HC Deb 26 January 1996 vol 270 cc620-6

Motion made, and Question proposed, That this House do now adjourn.—[Dr. Liam Fox.]

2.30 pm
Mr. John Heppell (Nottingham, East)

I am grateful for the opportunity to raise this issue in the House.

My reason for asking for this debate is not just the effect that the matter has had locally, with all brewing, all bottling and all distribution to stop at the Home Brewery site; it is not just the fact that the decision brings to an end a tradition of brewing in the Nottingham conurbation that goes back hundreds of years; it is not just the loss of the Robin Hood logo, which clearly identified the beer as a Nottingham product, in a secret deal of which I have no details; it is not just the loss of consumer choice and pub closures; it is not even the loss of more than 200 jobs, especially those in my constituency, which has the highest unemployment rate in the east midlands-higher than anywhere in Scotland or Wales.

Nor is my reason just to attack Scottish Newcastle for the effect that its policies are having nationally, with nine breweries reduced to seven, with 41 distribution points reduced to 28, with more than 200 jobs lost in the constituency of my hon. Friend the Member for Halifax (Mrs. Mahon), with the loss of consumer choice, with the effect on beer prices, and with the loss of more than 1,600 jobs nationally. If this matter concerned only Scottish Newcastle's actions, it would be a debate of little significance—we should know by now where Scottish Newcastle is coming from and where it is going.

What makes the debate so important is the fact that Scottish Newcastle has an accomplice in this affair, who aided and abetted it in obtaining a bigger share of the market, not by competition, but by acquisition. That accomplice must share responsibility for everything that has happened as a result of the merger; an accomplice who effectively drove a dray horse through the Government's policy of encouraging competition.

I am sorry to say that that accomplice is the Government, in the person of the Under-Secretary for Corporate and Consumer Affairs. He sealed the fate of Home Brewery, my local brewery and Nottingham's local brewery, when, on 14 August last year, he decided not to refer the merger to the Monopolies and Mergers Commission.

The Minister for Competition and Consumer Affairs (Mr. John M. Taylor)

Will the hon. Gentleman be good enough to concede that my predecessor in this office acted merely on the advice of the Director General of Fair Trading, who is an independent agent?

Mr. Heppell

I was coming to that point, and I am glad that the Minister has raised it.

The Department of Trade and Industry press release said that the decision was in accordance with the advice of the Director General of Fair Trading, and listed undertakings from Scottish Newcastle and Courage breweries. What the press release did not mention was that that was not the director general's original advice. That was clearly set out in a DTI press release on 21 July 1995. I shall quote it for the sake of the Minister: The Director General of Fair Trading has recommended that the proposed acquisition should be referred to the Monopolies and Mergers Commission because it would give rise to a significant concentration in the brewing industry with no compensating reduction in vertical links. That seemed clear enough to me, but the then Minister rejected that advice. He took a political decision to reject the advice of the director general—advice that should have come as no surprise to him, as it came as no surprise to me.

Back in 1989 there was a similar attempted merger, which was referred to the MMC. I want to quote from the report on that. Paragraph 1.6 states: We consider that the loss of the independence of one of the major suppliers to the market would reduce consumer choice and competition and thus be detrimental to the public interest. Paragraph 1.8 states: The creation of a second large group…would result in increased difficulty of supply for other brewers and distributors. Even more significant and relevant are the comments in paragraph 5.10: The effect of the takeover would be not simply a reduction by one in the number of separate companies operating in the UK beer market but would constitute a major alteration in the structure of the market, reducing competitiveness in all sectors. That was part of Scottish Newcastle's own evidence.

In paragraph 5.13, the report said: Scottish and Newcastle believed that it was against the public interest that such entry to the market should be achieved by acquisition instead of competition. I could continue quoting. The report is littered with arguments by Scottish Newcastle against the merger. It is clear that it changed its position to suit its own convenience.

As I said, Scottish Newcastle's actions should come as no surprise. Just this week my hon. Friend the Member for Blackburn (Mr. Straw) and my hon. Friend the Member for Hyndburn (Mr. Pope) told me about the sense of betrayal still felt in their constituencies following the takeover of Matthew Brown by Scottish Newcastle six years ago. Before the takeover, Scottish Newcastle wrote to all the employees in Matthew Brown guaranteeing that brewing would continue at the brewery in Blackburn. Within six months, the brewery was closed. If that can happen despite the guarantee, I have little doubt of the consequences of the merger for Home Brewery, my local brewery.

