§ 4.29 p.m.
My Lords, I beg to move that this Bill be now read a second time. The purpose of this Bill is to deal with a technical but none the less serious problem that has arisen in relation to the restrictive trade practices legislation which was extended last year to the supply and acquisition of commercial services.
May I begin by explaining how this problem has arisen. As your Lordships will know, the legislation provides for certain restrictive trading agreements to be registered with the Office of Fair Trading and for their subsequent investigation by the Restrictive Practices Court to determine their effect on the public interest. The features which make an 1043 agreement registrable under the legislation are that it is between two parties who carry on business in the United Kingdom in the supply of goods or of services and that certain restrictions are accepted by two or more parties to the agreement. By "restrictions" is meant that the parties accept some limitation on their freedom of action in relation to, for example, prices or charges, terms or conditions of supply, areas or persons to be supplied. The definition of "restrictions" is intentionally broad in its scope to cover the many sorts of anti-competitive arrangement that firms may enter into in agreement with each other.
The Restrictive Trade Practices (Services) Order which brought commercial services under the control of the legislation in March last year applied to, among others, banks and financial institutions. Thus any agreements between banks under which the sort of restrictions I have just described were accepted in relation to the lending of money had to be registered with the Office of Fair Trading. It was not the intention that normal loan financing operations should be made subject to registration. However, since the order was made, it has become increasingly clear that this has in fact happened. Many agreements for the provision of loan finance, credit facilities and so on are caught by the legislation because they contain restrictions on the freedom of action of borrowers, lenders or guarantors which are accepted by at least two parties to the agreement. This may arise, for example, where a consortium of banks provide loan finance for a project which is too large for any single bank to finance. Though these restrictions technically fall within the wide definition in the legislation which I have just mentioned, their purpose is not to restrict competition but to protect the security of the loan and the borrower's ability to repay. They may, for instance, prevent the borrower or guarantor pledging elsewhere assets which are directly or indirectly security for the loan, or limit the level of further borrowing.
It is clearly essential that banks and other financial institutions should be in a position to obtain adequate security for the loans they provide, without running the risk that in so doing they may be making a 1044 registrable agreement which may have to be defended before the Restrictive Practices Court. Quite apart from the administrative burden that would be imposed on the institutions concerned and on the Office of Fair Trading, the Government's view is that these are not matters which should be examined under the restrictive trade practices legislation. I have also in mind that many such agreements involve foreign borrowers who would be able to go to other financial markets for the funds they need and would no doubt do so if they had to face the hurdle of the restrictive trade practices legislation in this country. As your Lordships will appreciate, this could have very serious consequences for London as a financial centre and, in terms of lost invisible earnings, for the United Kingdom economy as a whole. The purpose of the Bill is therefore to remove loan financing and similar agreements from the scope of the restrictive trade practices legislation entirely, provided they do not contain restrictions which are harmful to competition.
I come now to the provisions of the Bill, which amends and supplements the Restrictive Trade Practices Act 1976 in a number of ways. I should point out that, as well as clarifying the position for the future, these changes have retrospective effect. This is necessary to remove doubts about the status of a large number of agreements which are already in existence. I hope your Lordships will agree that this is fully justified, since it was never intended that normal loan financing agreements should be subject to the legislation in the first place. The Bill is fairly technical in character, and I think it might be best if I explain broadly what the effect will be, rather than analyse in detail the legislative means that are used to achieve this.
The aim, as I have said, is to ensure that agreements for the provision of loan finance, credit facilities and so on, do not have to be registered with the Office of Fair Trading so long as they do not contain anti-competitive terms. The Bill does this by providing that if an agreement contains certain financing terms, there is no need to take account of any restrictions in it which are concerned solely with securing the loan or other financial liability, when considering whether it is registrable under the Restrictive Trade Practices Act. Thus, provided it meets these criteria, an 1045 agreement about loan finance et cetera in the United Kingdom will not be caught by the legislation; though, of course, if it contains other restrictions with an anticompetitive purpose it would still be subject to the legislation.
Clause 1 deals with the situation where restrictions in a loan financing agreement relate to the supply of services. It amends the relevant provisions in the Restrictive Trade Practices Act 1976 and the Services Order accordingly. Because, in agreements of this kind, there may also be restrictions relating to the supply of goods Clause 2 makes similar retrospective provision for exemption where the restrictions are concerned only with protecting the loan. Clause 3, in conjunction with Part II of the Schedule, deals similarly with provisions to exchange information about goods, so that these too will not be registrable under the legislation if their purpose is to secure the loan.
