Enterprise Bill (Hansard, 5 November 2002)

§ The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson)
I beg to move, That this House insists on disagreeing with Lords Reasons 1C and 176C to 186C.

§ Mr. Speaker
With this it will be convenient to discuss Government amendments (a) and (b) in lieu thereof.

§ Miss Johnson
We have always been clear that the Bill allowed the Office of Fair Trading to create a separate post of chief executive if it wanted to do so. Last week I reassured the House that I envisage reviewing the arrangements at the top of the OFT when John Vickers retires in 2005, so we would consider at that time whether a separation of the roles of chairman and chief executive was desirable. However, given the concerns expressed that the OFT should definitely have a chief executive, the amendment that I have tabled in lieu of the Lords amendment makes express provision for such a post in the Bill.
The amendment also provides for a transitional period of two years during which a combined chairman and chief executive at the OFT could be appointed. Hon. Members will know that the OFT's particular circumstances have been critical to our decision not to separate the roles of chairman and chief executive between two different people at present. We are conscious that the OFT is about to enter a period of substantial change as a result of the Bill, and we want to ensure that there is continuity to lead the OFT through that change.
We have already said that the Secretary of State will appoint John Vickers as chairman of the OFT for the remainder of his current term as Director General of Fair Trading, honouring the commitment made to him when he was appointed to that post. Given that commitment, and to provide the desired continuity while the OFT's new arrangements bed down, I remain of the view that the OFT should not separate the roles of chairman and chief executive immediately. The transitional provision will ensure that the commitments given to John Vickers are honoured, and it will assist the OFT.
I remind hon. Members that in creating this new statutory authority the Bill is providing for a significant depersonalisation of competition and consumer regulation, and I have said before that I expect the OFT to have a majority of non-executive members. A two-year transition during which a combined chairman and chief executive may be appointed therefore seems to me to be sensible and apt.

§ Mr. Andrew Robathan (Blaby)
We return to this amendment, which we discussed only last Wednesday. This Bill has been a bit of a marathon, although I have not been involved with it for very long. This may, of course, be the last time that we discuss it in this House. The Bill has had nearly 750 amendments, largely from the Government, and nine new clauses. That is no way to prepare legislation. It was badly thought out and 246 badly prepared. There is confusion in the mind of the Government, as demonstrated by this amendment, and a lack of direction on their part.
We have many reservations remaining but we think that the Bill is now, in part, sensible and useful. It deals largely with competition, insolvency and consumer protection, not with enterprise. This is a Government who stifle enterprise, wrapping business in red tape and regulation. They do not understand enterprise or business, and their Back Benches are largely populated by those who have made a career of opposing free enterprise.
Amendment No. 1 shows the confusion in the Government's mind. The Cadbury report says: The chairman's role in securing good corporate governance is crucial. Chairmen are primarily responsible for the working of the board, for its balance of membership … Given the importance and particular nature of the chairman's role, it should in principle be separate from that of the chief executive. The principle is what we are talking about. The report continues: If the two roles are combined in one person, it represents a considerable concentration of power. The 1995 Hampel report said: Our view is that, other things being equal, the roles of chairman and chief executive officer are better kept separate, in reality as well as in name. Where the roles are combined, the onus should be on the board to explain and justify the fact. More recently, the Minister said that the Director General of Fair Trading currently has a wide range of functions in the areas of competition and consumer protection, many of which are being reformed in the Bill. The Government believe that in the light of the reforms, it is no longer appropriate for all those powers to be vested in one individual."—[Official Report, Standing Committee B, 16 April 2002; c. 12.] Even more recently, last Wednesday the Minister referred to Sir John Vickers, "who I expect to occupy both roles in future." In response to an intervention, she said that the question of how the role would be divided was largely academic. The next day, I read Hansard and found that the reference to "both roles" had been expunged. I am not by nature a conspiracy theorist, but I was concerned that an official from the Department of Trade and Industry had ensured that the reference to "both roles" had been taken out of Hansard. I raised a point of order about that on Thursday. Having spoken to the Editor of Hansard and to his Deputy, I am happy to accept that it was an error rather than anything suspicious. Nevertheless, there is some confusion.
If we want companies to be run in a certain way, I suggest that the Government body that regulates and looks after them should be run in the same way. The chief executive considers the detail and the day-to-day operations, and the chairman oversees the strategy and provides the checks and balances on the chief executive. In the debate last Wednesday, the hon. Member for Twickenham (Dr. Cable), like many others, asked who regulates the regulator. That is an important question, because he will be extremely powerful. The OFT post will have a tremendous impact on business and on the enterprise of this country.
A report produced by the Strategy Unit in September entitled "Private Action, Public Benefit" is about the Charity Commission but it can be applied to the same position in the Office of Fair Trading. It says: 247 The Chief Commissioner is currently both Chair and Chief Executive of the Commission … With the … higher public profile that the Commission is to adopt, there is a strong case for introducing separate Chair and Chief Executive posts. The Chair's particular role would be in ensuring good corporate governance and the smooth functioning of the enlarged board, and in representing the Commission in public and at high level within Government and the charitable sector. If I am allowed to quote Lord Razzall—

