HC Deb 27 July 2000 vol 354 cc1367-75

Lords amendment: No. 6, in page 21, line 6, at end insert— ("(1A) No such penalty shall exceed 10 per cent, of the turnover of the licence holder (determined in accordance with provisions specified in an order made by the Secretary of State).").

Mr. Alan Johnson

I beg to move, That this House agrees with the Lords in the said amendment.

Mr. Deputy Speaker

With this it will be convenient to take amendment (a) to the Lords amendment, Lords amendments Nos. 7, 10, 13 and amendment (a) thereto, No. 14 and amendment (a) thereto, and Nos. 51, 52 and 83.

Mr. Johnson

This group of amendments deals with a number of issues relating to the Postal Services Commission's duties and powers. It will place a cap on the financial penalties that can be imposed on licence holders for contravening a licence condition.

Mr. Bercow

I shall focus my remarks on our amendment to Lords amendment No. 6 and other Lords amendments in the group, especially amendments Nos. 13 and 14.

The purpose of amendment (a) to Lords amendment No. 6 is to restrict any fine that is levied under the Bill to 10 per cent, of turnover. We are concerned that the period in which turnover is taken into account should be a period of only one year, or certainly not exceeding one year.

It is at least arguable and it has been argued in other contexts, not least by my right hon. and hon. Friends, that a 10 per cent, fine is excessive. We contend that one such fine imposed on a company in respect of three years of its turnover would be extortionate. The Conservative Opposition moved a similar amendment, as the Minister will be aware, in Committee in another place. It was flagged up and eloquently argued for by Baroness Miller of Hendon on 8 June. She objected to what she thought was the potential for grossly excessive fines. It is interesting that on that occasion the Minister rejected the amendment tabled by my noble Friend on the grounds that the clause stated that any fine that was imposed would have to be reasonable.

I observe, almost in parenthesis, that it was a slightly curious line of argument for the noble Lord representing the Government to deploy. On several instances during the other House's consideration of the Bill, my noble Friends argued for the insertion of the word "reasonable" in respect of other clauses and amendments. They were swiftly rebutted on each and every occasion by the noble Lord on the ground that reasonableness was implicit in all the clauses and amendments to the Bill. It would thus be otiose to insert the word in the Bill. However, when it suited the Government to argue that their plans were reasonable and did not require our amendment, that is what Lord Sainsbury did.

As the Minister knows, I am a fairminded chap and, in continuing my description of the chronological sequence of events, I must tell the House that, by Third Reading, the Government had had a change of heart. I am sure that that was the result not only of the intellectual ferocity but of the personal charm of my noble Friend Baroness Miller of Hendon, which I could not possibly hope to emulate. Nevertheless the Government changed their mind and tabled an amendment.

The draft Competition Act 1998 (Determination of Turnover for Penalties) Order 2000 was made on 10 February and it implemented section 36 of the Competition Act 1998. Although the order owes its origin to section 36(8) of the Act, that section says: No penalty fixed by the Director under this section may exceed 10 per cent, of the turnover of the undertaking (determined in accordance with such provisions as may be specified in an order made by the Secretary of State). Therein lies the reason for the continuing dissatisfaction of Conservative Members. The Government have shifted their position and that is welcome. However, it would help if they changed their position somewhat further so as to recognise the force of the argument, made not least by commercial undertakings, that it is unfair and excessive for the fine to be able to apply to three years of turnover. There is nothing in what the Government have so far provided for to suggest that the period could exceed one year but equally, there is nothing to say that a limit of one year will be observed.

That, therefore, is the problem with the provision. The Secretary of State could issue an order that would triple the figure from 10 per cent, to 30 per cent. There was no mention in Committee or on Second Reading that turnover would exceed one year, but out of the blue last August, the Department of Trade and Industry issued a press release that said that companies engaging in anti-competitive practices will face a maximum penalty of 10 per cent, of their UK turnover for each year of the infringement, up to a maximum of three years. That could amount to tens of millions of pounds in some cases.

It beggars belief, but the Minister and his colleagues in the Department of Trade and Industry were not merely acknowledging that they were providing for the application of a fine on three years' turnover, but were bragging about it as though it was something of which to be proud. First, the Government gave no sign that they would do that and then they did it. They then talked about an amendment in the Lords Committee, assuaging, in some way, the Opposition's legitimate concerns. However, at heart, the Government still want there to be a punitive fine regime.

Although there is indubitably a case for a fine regime, that regime should be fair. It should not be punitive or extortionate and it should assuredly not be used as a source of revenue for application elsewhere. The suspicion exists—my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) will confirm it after three years of this Government—that such moneys can be regarded as stealth taxes. In this case, those stealth taxes are imposed not on individuals, but on businesses.

