regulator, which, in my view, is little better than a panacea to keep the public happy, what is the position if we have a regulator like Professor Littlechild, who has brought the art of slothfulness almost to the point of atrophy and has led to the destruction of the coal industry? Will the legislation do anything to prevent such a dreadful recurrence, as we have seen in this incident?

Mr. Hamilton

The hon. Gentleman has an impressive command of polysyllables but a rather less sure grasp of the legislation which governs privatised utilities. I doubt whether the privatised utilities would share his opinion that the director generals who are responsible for their operations are weak or ineffective. I am fairly certain that British Gas does not take that view.

Mrs. Angela Browning (Tiverton)

Does my hon. Friend agree that small businesses, especially sole traders, often feel that they are penalised by larger companies? I appreciate and welcome my hon. Friend's statement today. Will he ensure that large companies which are found guilty under the new proposals are required by statute to publish in their annual reports where they have been found wanting?

Mr. Hamilton

That is an interesting suggestion which I have not heard from anyone else. As the Minister responsible for company law, I shall give consideration to it.

Mr. Skinner

The Minister must think that we have dropped off a Christmas tree if he thinks that we believe all the mumbo-jumbo which he has trotted out today, especially when we consider fair trading against the background of petrol stations rigging their prices and banks ripping off customers. Prices are rigged in the Common Market, lawyers fix their fees to extortionate heights and nuclear power is subsidised by £.1.3 billion to the detriment of coal—and the Minister asks us to believe that he is talking about fair trading. Take it back and chuck it in the dustbin.

Mr. Hamilton

I do not know which specific ornament the hon. Gentleman would be on the Christmas tree. [Interruption.] My hon. Friend the Member for Amber Valley (Mr. Oppenheim) suggests that the hon. Gentleman would be the fairy at the top. I am sure that the hon. Gentleman's weighty opinion in this area, as in all others, will be treated by the House with the degree of importance which it deserves.

Mr. John Whittingdale (Colchester, South and Maldon)

Does my hon. Friend accept that the fact that little evidence has been produced of a significant abuse of market power by private sector companies which are not already subject to the oversight of a specific regulator suggests that the present system is generally working well? Is there not a risk that a more significant amendment to the law, such as that involved in options 2 and 3, would add to the bureaucratic burden on firms to little benefit?

Mr. Hamilton

I entirely agree with my hon. Friend. Many of the complaints of small businesses in particular relate more to inequality of bargaining power rather than to an abuse of a dominant position. That is a much more difficult question to deal with, and it is not one which was addressed by the Green Paper.

Mr. Alan Williams (Swansea, West)

Can the Minister tell us whether the policy announced today will have any effect on the beam in the Government's eye? I am sure that he is aware that many firms absolutely depend on contracts from the Ministry of Defence. Does he realise that such contracts are placed through a division of the Property Services Agency, which is forcing firms to forgo their right to payment within 30 days and requiring them to accept that they will be paid only when the Property Services Agency has been paid by the Ministry of Defence? That is an abuse of market power which conflicts with what the Chancellor promised in the 1922 Budget and in which Ministers are conspiring.

Mr. Hamilton

It would have been less of a problem if there had been a Labour Government because there would have been fewer defence contracts for small suppliers. A Labour Government would have made swingeing reductions in defence expenditure, despite the crocodile tears which Labour Members now shed at the outcome of "Options for Change".

With regard to the specific question about late payment, the Government are committed to paying their bills in due time, and that goes for their main contractors as well. We hope that main contractors will impose the same terms on sub-contractors because we take seriously the question of late payment of debt.

A number of other measures have been proposed recently. As the right hon. Member for Swansea, West (Mr. Williams) knows, we have a consultation paper outstanding on whether we should have some sort of statement or audit of the payment practices of companies published in annual reports and accounts. I hope that the right hon. Gentleman will give us the benefit of his views on that matter.

Mr. Anthony Steen (South Hams)

Will my hon. Friend confirm that the private monopolies that have come out of the public utilities will be subject to the terms of the statement? Is he aware that the charges of South West Water amount now to an additional 18 per cent.? That is the result of the National Rivers Authority—the regulatory authority—demanding higher and higher standards faster and faster. I found my hon. Friend's statement helpful, but does he agree that the private monopoly—in this instance, South West Water—is abusing its power? It has no choice, but it is costing Devon and Cornwall water charge payers an arm and a leg.

Mr. Hamilton

The principal reason for water charges having to rise by more than the rate of inflation is that the Labour Government cut substantially water authorities' capital programmes. I note that my hon. Friend the Minister for the Environment and Countryside is on the Government Front Bench. I am sure that he would confirm that we are now having to catch up, in effect, because of the Labour Government's failures during the 1970s.

I do not know the details of South West Water's charges. I am sure, however, that my hon. Friend the Minister of State heard what my hon. Friend said.

Rev. Martin Smyth (Belfast, South)

Will the Minister's statement give any comfort to those in the pharmaceutical industry who have been concerned about the practice of one of the major manufacturers?

