MONOPOLIES AND MERGERS BILL (Hansard, 27 July 1965)

HL Deb 27 July 1965 vol 268 cc1272-97 1272

§ 9.35 p.m.

§ Report of Amendments received (according to Order).

§ LORD DRUMALBYN moved, after Clause 2, to insert the following new clause: Extension to nationalised industries of powers of reference. The proviso to subsection (1) of section 2 of the principal Act (which prevents a reference under that section where the prevalence of the conditions in question is expressly authorised by or under any enactment, other than enactments relating to patents and trade marks) shall cease to apply to the enactments referred to in Schedule (Enactments referred to in Section (Extension to nationalised industries of powers of reference)) to this Act."

§ The noble Lord said: The purpose of this Amendment is to enable the Board of Trade to make references to the Monopolies Commission in regard to main activities of those nationalised industries which are listed in the Schedule which is Amendment 16, and perhaps it is in accordance with your Lordships' wishes that we should consider Amendment 16 at the same time as this Amendment. Perhaps I may say right away that I hold no particular brief for the Schedule. It covers coal, electricity, gas, transport, civil aviation, cable and wireless and atomic energy, but there may be other industries that should be covered, and it may be that some of the Acts which are there mentioned do not entirely need to be included.

§ I should like to make it quite clear that the Amendment is not prompted by any antagonism or suspicion of the nationalised industries. There is no discrimination involved in the Amendment against nationalised industries. Indeed, 1273 at present, if anything, the discrimination is against the non-nationalised industries, in that they can be referred to the Monopolies Commission and the nationalised industries cannot. There is nothing in this Amendment which compels the Board of Trade to refer any practice in any nationalised industries to the Monopolies Commission. But at a time when we are overhauling the monopolies administration, there seem to be advantages in not continuing to make any such references impossible.

§ The legislation dates from 1948 when nationalisation was fashionable, and when, in the eyes of some, nationalised industries could do no wrong. Whatever they did was, by definition, in the public interest. We all know now that, if anyone thought that, their definition was wrong. Nationalised industries are run by people who are fallible, just as all other people are. Nationalised industries have not so far exercised their power to extort excessive profits from the public. Indeed, some of them have extorted excessive losses from the Exchequer. But profiteering is not the only possible misuse of monopoly power. If noble Lords will look at Clause 3, they will see some of the uses of monopoly power which the Bill authorises the Board of Trade to prevent. Perhaps I may quote subsection (3)(d): … to require, as a condition of the supplying of goods or services to any person, the buying of goods or making of any payment in respect of services other than the goods and services supplied, or the doing of any other such matter as may be specified or described in the order. This is something which the nationalised industries might be liable to do just as much as anybody else.

§ Even if so far there has been no misuse of monopoly power by nationalised industries—and I am not arguing about it one way or the other—it still seems to me that it would be prudent to enable the Board of Trade, if the need were to arise, to refer the supply of particular goods or services by a nationalised industry to the Monopolies Commission. I suggest that the raison d'être of the Monopolies Commission is that it is a body of individuals, independent of the Government, on the one hand, and of the interests it is asked to examine, on the other, and if it is a good thing that such an independent body should take a 1274 detached and impartial look at the day-to-day working of non-nationalised enterprises and industries, surely it could be equally advantageous for them to look at certain aspects of the day-to-day working of a nationalised industry, especially since Ministers always disclaim responsibility for their day-to-day working and cannot, as I understand it, give general directions about it. I suggest to your Lordships that it would be a pity to miss this opportunity of enabling the Government, should the need arise, to use this instrument of inquiry, which is ready to hand but which at present they are forbidden by law to use in this way as applied to the nationalised industries. I beg to move.

§ Amendment moved— After Clause 2, insert the said new clause.—(Lord Drumalbyn.)

