Monopolies and Mergers Policy

HL Deb 22 January 1986 vol 470 cc279-312

5.44 p.m.

Lord Gallacher rose to call attention to the case for a coherent policy on monopolies and mergers which safeguards the interests of consumers, shareholders and workers; and to move for Papers.

The noble Lord said: My Lords, it would be unrealistic not to acknowledge that the background to this Motion has been heavily influenced by recent contested and rival bids for companies of such size and standing as to occasion concern and queries as to the ground rules; for example, which bids are referred to the Monopolies and Mergers Commission and which are not. In addition, it may be asked whether the Monopolies and Mergers Commission, as now constituted, has the capacity to cope with inquiries of such magnitude within the time scale normally allowed for references. We may also ask: who is bidding for what and why? Is it expansion, diversification, acquisition of assets cheaply?

What are the intentions if the bids are successful? Is an established firm to be split up and sold off? What will be the competition situation after the bid, as well as the track record of bidders in general and in the particular business for which a bid has been made? In these days, we also have the phenomenon of David seeking to buy out Goliath, and in that context I think people are asking: what is being used to finance such bids? Is it all own resources or is finance being jointly provided? If it is being jointly provided, who are the joint providers and why? Finally, there is the technical but important question of what will be the debt ratio if such bids are successful?

The legal basis for all this can be quickly filled in. The Fair Trading Act 1973 restyled the Monopolies and Mergers Commission and established the Office of Fair Trading, giving its Director General duties and powers as regards monopolies and mergers. The Competition Act 1980, one of the first legislative measures of this Government, abolished the Price Commission and the Act was said to be based on legislation in the United States of America. It gave reference powers to the Monopolies and Mergers Commission on anti-competitive practices and questions of efficiency, costs, service and possible abuse of monopolies in the public sector.

In addition, the Restrictive Trade Practices Act 1976 consolidated legislation relating to the supply of goods or services in the United Kingdom or part of the United Kingdom. More recently, the Telecommunications Act 1984 provides for references by the Director General of Telecommunications to the Monopolies and Mergers Commission covering possible monopoly situations in connection with British Telecom and possible anti-competitive practices. The Office of Fair Trading, itself a creation of the Fair Trading Act, has responsibility for consumer affairs, monopolies and mergers, restraints of trade and anti-competitive practices. The Office of Fair Trading is a Government department, so relations between it and the Department of Trade and Industry are crucial, yet in the opinion of many people are somewhat vague. Lastly, there is the Treaty of Rome which has various clauses dealing with competition, supported by directives and regulations, as well as decisions by the court, together with a competition directorate as part of the Commission's staff.

Sparing use has been made of monopolies and mergers references under the Fair Trading Act 1973. Taking the six years 1980–85, there have been 12 monthly references and 40 merger references. Even less use has been made of the Competition Act during the same period. Of anti-competitive references, there have been five only and, even allowing for undertakings to desist, obviating the necessity for a reference, this seems a very small number. But of Section 11 references under the Competition Act—that is, of public bodies—there have been 20 out of a fairly limited total of statutory public monopolies.

Reports by the Monopolies and Mergers Commission on public bodies have not been unduly critical and are little different from what any firm of management consultants would find in any large organisation not previously investigated. I find it ironic that the solution to statutory public monopolies is the establishment of statutory private monopolies and even with the protection of Oftel, and similar proposals for British Gas users, the fundamental problem remains; that is, that it is the duty of any company to maximise profits to its shareholders and yet, if it is a monopoly at the same time, there is to be a restraint imposed upon it as regards abuse of market power.

Price restraints, as devised for Telecom and as proposed for British Gas, are not in my opinion the answer. If the assets are sold in the first place to the public on privatisation at a low price to ensure a political success for privatisation as such, then the subsequent public company can comply with retail price index restraints and still either overcharge or at least be arbitrary in prices, either to ward off future competition or as between different categories of user. In this connection, noble Lords will be aware that the Director General of Oftel is already making noises about British Telecom as regards its pricing policy between commercial and private subscribers.

Consumers are not over-consulted in monopoly and merger situations. Consumer bodies are more concerned with complaints than with the ownership of assets. Yet, for example, consumers may be disadvantaged in areas where market dominance is just short of a national or local monopoly, defined as 25 per cent. of the supply of goods or services. The two examples that come to mind are retail food chains and breweries. The Monopolies and Mergers Commission and more recently the Office of Fair Trading gave large retail food operators clearance over the way in which the discounts they obtained from suppliers, and which were unrelated to quantities, were reflected in their retail price structures.

The Monopolies and Mergers Commission found no market detriment in the position at the time of investigation although they recognised the power which large retailers had over manufacturers and dominance over smaller competitors. The Monopolies and Mergers Commission warned against further concentrations of power in food retailing by way of more takeovers. Yet they ignored growth by way of undue success in gaining planning consents from local authorities, which is now the growth route of large food retailers which favour out of town locations. The Department of the Environment is not willing to look at this because of the sovereignty of local authorities in planning matters and the ultimate judicial role of the Secretary of State for the Environment in planning appeals.

Brewing mergers can also reduce both consumer choice and competition by means of acquisition which gives regional dominance via tied houses and the planning machine. The rationalisation of breweries creates redundancy. The European Economic Commission is interested in competitive aspects of this part because of restrictions on consumer choice. What consideration might be given to strengthen the position of the consumer? Where consumer interest in quasi or fully monopoly situations continues, the Monopolies and Mergers Commission should consider attaching conditions before granting consent for bids to go ahead and should also recommend the continuance of ongoing surveillance of the merger by the Office of Fair Trading, possibly by way of a revival of the Consumer Protection Advisory Committee, which was first established under the Fair Trading Act and subsequently disappeared.

I turn now to the concern of shareholders. I am particularly interested in those people who are indirect shareholders—those who hold life assurance policies or are interested in pension fund investments. The duties on trustees under the Trustee Investments Act 1961 as regards investment are minimal, while the reasons for decisions on mergers and takeovers by those who act for policyholders and pension funds are totally unknown. What criteria do they use before the acceptance of a bid? To whom to trustees turn for advice? Upon what basis is such advice given? Does the attraction of an untaxed capital gain and its beneficial result on superannuation fund valuations take precedence over the long-term interests of the company involved? Is consideration given to the possible effects on employees of the firm for which the bid is made? Transparency in such affairs is of vital importance. Pension fund finance is crucial to capital investment, as the Wilson Committee on Financial Institutions revealed. Improvements in the participation basis for the joint operation of pension funds is overdue and must include some say as regards investment policy.

Do shareholders generally rely on views given by company advisers in contested mergers and takeovers? If so, the role of these advisers (mainly merchant banks) needs clarification. In such contests nowadays advice of the most partisan kind is backed by heavy advertising. Should one not look for greater neutrality and objectivity among those entitled to call themselves bankers? Is national advertising of blatantly knocking copy, conducted for reward, the best basis for reasoned judgment by shareholders? Is the Takeover Panel, as now operated, strong enough to control the situation at present? Of 139 bids launched last year, there were only nine cases where the defending company successfully maintained its independence. This was good for business for merchant banks, especially those acting for bidders.

I turn now to the position of workers. They are the least protected of all in merger situations, whether or not the mergers are opposed. Yet jobs and/or promotion prospects may be on the line depending on the intentions and attitude of the successful bidder. The possibility of redundancy in the private sector is a grim one in today's economic climate involving also a diminution of pension rights. The continuity of legal obligations to workers on change of company ownership arose from our membership of the EC, yet Her Majesty's Government have consistently opposed EC proposals for worker information and participation, whatever form these proposals took. Our Community partners are surprised by this, as they are by the confrontation in United Kingdom industrial relations.

Her Majesty's Government place reliance on voluntary participation and information agreements between management and workers. This reliance is plainly not successful in the United Kingdom despite the modest provisions included in company law obliging firms with more than 200 workers to report to shareholders annually on labour relations. Even this had to be won from Her Majesty's Government by amendments in Parliament and falls well short of standard practice in other member states of the EC. The attitude of the CBI in all this is mysterious. The CBI favours participation with the TUC in the National Economic Development Council yet it appears timid in extending this to member firms. Employee shareholders have increased in number in recent years but not, as yet, in influence. Do trustees acting for employee shareholders consult them when deciding whether or not to accept bids? How is this process of consultation carried out? With regard to management buy-outs, and in particular their effect on non-participating workers, we have as yet a totally unknown quantity. The whole area of the effect of mergers on workers needs examination, and especially the consequences for employment.

What conclusions can we draw from this brief summary of the present situation? The basis on which references of mergers are made to the Monopolies and Mergers Commission, or not made, by the Secretary of State for Trade and Industry needs greater clarity. So, too, does the relationship in this and kindred matters between the Office of Fair Trading and the Department of Trade and Industry. The proven inability of companies to resist bids should either cause greater use to be made of references to the Monopolies and Mergers Commission or control of the role of merchant banks in such contests.

The Monopolies and Mergers Commission should be enjoined to report specifically on possible effects on consumers and workers when allowing bids and, if deemed necessary, to recommend specific safeguards for both categories and follow-ups for these. Information to workers about company policy, including investment, should be ongoing and in accordance with our EC partners. This year's review of competition policy promised by the Secretary of State for Trade and Industry should not be internal but wide ranging, with major bodies representing consumers, shareholders, employers, pension funds and workers, plus the Monopolies and Mergers Commission and the Office of Fair Trading, being invited to contribute so that direct interest and practical experience can be given full weight.

These are matters of great moment perhaps not appreciated by the man in the street. It is my hope that in moving this Motion today a heightened appreciation will come to him. My Lords, I beg to move for Papers.

5.58 p.m.

Earl Ferrers

My Lords, the House will be grateful to the noble Lord, Lord Gallacher, for introducing this Motion at a most opportune time and for the way in which he opened the debate. The questions of public and private monopoly are being discussed at the moment and there are the prospects of takeovers. They are all very much matters of importance at the moment. I have never quite understood how it is that when takeovers are in the air they become infectious. One company starts to take over another company, despite the fact that hundreds and sometimes thousands of millions of pounds are involved. But that seems to be the pattern at present.