Mr. Hamilton

The hon. Gentleman's question is rather cryptic. I am not aware——

Rev. Martin Smyth

I have written to the Minister about the matter.

Mr. Hamilton

I understand. His question takes up the case that he has set out in correspondence with me. The proposals that are set out in the Green Paper are not designed—[Interruption.] As the hon. Gentleman did not identify the case, I was not certain whether he was referring to the one that I now fully recollect.

Mr. Skinner

Has the Minister written to the hon. Member for Belfast, South (Rev. Martin Smyth)?

Mr. Hamilton

I have done more than that: I have discussed the matter with the hon. Member for Belfast, South.

The case which the hon. Gentleman raised with me in correspondence is not apt to be considered in the circumstances that are set out in the Green Paper, which concern the abuse of a dominant position, especially when one producer has a position in the market which enables him to oppress the smaller operators within it.

Mr. Bernard Jenkin (Colchester, North)

I add my welcome for my hon. Friend's excellent statement. Will he confirm that the option that he has chosen will not cause a rash of third party actions, which would be expensive for industry and commerce, would slow down the decision-making process and would not necessarily add anything to the existing excellent regime for competition?

Mr. Hamilton

I can confirm that. As a lawyer, albeit one who has retired into public life, I am rather surprised by the stance taken by the hon. Member for Leeds, Central (Mr. Fatchett). As I understand it, he believes that there should be a right of private actions. That would lead to a bonanza for lawyers and would impose significant costs on companies. Ultimately it would not be in the interests of consumers.

Mr. Tam Dalyell (Linlithgow)

As one who went with the Amalgamated Engineering Union and its lawyers before the Monopolies and Mergers Commission as a witness in the case of the Atlas steel foundry, I was impressed by its method of operation. However, in factory situations of a sort that might arise in any constituency, there is a need to be a bit quicker. Events in factories overtake the MMC whatever it wanted to do in the first place.

I asked the Minister a question that arises from paragraph 13 of the Department of Trade and Industry's paper on intellectual property rights, which states: intellectual property rights were adequately dealt with in existing legislation. 4 of these"— the respondents— favoured intellectual property rights being covered by a general prohibition, with three saying that the role of the Copyright Tribunal would then need to be reviewed. Does the Minister agree with those respondents? Does he think that there should be a review and extension of the work of the crucially important Copyright Tribunal?

Mr. Hamilton

That is a matter for my hon. Friend the Member for Gainsborough and Horncastle (Mr. Leigh), the Under-Secretary of State for Trade and Industry. I shall draw my hon. Friend's attention to the hon. Gentleman's question.

Mr. Phillip Oppenheim (Amber Valley)

Bearing in mind the fact that virtually the only monopolies operating in Britain in recent history were those set up and sanctioned in the public sectors by Labour Governments, that the Labour party has consistently opposed every attempt to introduce competition, ranging from trying to prevent consumers even from having a choice of telephone to proposing any competition on the domestic routes of British Airways, that nothing is more certain than that the Labour party will support vested interests, as it did recently when we were dealing with the coal industry, does my hon. Friend agree that Opposition Members have a cheek to pose in the Chamber as the champions of consumers?

Mr. Hamilton

Yes, they have, but it comes as no surprise.

Mr. Bob Cryer (Bradford, South)

Is it not heart-warming to see so many converts on the Tory Benches this afternoon—Tory Members who are now against the privatisation of the water industry, a measure for which they all voted? They are now complaining about the extortionate prices, salaries and dividends that are now being charged, drawn and distributed.

Is it not right that the Minister has taken the soft option, recognising in passing that some regulation is necessary, that capitalism and free markets do not work by themselves and that the Government must intervene—but not too far, as that would expose the nasty, villainous tactics that many big businesses pursue?

Why do the Government have these double standards? There are no soft options for those who are on income support or for those on the lowest of incomes. For those people there are comprehensive regulations and criminal penalties. Why cannot there be the same approach to big businesses? Is the answer that big businesses know very well that, if they make plenty of large donations to the Tory party, they can get away with whatever they want?

Mr. Hamilton

The hon. Gentleman performs a most valuable function by reminding us what the Labour party is really like.

Mr. Barry Porter (Wirral, South)

To wrap this up, I am delighted that my hon. Friend has opted for certainty. I do not think that I am alone, however, in saying that I am rather uncertain about what that certainty is. I am not sure what the targets are at which he is aiming. It might be helpful if he would explain to me in what sector I should sell shares—if I had any, which I have not—and, if I intended to invest, which I do not, what shares I should buy.

Mr. Hamilton

I have many functions to perform as an Under-Secretary of State at the Department of Trade and Industry. Fortunately, financial services, which used to be my responsibility, have gone to my hon. Friend the Economic Secretary to the Treasury. I shall direct my hon. Friend's question to him. I am sure that his advice would be better than mine, in any event.