§ Mr. Phil Woolas (Oldham, East and Saddleworth)
Lord Razzall is a Liberal Democrat.

§ Mr. Robathan
He is indeed a Liberal Democrat. I do not often quote Liberal Democrats or pray them in aid, however yesterday in the House of Lords he used the analogy of the BBC, and I think that it is a rather good one. It is also a public body. We may have our own views on the BBC, but would we want Greg Dyke to be both chairman and chief executive? I suggest that almost all hon. Members would answer no to that question.
Sir John Vickers is an excellent man. Not only did he go to my college at Oxford, Oriel, but he was a fellow of All Souls, as we were reminded last Wednesday by my right hon. Friend the Member for Wokingham (Mr. Redwood). I am sure that the Government will heartily deny the comments in an article in last Sunday's edition of The Sunday Telegraph, which says: The Government is heading for further embarrassment over sweeping powers to be given to the overhauled Office of Fair Trading, after it emerged that John Vickers, the designated chairman and chief executive, is willing to give up one of these roles. … an OFT spokesman confirmed that Vickers is 'neutral' on whether the roles should be split, adding: 'The decision is for Patricia Hewitt"— the Secretary of State for Trade and Industry— and Parliament.' … The Government's supporters say that best practice in a private sector boardroom is not necessarily applicable to that of a regulator. I think that, on principle, it would be helpful if it were dealt with by the regulator as well.
I am sure that Sir John Vickers will do the job well, but confusion continues because, having denied our argument until last night, the Government have now largely accepted it. After Sir John Vickers there will be a chief executive and a chairman, separate and distinct.
The Government have accepted our argument. I think that it is much better for good corporate government, and for the oversight of good corporate government by the OFT, for there to be two separate roles and two separate occupants of the posts involved.

§ Dr. Vincent Cable (Twickenham)
I do not want to make a meal of this, because many of the arguments about the split functions of the chief executive and the chairman were aired the other day, and I understand that the Government amendments largely cover the principle for which we argued—that the roles should be separated. I accept that that considerable step has now been taken, and I do not see much purpose in prolonging the debate indefinitely.
It is unfortunate that the Government prejudged the legislation, and that we are now having to build legislation around one individual's contract, but that is 248 a fact of life. There was a contract, which had to be honoured. I understand that the Government have now largely accepted that the legislation will have to be changed, and in the way that we have sought.
I will say, however, that throughout our discussion of accountability I have been concerned with a slightly different point: the extent to which the key appointment of the chief executive will be subject to effective parliamentary scrutiny. Lord Borrie, who performed that role in the past, tried to address the issue when it was debated in the House of Lords. He gave a long list of ways in which he felt that this powerful appointment was accountable to Parliament. He listed the parliamentary ombudsman, the report to the Public Accounts Committee, the Competition Commission and the competition appeals tribunal, and asked rather wearily why on earth we needed more parliamentary accountability when all those bodies were available.
Although obviously a distinguished man, Lord Borrie may not have quite got the point that has concerned many of us. The key issue is the process of appointment. Mr. John Vickers—I do not want to be pedantic, but I must tell the hon. Member for Blaby (Mr. Robathan) that I do not think he has reached the knighthood stage yet—is clearly an outstanding individual, but if a future Government appointed a complete dud or made a blatantly political appointment, at what point could the House exercise some control or scrutiny?
This is not an issue that could be taken to the ombudsman, to the Competition Commission—another quango—or to one of the courts. Scrutiny can only be exerted here. That is why I, along with other Members, have urged that when an appointment is made, Mr. Vickers's successor should be brought before the Select Committee on Trade and Industry. We do not need to legislate for that; all we need is some assurance from the Secretary of State, for reasons of courtesy as much as anything else, that the appointment will be referred to Parliament for scrutiny. I am not saying that Parliament should necessarily be able to veto the appointment, but I think it should be referred to a Select Committee for proper oversight.
I am disappointed that that relatively small concession to parliamentary scrutiny has not been made, and I hope the Minister will make it. I do not think it necessarily affects our attitude to the amendment: it is couched in terms of the split functions, and that point has been conceded. But I would like to leave the Bill feeling that the Government had taken account of the concern about the considerable power vested in this appointment, and the view that it should be subject to more scrutiny.