Scottish Newcastle's actions were predictable; indeed, I predicted them last July. What was not predictable was the action of the then Minister. He chose 21 July as the day to announce that he was considering accepting undertakings from the breweries, rather than referring the merger to the MMC. He allowed just seven days for interested parties to submit their views—hardly what anyone would call meaningful consultation. By the end of that seven days, the House was in recess and there was no opportunity for me or any other hon. Member to raise the matter.

Even with that tight time scale, I and several other hon. Members, including my hon. Friend the Member for Sherwood (Mr. Tipping) and members of the Nottinghamshire city council, wrote to the director gerieral saying that there was still a case for referral. I received a reply on 15 August. I was told that the Minister decided to ask for representations on the text of the conditions for the undertakings on 4 August. On 14 August, he decided that he would allow the merger to go ahead. Effectively, I had no real opportunity to argue against that. The decision was taken despite the fact that 33 representations were made, and the overwhelming view was that the most appropriate action would be referral.

I have no doubt—and events bear me out—that the whole consultation exercise was a sham, and that Scottish and Newcastle had already received a nod and a wink from the Government that there would be no referral to the Monopolies and Mergers Commission. There will be no referral for a merger that will put 30 per cent. of total beer sales in the hands of Scottish Courage, and will mean that two brewers will have more than 50 per cent. of the sales in this country.

The three conditions set down were designed to have a minimal effect. The first related to the new retail estates and Scottish Courage's 7,500 pubs. The total is actually more than that, as a reply from the Minister informed me. The company has been asked to get rid of 115 pubs, but that merely gives it an opportunity to get rid of its less profitable pubs. When a firm is supplying 7,500 different pubs, 115 is not a great number to have to get rid of.

Mr. John M. Taylor

The hon. Gentleman is right, but only half right. To that extent, he is half wrong. It is true that Scottish Courage will be required to reduce its tied estate by 115 pubs, but—and this is the important second limb of the undertaking—a limit was set at 2,624 on the maximum number of tied pubs that it could own.

Mr. Heppell

I do not dispute what the Minister has said, and nothing that I have said contradicts that. In answer to a parliamentary question from me, the Minister replied: At the time of giving his advice to me on the Scottish and Newcastle/Courage merger, the Director General of Fair Trading estimated that the parties would between them have owned or supplied about 7,500 pubs, which included some 4,350 pubs owned by Inntrepreneur Estates Ltd. and supplied by Courage. This figure is not complete as it does not include all supply agreements entered into by the parties as part of their normal commercial activities."—[Official Report, 6 November 1995; Vol. 265, c. 559.] I recognise that the tied estate is only 2,624 pubs, but in reality, the figure is 7,500. The Minister is clear on that as well; otherwise, something is wrong with his answer. It is still correct to say that 115 pubs is not a great number at which to set the ceiling, but even then there was a get-out. Scottish and Newcastle could apply for a review if it thought that the circumstances had changed, and there was a further get-out in that there would definitely be a review after three years. So that undertaking was not going to bite hard on Scottish and Newcastle.

The third condition—the release of thousands of IEL tied pubs—was not a new undertaking, as the company had already decided to carry that out in March 1998. An existing undertaken was merely to be brought forward, so that, instead of releasing 500 pubs in each of two years, the company would be releasing the pubs in one year. Even after that, I expect that the vast majority of pubs will still end up being supplied by Scottish Courage. The condition did nothing in terms of vertical competition, and it was supposed to offset the horizontal competition.

I will quickly move on, as I recognise that I am running out of time. It seems to me that the Minister had no intention of referring the merger to the Monopolies and Mergers Commission. If, in 1989, a similar takeover was referred to the MMC, why, in 1995, was this merger not referred? One of the significant reasons is the fact that, between 1989 and 1995, Scottish and Newcastle paid £320,000 to the Conservative party. Given the way that things have panned out, I have to think that that was a significant factor in the decision not to refer.

Mr. John M. Taylor

The hon. Gentleman dare not say that outside the protection of this Chamber.

Mr. Heppell

I have already said it outside the protection of this Chamber.

There has been much speculation locally about the Under-Secretary of State for Social Security, the hon. Member for Gedling (Mr. Mitchell), because 10 per cent. of that donation went to his constituency. I do not think that that contribution made any difference to what has happened to Home Brewery. I said that to the hon. Member and I do not mind repeating it. The decision to close Home Brewery was not made locally, nor was the decision not to refer the merger to the MMC—it was made nationally and by the Minister. No pun is intended when I say that the fact that the merger was not referred leaves a bitter taste in my mouth.