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As the Minister will acknowledge, consultation revealed a long hostility towards the new penalty regime. The Confederation of British Industry is especially critical of the order. A Government who pride themselves on their apparently close relations with at least some representatives of business, and with the CBI in particular, should at least have taken on board those comments and changed the order accordingly.

The CBI said: The proposed maximum penalty for breaches of the Act is excessive. It could lead to extremely large fines, and affect the viability of businesses, potentially leading to insolvencies and consequent job losses…The CBI believes the imposition of a maximum fine on a three-year basis to be contrary to the principle of section 60 of the Act; the equivalent time period at EU level is only one year.

It went on to say: The proposed level of maximum fine may also be contrary to the general Community law principle of proportionality.

It continued: Such a level of penalty goes beyond normal bounds, whether in terms of deterrent, retribution or proportionality, and arguably runs counter to the Government's stated goal of creating a healthy, pro-business environment.

My next concern relates to paragraph 4 of the Competition Act 1998 (Determination of Turnover for Penalties) Order 2000, to which I direct the Minister's attention. It reads: Where an undertaking consists of two or more undertakings that each prepare accounts then the applicable turnover shall be calculated by adding together the respective applicable turnover of each, save that no account shall be taken of any turnover resulting from the sale of products or the provision of services between them. That seems further to emphasise the punitive character of the fine regime. One can have a substantial number of companies only indirectly and tangentially involved with the main culprit, whose turnover is contributing to the sum on which the 10 per cent, fine over three years is levied. That does not seem fair.

The Minister is an immensely reasonable specimen. He is the closest approximation to reasonableness that one can expect in this Government.

Mr. Patrick McLoughlin (West Derbyshire)

He never used to be.

Mr. Bercow

As my hon. Friend points out from a sedentary position, the Minister used not to be reasonable, but that was when he was representing the forces of organised labour—he was veritably an old-fashioned trade unionist in those days. Of course, he has since made the transition to new Labour, and he is an aspiring and rising Minister. His tune has changed, but we will dig out what he has said on previous occasions. If he can persuade us that the provision is reasonable, we will be interested to hear how that can be so.

This is a matter of particular concern at a time when the Post Office is trying to expand. It has recently made several acquisitions—German Parcel being the most notable example—and it is in the process of forming important and potentially profitable strategic alliances. When it is getting bigger, the scope for hefty fines to be imposed is a legitimate source of anxiety, and I hope that the Minister will at least reflect on that point.

In the DTI press release to which I alluded earlier, which was issued on 9 August last year, the Government proudly flagged up the fact that they were providing for tough penalties. If memory serves me correctly, in 1996, when my right hon. and hon. Friends were considering proposed reforms to competition law, there was consideration of a new fine regime, which was to be determinable by, or at least capable of being heard by, a tribunal. The idea was to impose a maximum limit on a fine of about £1.5 million. Here we have a proposal that could result in extortionate sums of money being taken from companies. On the principle of reasonableness and proportionality, I hope that the Minister will reconsider.

I turn now to Lords amendment No. 13, which is also a matter of legitimate concern to the House, and the Opposition seek to amend it. This amendment is intended to place the commission under an obligation to conduct benchmarking operations with other postal operators in order to ensure a competitive market place. The present commission has indicated a willingness to do that, but the commission should be under an obligation to do something, rather than simply consider whether it is practicable.

The Government have talked about the prospect of benchmarking where it is "practicable" to engage in it. We think that that is not a persuasive case. If benchmarking is a good idea—if it is in the national and commercial interest to be able to compare the performances of different service providers, it is not clear, given that there is to be a regulatory structure, why this should be only an opportunity and not a formal obligation.

We welcome the Lords amendment based on the amendment tabled by my hon. Friends the Members for Rutland and Melton (Mr. Duncan) and for Banbury (Mr. Baldry) in Committee in the Commons, but we want to strengthen it. In doing so, we would be meeting a function of the commission under clause 5(3), requiring that the commission shall exercise its functions in the manner which it considers is best calculated to promote efficiency and economy on the part of postal operators. Accordingly, this amendment proposes that the commission collect information about the effectiveness of the Post Office, as compared with similar operations, and then report on the information that it has collected. It is difficult to see how the commission will be able to discharge the function referred to in, and provided for by, clause 5(3) without the benefit of such information. The proposal provides the information necessary to enable the commission to carry out its functions and the reassurance that that information will definitely be sought.

Thus the amendment that we commend is similar to that tabled by my hon. Friend the Member for B anbury in Committee, and I ought properly to add that it is supported by the Periodical Publishers Association. It is designed to ensure that the Post Office make efficiency savings and offer a competitive service. When a similar amendment was tabled in Committee, the Minister rejected it, as it would have required licence holders to arrange and fund the carrying out of annual independent reviews of the efficiency and economy of its operations.