§ Bob Spink (Castle Point)
I cannot agree that the roles of chairman and CE can be sensibly combined for any period. That is organisational nonsense. It would not pass even key stage 1 in management philosophy.
I do not want to be a killjoy, but such confusion on the part of the Government should not be allowed to pass unmentioned. I am pleased that the Government have caved in on the amendment, but I cannot see why the transitional period should be set at two years. I had hoped for a more detailed explanation of that from the Minister. Perhaps there is still time for her to cover those 249 points. Why is it two years? Why not one year, six months or even two months? We need to ask those questions.
If the structure of the OFT is not right, how can it do its important job in our economy? The answer is that it probably cannot. I like the idea of the hon. Member for Twickenham (Dr. Cable) that a new appointment should at least, out of courtesy, be scrutinised by the Select Committee. I hope that those on the Treasury Front Bench will take that on board.
I will not delay proceedings further but I thought that those points should be raised.

§ Miss Melanie Johnson
I reiterate the fact that we have always accepted that a split could be made: the Bill always made it possible for the two roles to be split. However, we have always said that we wished to honour an existing appointment. In response to the hon. Member for Castle Point (Bob Spink), the reason why we have gone for two years is that John Vickers retires in 2005. In fact, it will make little difference because the amendment relates to a process of appointment, not to any existing post holder. However, it is clear that, within two years, there will be a change at the top of the OFT. That change is recognised in the transitional period in the amendment.
On the role of the Select Committee on Trade and Industry or indeed any other Select Committee, we are enthusiasts—I am sure that the OFT is—for parliamentary accountability, for seeing that that accountability is exercised fully, and for members of Select Committees taking an interest directly in the work of the OFT in its many guises. I trust that that work will go on. It is unlikely that we would want to go down the path that the hon. Member for Twickenham mentioned. In any event, as he rightly said, the amendment is concerned not with that issue directly but with ensuring that, after the honouring of the two-year period, the two jobs of chairman and chief executive will be split. I gave the House an assurance that we would look at that matter. This is a more formalised arrangement to reassure this House and another place. I trust that Members will receive it in the spirit in which it is offered.
Question put and agreed to.
Government amendments (a) and (b) in lieu of Lords reasons agreed to.

§ Miss Johnson
I beg to move, That this House does not insist on its amendment 2A to Lords amendment No. 2 to which the Lords have disagreed, but instead agrees with amendment (a) in lieu thereof.
As I said in last week's debate on Lords amendments, I am happy to accept the principle of Lords amendment No. 2—that the Office of Fair Trading should have regard to the generally accepted principles of good corporate governance in its affairs. However, I consider it necessary to amend the Lords amendment to ensure that the OFT must have regard only to the principles of good corporate governance that may reasonably be regarded as being applicable to it, and to ensure that the OFT must also have regard to other relevant general guidance concerning the governance of public bodies.
As hon. Members will know, we tabled an amendment last week, modelled on a similar provision in the Office of Communications Act 2002, to achieve 250 these changes. However, we have listened to the strong opinions in the other place, which favoured an amendment modelled on the Financial Services and Markets Act 2000. Today's amendment is therefore based on the 2000 Act, which includes a provision that refers to having regard to the principles of corporate governance, which may be reasonably regarded as applicable to "the Authority". Obviously, our draft refers instead to the OFT. We have added to that model a reference to having regard to guidance that is aimed at public bodies. This is an important change. The OFT will not be a company, so it must take proper account of guidance, rules and procedures for public bodies, such as Treasury rules on public accounting.
By way of contrast, the Financial Services Authority is a private law body—a company limited by guarantee, on which statutory functions are conferred. The provision in the 2000 Act therefore needs amending to be fully appropriate to the OFT. I believe that amendment (a) achieves the Lords' underlying aim—that the OFT should have regard to the principles of good corporate governance—with a provision that is modelled on the 2000 Act. We have changed the provision only where necessary to ensure that it is fully appropriate to the OFT.