I wish to make only one point in what is a very large, specialised and technical subject, in which I do not pretend to have any great expertise. Takeovers are not of themselves wrong. They sometimes strengthen businesses; they sometimes create opportunities; they sometimes save businesses. As a result, people sometimes make money and at other times they lose money. Sometimes jobs are created and sometimes jobs are lost. One thing is certain; it is that takeovers wake everyone up, although they frequently create uncertainty and apprehension in so doing.

Takeovers are and should be an inevitable and respectable part of the industrial and financial scene, provided that the rules are fair and right. If a company can afford to buy another company then, subject to various criteria, that is not wrong. Often the company may have to borrow money to achieve a takeover, and that is not wrong. But there is a new practice coming onto the scene that is undesirable, and it is one to which the noble Lord, Lord Gallacher, referred. That practice is when one company wishes to buy another company, borrows all the money to do so from a bank or from a number of banks, and then uses the company that is the subject of the bid as collateral with the banks for the money which the company has borrowed. This can only mean that the company that has been purchased then has to be broken up in order to pay off the banks. I believe that practice is quite wrong.

As an example of that practice I cite the current proposed takeover by an Australian company of Allied-Lyons. The bidder is Elders/IXL, 51 per cent. of which is owned by two people who live in Monaco. The bid is backed by a number of foreign banks; an American bank, a Hong Kong bank, an Austrian bank and a French bank. They have all gathered together as a consortium and have agreed to put up the money to enable an Australian company to bid for Allied-Lyons.

What is the collateral for that vast borrowing? It is Allied-Lyons when purchased. That company is valued at some £2,000 million. It has substantial interests overseas and employs 70,000 people. If the bid is successful, then it will have to be broken up in order to pay off the banks. Indeed, the prospective purchasers are engaging in the unseemly task of travelling round the world offering for sale parts of a company that they do not even own in order to establish how they can best raise the capital to pay off their borrowings, should those borrowings materialise and their bid be successful. That is a pretty disagreeable sight. It is highly speculative. I believe that it is asset-stripping of the worst kind.

Such a takeover is undertaken without any consideration of whether it is in the British national interests, in the company's interests, or in the employees' interests. It is done, as the Americans would say, just in order to make a fast buck. There is nothing at present in the rules to stop that practice. I ask the Government this question: should there not be? Other countries have protection in order to defend themselves against such (as one might call it) extraterritorial marauding.

In the case that I have chosen, the company that is the subject of the bid, which is over four times the size of the prospective purchaser, cannot make a counter-bid because Australian law prevents that. But our laws do not. It is true that we have the Office of Fair Trading and the Monopolies and Mergers Commission, to which this particular bid has been referred; and it is being regarded as a test case. If that takeover is permitted, the green light will be given for other takeovers to go ahead on a similar basis of wholly borrowed money. I ask my noble friend on the Front Bench to say, when he comes to reply, whether he considers that such is sufficient protection to afford companies, and whether it is sufficient protection to allow the Monopolies and Mergers Commission and the Office of Fair Trading to be the sole arbiters. Is that protection sufficient even though it permits the offers to be made and permits people to try to see if they can get away with such a takeover?

I would not dissent from the Government's general philosophy of allowing market forces to operate, but the game must be fair and the rules must be clear. One cannot permit outside speculators to come and play skittles with our companies and so enable others to break up at a stroke, and for their own personal benefit, companies that have been built up over the years by sound and prudent management, and by so doing put at risk the employment of those involved in the company.

I hope that my noble friend will be able to give the assurance, so far as he can—and I realise that there may be difficulties for him—that the Government are seized of the highly damaging nature of that kind of takeover and will be taking active steps to see whether it is possible to prevent that form of financial business taking place in the future.

6.6 p.m.

Lord Grimond

My Lords, like the noble Earl I am very conscious of the timeliness of this Motion, which has been so ably moved by the noble Lord, Lord Gallacher. His Motion asks for a coherent policy on both monopolies and mergers, and it goes on to ask for safeguards for three classes of people: consumers, shareholders, and workers. To my mind, the best protection for the consumer is competition, and there is no real substitute for that. If monopoly is inevitable then in my view the least bad method of dealing with it is to make the monopoly directly responsible to a Minister of the Crown and through him to Parliament. That is my view on monopolies.

When it comes to mergers, the matter is much more difficult. In regard to small shareholders, in many cases mergers have proved very much to their advantage. In fact, were it not for takeover bids it is rather difficult to see what sanction small shareholders would have against self-satisfied or complacent boards that ignore their interests. They have very little say in appointing directors and certainly no say in sacking them. If the Financial Times figures for January 1985 are still relevant, the small investors in the Stock Exchange have done pretty badly over the past 20 years.

I myself am a small shareholder in the Distillers Company. I am very conscious of the fact that I owe Mr. Gulliver a luncheon—and a very good luncheon at that. Up until now, the Distillers' directors have shown remarkable complacency, if not incompetence. They have been content to put up their own salaries, but their dividends have hardly kept pace with what one would expect of an extremely good property. Never before has a kick in the pants had such direct and galvanising results. Now the newspapers are full of advertisements from the Distillers Company saying what wonderful things it is going to do or even has done. To my mind, those advertisements are faintly ludicrous—apart from being rather expensive, which I imagine is also down to the shareholders. So although shareholders may suffer from some takeovers and mergers, on the whole they have probably gained.

I am not so sure about consumers or workers. Consumers have certainly not gained where takeovers and mergers have led to monopolies or semi-monopolies, but in many cases they have improved the competence of the companies and their output. In that respect consumers have gained, and it may well be that in many cases mergers have been to the advantage of the workers. However, it must be remembered that although there was a fashion for conglomerates—and the noble Earl mentioned how these things tend to come in cycles and fashions—for some 20 or 30 years, some of those conglomerates have not proved so very successful. In fact, some of them have now been broken up or are subject to takeover bids.

Most of what I say applies to the past. Even in the past there is one section of the community which is not mentioned in the noble Lord's Motion: I refer to the public at large. The effect of mergers, certainly on Scotland and the North of England, has been to remove head offices and decision-making in many industries to London. This has drained Scotland and other parts of the kingdom of their best brains and of all that makes a viable community with effective control over its own economic decisions.

That is a very important aspect and it is one of the aspects which to my mind has led to the demand for Scottish self-government. But now the position seems to be changing, and it is changing for the worse. So far as I can see, the main power in investment now lies in the pension funds. Their interests do not always seem to be the same as the long-term interests of the companies which they now virtually control. Recent mergers appear to have been carried out, or suggested, purely for financial reasons, manipulation and gain, and not always in the best interests of the workers or indeed the consumers.

Furthermore, the noble Lord mentioned this habit—if that is the right word—of making bids on borrowed money. I wholly agree that this must be a very dangerous development. I trust that he will get an answer from the Government to the questions he put on this subject. It also seems to me that we shall need to take certain other measures first to broaden the powers of the various commissions—the Monopolies and Mergers Commission, the Office of Fair Trading, and so on—so that they can take into account the results for the community, for the workers and for the consumers. Here I very much agree with what the noble Lord, Lord Gallacher, suggested.

Secondly, I think we must now recognise the rights and interests of the workers in the conduct of their companies. It is no good any longer pretending that companies belong solely to the shareholders. As I have pointed out, even that is something of a farce. They now belong to directors and, at second hand, to the pension funds, and so forth. In Germany, the workers, through the workers consultation law and the co-determination law, have absolute rights to be consulted on decisions such as those which arise when mergers are carried out. No one can pretend that German industry is inefficient. I believe there are now some troubles arising in Germany between the trades unions and management, but on the whole the German laws have been a success.

We need somehow to recognise that the workers have rights stemming from either property in the company or possibly from some form of certificate, as suggested by Professor Meade, which will allow them to have their say and influence in cases where the company is to be taken over. It is unrealistic to suppose that workers have no long-term interest in their companies. They probably now have greater long-term interests than either pension funds or other institutional investors. Therefore, I hope that as a result of this debate the Government will not only look into the question of the bids made based on credit which is then secured upon assets which at the time of the bid they do not hold, but will also consider the position of the various bodies which can deal with monopolies and mergers and, in particular, with the rights of workers who, by their livelihood, make the greatest contribution to their companies.

6.14 p.m.

The Earl of Halsbury

My Lords, I too express my gratitude to the noble Lord, Lord Gallacher, for giving me an opportunity to ventilate some of the matters that are on my mind at the moment. I shall not talk about the Distillers/Guinness merger, because I am a shareholder in both companies. I shall have something to say about the General Electric/Plessey proposed merger, and I am shareholder in neither. What I want to talk about are the questions which I feel the Monopolies and Mergers Commission should ask itself in addition to questions about malpractices, and so on. I shall not repeat what the noble Earl said about that. Manageability and structure is what interests me. Is the result going to be more or less manageable than the components were beforehand? Will it result in a structure directed towards, rather than away from, whatever consensus ideal the Monopolies Commission can identify?

May I say something first about manageability and unmanageability? Horizontality is always manageable, however large an organisation may be, if everybody is doing the same thing and all are trained in the same way—possibly a divisional structure. Let us suppose a departmental manager goes soft on you and exhibits inefficiency. It is easy to promote an assistant manager from department A to department B, because they are both trained in the same way. There are plenty of examples. In the high street one sees Marks and Spencer, Woolworth, and British Home Stores, which are all horizontal organisations, each one doing its own thing. There are chains of breweries throughout the country and there are distilleries. Some of these have grown by accretion and merger and others simply by expansion. Marks and Spencer has grown by expansion. The House of Fraser has grown by accretion.

To do anything well in this world you must concentrate on one thing and try to do it well. The cobbler should stick to his last, and so must the butcher, the baker and the candlestick-maker stick to theirs. But when it comes to candles as opposed to candlesticks, there is more than one way of looking at it. In my view, the specialist must take the broadest possible view of his specialisation and follow where it leads. One is not just a candlemaker but an illuminant manufacturer. If you think of yourself as an illuminant manufacturer, that generalised view of your own speciality will lead you from candles to gas mantles and electric lamp bulbs. If you fail to take the broad view and take the narrow view, it will lead to a dead end. That is what happened to Prices Patent Candle Company, which said that people will always want candles. So they do. I have in my home a box of 10 candles which I purchased 20 years ago in case of blackouts, and I have used one of them in 20 years.