§ LORD RHODES
My Lords, this Amendment goes considerably further than the Amendment that was moved in another place. I would point out that the normal form of a reference to the Monopolies Commission requires the Commission to investigate whether the existence of the monopoly as such is contrary to the public interest, whether "things done" for the purpose of preserving the monopoly are contrary to the public interest, and also whether "things done" as a result of the monopoly are contrary to the public interest. What would happen if the Amendment were carried is that it would leave the Board of Trade to make references covering all these matters in the case of the nationalised industries established by the Statutes specified. This is neither the time nor place, neither is it the way, to effect any change in what has been decided already. When you think about it, the last Government was in power for 13 years, and they had the opportunity to alter it if they did not agree with it.
Now certain things were done. Certain powers were given to the Minister; safeguards were set up; and the consumer councils were initiated. The debates on nationalised industries that have occurred in another place have very often arisen as a result of the machinery that is available to investigate what goes on in the nationalised industries, by way of the Select Committee on Nationalised Industries which they have there. I would put it to the noble Lord that he is asking 1275 this House to decide something on which, in the other place, the honourable Member for Darwen said: … whenever an attempt has been made in the past to bring the nationalised industries within the orbit of the Monopolies Commission the same argument is always brought forward, namely, that Parliament has willed a monopoly and that it would be foolish and otiose to ask the Commission to inquire into whether there was a monopoly or not."—[OFFICIAL REPORT, Commons, Vol. 715 (No. 141), col. 40, June 28. 1965.] He went on to say: Of course that is so, and we do not seek to reverse that position by these new clauses. Then he went on to describe what was done by the Amendment that he was moving. I do not know whether the noble Lord has had liaison with the Members who moved this Amendment in another place, but obviously what they said was the view of the House. They backed up what he said— … that it would be foolish and otiose to ask the Commission to inquire into whether there was a monopoly or not". If this Amendment were confined to the same point as the Amendment debated in another place it would remain quite unacceptable to us in the Government. The Government do not think that the Monopolies Commission ought to be empowered to scrutinise the activities of the nationalised industries and say whether they are contrary to the public interest. The proper way to do it is for legislation to be introduced in another place to alter it. This certainly is not the method. If the safeguards that are there to protect the public interest are inadequate, then the right course is to improve them, and to improve them in another place. This is not the appropriate place to do anything about it; and I would ask the noble Lord to withdraw his Amendment, or the Committee not to pass it.

§ LORD ERROLL OF HALE
My Lords, I am grateful to the noble Lord for his expressing what I can only describe as the standard point of view on this question. But he must surely realise that although we left control of the nationalised industries in very much better shape when we were unfortunately removed from office last October than was the case when his Party left in 1951, the fact remains that the Select Committee on Nationalised Industries, the Consumer 1276 Councils and the like are really inadequate to offer protection for the public against what I can only describe as benevolent monopolistic practices, always done for the general good and the general interests. But these are the things that the Monopolies Commission are designed to investigate and show up. They have, for example, shown us, in the case of the investigation into the solus sites of petrol stations that all is not well in that field; and that while we may be happy to be able to get our little maps and cleaning rags and other services, it is in that very field of day-to-day management of these monopolies that neither Parliament nor the Consumer Councils are able to exercise effective control. And it is in this very field that the Monopolies Commission have a growing and an increasingly more valuable body of experience to guide them.
We feel that after all these years that we have had to live with the nationalised industries the time has come when the Monopolies Commission should be empowered and authorised to look at some of their practices and pronounce upon them for the good of the public and for the good of the nationalised industries themselves. I hope that the noble Lord will look at this very reasonable Amendment again.

§ LORD RHODES
Yes, I will; and I will come to the same conclusion.

§ LORD ERROLL OF HALE
You are a "stubborn old what's-his-name".

§ LORD RHODES
I agree that during the last three years the previous Government in another place made considerable alterations to the nationalised industries, and I can quote one example. That was the Transport Act 1962, under which they set up various Boards so that they could decentralise what they considered was too big a body to make it a workable proposition. But I must say to the noble Lord that, however genially he has put over his comments on this Amendment, his objections are standard, too. May I say that his Government had all this time, thirteen years, to do something about this; and nothing has been done. I cannot agree at this late stage to do anything about it. In the light of that I hope that the noble Lord will withdraw his Amendment.