§ Mr. Robathan
It is interesting to note that yesterday in the Lords, at the early hour of 6.41 pm, long before dinner, the Government could summon only 129 people in support of their position—seven fewer than they managed some 20 minutes earlier for the first amendment. I am not sure whether wiser and more learned counsel prevailed—

§ Miss Johnson
Given today's circumstances, would it not be wiser for Opposition Members to refrain from mentioning support that can be achieved in furtherance of particular aims or objectives?

§ Mr. Robathan
I am sorry, but I was discussing the matter in hand—amendment No. 2 to the Bill—rather than making cheap and foolish comments about the Opposition.

§ Bob Spink
Perhaps I can help my hon. Friend by suggesting that the Government's lack of support in another place was due to the contradictory nature of these amendments. According to any management textbook, the principles of good corporate governance generally require the splitting of the roles of chief executive officer and chairman. How does the Minister square that with her amendment?

§ Mr. Robathan
My hon. Friend makes a good point. The Government are in confusion over this issue, which is why the Minister tried to deflect my observation with a rather foolish comment that had nothing to do with the matter in hand. However, our exchange must have been in order, Mr. Deputy Speaker; otherwise, you would have pulled me, or her, up. [Interruption.] Hon. Members may jest, but we are talking about corporate governance, a very serious matter in the light of Enron and of other scandals in the United States.
What I and most other Opposition Members do not understand is why the Government exhibit such antipathy towards good corporate governance. Lords amendment No. 2, which was passed last night, states: 251 In managing its affairs the OFT must have regard to the generally accepted principles of good corporate governance. I would not have thought that there was anything even slightly controversial about that, not even to Labour Back Benchers who have not followed proceedings on the Bill.
As the Minister has pointed out, the exact words of the amendment were taken from the Financial Services and Markets Act 2000, which instructed the Financial Services Authority to have regard to the generally accepted principles of good corporate governance. The Minister has just told us that the FSA is a company, but is it a business? Does it make profits? I think not. I am amazed that the Government object to Lords amendment No. 2.
Good corporate governance is the cry of the moment, especially on the Labour Back Benches. A ten-minute Bill was introduced by the hon. Member for Ilford, North (Linda Perham) on 15 October, entitled "Corporate Responsibility". A Government White Paper on company law—which I am sure has been read by all hon. Members—was published in July. It is called "Modernising Company Law". It is a detailed document, but I shall cite only one example. It states: we are also taking a number of other initiatives to promote improved corporate governance, such as…the work undertaken in the wake of the collapse of Enron". That is a DTI document with a foreword by the Secretary of State, so I question whether we are seeing joined-up Government.
The Government's amendment appears to have been produced in a fit of pique. It dilutes the provision, although less so than the amendment they produced last week. It sends the message that good corporate governance is necessary for everybody except the regulator or a Government body. We can all make our own judgment about why the Government are so unhappy with the totally innocuous wording of Lords amendment No. 2. However, I know that discussions have taken place in the other place, and the Government have their huge and somewhat mindless majority here, so I will not press the issue to a vote.
The Bill has been hugely improved by close scrutiny in both Houses, but especially in the Lords. The scrutiny of the Bill has forced the Government to think about what they are doing and to defend their case, however badly. I came to the Bill a little late in the day—

§ Mr. Tony McWalter (Hemel Hempstead)
It shows.

§ Mr. Robathan
From my reading of Hansard, I do not recall that the hon. Gentleman took much part in the debate. I was astonished to read that the Bill has had nearly 750 amendments.

§ Mr. McWalter
Will the hon. Gentleman give way?

§ Mr. Robathan
The hon. Gentleman was on the Committee, so I will of course give way.

§ Mr. McWalter
I wished to point out to the hon. Gentleman that I was on the Committee and made 252 several telling contributions. I have been watching the Bill's progress with a sense of paternal joy at the liberation of enterprise that it will involve.

§ Mr. Robathan
I am always pleased to give way to my old bridge partner, and I knew that he served on the Committee. It was not he who made the sedentary intervention, as he knows.