Our contention is that the amendment seeks the same ends, but the commission will be responsible. Because the Post Office is, for the time being, the only realistic carrier of magazines, PPA members want it to operate in a manner calculated to promote efficiency and economy.

I shall detain the House only briefly to say something about the amendment to Lords amendment No. 14—[Interruption.] The Minister for Trade is a distinguished denizen of this place. He has detained this House on many occasions. I have listened with wide-eyed enthusiasm to the sheer power of the hon. Gentleman's oratory, so I hope that he will forgive me if, in performing my duty on behalf of the Opposition, I briefly detain the House on the amendment to Lords amendment No. 14. If the hon. Gentleman knows me well, he will know that it is much better for him to keep quiet and not provoke me. If he insists on provoking me, it will take a great deal longer, and the blame and responsibility for that will be his, not mine.

The amendment to Lords amendment No. 14 is designed to ensure that a reference to transparency and accounting appears in the Bill. It would ensure that the commission considers any potential cross-subsidy and reports on it each year to ensure fair competition. The Government amendment was tabled in response to concerns expressed by my noble Friend Baroness Miller on 15 June. It seeks to highlight how the commission is performing its functions under the European directive. I emphasise to the Minister that this is a welcome concession from the Government, but we would like to see in the Bill a direct reference to transparency in accounts.

It might be helpful if I explain to the House that the wording of the amendment is taken directly from article 14 of EU Postal Services Directive 97/67/EC. The Minister will understand that the background is the July 1999 White Paper "Post Office Reform: A world class service for the 21st century", which emphasised the importance of transparent accounting and limiting cross-subsidies to a level necessary for the preservation of essential services. It stated that the regulator would need to ensure that the necessary accounting transparency was in place to give credible assurance that there was no undue cross-subsidy from the business units operating in the monopoly area to those competing in other market sectors. That point was expanded upon at page 25, paragraphs 25 to 26, which no doubt the Minister could reproduce off the top of his head and with which I will not therefore weary the House.

The White Paper made it clear that, until the regulator was established, responsibility for ensuring transparent accounting and for monitoring cross-subsidies rested with the Government. The Select Committee on Trade and Industry in its 12th report reached a similar conclusion. Transparency of accounting and the limiting of cross-subsidies are central themes of the European postal services directive. That is clear from recitals from that directive. In article 14, there is an express requirement to keep separate accounts and to allocate costs to each of the non-reserved and reserved services.

The amendment would ensure that the Bill gives appropriate weight to the stated aim of the directive, of the White Paper and of the Select Committee report, that competition should be fair and cross-subsidies be limited to cases where they are necessary to maintain the universal service obligation, and necessary to the transparency of accounts. The amendment seeks to enhance, rather than to detract from, the existing provisions of the Bill.

On 14 March, in Committee, the Minister said that the Government had considerable sympathy with our aims. I hope that he will accept that our amendment is a robust means by which to achieve them. It would have the advantage of transparency and predictability for commercial operators, which have long complained about unfair cross-subsidies to the Post Office's Parcelforce.

It is a powerful case. I hope that the Minister will reflect on it on his feet, if I may put it that way, and accept the wisdom of our arguments.

Mr. Alan Johnson

All throe of the issues that we are debating and that were covered by the hon. Member for Buckingham (Mr. Bercow) have come about as a result of us listening to points that were raised at Committee stage in the House and in the other place. I am a little surprised that Conservative Members have tabled amendment (a). The Lords amendments that they seek to amend or to remove concern issues on which the Government have accepted changes to deal with particular concerns in the other place.

The hon. Gentleman was right to say that we took note of the intellectual ferocity and charm of Baroness Miller of Hendon. She said about our amendment, which the Opposition are trying to amend: We have no difficulty in accepting this amendment— amendment No. 6. We argued for it quite strongly either in Committee or on Report. We thank the Minister for bringing it back in this form.—[Official Report, House of Lords, 11 July 2000; Vol. 615, c. 171.] The people whose intellectual ferocity and charm convinced us to table the amendment have said not one word in support of amendment (a). Lord Dearing of Hull, who knows one or two things about the Post Office, also warmly welcomed the change.

Amendment (a) would define the applicable turnover for determining the maximum fine under clause 30 as being for a period of not more than 12 months, and being either the period of the business year preceding the date when the contravention ended, or the date of the imposition of the penalty if the contravention had not ended. It would also effectively make the order-making power of the Secretary of State—which is a crucial element of that part of the Bill—unnecessary. It would, in that sense, be a backward step.

The amendment is overly prescriptive. We believe that it is technically deficient. I know that arguments about technical deficiency are always the bane of those on the Opposition Front Bench, but it makes no provision, for example, as to whether the relevant turnover is to be restricted to that of the business in the UK, or extended to cover worldwide turnover. Nor does it allow for the possibility of the detailed provisions to change over time.