1277

LORD HAWKE
My Lords, the noble Lord gave what I may perhaps be forgiven for thinking was an amusing speech. I am sure that it will amuse him when he reads it afterwards, as a Yorkshire manufacturer. But when he said that this House is not the proper place to do anything about the nationalised industries, I do not think he is constitutionally correct. It is perfectly within our power to suggest to another place—which is in effect what would be meant by an Amendment to this Bill—that the Bill would be better if a certain clause were in it. I think that constitutionally the noble Lord was wrong in saying we could not do any such thing.

§ 9.50 p.m.

§ LORD BROWN
My Lords, may I say a word about this? On Second Reading I pleaded at one point that all we really needed was an industrial efficiency commission and not a Monopolies Commission, and I am in print some years ago to that effect. If this had been an industrial efficiency commission set up by the Bill, I should have been entirely in agreement with noble Lords opposite that the affairs of the nationalised industries should come within the ambit of its investigations. I hope that one day we shall have an industrial efficiency commission. I suspect that a lot of those in the Conservative Party who are in industry would object strenuously to it, but I still hope that we shall have one and that wiser counsels will prevail. I feel that to attempt to turn an instrument set up by this Bill into what in fact, in relation to the nationalised industries, would be a scrutiny of their efficiency would be jumping the gun.

§ LORD DRUMALBYN
I do not wish to detain the House. The point here is that legislation on monopolies is comparatively rare. During the period of thirteen years when we were in Government, I agree that there were two occasions when we did not take opportunities. In point of fact, we were looking at other matters. One was the setting-up of the restrictive practices court and the other a comparatively minor change, and we did not have our eyes on this especially at the time when we were considering other means of dealing with the nationalised industries. All I 1278 have suggested is that this is a convenient opportunity for applying an instrument which might be useful and giving an opportunity to the Board of Trade to have an instrument available for day-to-day work on nationalised industries. At present there is no means whatsoever of doing so.
This is not something that the Select Committee on Nationalised Industries in the House of Commons deals with. I think it is a good idea, but the noble Lord, Lord Rhodes, does not, and at the moment he is in Government. I hope that he will change his mind next time if not this time. I beg to ask leave to withdraw the Amendment.

§ Amendment, by leave, withdrawn.

§ Clause 6 [General provisions about mergers]:

§ LORD DRUMALBYN moved, in subsection (1)(b)(ii), after "taken over" to insert "which are situated in the United Kingdom". The noble Lord said: My Lords, I think that I can explain this Amendment quite shortly. It deals with the case of a merger which has already taken place—that is the case with which the subsection deals—and where the test of whether the value of assets exceeds £5 million is applied to bring it within the ambit of the Bill, as a merger capable of being submitted to the Monopolies Commission. The Amendment is designed to limit assets in such a case to those in the United Kingdom, the reason being, as I pointed out earlier, that the Government in another place appears to have admitted that there is little point in the value of assets test, except in cases where a non-British firm is taking over the assets of a British firm. Any assets situated overseas once a merger has taken place will be outside the jurisdiction of Her Majesty's Government, in those circumstances, where it is a non-British firm taking over a British firm, unless of course the non-British firm is a subsidiary of a foreign firm in Britain.

§ I appreciate that, as the Bill is drafted. a later subsection applies this clause to cases where a merger has not taken place, but that comes later. Here we are dealing with this subsection and if the noble Lord can give any examples of the sort of mergers between British firms where the value of assets test would be relevant and the monopoly test would not, I shall not 1279 pursue the Amendment. But so far I would say that no valid examples have been quoted in either test. I recognise that the Board of Trade would be unlikely to refer a case to the Commission if it could do nothing about it at the end of a report, so they would not be likely to refer a merger where the assets taken over were situated overseas and the merger had taken place. That being so, there seems little point in having the value of assets test for mergers which have taken place. The purpose of this Amendment is to bring out that point, and I hope that the noble Lord will comment on it.