The hon. Member for Gedling has been lobbying to try to save jobs at Home Brewery. The problem is that he did not start his lobbying until very late on. In some respects, it was too late. My only criticism is that he gave people the false hope that the brewery would not close. According to an article in the Nottingham Evening Post of Tuesday 5 September 1995, the hon. Gentleman has made 'vigorous representations' to Scottish and Newcastle about the future of the Daybrook site. The brewer's response appears to have encouraged him because he told the Post last month:There is no commercial logic in shutting the site down. My responsibility is to look after my constituents who work at Daybrook and there is no reason to think that the future is not a good one.' My only criticism is that that made people think, "He is a Minister and part of the Government. He knows what is happening. The brewery is going to be safe." I know now that he is doing everything he can to ensure that, when those people are made redundant, they will have a chance to get back into training and employment as quickly as possible through the training and enterprise council.

But the decision that caused the closure of Home Brewery was the decision not to refer the merger to the MMC, and I am convinced that the Minister did not allow referral because it is a certainty that it would have turned it down. That is the evidence from the Director General of Fair Trading. In his report to the Minister, he gives enough reasons why it should have been referred.

I realise that I am not giving the Minister much time to respond, but I must quickly pay tribute to Gedling council, the local trade unionists and the work force for their efforts in trying to get something positive out of all this and to work towards the future, either to save the brewery or ensure that the site is used in a way that will ensure some employment is brought back into the area.

Finally, the Minister believes that his policy on competition is working. He has told me a great deal about how vertical competition has been stopped, but the policy has not stopped horizontal competition. In 1989, the six largest breweries controlled 77 per cent. of the market. By 1992, the five largest breweries—not six, but five—controlled 82 per cent. of the market. Today, the four largest—not the five or six largest—control 84 per cent. of the market. That is not dealing with competition and monopoly effectively.

2.49 pm
The Minister for Competition and Consumer Affairs (Mr. John M. Taylor)

I would have liked to congratulate the hon. Member for Nottingham, East (Mr. Heppell) on securing this debate and to have had the opportunity to deal with him on terms and in good time. However, his bitterness, to which he referred, has soured the debate somewhat, and makes it necessary for me to defend, although he does not need it, my predecessor in this office, which I do 100 per cent. and wholeheartedly, notwithstanding the innuendoes of the hon. Gentleman.

I defend also the outstanding role of my hon. Friend the Member for Gedling (Mr. Mitchell). It is clear from even a cursory reading of the local press that he has played a leading role in trying to persuade Scottish Courage to stay on site, invest and expand—not only in recent months but in the years since the Home brewery was sold to Scottish and Newcastle by the Farr family. Everyone knows that he did everything he could as the local MP to fight for his constituents who work at the brewery. He has a well-earned reputation in the House for fighting for the interests of his constituents.

I am afraid that the hon. Member for Nottingham, East leaves me with no option. Instead of turning to the arguments, I must deal with his outrageous suggestions about donations.

Donations to the Conservative party are received each year from thousands of companies up and down the country. However, unlike in the Labour party, they do not buy any favours. Everyone knows full well that Labour is owned lock, stock and barrel by the unions, who provide 50 per cent. of the party's funds and sponsor two thirds of their Members of Parliament, including every elected member of the shadow Cabinet. In return, they get 50 per cent. of the vote at party conference, 50 per cent. of the seats on the party's national executive, and considerable influence in the election of the party's leader and deputy leader and the selection of parliamentary candidates.

Mr. Heppell

I agree with the Minister. There are clearly financial incentives. Does the Minister agree that all those things should be open to scrutiny? Will he go against the Prime Minister and say that all donations to political parties should be referred to Nolan or some other committee?

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

Order. We ought to come back to the subject of the debate.

Mr. Taylor

In that spirit, I recognise hon. Members' concerns about the loss of jobs that will result from the recent reorganisation of Scottish Courage. Such losses are regrettable, but it is important to recognise that industry has to operate in a very competitive environment.

The hon. Member for Nottingham, East counterweighed his more unfortunate remarks with a candour for which I give him credit. I am not squealing, but as he has left me little time, I shall move to my conclusion. I shall have more to say, not least about theministerial decision that was based on the recommendation of the Director General of Fair Trading. In a spirit of candour I shall describe my position; to use a fashionable phrase, read my lips: I can't start interfering with the particular management decisions that have been taken… No politician, if he's honest, will sit here and. say they can prevent someone losing their job.