Careful consideration is needed to define turnover for those purposes. That will entail a level of detail that would be inappropriate in the Bill.

Detailed provisions should be set out in an order made by the Secretary of State, as provided for in Lords amendments Nos 14 and 83. Such provisions would mirror the procedure adopted for the analogous provisions in the Competition Act 1998, and in the Utilities Bill.

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The hon. Member for Buckingham made a valid point. He was concerned about whether a Government would use the power to impose burdensome fines on what could be the Post Office but could, in the future, be other universal service providers. That is the whole point about the licensing regime. The time to raise the issue, however, will be when the Secretary of State lays the order before the House by means of a statutory instrument. That, entirely properly, will give the House an opportunity to decide whether there are any problems relating to the fine.

Mr. Jack

My hon. Friend the Member for Buckingham (Mr. Bercow) made an entirely reasonable point. The Minister batted it off, saying, "We can discuss this later, when an order is laid". Given that my hon. Friend raised an important point, however, will the Minister assure me that there will be a period of open consultation, so that when the order is laid, the important accounting and equity issues raised by my hon. Friend can be properly discussed?

Mr. Johnson

We are talking about circumstances in which the terms of a licence have been breached. We were originally reluctant to put a cap on the fine imposed, but the forceful arguments advanced in another place convinced us that we should do so. That is entirely consistent with the Competition Act and with the Utilities Bill, and it is perfectly reasonable for us to say that we should not be burdened in the Bill by the form that the penalty should take.

Mr. Bercow

May I press the Minister on the question of the entitlement to fine on three years' turnover? This is a matter of grave concern. We do not dispute the principle that fines should be imposed, but business representatives out there believe that the scope for fining of three years' worth of turnover is excessive. How will the Minister reassure them?

Mr. Johnson

I would reassure them on this basis. As I said earlier—I realise that someone was speaking to the hon. Gentleman at the time—the amendment, as drafted, does not take account of whether turnover in the domestic part of the business is involved, or turnover in its European subsidiaries. There is a technical deficiency. It is impossible to deal with such technicalities in the Bill, but we will ensure that an order is laid before the House so that the issues can be debated.

The money obtained from any fine will not go into Treasury coffers; it will go to the Postal Services Commission. There will be no great imperative either to impose too many fines, or to insist that the fines are used to plug a gap in public finances. The money cannot be used in that way: it will go to the commission.

I do not think the amendment is necessary. I think the Opposition should quit while they are ahead. They made a good contribution which was accepted in another place, and I do not think we need amend that further.

Amendment (a) to Lords amendment No. 13 would require the Postal Services Commission to collect information enabling comparisons to be made between the efficiency and economy of different postal operators, whether in the United Kingdom or abroad. Unlike Lords amendment No. 13, the amendment leaves the commission with no discretion whatever.

We do not doubt that comparative information will be essential to the commission when it carries out many of its core duties. The point was raised by the hon. Member for Rutland and Melton (Mr. Duncan) in Committee; we thought it sensible, and we have dealt with it. However, we do not think that we need to be prescriptive in the Bill. It is important to leave operational matters to those who are in the best position to make the decisions—in this case, the Postal Services Commission.

It is important that the commission should have some discretion in when it collects comparative information, because it may not always feel that a comparison is useful. The Government do not want to require the commission to do work—for which licence holders will pay—if the commission believes that that work is unnecessary.

The commission also does not have the power to require such information from unlicensed operators or from anyone except universal service providers in the United Kingdom. It certainly does not have the power to require information from operators abroad. However, an important aspect of comparisons, particularly of the services provided, will be to consider operations in the private sector and in countries such as Sweden. Removing the element of choice and insisting that the commission must do such work regardless of whether it is necessary would be a backward step and would not be acceptable.

We think that amendment (a) to Lords amendment No. 14 is quite unnecessary. I agree entirely with the hon. Member for Buckingham that transparency is essential and absolutely healthy. Indeed, ensuring that a universal service provider keeps separate accounts within its internal accounting systems for each of its reserved and non-reserved services is one of a number of important requirements of the European postal services directive. However, a requirement to report on how it has complied with that duty is already subsumed within the provisions of amendment No. 14, which will require the Postal Services Commission to include in its annual report a report on how it has complied with its obligations under the postal services directive. Highlighting that specific aspect of that duty would have no practical effect and would serve no useful purpose.

Now I come to the point that is dreaded by every speaker at the Dispatch Box, when it is necessary to correct an earlier statement. I am told that the money goes not to the commission, but to the Consolidated Fund. However, the commission has no financial incentive to fine companies. I hope that that fully clarifies the point.

I cannot accept the amendments to the Lords amendments.

Lords amendment agreed to.

Lords amendments Nos. 7 to 19 agreed to.

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