§ Amendment moved— Page 10, line 20, after ("taken over") insert ("which are situated in the United Kingdom")—(Lord Drumalbyn.)

§ LORD RHODES
My Lords, may I say how much I appreciate the co-operation of the two noble Lords opposite who have been in charge of the Bill. I shall have something to say about that later, and also about the way in which explanations other than in the House have been accepted. This first Amendment would modify the size-of-assets test so that the value of assets situated outside the United Kingdom would not count. The principal effect would be to exclude reference of acquisitions of enterprises outside the United Kingdom, although it would also operate in relation to the foreign assets of a British company. May I say here that the Amendment to page 15, line 18, is consequential. Leaving aside for the moment the policy aspects of this proposal, I think it would work in a haphazard way, if what the noble Lord seeks to do were put into effect. You can determine the geographical situation of physical assets, but it is exceedingly difficult to come to an assessment of the geographical situation of an intangible asset like the goodwill of a company carrying on business in a number of countries.
May I say, too, that the proposal has certain anomalous aspects? For instance, if a British company, "A", owns a nickel mine in Canada, under what the noble Lord wants to do we should automatically ignore the assets of the company in Canada when determining the value of its assets. But supposing that that nickel mine was owned by a subsidiary of com 1280 pany "A", you would automatically take into account the value of company "A's" share in its subsidiary. So an anomalous situation would arise.
Quite apart from the technical objections to the Amendment, there are other objections to it on grounds of policy. To exclude from consideration assets situated outside the United Kingdom would mean that investigation of a merger by which a British company acquired a foreign company would, by and large, be excluded from the scope of the Bill. I want to make it quite clear that in exercising the powers conferred on them by the Bill the Government would, of course, do nothing that would be inconsistent with International Law. My right honourable friend the President of the Board of Trade has underlined that point in another place. In practice, it would be unlikely that the Government would wish to have an investigation into such a transaction, but the possibility cannot be excluded; and it might be useful to investigate the acquisition of a foreign firm by a British firm.
I will give an illustration. Supposing the firm here was the dominant supplier, or the sole producer, of some commodity in the United Kingdom, and faced some competition from a firm importing goods here, the firm here might want to acquire that firm and close it to competition. The effect of such an acquisition on the competitive position on the United Kingdom market, as anybody who looks at this with the knowledge of noble Lords opposite would agree, might be a proper subject for investigation. The fact that the Bill might permit investigation of a transaction of this kind is not intended to put any gloss on the general policy towards investment overseas of British firms. I do not want that to be misunderstood either. We think it is sensible to legislate comprehensively while we are at it. In the light of the explanation I have given, I hope that the noble Lord will withdraw his Amendment.

LORD HAWKE
My Lords, may I ask the noble Lord one question? Do I understand from his speech that should any British company based in this country contemplate taking over a foreign company, however small, and the British assets happen to be £5 million, the Board of Trade might still refer that matter to 1281 the Monopolies Commission, and, therefore, that that company cannot with due propriety start the takeover until the Board of Trade give them the all clear?

§ LORD RHODES
I think the noble Lord has it a little wrong. What we are saying is that the combined assets of the firm in this country and the firm abroad should measure up to the £5 million criterion.

§ LORD DRUMALBYN
My Lords, I do not want to prolong this discussion, but I was under the impression that it was the value of assets actually taken over that had to exceed £5 million, and not the combined assets. However that may be, I am grateful to the noble Lord for having thrown a good deal more light on this subject. As he probably knows, it is a matter that has aroused a certain amount of misgiving. He has thrown some further light on it, and given a better reason for the retention of the words as they are now than has been given before. We are grateful to him, and I beg leave to withdraw the Amendment.

§ Amendment, by leave, withdrawn.

§ 9.57 p.m.