§ Mr. David Borrow (South Ribble)
Will the hon. Gentleman give way?

§ Mr. Robathan
No, because I am about to finish my speech.

§ Mr. Borrow
On a point of order, Mr. Deputy Speaker. Is it appropriate for the Opposition spokesman to name me as having made a sedentary intervention when I made no such remark?

§ Mr. Deputy Speaker (Sir Michael Lord)
Order. I do not recall that the hon. Member for Blaby (Mr. Robathan) named any hon. Member. As for interventions, who Members give way to is entirely a matter for them.

§ Mr. Robathan
Thank you, Mr. Deputy Speaker. I shall certainly not bother giving way again.
Before I sit down, I have to correct myself, as the hon. Member for Twickenham was right. Professor John Vickers has yet to be made Sir John Vickers. However, I am almost certain that I have heard him referred to before as Sir John, and I am sure that it is only a matter of time before the honour arrives in his post.
I hope that the Bill does the good that is intended. We wish it well, with reservations. We shall not press the matter to a vote.

§ Dr. Cable
I echo the comments of the hon. Member for Blaby (Mr. Robathan). The original amendment was tabled in the Lords for two reasons. The first was to reinforce the argument for splitting the roles of chairman and chief executive, but that point has now been conceded and does not need pursuing.
The second reason was touched on the by the hon. Member for Blaby, and is a bit more mysterious. The Financial Services Bill that recently went through the House contained a very simple phrase and description, but the Government feel, for some reason, that it is necessary to change it radically. I do not understand that.
The language that has been inserted in the Bill about the appropriate roles of public bodies is equally applicable to the FSA. I do not understand the logic of the Minister's argument. She says that the amendment is necessary because the OFT is a different sort of body, but there is nothing in the change that relates to the difference between the OFT and the FSA.
I think that what has happened is that the FSA was allowed to get away with a commitment to corporate governance, but that the civil servants decided that the formulation did not build in enough of the public service 253 culture. They did not want another quango to get away with the same thing, so they decided to toughen up the language.
It is not worth pursuing the point through ping-ponging between the two Houses, but the amendment does seem to be an example of retrospective tidying up rather than an issue of principle for which the Government are fighting. However, I have no intention of pursuing the matter further.

§ Miss Melanie Johnson
I shall clarify the differences between the OFT and the FSA in this respect. There are a couple of crucial differences, and the first is that the OFT is publicly funded, whereas the FSA is not. Effectively, it is funded by a levy on industry. Therefore, although it may comply with them, the FSA does not have the same obligations as the OFT to take proper account of the guidance rules and procedures for public bodies. An example of that guidance would be the Treasury rules on public accounting.
The existence of those differences is why we have been careful to make sure that an explicit formulation in this respect—and I believe that the hon. Member for Twickenham (Dr. Cable) will appreciate this—will pick up the notions of good governance, appropriately adapted from a private-sector context for the explicit public-sector responsibilities of the OFT.

§ Bob Spink
Will the Minister give way?

§ Miss Johnson
I shall allow the hon. Gentleman a second on his feet.

§ Bob Spink
Will the Minister name one industry in which the combination of the roles of chief executive officer and chairman in one person is accepted as good governance?

§ Miss Johnson
My point was that the OFT is not a private company involved in industry. It is a public body, publicly funded to discharge public functions, and it is therefore different from the bodies to which the hon. Gentleman referred.

§ Bob Spink
Will the Minister give way?

§ Miss Johnson
No. We are dealing with a basic point about corporate good governance. My understanding is that hon. Members of all parties accept that corporate good governance is an important concept, whose furtherance we all support. Indeed, I was grateful that the hon. Member for Blaby (Mr. Robathan) remarked upon the White Paper on company law review which I launched in July. There is a considerable amount of other work being done on good governance in the business sector, and it is important that we recognise its value.
We are simply trying to recognise both the proposals that were put forward in another place to recognise the formulation used in the Financial Services and Markets Act 2000 which, of course, I am only too happy to replicate. I want to modify those appropriately to reflect the OFT's public role. Having explained that, I hope that the House will feel able to support amendment (a).
Question put and agreed to.
254 Amendment made: (a) to Lords amendment No. 2 in lieu of amendment 2A.—[Miss Melanie Johnson.]