Verticality tends to be unmanageable. The Kynoch dream of autarky and self-sufficiency never can be realised. Kynoch made sporting cartridges for shot-guns. What are they made of? They are made of cardboard. To make cardboard you must have a forest, a pulp mill and a board mill. Next, they contain lead shot, so you must have a lead mine, a lead smelter and a shot tower. Then of course there must be a propellant and a detonator, so you must have an explosives factory. Finally, the cartridge case is sealed off with a brass cap, so you must have a copper mine, a zinc mine, a smelter, a rolling mill and forming machinery. Kynoch tried to do it, but it is impossible to keep all those things permanently in balance, on the one hand, or efficiently trade off surpluses or buy in shortfalls, on the other. The dream was shattered when Kynoch died. No one could run that business and it disappeared. Management succession in a vertical organisation is extremely difficult. You cannot bring an efficient assistant manager from a rolling mill and put him into a pulp mill. He does not have the experience of the work, and so on. Conglomerates based on finance are in very much the same position. There are the usual difficulties of management succession.

I now come to structure, and I should like to illustrate this with the structure of the chemical industry, which is a three-component structure. First, there are the operators—people like ICI, Monsanto, Du Pont, and so on. There are the components and plant suppliers—pressure vessels, pipes, plates, and so on. In between are the architects and engineers—the turnkey contractors who design the details of the plant specified by the chemical manufacturer. If their design is accepted they take a turnkey contract and place it with whatever components supplier they think will be in the best interests of their client, to whom they stand in a fiduciary arrangement. When they have erected the whole thing they turn the key in the front door, present it to the client and say, "Enter into your property. Here is my bill for my fees".

Now that is a three-component structure which is well understood. It is traditional, it has been tested in time, it has not been interfered with and of course the conditions are very simple. The architects must not own and control the equipment suppliers and the operators must not own and control the architects, or the fiduciary relation between them is destroyed. Of course, they can have their own in-house engineering facility, which is another matter, for building pilot plants and testing new processes being developed and so on. The architects—in this country for example, Davy International, Simon-Carves, Humphreys and Glasgow, and in the United States the Kellogg Corporation and McKee—all operate independently.

We tried to bring this structure into existence for nuclear power engineering and five consortia came into being. The first of them was a consortium, financed by boilermakers, turbo-generator manufacturers and civil engineers, which had an extremely able managing director who was deeply grounded in the kind of architectural engineering of the chemical industry. He was Sel Ghalib, a British subject, albeit born a Cypriot-Turk, and a graduate of the university in this country. Needless to say his mother tongue was English. Consortia two, three and four followed.

The first one was brought into being by the genius of the noble Lord, Lord McAlpine, who I am sorry is not in his place, and Sir Claude Gibb of Parsons, who, alas, died; and then there were a group of North-East Coast heavy engineers and boilermakers who financed the first of these consortia. The managing director was given absolute freedom to place orders for his client who was of course in those days the predecessor of the Central Electricity Generating Board and not necessarily with the shareholders. Others came into being.

The second one eventually merged with the first and that was based simply on personal friendship between the late Lord Chandos, and the noble Lord, Lord McAlpine. That was at a time when there were great difficulties in getting enough orders. Things were not going as fast as had been hoped. The whole thing was shattered, so to speak, when General Electric proceeded to merge with English Electric and AEI, because it cut right across the whole structure. Number five went out of existence and numbers three and four merged. Finally, the Government took a shareholding in the lot, and it now stands as the National Nuclear Corporation and endeavours to conform to the model about which I have been talking. I do not really know whether it does so successfully. With the wisdom of hindsight, I believe that the merger of the turbo generators in consortia two, three and four confused rather than helped the sorting-out operation.

Left to themselves, I think that consortia numbers one and two would have survived and numbers three and four would have been knocked out, leaving one strong consortium with power to place contracts, not with its shareholders but with the industry as a whole. The principal difficulty from the start, of course, has been in having a monopoly customer which has wild fluctuations in its notions of its future needs.

Now I turn to the Plessey/GEC merger. I am not a shareholder in either company and not emotionally involved with any of the personnel involved. My question merely is this: should the MMC guide the parties to a three-component structure in the telecommunications field? This is a good question. Should we have a three-component structure as in the chemical industry, with component manufacturers in one big group, systems engineers in a second big group dealing with the customers, who would be BT of course, and similar organisations overseas, and then the various products that appear in the High Street. These are good questions, and I am not here to answer them; I am here to ask them.

It is for the MMC to provide the answer. I hope that their terms of reference permit them to answer it. I hope that their terms of reference permit me to give evidence to them in more detail than I can hope to do in addressing your Lordships' House this evening, and thereby guide the parties to a solution and what I believe would be a great contribution to British communications engineering, in the hands of the noble Lord, Lord Weinstock, who has done so much to reconstruct British electrical engineering and give it a new impetus.

6.25 p.m.

Lord Mottistone

My Lords, I, too, should like very much to thank the noble Lord, Lord Gallacher, for introducing this most interesting and timely debate. I must apologise to your Lordships, and in particular to the noble Lord, Lord Gallacher, and to my noble friend on the Front Bench who will wind up, because I have a long-standing engagement and may have to go a little early—but as we are getting on so fast, perhaps it will not be necessary.

My noble friend Lord Ferrers covered much of the ground that I was intending to cover, but as he did it so much better than I could have done, I do not grudge it him. My speech therefore will be relatively short and more in the nature of underpinning one or two points which he did not make but which I think are worth making.

He talked specifically about the Allied-Lyons and Elders saga. I should like to talk rather more generally about the threats from what I call "overseas predators" to the food and drink processing companies generally. For some reason there are several of them which seem to be rather more under threat from this sort of attack than are other types of company. I think it is understandable, but particularly unfortunate because food and drink manufacturers have been among the most successful of British companies during the past 40 years, both at modernising themselves and in providing their customers with wholesome but inexpensive products of great variety to suit all tastes.

Some three and a half years ago, in negotiating to obtain a substantial tariff reduction for biscuits and chocolates in Japan, I was able to point out that food and drink processing as a whole was the second largest British manufacturing industry and needed to be treated on a par with major Japanese manufacturing industries and not, as they were tending to treat it, as a mere offshoot of agriculture, which was the way they treated their own food manufacturers who have not developed so well or so fast. One of the things which has happened since World War II, is that most of the bigger companies in these industries have rationalised themselves as fully as they could before attaining a monopoly position in their own United Kingdom market, and this is important in view of the threats that they are facing from overseas.

My noble friend Lord Ferrers has spoken about the Elders situation and he pointed out how the raising of money in the form of loans from international banks had landed Elders in the position that, if they were to win the bid, having been allowed to do so, they would then have to use the money that they had obtained from selling off parts of Allied-Lyons in order to repay their bank loans. If such a disposal of the assets of Allied-Lyons were to take effect, there remains the fact that I have just referred to, that many of the larger food and drink manufacturing companies, who would have been the ones who would be able to pay for the Allied-Lyons assets, have reached the limit of their share of the market.

Accordingly, it is almost certain that many of the Allied-Lyons businesses would be unsellable and therefore would have to be shut down, with the consequences about which my noble friend has told us, and with disastrous results for all the individuals whose safeguarding is the subject of this debate. It would mean customers losing choice, shareholders losing money and workers losing jobs.

It seems to me therefore—and here I thoroughly endorse what my noble friend has said—that if our highly efficient and profitable food and drink manufacturing companies are themselves to be safeguarded, then we must introduce overseas investment restraints similar to those in Australia. I understand that Germany and Japan also have such safeguards and that the United States has this subject under consideration at the present time. Therefore it would not be an unreasonable or exceptional restraint on trade if we were to introduce such safeguards here. Indeed, the extra safety from foreign predators might well improve trade, by freeing United Kingdom companies to concentrate more on their main business of selling at home and abroad.

The Government, I hope, will not say that there is a safeguard in the shape of being able to refer the matter to the Monopolies and Mergers Commission, which they have, in fact, done in this case. That has all sorts of side-effects that are not beneficial. The fact that the matter might be referred is no deterrent to the overseas predator, whereas if there was a strict limit on the amount of shares that he could hold in a particular British company, without seeking approval, he would not start the action in the first place. But directly he starts the action and, furthermore, when it gets referred to the Monopolies and Mergers Commission, a large amount of the more important effort in the company is diverted into preparing the necessary reports for this event and for fighting off the attack when it comes in the first instance.

There is a great deal of wastage of effort, particularly of very senior staff of the company, which prevents them from getting on with their main business of selling their product at home and overseas. It is therefore very important, I suggest, that we should have some means of protecting our companies, of all kinds, from this sort of attack which, as my noble friend Lord Ferrers explained so ably, is particularly unpleasant and undesirable and which, indeed, is not conducive to good trading. For that is what the matter is all about. I hope that my noble friend on the Front Bench will be able to say something, if only that he will make sure that the Secretary of State takes particular note of this and gets on with it as fast as he possibly can before any more trouble occurs.

6.32 p.m.

Lord Hatch of Lusby

My Lords, the noble Earl, Lord Ferrers, put his finger right on the spot of this debate when he said that it was timely. It could hardly be more timely when we see the whole relationship between Government and industry in this country as a complete shambles. It is, in these circumstances, that one welcomes the Motion put forward by my noble friend Lord Gallacher. Just last week this Government fell from farce into panic. After weeks of unseemly public wrangling between Ministers, the curtain was suddenly and brusquely torn away from the window of the Cabinet room. And by whom? By one of the mistress of Number 10's own retainers.

When that window had been bared and members of all parties, the public and the international media were able to see what was going on inside the room, they were appalled—and rightly appalled. They were appalled because they saw that the gulf between the Government's public pronouncements and their actions when facing the real world could hardly have been wider.