§ LORD DRUMALBYN moved, at the end of subsection (1), to leave out the proviso. The noble Lord said: This is an Amendment that I have put down for clarification, but I have some hope that in this case the noble Lord may be able either to agree with my interpretation of the clause as it stands now, or to accept the Amendment and eliminate the proviso. The position, as I see it, is this. The proviso deals with the prevalence of the conditions in question; that is to say, as I understand it, monopoly as defined by the 1948 Act. This proviso which deals with the prevalence of the conditions in question says that where the prevalence of the conditions in question is expressly authorised by or under any enactment, other than the enactments relating to patents and trade marks"— that is to say, the monopoly test and the value of assets test—the paragraph regarding the reference of the case to the Monopolies Commission shall not apply. It seems to me that it is only in regard to the main activities, and not to the ancillary activities, of the nationalised industries that the prevalence of the conditions in question applies.

1282

§ The prevalence of the conditions in question is authorised by the enactments concerning nationalised industries, and it is with this matter that this Amendment is solely concerned. It is only the main activities which are nationalised and, therefore, as I understand it, the Amendment does not touch the ancillary activities. Those Acts are merely permissive: while they do not forbid monopoly in the ancillary activities, they certainly do not expressely authorise it. Section 1(1) of the Coal Industry Nationalisation Act 1946 confers on the National Coal Board the duty of working and getting the coal in Great Britain, to the exclusion (save as in this Act provided) of any other person. Subsection (1)(c) refers to their duty of making supplies of coal available, of such qualities and sizes, in such quantities and at such prices, as may seem to them best calculated to further the public interest in all respects. … Then subsection (2) (I give this by way of example) allows them to carry on: such activities as it may appear to the Board to be requisite, advantageous or convenient for them to carry on for or in connection with the discharge of their duties under the preceding subsection. … For example, they can manufacture coal mining machinery if they like.

§ The same applies to the Electricity Boards. They have a monopoly of the supply of electricity, and are permitted by the 1947 Act to sell, hire or otherwise supply electricity. The 1947 Act also gave the Central Authority, as it then was, power to manufacture electrical plant as well as electrical fittings. But neither of these Acts expressly authorised the prevalence of the conditions in question. Neither of them expressly authorised a monopoly, as defined in the 1948 Act, in these ancillary functions of production and supply.

§ What I am asking the noble Lord to do, if he will be so good, is to make it clear that there is nothing in the proviso to prevent the Board of Trade—I am not saying that they must do it, or they should do it—from referring a take-over by a nationalised industry to the Monopolies Commission in a field of activity outside their main activity; that is to say, for example, a merger of the Nationalised Coal Board with a company producing coal-mining machinery, or a subsidiary of the Coal Board merging 1283 with a private enterprise company manufacturing mining machinery. If my reading of the proviso is right, it does not bite at such references at all. That is to say, the Board of Trade would be free to refer such mergers, where a nationalised industry takes over a private enterprise firm, in the same way as any other mergers. Of course, the proviso is quite unnecessary to cover those activities of nationalised industries where they already enjoy a complete monopoly, because in those circumstances there is nothing for them to merge with.

§ This is the purpose that I have in mind in regard to this proviso, and I hope that the noble Lord will be able to tell us that my interpretation regarding ancillary activities is correct. If it is, in that case the proviso is quite unnecessary for the main activities, and, therefore, the proviso as a whole is not necessary in the Bill. If I am wrong in thinking that the proviso is not necessary to cover the main activities, then I hope the noble Lord will at least confirm that it is open to the Board of Trade—and again I say "should the need arise"—to refer to the Monopolies Commission the supply of goods or services by a nationalised industry, whether by themselves or by the whole industry, including other firms. This is all I am asking here, and I hope that the noble Lord will be able to deal with this point.

§ Amendment moved— Page 10, line 27, leave out the proviso.—(Lord Drumalbyn.)