May I draw your Lordships' attention to two other aspects of the Bill's provisions. First, there is a broader exclusion from the Restrictive Trade Practices Act for agreements under which restrictions are accepted only by overseas parties and which relate to activities they are engaged in outside the United Kingdom. This has been included to ensure that foreign borrowers have easy access to the London financial market with less risk that the agreements they enter into here might be registrable. Secondly, the Bill extends, in the first three clauses, the order-making powers of the Secretary of State including, for the first time, a general power in relation to restrictions in goods agreements. This means that if experience showed in the future that agreements harmful to competition were being allowed to escape scrutiny as a result of the Bill, new orders would be made, subject of course to Parliamentary approval, to bring them back under the control of the legislation. The provisions could also be used to extend the exemption if this were found to be necessary.
My Lords, I hope that I have adequately explained the problem which has given rise to this Bill and the reasons why it is both necessary and urgent. The Bill has been given speedy consideration in another place. I hope that your Lordships will also agree that this unintentional effect of the restrictive trade practices 1046 legislation should be remedied as rapidly as possible and that this Bill should therefore be given a Second Reading. I beg to move that the Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Oram.)
§ Lord LYELL
My Lords, I think all of us on these Benches should be very grateful for the clear and speedy way in which the noble Lord, Lord Oram, has spelled out the complexities of the details contained in this Bill. As noble Lords will be aware, the subject matter is indeed complicated; I found it very difficult to understand until I obtained some information and the noble Lord, Lord Oram, spelled out all the implications of the difficulties in the Bill. I particularly enjoyed his reference to the various hurdles which had to be faced. Financial operations such as we have heard of being carried on in the City might have to jump over various hurdles. Looking down the margins of the Bill, I find the 1956 Restrictive Trade Practices Act and also one in 1976. There was one in 1968 and I understand that that has been replaced. There were various information orders, and, in 1973, the Fair Trading Bill. I concur with the noble Lord that there are a very large number of obstacles to a trade which is of great and paramount importance, as the noble Lord has explained.
We were pleased to hear that the restrictions which may be written into various agreements as far as financial considerations are concerned are there to protect the lenders' security in the types of loan which the noble Lord told us about. We were also encouraged to hear that the Restrictive Trade Practices Act 1976 inadvertently caught various of these loans, leases and large hire agreements. Clearly, it is in order to remedy some of the inadvertent errors with which the Bill presents us this afternoon. Of course it is right that various restrictions may be disregarded when deciding whether or not an agreement should or should not be registrable. It is all the more welcome that the Secretary of State may use the Affirmative Resolution mechanism in your Lordships' House and elsewhere to consider further disregard for some restrictions, especially when these might concern goods or information. We are interested also 1047 that the information agreements on goods are to be included in the Bill.
I take the noble Lord's point that the more swiftly we can deal with this Bill the greater the benefits. Finally, I would draw to the attention of the House and of the noble Lord the optimism of the Government in indicating in the Memorandum that no increase in central Government expenditure or, indeed, staff is expected. We are very encouraged by that, and we are encouraged by the Bill as it has been spelled out so clearly by the noble Lord, Lord Oram.
§ Lord DRUMALBYN
My Lords, I should like to join with my noble friend in welcoming this rather abstruse piece of legislation. It would have been very surprising indeed if the extension to services of the provisions with regard to goods had given rise to no difficulties whatsoever. We always recognised that it was going to be a very "dicey" operation. Therefore, we would not in any way criticise the Government for bringing forward this piece of legislation. We would certainly congratulate them on the attempt—and I think it will be successful—to avoid having to bring forward another piece of legislation; they are taking order-making powers in this case, and that, for my part, I welcome.
My Lords, I should like to thank the two noble Lords who have spoken for the spirit in which they did so in accepting this Bill. As the noble Lord, Lord Lyell, said, there are quite a lot of complications in the legislation upon which this particular Bill rests. He quoted the 1956 Act, which reminded me that that was the first piece of legislation on which I cut my teeth in another place, and I am sure the noble Lord, Lord Drumalbyn, was there doing that at the same time; we were both engaged in this sort of matter. As he said, with such a complicated subject it is not surprising that when changes do come about there are consequences from those changes which have subsequently to be caught up with. That, in essence, is what the Bill proposes to do.
§ On Question, Bill read 2a; Committee negatived.
§ Then, Standing Order No. 43 having been dispensed with (pursuant to Resolution), Bill read 3a, and passed.