There was also a certain amount of irony in the fact that, after a period in which there must have been more breaches of the Official Secrets Act than in any similar period in our history, the Secretary of State who resigned was the very Secretary of State who had been instrumental in the prosecution of civil servants when they were accused (one was acquitted) of breaching that same Act. The end of that was the sordid sight which some of us saw a week ago, of a Secretary of State sitting on the Front Bench in another place, next to the Prime Minister, misleading the House, as he himself had to admit later the same day, with the knowledge of the Prime Minister, and the Prime Minister sitting silent beside him.

What is the meaning of what we see behind this now clear window? Surely, it is that, when the Government talk in public for public consumption and electoral consumption about their belief in market forces, in rolling back the state and in leaving it to the shareholders, there is a stark contrast between their rhetoric and dogma and the actions and intervention, as they have been seen to intervene, in the activities of great companies in this country.

What this leads us to conclude, referring directly to the words of the Motion, is that the Government have no coherent policy so far as industry is concerned and no agreed policy, as has now become evident, on how they interpret the national interest. This whole sorry and sordid episode in the government of this country, which is by no means at an end as those who have been over the other side this afternoon have witnessed, began from the difficulties of the helicopter company, Westland, in Yeovil.

Let me go back to a few weeks before those difficulties became apparent. At that time the Secretary of State for Foreign and Commonwealth Affairs was saying at the EUREKA meetings in Paris and Hanover that only European co-operation in high technology could preserve the high technology of this country and of other European countries against the pressure exerted by the great weight of the United States and Japan. No doubt he had in mind the computer industry and the number of software houses in this country that had been absorbed by the great American conglomerates on the other side of the Atlantic. That was the declared policy of the Government at that time.

What happened when Westland turned to the Government? As in the original case of the computer companies, the Government turned their back and were not interested in saving the Westland company. Indeed, if the Government had pursued their consistent policy and observed market forces, we know that Westland would have gone into receivership. That would have been the effect of the market forces. But, in the meantime, there comes, first, the proposal from the United States. It is known as the Sikorsky proposal. But anyone who knows what Sikorsky is knows that Sikorsky is just a small dot in the great empire of United Technologies. United Technologies, perhaps significantly, are involved in President Reagan's Star Wars organisation of the future. So this was an interest from one of the great American combines.

Later, a European consortium was set up or was organised, so we had two alternatives. What then happened? First, it is now clear—it has been very clearly established in the other place just this afternoon—that the Secretary of State for Trade and Industry was originally a supporter of the European consortium. That is now documented. He changed his mind. He has a perfect right to do so, but I wonder why. He appears to me to have changed his mind because of some arm-twisting that was clearly related to the sale of the British Aerospace Airbus—the European consortium's airbus—in the United States. He was supported by the Prime Minister. Why? We know—and I think noble Lords opposite would agree on this—that the Prime Minister has always been instinctively hostile to Europe, and instinctively sympathetic and friendly to association with the United States. Nevertheless, the Secretary of State changed his mind.

On the other hand, the Secretary of State for Defence, in the same Cabinet made no bones about his open and public support for the European consortium. In the speech which some of us heard him make last week there was a suggestion that one of the main reasons for his support of the European consortium was his fear that, if Europe did not hold to the line that had been laid down by the Secretary of State for Foreign Affairs, Sir Geoffrey Howe, a year ago, this country would lose its high technology capability between now and the end of the century. If that is the main reason, I say that it is an honourable one. He may not have acted at all consistently so far as official secrets are concerned. Nevertheless, if that is his argument—as it appeared to be last week—then I would say that that is a perfectly honourable stand to take.

What happens now? This Government who are pledged to market forces, to rolling back the state, to non-intervention, to allowing industry and business to get on with its own affairs untouched by Government, now start to do—what? They put pressure to bear on one of our great industries, British Aerospace, which only a few months ago they sold from public ownership into private ownership.

Whatever the interpretation of the notorious meeting which took place between the Secretary of State and Sir Raymond Lygo, it was quite clear that the Secretary of State was making his position and that of his department very plain to British Aerospace. We now know that he also did so to GEC. Are these market forces? Is this rolling back the state? Is this keeping the Government out of industrial affairs? No. When it comes to what the Government interpret as their own interest they can intervene much more roughly and brusquely than any Labour Government have ever done. We therefore get this whole sorry story of the public wrangle, of the leaked letters, of the minutes that were not minutes and how and when they were written. Is this the way to run a government and the relations between that government and industry in this country? Then, at the end, the meeting of the Westland shareholders was postponed from Tuesday to Friday. Why was that postponed?—because the Connaught Rooms are not big enough. They will only hold 1,800 people. The meeting was moved to the Albert Hall, which will hold four to five thousand people. How many turn up?-450. When they turn up, are they given the choice between the American and the European alternatives? Are these the circumstances in which the shareholders are to make their decision? They have never been given this choice. They were given one choice only to vote on, with no alternative other than to turn it down. I do not see this as fitting in with the claim of the Government that it must be the shareholders who determine the matter. Surely this is not the way for government to conduct its relations with the organisation and development of industry in this country.

This Government do not know whether they believe in market forces or in intervention. When they talk about the shareholders they like to think of the shareholders as lots of little people around the country—widows and so on. What we saw last week was the casino economy. It was the kind of British equivalent of a combination of Dynasty and Dallas. Do noble Lords ever go and hear what is said in the public houses in mining villages, in the textile or steel areas on nights when the television has been showing the way blocks of shares are being bought and sold for the purpose only of gaining power for the future over the industry of this country?

Lord Taylor of Gryfe

My Lords, I am sorry to interrupt the noble Lord, Lord Hatch of Lusby, but I understood that there was a certain discipline about timekeeping in a short debate and that those of us who were proposing to speak in this debate were allocated 12 minutes. The noble Lord has spoken for 14 minutes. This may affect subsequent speakers. I do not know who is responsible in this House for these matters, but I raise this as a point of order.

The Earl of Hals bury

My Lords, may I follow what has been said by remarking that, when the noble Lord, Lord Hatch of Lusby, rose to speak, on the 12 minutes apiece allocation of time we had 16 minutes in hand. Is the noble Lord, Lord Hatch of Lusby, going to hog the whole of that 16 minutes for himself, or will he give a fair share of it to the noble Lords, Lord BruceGardyne, Lord Vinson, Lord Taylor of Gryfe, Lord Williams and Lord Gallacher, for winding up?

Lord Hatch of Lusby

My Lords, I am perfectly happy to divide the extra time gained because of the shorter speeches earlier between all the subsequent speakers. In any case those two interventions have now taken an extra minute which could have been used for speeches.

The conclusion of the whole description of the events of the last few weeks which I have made illustrates the stark fact that this Government have neither an agreed policy on national interest nor any industrial policy whatever. The people of this country are being offered neither security nor the prospect of a prosperous economic future.

Two days ago the leader of my party, Mr. Kinnock, made his first contribution to the development of a party policy regarding the relations between Government and industry—the relations between government, shareholders, workers and management. I suggest that that is a coherent policy. I ask the Minister who is to wind up tonight to tell this House what the Government mean by market forces, when they believe in relying on market forces and when they believe in interfering with those market forces. We are entitled to know where the Government stand according to their own words, and their own words in relation to the disastrous events of the past three weeks.

6.49 p.m.

Lord Bruce-Gardyne

My Lords, I hope that the noble Lord who has just sat down, and indeed your Lordships, will forgive me if, after that interesting diversion, I revert briefly to the subject of the debate before us this evening.

I should like to join with other noble Lords who have congratulated the noble Lord, Lord Gallacher, on introducing such a remarkably timely subject for our discussion tonight and, if I may say so for my part, for introducing it with comments with which many of us would have found it difficult to find much to disagree.

I have to begin with a confession because I have to admit to being what my noble friend Lord Stockton apparently describes as a devotee of this new doctrine of liberalism. By that I mean that in general, although I think that the markets make very foolish mistakes, they do not make nearly as large mistakes as the politicians. However, I have also always believed that if we are to have an effective open market, effective and coherent policies for mergers and monopolies are not just in contra-distinction to the requirements of an effective open market; they are actually fundamental to it.

I listened with great interest to the historical analysis which the noble Lord, Lord Gallacher, gave us at the beginning of this debate. As he said, it seems that there have been several phases in merger policy. There was a period in the 1960s when biggest was best and we had the Industrial Reorganisation Corporation putting together anything that moved, with somewhat disastrous results. We then went through a phase in the 1970s when small suddenly became beautiful, and references were made to the Monopolies and Mergers Commission on the ground of sheer size. I think that it has to be conceded that some of the judgments which the commission produced struck some of us as being a little weird.

Then in 1981 my right honourable friend the present chairman of the Conservative Party, who was then Secretary of State for Trade and Industry, somewhat switched track, because he suggested that the primary reason for reference to the Monopolies Commission would be the issue of market share resulting from a merger. On the whole that was a change which was much welcomed in the City and extensively welcomed in Fleet Street. One pretty soon saw why—because the floodgates certainly opened; and we now rapidly find that we are living in an environment where we have bids of £1 billion almost once a week. It must be said that the pickings are very remarkable.

The other day I read that in the present interesting contest, to which reference has already been made, between Guinness and Distillers, if Guinness wins its bid for Distillers, the distinguished merchant banking house of Morgan Grenfell, with which the noble Lord, Lord Taylor of Gryfe, is connected, stands to benefit to the tune of £20 million, and if Guinness should not be lucky, the distinguished merchant banking house stands to benefit to the tune of £14 million. Apparently the brokers to Guinness stand to gain £4 million if Guinness is successful and £2 million if it is not. What precisely is being done by all these great people to warrant these spectacular fees I am less than wholly clear.

I must also say—and I agree with some of the other comments that have been made—that in relation to these full page advertisements which are doing marvels for the advertising revenues of the City pages, in which I am much interested, and which are badly needed, one sometimes wonders about this business of legal, honest, decent and truthful. Are they really all those things? Sometimes one has had grounds to wonder.