§ LORD RHODES
My Lords, I think the noble Lord's interpretation is correct. There is no question about it. For the sake of argument, suppose a nationalised industry such as the Gas Board started making gas ovens and their share was 10 per cent., if they went over the one-third criterion they could be referred to the Monopolies Commission. The proviso does not expressly prevent references under the test of the size of assets, so to that extent the noble Lord's interpretation is correct.
We come now to the proviso itself and its inclusion in the Bill. We believe that the law on mergers should keep in step with the law on monopolies in this respect. If Amendment No. 1 had been acceptable to your Lordships, it would have followed that the proviso would have fallen too. But so long as 1284 statutory monopolies are immune from reference to the Commission, it is proper that mergers should not be referable to the Commission solely on the ground that they contribute to such monopolies. The noble Lord has implied that if there is a 100 per cent. monopoly it is not possible to do anything about it, but I would assure the noble Lord that other circumstances could arise. It may be true that mergers of this sort could very seldom arise. It goes without saying that if Parliament has conferred a 100 per cent. monopoly on a publicly-owned concern, there is no scope for that monopoly to be intensified by subsequent mergers. But monopoly conditions for the purpose of the monopolies legislation can exist at less than a 100 per cent. monopoly, and the possibility cannot be excluded that monopoly conditions of this kind might be expressly authorised by Statute.
I also concede that it might be difficult to quote obvious examples of transactions of this kind on which, as the noble Lord says. the proviso might bite. But I am not in a position to assure your Lordships that none could ever arise. In the circumstances, I am satisfied that the right course is to retain the proviso for mergers as well as for monopolies. and in the light of my explanation I hope that the noble Lord will withdraw his Amendment.

§ LORD DRUMALBYN
My Lords, I am grateful to the noble Lord for his explanation, and I am glad he accepts my interpretation so far as ancillary activities are concerned. Although he has not quoted examples, I think we can all conceive some possible examples on which the proviso might bite where there is not a 100 per cent. monopoly, and in those circumstances I do not propose to pursue the Amendment. I think that the noble Lord's argument in this case has to some extent gone across his argument in the previous case, because here he says he is not able to see any particular case where the proviso would be necessary but he nevertheless wants to retain the proviso, whereas on the last Amendment I was arguing it would be a good thing to have the powers even though you do not see at the moment where you could use them. However, with that dialectical point I will leave it and beg leave to withdraw the Amendment.

§ Amendment, by leave, withdrawn.

1285

§ 10.16.p.m.

§ LORD RHODES moved, after subsection (2), to insert: () The Board of Trade may by order made by statutory instrument provide that the value mentioned in subsection (1)(b)(ii) above shall be varied, or, if a previous order has been made under this subsection, further varied, by such amount as may be specified in the order, but, where an order under this subsection is made after the reference of a matter to the Commission, then, in the case of that reference, in determining under subsection (2) above whether subsection (1)(b) above is satisfied, the variation made by the order shall be disregarded. A statutory instrument containing an order under this subsection shall be subject to annulment in pursuance of a resolution of either House of Parliament.

§ The noble Lord said: My Lords, this Amendment is a result of an Amendment that the noble Lord, Lord Erroll of Hale, moved on Committee which would have permitted the Board of Trade to raise but not to lower the value of £5 million specified in the Bill for the purpose of the size of assets test. That Amendment was withdrawn and we gave an undertaking that we would put down our own Amendment giving flexibility both ways. I think the Amendment fulfills that obligation we gave. It would give the Board of Trade power by order to vary the figure up or down, such orders being subject to the Negative Resolution procedure. I commend the Amendment to your Lordships and I beg to move.

§ Amendment moved— Page 10, line 46, at end insert the said new subsection.—(Lord Rhodes.)

§ LORD ERROLL OF HALE
I had myself proposed that there should be variability upwards, but the noble Lord suggested at an earlier stage that it should be variability up and down, and in view of the way in which he has met the substantial point of my Amendment I should not like to appear to be churlish in pointing out that he has varied downwards. Although noble Lords opposite may want to go down pretty fast I was only wanting to go upwards. I am grateful to the noble Lord for understanding the point and for the gracious way he has proposed the Amendment, which we gladly accept.