Mr. Heppell

I agree.

Mr. Taylor

That is as well, because I am quoting the right hon. Member for Sedgefield (Mr. Blair), who said precisely that in the Nottingham Evening Post last week.

Mr. Heppell

Will the Minister go further and say that no one should interfere with the decisions of the Director General of Fair Trading?

Mr. Taylor

I will not be unduly drawn on the matter, but I think that the ultimate responsibility rests with my right hon. Friend the President of the Board of Trade. If I am mistaken, I shall rapidly return to the matter with a letter to the hon. Gentleman, and I shall put a copy in the Library.

We must now try to be constructive. I understand that Scottish Courage will take steps to redeploy staff wherever possible, and will work with local agencies to help staff who lose their jobs to find other work. The Government are well aware of the difficulties faced by those who may lose their jobs, and are fully committed to working with local partners to help ease the effects of the closures. Representatives from the local training and enterprise councils have already met local politicians, trade unions and other representatives to discuss how best to help those affected.

The decision taken by my predecessor not to refer the Scottish and Newcastle and Courage merger to the Monopolies and Mergers Commission has been criticised. It may help if I explain how that decision was reached.

Last August, my predecessor announced that he had accepted undertakings from Scottish and Newcastle and Courage and that he would therefore not refer the merger to the MMC. The undertakings addressed competition concerns, which the Director General of Fair Trading had identified. They weaken the link between Scottish Courage and its retail estate by requiring Scottish Courage to reduce its tied estate and by setting a limit on the maximum number of tied pubs that the company can own.

I immediately acknowledge that the director general's original advice was that the merger should be referred to the MMC, because it would give rise to a significant concentration in the brewing industry, with no compensating reduction in vertical links. But my predecessor asked him to consider whether those concerns could be remedied by enforceable undertakings as an alternative to reference. The final decision taken by my predecessor was in accordance with the independent advice of the director general, and followed two periods of consultation about the form that the undertakings should take. In addition, the final undertakings were published, together with the director general's advice.

The whole process by which the undertakings were secured was highly transparent. If hon. Members read the director general's advice, they will see that he carefully considered third parties' views. He took those very much into account before he advised that they addressed the competition concerns arising from the merger, and that they should be accepted instead of the merger being referred to the MMC. The House will recognise that the undertakings given by the companies are aimed at addressing competition concerns arising from the merger.

Since 1984, the Government's policy has been that decisions on whether mergers are referred to the MMC are taken primarily on competition grounds. That will continue to be the case. It is important to consider the decision taken on the Scottish Courage case in the context of more recent regulatory intervention in the brewing industry.

In 1989, the MMC completed a monopoly report on the supply of beer. That led to the Beer Orders, which sought to encourage competition in the market, primarily by reducing the extent to which licensed premises were tied to the national brewers. There have been three major mergers since that report: between Allied and Carlsberg; Courage and Grand Metropolitan; and Scottish and Newcastle and Courage. The first two of those mergers were referred to the MMC.

I recognise that it was expected that the third would also be referred, so the Government's decision to allow the merger to proceed without a reference seems to have shocked some people. Some seem to think that a merger should be automatically referred whenever the market share rises above 25 per cent. Let me explain that the 25 per cent. threshold only establishes jurisdiction under the Fair Trading Act 1973, but is no more that a jurisdictional test. Moreover, new legislation enabled enforceable undertakings to be attained in the Scottish Courage case, which meant that competition concerns could be addressed without a reference to the MMC, as Parliament had always intended.

It does not mean that future brewing mergers will never be referred to the MMC, or that vertical links will be the only aspect of a brewing merger that the Government seek to address. In considering the action to be taken, each merger case is considered on its merits. The competition authorities assess the effect of the merger on the market, and take views of third parties. That is true of all mergers. Nor should there be a general presumption—that the Government would always intervene in markets.

Perhaps I can end, as earlier stated, with a quotation. It is the only time ever that I have claimed the Leader of the Opposition in aid of my argument, and it may never happen again. It has been an interesting week. He said: obviously I can't start interfering with particular management decisions that have been taken… No politician, if he's honest, will sit here and say they can prevent someone losing their job. I can't.". Nor can I.

Question put and agreed to.

Adjourned accordingly at Three o'clock.