I share the concerns which have been expressed tonight, and I share them for several reasons, some of which have been referred to, one or two of which perhaps have not. In the first place, it seems to me to be indisputable that the emergence of a condition where the management of any public company, however large, knows that it is liable to be the object of a predator concentrates the minds of the board of management on very short-term objectives. The noble Lord, Lord Grimond, said that the shareholders have done pretty well out of the wave of takeovers, and I would not altogether dispute that. However, whether United Kingdom PLC has done pretty well is I think more doubtful.

The fact is that if a large public company today which has £10 million to invest invests it in a new home-grown product with great market potential, it takes that cost directly on the bottom line and the predators are encouraged. If instead it goes out and buys another company with that £10 million, its assets base has expanded and it may reasonably hope to reach a size where the predator cannot swallow it. I am not at all clear that that necessarily produces the best environment in which management can function.

I very much agree with the remarks of my noble friends Lord Ferrers and Lord Mottistone about some of the rather remarkable leverage bids that we have begun to see in this country, following the pattern of the United States. For my part, I would not go so far as they would seem to suggest (particularly my noble friend Lord Mottistone) in effectively barring external bids for British industry. We are no mean slouches at making bids overseas ourselves. Some perhaps are regretted at leisure; but, nevertheless, we do it a good deal.

However, I think that there are genuine grounds for anxiety about the financing of some of those bids. One sometimes wonders whether the leverage bids of the 1980s will not be the equivalent of the sovereign borrowing of the later 1970s and the property markets of the early 1970s. Bankers sometimes seem to find rather weird ways to make a turn in the market place, and I think that that is an aspect which we need to watch closely.

I also agree with what my noble friends Lord Ferrers and Lord Mottistone said about the way in which we do not always face an evenhanded situation here. There have been references to the fact that Allied could not bid for Elders, though Elders could bid for Allied. It is equally true that Allianz could bid for Eagle Star, but Eagle Star could not bid for Allianz. I must suggest that that is hardly a very appropriate area for the Monopolies Commission to become involved in. These are political considerations. I would suggest—and it is the one concrete suggestion that I want to make tonight—that it is rather odd that the Government have a power of override when the commission recommends that a bid should be blocked, but no power of override when the commission recommends that a bid should go through. I believe that the override should work both ways because I think that such political considerations as to whether it is appropriate that a German insurance company can bid for a British insurance company but not the other way round are matters essentially for Government consideration.

Finally, I want to make what I suppose I admit is a good deal more sweeping suggestion on the remit of the Monopolies Commission itself. I suggest that we should look carefully at the case for switching the whole onus of proof. At present the prey in a takeover situation has the obligation to demonstrate that his acquisition by the predator would not be in the public interest. I think that we have swung the balance too far in that direction. I believe it would be desirable that we should think hard about the case for switching over and putting the onus of proof on the predator to show that there will be material benefit to the public interest by his acquisition of his prey.

I readily accept that this would be a much more fundamental barrier to many acquisitions, and I readily accept that it might make it easier for some sleepy managements to sleep more peacefully in their beds. However, I have a nasty suspicion—and I detect that it is widely shared round your Lordships' House tonight—that if we go on in the way that we are going with the cumulative spread of bigger and bigger bids, we are liable to find that it might end in tears.

6.59 p.m.

Lord Vinson

My Lords, we are indeed grateful to the noble Lord, Lord Gallacher, for introducing this Motion, because the structure of industry affects the lives of every one of us. I have a particular interest in that for a number of years I have been both chairman and president of the Industrial Participation Association, a body which for the past 100 years has been striving to create a sense of common purpose at work. I am deeply perturbed by the current wave of merger mania, because I think it does nothing in the long run for industrial relations and precious little for industry.

There is an argument which says that we should leave everything to free markets, and for most of my life I have been a dedicated marketeer. But markets need a framework, and they need regulation. Indeed, there is no shortage of that both through company law and the application of patents, and a dozen other ways. I am not suggesting tonight that any one of us in this debate partly on monopolies has a monopoly of wisdom, but I feel that the law desperately needs to be strengthened to stop what is happening at the moment, which is personal megalgmania masquerading as corporate efficiency.

I do not think that this is just a legal question. It is a deeply philosophical question. It is a question about our free society. I happen to believe that the basis of our free society in the Western world is diffused economic power, disseminated economic power giving multiple patronage and the maximum sources of initiative, inventiveness and enterprise. If we as a society, in the name of leaving things free to the market, concentrate that power quite unnecessarily, we do so to our long-term peril.

I am not suggesting that all takeovers are bad. Neither are all takeovers good. But the record of massive conglomerate amalgamation is extremely poor. As one dinosaur gorges on another, eventually there is nothing left to gorge on and even dinosaurs die off finally; and we are seeing plenty of examples of that. We see too; as has been well mentioned tonight, that the whole business of business is turned upside down. We see short-term profit maximisation at the expense of long-term product development, and it is ultimately on product development that we all depend.

What is the solution? The law should be framed so that there is an automatic presumption against size and the aggregation of power. It is a happy coincidence to follow the noble Lord, Lord Bruce-Gardyne, and I wholly support his suggestion that there should be automatic referral of bids over a certain size, and the onus of proof that an amalgamation would be desirable should be put on the bidder. Noble Lords may have noticed that in this last fortnight Canada has begun to introduce a new trust law which will automatically refer all bids over £250 million. Others in other countries are thinking along the same lines.

This is just a brief contribution to say that in our society we desperately need to spread ownership to maintain a free society. We must introduce legislation to prevent the unnecessary aggregation of power. I hope that the Government will bear in mind the great unanimity that there appears to be in this Chamber tonight that something needs to be done.

7.3 p.m.

Lord Taylor of Gryfe

My Lords, I thank the noble Lord, Lord Bruce-Gardyne, for his kindly references to the distinguished merchant bank with which I am associated. May I assure him and the House that I am not speaking on behalf of that bank, which is heavily engaged in a number of merger activities at the moment? Neither do I propose to explain, or justify, the fees that have been quoted. This can be done very well, but perhaps not in this forum.

Perhaps my experience in this field may contribute something to the subject which was so well introduced by the noble Lord, Lord Gallacher. We are living in a period of feverish takeover activity, and it is right that we should sit back and assess the impact of all these mergers and acquisitions on the structure of our economy, their effect on consumers, and their impact on employees. Perhaps I may say from these Benches that we are committed to an effective competition policy. We are opposed to mergers for mergers' sake, or for greed, or for aggrandisement, but we support those mergers which contribute to increased efficiency and innovation. We believe that monopolies are bad, whether they are state monopolies promoted by the Labour Party or private monopolies resulting from the privatisation exercises of the present Government as seen in the examples of Telecom and gas.

Having stated these objectives, we now discuss the appropriate machinery for achieving this kind of policy. Like the noble Lord, Lord Bruce-Gardyne, and the noble Lord, Lord Gallacher, I too dipped into the experience of the 1960s in this regard. Unfortunately, studies of the impact of mergers have not been brought up to date. The latest document I could find was Command Paper 7198, dated 1978. It revealed the interesting situation that while the share of the 100 large manufacturing enterprises in the United Kingdom net output of the total manufacturing business in the United Kingdom was 27 per cent. in 1953, in 1972 it had gone to 41 per cent. and represented 36 per cent. of the total employment in manufacturing industry.

The concentration in the manufacturing industry was much greater in the United Kingdom than in Japan and in Germany, but it did not have the results anticipated. The great merger mania of the time did not result in a greater proportion of our domestic market being captured by the newly-merged companies. Indeed, the opposite took place. The return on net assets following these exercises was not any greater than before. Indeed, more than 50 per cent. of all the newly-merged companies showed a reduced return on net assets compared with before.

This would suggest that there is no automatic advantage from greater mergers. But we are living in different circumstances today, and I am not sure that the experience of the 1960s—the great period of Jim Slater, the hero of free enterprise; the classic asset stripper—is the same kind of situation as exists at the present time. I believe that the pressure of possible takeover is a continual stimulus to performance and to management.

If your company is lazy, if your company does not perform well, it immediately becomes vulnerable. May I quote one or two cases which come readily to mind. The Dixons' takeover of Currys results have just been published; the results of Woolworth, which has been resurrected as a result of a takeover situation, and the BTR takeover of Dunlop are evidences of the injection of new management, new direction and rationalisation which have improved the performance of these companies to the advantage, I suspect, of consumers and shareholders.

It is interesting that the debate tonight was introduced by the noble Lord, Lord Gallacher, whose association all his life has been with the Co-operative movement. I am sure that the noble Lord, Lord Gallacher, would be the first to say that the mergers which have taken place in that organisation have been necessary, and have been compelled upon the Cooperative movement by the economic circumstances of the time. We are living in an environment where there is an inevitable need to create bigger organisations in some industries. There is a pressure to achieve greater efficiency. Some might say, "What about the employees in the event of these mergers?" I can only say that if any industry is suffering from bad management and overmanning the future of the employees is less secure in these situations than when they are taken over by efficient and well-organised management.

It is also suggested that the vulnerability of some companies inhibits long-term investment because the evidences of long-term investment are not immediately reflected in the balance sheet. I would say to these companies if they are afraid of this that they have a greater responsibility to communicate their plans and their strategy to the shareholders. American companies are much more responsible in this regard. They tell shareholders what is happening.

We cannot argue simply that mergers as such are bad. Many mergers have great advantages. It can be a different situation from the asset-stripping of the 1960s. Let us be clear about the advantages of the United Kingdom competition policy. It is not a bad system, although some helpful criticisms have been offered in this debate which might improve it. It has flexibility. The phrase "coherent policy" is introduced in the Motion before us. "Coherent" suggests consistency in policy. However, all of these takeovers and mergers are entirely different. They are in different industries; they are made up of different groups with different interests. It would be a retrograde step to try to impose some kind of consistent uniform policy on all these various exercises.

The British policy has evolved over the years since 1948 and it has been a bipartisan policy. Apart from the fact that the questions arising out of references to the Monopolies and Mergers Commission arrive ultimately on the desk of the Minister, the Office of Fair Trading and the Monopolies and Mergers Commission have lifted this debate out of politics and have examined these matters quite objectively. There is flexibility in the British system. It has been extended over the years not only to bring in manufactured products but to include services and the professions.

This is good. It can cope with changing circumstances: for example, the impact of international competition. There is a proposal in the United States that United States companies should be exempt from their legislation if they are subject to foreign competition. But our system in the United Kingdom takes care of such changing circumstances and the international situation in which we operate. It can also deal with public interest issues such as the implications of the leverage buyout of the Elders Allied-Lyons bid, which has been referred to the Monopolies and Mergers Commission. These developments are worrying the Americans today because of the extent of the leverage buyouts in their country.

There are substantial advantages in the British system. There may be some criticisms about the inconsistency in the decisions of the Monopolies and Mergers Commission. This is inevitable, because these matters are widely debated and dressed up by the financial journalists. They become matters of winners and losers and inevitable public comment. However, as it exists the system works and the Monopolies and Mergers Commission and its procedures are reasonably well understood. However, it makes some decisions which baffle me. I could not recognise any monopoly situation in the recent bid for Sothebys, for example, and it is extremely difficult sometimes to understand decisions of that type where no monopoly arises.

When we are considering alternatives to the British system, I refer your Lordships to an article in the Financial Times this week by Sir Gordon White, who has some experience in handling these matters on behalf of the Hanson Trust in the United States. He said that takeover patterns in the United States are a form of street fighting; private detectives and smear campaigns are all part of the game. Private lives, business ethics, litigation lasting five months are not necessarily in the interests of shareholders. They have devised a new language with scorched-earth policies; poison pills and golden parachutes are all part of the game. A United States company can dismember itself or gear itself up to the eyeballs in debt without consulting the shareholders. In Britain, the moment a tender is out the clock stops. The only method of fighting someone off is to argue on the basis of the value of the company.

Sir Gordon, with his experience in the United States on a recent takeover, acting on behalf of the Hanson group, described how he had to present 3,000 pages of deposition, 2,500 pages of courtroom testimony and 140 exhibits. I do not believe that we should get too legalistic in the application of our monopolies and mergers policy; otherwise we may easily find outselves in the kind of difficulties Sir Gordon has described. This has been a useful debate. Helpful suggestions have been made. I look forward to the Minister's reply.

7.17 p.m.

Lord Williams of Elvel

My Lords, I, too, am particularly grateful to my noble friend Lord Gallacher for tabling this Motion for short debate. It has been welcome to see how on all sides of the House he has had support for some of his propositions and, indeed, what degree of unanimity there is on all sides of the House about what needs to be done. Debates on competition policy are few and far between, partly because the subject matter tends to be rather dry and technical, and partly because the issues of controversy that exist do not necessarily cause great political collisions and therefore are not an object of political controversy, but they are, none the less, controversial.

As many noble Lords have said, we are in a period when controversy is very much in vogue because we are, as we are told, in the days of the mega-bid. Indeed, I think it is because we have had this tremendous wave of mergers and bids in the last few months that it is apposite that this Motion has come before us today. It is opportune to reflect, as my noble friend Lord Gallacher has, on whether the institutions and the legislation that we have and the conduct of those institutions are adequate to keep pace with the fast development in the market. For this reason I suppose I must welcome the announcement from the Government that they are to make a review of competition policy this year. I am afraid it is a rather grudging welcome and I hope the Minister will not object to this, as the Government have been singularly dilatory in acting on the previous review, to which I am glad to hear the noble Lord, Lord Taylor of Gryfe, drew attention. That review was conducted in 1978 by a committee of officials under the chairmanship of Mr. Hans Liesner, the results of which were set out in two Green Papers: one in 1978, on monopolies and mergers policy, and the second in 1979, on restrictive practices policy.

The review conducted by the Liesner Committee was extensive and extremely thorough. A number of recommendations were made. These were supported by detailed argument and analysis; yet apart from the Competition Act 1980, which, the noble Lord will forgive me, was a rather half-hearted measure and dealt only with a small part of the problem, and apart from a few bland ministerial statements about competition policy, nothing much has happened except—this is an important exception to which I shall return—the privatisation of one major natural monopoly, with another on its way.

I am not aware that the Liesner analysis, to which the noble Lord, Lord Taylor, referred, has radically changed anything in any manner. No new evidence has emerged, so far as I am aware, to invalidate the conclusions that that committee came to. For instance, there is no new evidence to invalidate the conclusion that at least half the mergers by large, quoted companies are unprofitable; that the main reason for merger—and here I refer to a remark by the noble Lord, Lord Bruce-Gardyne—was to increase market share; that the defence of an existing position was the second main reason, and in the minds of managers, at any rate—and I quote from the Green Paper— Consideration of market power rather than economies of scale at the level of the firm were the main motive for a merger. The evidence"— said the Liesner Committee— is more consistent with the assumption of growth maximisation than profit maximisation". I think that this is a point which the noble Lord, Lord Vinson, made very convincingly when he spoke.

Indeed, if anything, these conclusions have been strengthened by the current merger wave. The noble Lord, Lord Grimond, mentioned the Distillers/Guinness merger. Was it deep conviction that led the Distillers' board suddenly to welcome a merger approach from Guinness; or is it that they did not fancy Mr. Gulliver? Was the proposed merger between the Imperial Group and United Biscuits the result of a rationally-conducted, economic and industrial exercise; or was it just cobbled together because both companies felt that they were vulnerable and they rather liked each other's conversation at lunch?

This analysis has not changed; nothing has changed. The Liesner analysis has not changed, the policy has not changed. Now it is regarded as something of a lottery whether there is a reference to the Monopolies and Mergers Commission or not. I think the market is confused, industry is confused, the City is confused. It really is time that we moved on; and for that reason I gave the grudging welcome that I did to the Government's review.

We in the Labour Party, in fact, see no fundamental reason for a review at all. On the contrary, we see every merit in acting on the recommendations of the Liesner Committee and then allowing a period of time to elapse for a further review of the new arrangements when they are put in place. Perhaps I may take up some of your Lordships' time to set out my party's current view of the direction of policy that we should be taking. I will deal with monopolies and mergers first and then turn to anti-competitive practices; and finally return, if I may, to the matter of competition institutions and, more particularly, the recent and current creations.

Our point of departure is the Green Paper of 1978. There is one suggestion that we should like to see put into effect immediately. At present, the Director-General of Fair Trading has the statutory duty to find out about all mergers that fall within his remit. This works well in the case of companies making a bid on the open market because they normally make their bids conditional upon there being no reference to the Monopolies and Mergers Commission. In the case of unlisted companies, it does not work so well. We should like to see introduced a provision for the pre-notification of mergers in the category in which the director-general is concerned. The Hart-Scott-Rodino legislation in the United States would be a good model to study. In our case, the director-general would be notified, would have a period of time—let us say, 30 days—to decide whether to recommend a reference to the Secretary of State; and the Secretary of State in the same period of time would make his decision about whether there would be a reference or not.

This procedure would not only help companies proposing mergers since at the moment there is no time limit on the director-general; but it would put a time limit on the reference procedure. It would make sure that no private company slips through the net, as is possible at the moment; and, above all, it would provide a very clear cooling-off period of 30 days during which the two parties concerned would know they were blocked and could think again about whether they really wanted to do the deal in the first place.

This period of 30 days which a statutory pre-notification would provide is all the more important when we come to the next proposal that I should like implemented. We follow the Liesner Committee in shifting from the present policy—the policy which noble Lords have summed up, quite rightly, as being the onus of proof on the authorities to show that a particular merger is not in the public interest and which, in fact, tends to operate in favour of mergers rather than against them—to a neutral stance as recommended by the Liesner Committee. We would not like to go as far as the noble Lords, Lord BruceGardyne and Lord Vinson, who, I think, both would like to see the onus of proof placed fairly and squarely on the merger proposal, which is the applicant company.

We believe that it would be perfectly possible, within the present institutional framework, to adopt a neutral policy by means, first of all, of a ministerial statement setting out to the director-general and the Mergers and Monopolies Commission that that is what we feel; but, secondly, and probably more importantly, by amendment of Section 84 of the Fair Trading Act 1973 to take into account—and I use the Liesner Committee's words— the desirability of minimising the detriments of reduced competition and increased concentration". In one respect, however, we should like to go further than the Liesner Committee and identify three categories of merger which would provoke an automatic reference to the commission and on which guidelines issued to the commission would state that the onus of proof would be firmly on the company proposing the merger. They would have to persuade the commission that after all the proposed merger was in the public interest. Unless the company could persuade the commission of this, then the commission would take the view, and recommend so to the Secretary of State, that the merger should not take place.

The three categories that I have in mind are these. First, a merger where there is a significant defence interest. I do not need to refer to the speech of my noble friend Lord Hatch of Lusby when I can say that this is a rather topical point at the moment and it seems to us essential that defence interests should have special treatment. Secondly—and I come to what the noble Earl, Lord Ferrers, has said, as also the noble Lord, Lord Mottistone, and the noble Earl, Lord Halsbury, who drew our attention to it, and, too, the noble Lord, Lord Bruce-Gardyne—I refer to mergers constructed in ways which clearly make them largely financial transactions rather than proper commercial or industrial transactions. Clearly, there is a definitional problem here but, basically, I think we are getting at the point to which the noble Earl, Lord Ferrers, referred, that, with purely financial transactions of this nature, we really ought to have a presumption against them that they are against the public interest.

And, thirdly, since it is going to be the main policy of the Labour Party to achieve a substantial reduction in unemployment, we would like to oppose mergers whose likely outcome would be a significant reduction in employment. This is going to be extremely important, and I come back to what my noble friend Lord Gallacher said about a coherent policy which includes the workers.

I accept that there will be definitional problems in setting up these categories which have to be solved eventually. The Director-General of Fair Trading will have to be given clear guidelines; for it will be he who will take a view on whether a proposed merger falls into one or more of these categories. But I am not going to tackle those definitional problems now.

Our third proposal on monopolies and merger policy again goes further than the 1978 Green Paper. It concerns the follow-up procedures when a merger is allowed through. In our view, the commission should be allowed to recommend, and the Secretary of State to impose, a reporting procedure even when a merged company is allowed through and there is no blockage from the Secretary of State. Even under those circumstances, the commission should be allowed to recommend a reporting procedure by which, from time to time and as appropriate, the newly-merged company will report to the Monopolies and Mergers Commission and describe what has happened since the merger.

Lord Bruce-Gardyne

My Lords, I apologise for interrupting the noble Lord. Surely, in fact, the Monopolies Commission has the power to do precisely that, and has done it on several occasions in recent years; but it cannot be said that it has worked very successfully.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for his intervention. It is true that the Monopolies and Mergers Commission can recommend to the Secretary of State and the Secretary of State can make an order on companies where the Monopolies and Mergers Commission find something wrong. It is extremely rare in my experience: in fact I cannot cite any cases when the Monopolies and Mergers Commission have cleared a merger and, even so, the Secretary of State makes an order for a follow-up reporting procedure. I may be wrong and I would certainly welcome any advice, but I think I am right in saying that once a merger is cleared it is cleared for good.

If the Monopolies and Mergers Commission have these powers they can do something which, I am bound to say—If I may digress for a moment—that when I was in the Price Commission I longed to do, because this really comes back to what the noble Lord was saying. When Tate and Lyle took over Manbré and Garton, in a very famous merger in the 1970s, they put in their offer document that, as a result of the merger, there would be a decrease in unit costs, general benefits all round, no price increase, increases in profits, and so on. Much to our astonishment, six months later what should happen but a pre-notification of a sugar price increase from Tate and Lyle.

What I badly wanted to do, as chairman of the Price Commission which received this pre-notification, was to look at the framework of the merger that Tate and Lyle had put before the Government—because it was not referred to the Monopolies and Mergers Commission—and look at the figures the chairman of the company had put in the offer document to shareholders. I wanted to ask: were these figures genuine? If they were, were they right? If they were right, clearly there should be no price increase. If they were wrong, what was the explanation? That was something, unfortunately, we failed to do because it came very early in our career and we had not really set ourselves up to take this particular form of action.

It has always been in my mind that when a company makes a submission to the Monopolies and Mergers Commission it does so as a "still photograph" at a particular point in time. All its objectives may be perfectly praiseworthy and all its figures perfectly proper. The proof of the pudding comes in the eating; and it is only six, nine, 12, 18 months later that you see whether the merger has been a success or whether it has been one of the 50 per cent. which has been rather a failure—or indeed, whether a company has moved its headquarters down from Scotland to London, in response to the noble Lord, Lord Grimond's point.

These three proposals, in our view, would make for a sensible and coherent merger policy—one which catered for proper commercial and industrial reconstruction, and yet was much tougher on the kind of mid-winter madness which seems to grip the City from time to time, frequently (as perhaps at present) in the closing stages of a bull market. Nevertheless, they do not form a complete policy because there will always he uncompetitive practices by companies who have been able to establish a dominating position in the market.

I should like now to turn to these and tell your Lordships as briefly as I can what we have in mind here. Again, our starting point is the Liesner Committee, in this case the 1979 Green Paper on restrictive practices. Their recommendation was that power should be taken to prohibit certain practices. They mention tie-in sales and full-line forcing—rather complicated expressions. But essentially they were saying that certain uncompetitive practices are capable of definition legally, like resale price maintenance, and can be legislated against. We believe that power should be taken by the Government and that the practices, in so far as they can be defined in what makes legal sense, should be defined by Secretary-of-State order rather than by recourse to primary legislation each time, as in the case of the resale price maintenance legislation.

However, again we would go rather further than the 1979 Green Paper, and we would wish to see provision made for standing references to the Monopolies and Mergers Commission on certain prima facie uncompetitive practices which cannot be defined precisely in terms of legislation but can be properly interpreted by the courts, and where there are certain grey areas which are uncompetitive prima facie, and need looking at on a continuing basis. The particular type of practice I have in mind, which has caused many problems over the years and has been studied by all sorts of bodies such as the Food Manufacturers' Federation, the Monopolies and Mergers Commission and so on, is the question of discounts forced by big retailers on food manufacturers. That was dealt with by the Robinson-Patman Act in the United States.

Legislation in this case is not a sensible way of dealing with it, in my view. We want to have a procedure for the Monopolies and Mergers Commission to continue monitoring these kinds of practices if we are going to be able to say at any given time that the balance in this particular grey area has moved against one particular type of business and in favour of a monopolistic enterprise.

As a corollary of that, we would say we think that the Monopolies and Mergers Commission should use the powers that it has to impose price pre-notification on monopolistic and oligopolistic suppliers where a reference—either a one-off or a standing reference such as I have described—has shown up a potential or actual case of monopoly pricing.

This brings me to the question of institutions. The question was raised by the noble Lord, Lord Campbell of Alloway, not very long ago at Question Time, and the thrust of his Question was really quite simple: is there not a profusion of institutions in this field of competition? We had the Office of Fair Trading, the Monopolies and Mergers Commission, the Restrictive Practices Court, the High Court (in certain cases), the Treaty of Rome and GD4 in the European Commission and the European Court. Now we have Oftel; we are about to get Ofgas and presumably Ofwater (if the water authorities are privatised)—and also Ofair, in the form of the Civil Aviation Authority (if the British Airports Authority is privatised as well). Who knows?—in the future we might be getting Ofelectricity and Ofanything else that the Government decide to privatise.

I was given to understand, when the Conservatives came to power in 1979, that their ambition was to cut down on the number of institutions—"quangos" they were called at the time. As I remember, they were very keen on abolishing them and in fact an honourable gentleman in another place kept a score of quangos abolished, rather in the same way as certain noble Lords opposite no doubt keep a tally of the birds they shoot in an autumn afternoon—another brace gone here; another one gone there.

We now seem to have a complete reversal of this policy and quangos of this kind are being created every time there is a privatised monopoly: here, newly-forged is a new competition institution. It will astonish your Lordships to know—and I have put down a Question for Written Answer to confirm the figures—that Oftel which started off with 50 people, has now grown to 80 people and is about to grow to 100 people. If you have 100 people in Oftel, 100 people in Ofgas and in Ofwater and so on, you really are creating a new model army which we could do without.

So the proper object of a review, if that is what the Government are contemplating, is to look at these institutions and ask: is there not really a case for merging these institutions into the net we have got? There are, after all, three quite separate types of functions. There is the granting of licences, which is the proper function of Government; there is the question of trading practices, which is a proper function of the Director-General of Fair Trading; there is the question of pricing, which is the proper function of the Monopolies and Mergers Commission.

I have taken up far too much of your Lordships' time and I must come to a close, but there are two general points that I would like to make. The Government have decided upon a review. So be it. We will return to what it says and react accordingly when the review is out. What I have said today is based, and can only be based, on the position that we have at the moment. Nevertheless, we on our side maintain as a matter of principle that we need a tougher policy on monopolies and mergers. To illustrate this, I cannot do better than to quote from the public interest provisions of the Monopolies and Restrictive Practices (Inquiry and Control) Act 1948, which was introduced and put on the statute book by a Labour Government. The Act instructs the commission that, all matters which appear in the particular circumstances to be relevant shall be taken into account and, amongst other things, regard shall be had to the need, consistently with the general economic position of the United Kingdom, to achieve:

1. (a) the production, treatment and distribution by the most efficient and economical means of goods of such types and qualities, and in such volume and such prices as will best meet the requirements of home and overseas markets;
2. (b) the organisation of industry and trade in such a way that their efficiency is progressively increased and new enterprise is encouraged;
3. (c) the fullest use and best distribution of men, materials and industrial capacity in the United Kingdom; and
4. (d) the development of technical improvements and the expansion of existing markets and the opening up of new markets."

That was our position in 1948, and that is our position today.

7.40 p.m.

Lord Brabazon of Tara

My Lords, we are all grateful to the noble Lord, Lord Gallacher, for having raised this important matter in debate today, and I am most grateful to be given the opportunity to discuss a subject which is so central to the Government's policies—that of competition. At the basis of our policy on monopolies and mergers is the conviction that free competition in the market place is the most effective way to keep prices down, to satisfy the consumer and to promote efficiency in production and distribution. We know, however, that the market does not always function perfectly. Distortions may be created when extensive market power is concentrated in the hands of a small number of companies. We have essentially two weapons at our disposal in attacking these distortions.

First, we can act—where they exist—against the monopolistic practices of companies already in a dominant position in the market, and against the anticompetitive practices of companies who seek to reduce or eliminate competition, and thereby to dominate the market. Our legal weapons in this sphere are the monopoly provisions of the Fair Trading Act 1973, and the anti-competitive practices provisions of the Competition Act 1980. Both of these provide both the scope for an in-depth investigation of such practices by the Monopolies and Mergers Commission and the basis for action to remedy such practices if they are found to operate against the public interest.

Secondly, we can intervene—in cases of particular economic significance—to control the structure or size of firms which threaten to dominate a market or markets through acquisition. Our weapon here is the mergers provisions of the Fair Trading Act. I should like to use this opportunity to discuss this aspect of policy more thoroughly. In particular, I wish to consider suggestions that our policy on mergers has no consistency or coherence, or that it is ill-equipped to deal with recent developments in the market. Such allegations have no basis in fact.

I should like to begin by reminding this House that a review of policy towards mergers was conducted by the Department of Trade and Industry as recently as 1983–84. It resulted in the Statement by my right honourable friend, the then Secretary of State for Trade and Industry on mergers policy in July 1984. I should like to remind noble Lords of what my right honourable friend said on that occasion. He said: I regard mergers policy as an important part of the Government's general policy of promoting competition within the economy in the interests of the customer and of efficiency and hence of growth and jobs. Accordingly my policy has been and will continue to be to make references [to the Monopolies and Mergers Commission] primarily on competition grounds. In evaluating the competitive situation in individual cases I shall have regard to the international context: to the extent of competition in the home market from non-United Kingdom sources, and to the competitive position of United Kingdom companies in overseas markets."—[Official Report, Commons, 5/7/84; col 213] I hope to illustrate in what I have to say today that both the policy and the institutional framework within which Government decisions about mergers are taken are as well-adapted and relevant to the current situation as they were when my right honourable friend the then Secretary of State made that statement some 18 months ago.

We are undoubtedly experiencing a peak of merger activity at the present time. Some have even gone so far as to describe the country as in the throes of an attack of "merger mania". Cries such as this are easily aroused. However, I would be the last to deny that the increase in merger activity since the middle of 1983 has been substantial. Whereas the total assets of companies acquired in 1983 were some £2.3 billion, this had increased to £5.5 billion in 1984 and to £6.1 billion in the first three quarters of 1985 alone. A feature of this particular wave of mergers is the size of some of the bids involved—the so-called "megamergers"—which would affect the deployment of millions of pounds' worth of assets and have an impact on large numbers of employees. Acquisitions valued at over £25 million accounted for 73 per cent. of total expenditure on acquisitions in 1984. Another feature which some commentators have addressed is the advent—which has been particularly marked in the USA—of the so-called "leveraged takeover", or the takeover financed largely by debt, to which the noble Lord, Lord Gallacher, referred as David taking over Goliath. I shall return to this a little later.

We must, however, keep this activity in perspective. History has shown that merger activity tends to be cyclical. There was a mergers boom as recently as 1972—which, incidentally, has not yet been matched by the current peak, either in terms of the number of takeovers, or the volume of assets which have changed hands. There were over twice as many company takeovers in 1972 as in 1984; and the volume of assets of companies acquired in 1972 was almost double that of companies acquired in 1984 (using constant prices). And there are undoubtedly some specific once-and-for-all features of the present situation. The statistics include the many current acquisitions of stakes in our brokers, jobbers and financial services institutions in preparation for the Big Bang in the City. Such acquisitions—given the large asset base of many of these institutions—tend to inflate the figures disproportionately.

It is our belief that—despite the heightened level of merger activity which we are undoubtedly experiencing currently—our present policy provides a framework which is flexible and capable of adaptation to all the different types of case which may arise. At the same time, it provides a degree of predictability and consistency in the treatment of mergers which is—I believe—welcomed both by the City and industry in general.

Perhaps I should not set the policy in its institutional and legislative context. Our procedures for examining mergers operate with a light touch. My right honourable friend's intention—in announcing in July, 1984, that the assets test for mergers qualifying for investigation under the Fair Trading Act 1973 was being raised to £30 million—was to ensure that only mergers of considerable economic significance came within the scope of the legislation. In 1984, only five of the 259 mergers qualifying for investigation under the assets and market share tests were preferred to the Monopolies and Mergers Commission for further investigation. In 1985, the figure was five out of 191. Moreover, it is only in the case of an adverse public interest finding by the MMC that Ministers are able to take steps to prevent or impose conditions on a merger; or for that matter to break a monopoly, where that is the subject of the reference.

Another aspect of our arrangements in this country which confers particular strength and adaptability is the three-tier procedure, involving two organisations independent of government: the Office of Fair Training and the Monopolies and Mergers Commission. The Director General of Fair Trading has a statutory duty to keep himself informed about merger situations and to advise the Secretary of State on whether a reference to the MMC would be appropriate in a particular case. But the decision on a merger reference is made by the Secretary of State and not by the director general. In the case of a monopoly reference of course the director general is also empowered to make reference and it is normally he who makes them. In the case of merger references, it is the practice to state publicly if the Secretary of State goes against the director general's advice. Finally, there is the involvement of the MMC in those cases which are considered to raise potential public interest issues. The MMC is a body with a wide spectrum of skills and experience: and in assessing the input of a merger proposal on the public interest, they have a far-ranging statutory duty to take into account all matters which they consider to be relevant in the circumstances.

Let us turn now from the procedures and institutions to the way these operate in practice. In July, 1984, my right honourable friend the then Secretary of State for Trade and Industry announced that references to the MMC would continue to be made primarily on grounds of competition. This policy has been endorsed and restated recently by my honourable friend the Parliamentary Under-Secretary of State for Corporate and Consumer Affairs in his speech on 29th October last to the conference on International Mergers and Acquisitions.

As its basis is our belief that market forces and competition are generally the most efficient means of allocating resources, stimulating growth in the economy and hence creating viable jobs. We believe that decisions about the future of a commercial enterprise are in general best taken by the shareholders themselves. And we must remember that by no means every takeover bid succeeds, although in some instances the mere threat of a takeover can be a stimulus to better performance by the target company, a point which several noble Lords have mentioned. What we do not believe is that mergers policy should second guess the market or protect target companies against unwanted bids.

However, in stating that reference decisions would be made primarily on competition grounds, my right honourable friend did not say that factors others than competition would never be taken as grounds for a reference. We look at each case on its merits and from all angles. In advising the Secretary of State, the director general considers all the relevant aspects of a bid, all the arguments put forward by the parties to a merger proposal. And—as I remarked earlier—the MMC is not merely able, but is required to take account of all the relevant issues in assessing the public interest impact of a merger. A recent example of a case where my right honourable friend the Secretary of State for Trade and Industry decided to make a reference on grounds other than those of competition is the Elders IXL bid for Allied-Lyons, where he announced that the financing of the bid raised issues which deserved further investigation by the commission. And there will doubtless be other cases, with their own particular features, which will be referred to the MMC in the future. We believe that each case must be examined on its merits in the light of the specific circumstances.

Lord Williams of Elvel

My Lords, I am sorry to interrupt the noble Lord. Will he kindly tell us whether the director general looked at the Westland case, which after all fell within his remit as a partial merger? Did he make any recommendations to the Secretary of State on that subject? If so, what did the Secretary of State do with those recommendations?

Lord Brabazon of Tara

Certainly, my Lords. I have a note on the Westland situation and I shall reply to the noble Lord before I come to the end of my speech.

Any attempt to impose rigid general rules would quickly run up against a special case which the rules did not fit. The flexibility of our policy is one of its greatest strengths. I think the noble Lord, Lord Taylor of Gryfe, supported us on that.

I can indeed sympathise with my noble friend Lord Ferrers and other noble Lords with their concern about the appearance of so-called leveraged takeovers financed largely by debt. These are not as yet a common feature of the scene here in the United Kingdom but I am aware that the new financing devices used in the United States have been hitting the headlines recently. The appearance of such new financing techniques does not in our view undermine the validity of our procedures for examining mergers. Because they are considered by the Office of Fair Trading and by my right honourable friend the Secretary of State for Trade and Industry on a case by case basis, this allows the specific features of a bid to be fully evaluated in assessing whether it should be referred to the Monopolies and Mergers Commission for further investigation.

The MMC can look at all aspects of a merger referred to it which they consider to be relevant, including reciprocal arrangements for takeover bids in the bidder's country of origin if they consider these to be relevant. It will of course be for the MMC to consider whether reciprocity is a relevant factor in the Elders bid for Allied-Lyons. That is so far as I can go on that subject at this stage.

In our view therefore the Government's policy of making references primarily on competition grounds has admirably stood the test of experience. We are conscious that merger activity is at a high level: indeed, this was already the case when my right honourable friend's 1984 Statement was made. The approach we have adopted—and will continue to adopt—has regard to industry's wish for stability and predictability, while at the same time being both practical and flexible.

Noble Lords have raised a number of specific points. The noble Earl, Lord Halsbury, asked me whether he could give evidence to the MMC in the case of the GEC/Plessey merger. I am sure that the commission would be happy to receive any representations which the noble Earl might wish to make to them.

The noble Lord, Lord Williams of Elvel, has just asked me about the position regarding Westland minority shareholdings. It has been announced that my right honourable friend the Secretary of State for Trade and Industry has decided, in accordance with the recommendations of the Director General of Fair Trading, that neither the proposed acquisition of shares by UTC Fiat recommended by the board of Westland nor the consortium proposals by five British, French, Italian and German firms would be referred to the Monopolies and Mergers Commission under the provisions of the fair trading Act. If any other proposals were to emerge these would be considered in the normal way by the Director General of Fair Trading who would subsequently advise the Secretary of State for Trade and Industry on whether a reference to the MMC was appropriate.

In conclusion, the noble Lord, Lord Gallacher, and other noble Lords have expressed interest in the review of competition policy which has been announced by my honourable friend the Parliamentary Under-Secretary of State for Corporate and Consumer Affairs. Final decisions have not yet been made on the scope of the review which is to begin this year, but I can assure noble Lords that my right honourable friend will take careful note of today's most interesting and useful debate when deciding on the scope of the review. I also listened carefully to the speech of the noble Lord, Lord Williams of Elvel, about Labour Party policy in this matter. The Government have been accused twice in recent months of reacting too hastily to statements such as that, and I do not intend to fall into that trap this evening. However, I can assure the noble Lord that my colleagues will read what he has said with great interest.

Mergers policy, as an important part of the Government's general policy of promoting competition within the economy, will naturally be considered in the context of this review. But we do not consider that the current high level of merger activity alters radically the issues which the review will need to consider. Overall, we believe that the policy towards references which we have been pursuing and will continue to pursue has stood up very well to the demands which have been placed upon it.

7.57 p.m.

Lord Gallacher

My Lords, I should like first of all to thank all those speakers who have taken part in what I think has been a useful debate and one which I hope we shall be able to study in Hansard so that some of the more detailed points can be absorbed at leisure. I am particularly grateful to my noble friend Lord Williams of Elvel for putting my "rude mechanicals" in the framework of Labour Party policy and Labour Party aspirations. I am sure that he will be as disappointed as I am that the Minister rejected his blandishments to take them over here and now. Nevertheless, we had an assurance from the Minister that in the review of competition policy which is now in hand consideration will be given to some of the submissions made by us and other speakers in the debate.

I should also like to say to the Minister that his case was factually explicit and courteously delivered. In so far as he sought to console me, my only reflection was that, if there is so much coherence attached to the ministerial statements of 1983–84, why indeed was there so much concern behind him in the debate this evening? Having said that, I beg leave to withdraw the Motion in order that we should not be detained from the Unstarred Question on telephone bingo.

Motion for Papers, by leave, withdrawn.