§ 3.21 p.m.
§ Lord Borrie rose to call attention to the manner in which United Kingdom business is regulated and the manner in which the interests of the consumer are protected; and to move for Papers.
§ The noble Lord said: My Lords, in opening this debate, perhaps I may declare an interest in that I am a non-executive director of a number of UK businesses. Each of them in various ways is, of course, subject to quite a lot of regulation. I should add that I have been a regulator in that I was Director-General of Fair Trading from 1976 to 1992 and I am currently honorary president of the Institute of Trading Standards Administration which is the professional body charged with ensuring that there are high standards in the market place at local level.
§ In recent years we have heard a great deal about the burdens of regulation upon United Kingdom business and, indeed, we have heard quite a lot about deregulation. Like most of your Lordships, I am very keen on getting rid of unnecessary, out-of-date, over-pernickety regulation. But I think that it would be a pity if the case for regulation goes by default because I feel that regulation is absolutely essential for a number of important economic and social objectives. For example, in my view regulation is essential to ensure 114 the health and safety of both workers and consumers. It is important for fair trading. It is important for honesty of dealing. It is important for the future of the environment. I dare say we could all add to the list.
§ Of course, regulation must be administered sensitively. I am very glad to say that trading standards officers, for example, are extremely concerned to create local business partnerships in their area to ensure a strategy not of rushing into prosecution in the courts but of having discussions and giving advice and information to businesses to enable them to conform and comply with the regulations which they have to follow. Businesses can be led to understand and appreciate that regulations are not just there for someone else—for the consumer or for the general public—but are there for businesses because they help to ensure that there is a fair trading environment in which their rivals and all players in the market must play by the same rules as themselves.
§ The competitive interplay of rival businesses is a vital ingredient in getting businesses to perform well to the satisfaction of consumers and the general public. But every developed country has found it essential to have a certain amount of basic law, basic regulation—I use the word in the Motion—to ensure that businesses do not engage in price-fixing cartels, in anti-competitive practices excluding others from the market place and so on. The United Kingdom was well ahead of the field at one stage but it is now well behind many other countries in the effectiveness of its competition law.
§ I was pleased last year that fines were imposed by the UK courts totalling some £8 million upon 17 ready-mixed concrete companies, the leading companies in the UK industry. They had been involved in price-fixing cartels going back to the late 1970s. The companies admitted that they had broken undertakings given to the restrictive practices court in 1978–79 that they would not take part in price-fixing deals to the detriment of their customers. Therefore, they were in contempt of court and heavy fines were imposed.
§ But my pleasure was somewhat tempered by the fact that in my capacity as Director-General of Fair Trading, I had brought proceedings against those companies in the late 1970s and it had taken 17 or 18 years to reach the point at which they were finally brought to book. My experience of trying to enforce United Kingdom anti-cartel law was that it was exceedingly slow to operate; its sanctions were incredibly weak; and the Office of Fair Trading lacked sufficient investigative powers.
§ The most amazing thing for any visiting German or American examining those matters in this country is that it is not illegal in this country for even the most blatant price-fixing agreement to come into operation unless it happens to affect inter-state trade across the other countries of the European Union. Then they are subject to the tougher rules of the Treaty of Rome. The United Kingdom law merely provides that a cartel must be put on a public register on public display at the Office of Fair Trading. It is not even a criminal offence and nor does it attract any penalty of any kind to fail to do that. In consequence, the United Kingdom law is an 115 exceedingly ineffective deterrent to price fixing to the detriment of customers, whether they be business or private customers.
§ In 1989, the United Kingdom Government, led by the noble Baroness, Lady Thatcher, published a White Paper which I, among others, warmly welcomed. It proposed a radical overhaul of the law, including the prohibition of cartels on the lines of Article 85 of the Treaty of Rome, increased investigatory powers for the Office of Fair Trading and heavy sanctions of substantial fines for breach of the prohibition. Unfortunately, seven years have passed since that White Paper and there has been no attempt to incorporate it into United Kingdom law. Not surprisingly, last year the all-party Trade and Industry Select Committee in another place felt that the Government's excuse of lack of parliamentary time was, as they put it, wearing thin.
§ Now, at long last, published only last month, we have a consultation paper. It is rather curious to progress from a White Paper to a Green Paper but the Government have produced a consultation paper entitled Tackling Cartels and the Abuse of Market Power. It promises implementation of the 1989 White Paper and I trust that when the Minister replies, she will assure us that that is some sort of earnest for the 1996–97 parliamentary session, assuming that Ministers are in a position to control the legislative programme for the coming session.
§ I would go further than the consultation paper because, after all these years, it is still disappointing in one respect. It intends to deal effectively with cartels; but it does not intend to deal effectively with the abuse of market power. While something like Article 85 of the Treaty of Rome would become part of UK law, Article 86 of the same treaty would not. However, leaving aside what non-specialists among your Lordships may feel is some detail, there is at least some broad agreement about the law against those who wish to restrain, control, monopolise and avoid competition. Competition is a good thing for consumers and is a safeguard for the consumer interest. But I should like to add something to that point. While competition policy provides a necessary safeguard for the consumer interest, it is not sufficient.
§ If, as sometimes Members of this House on the opposite Benches might suggest, competition was the complete answer, why is it that in, say, the second-hand used car market (where there is plenty of competition) or, indeed, in the market for financial services in the City of London, such competition is not adequate to protect the consumer or the investor? Why is it that we need legislation like the Trade Descriptions Act and the Financial Services Act? I suppose that the core of the issue in such apparently unrelated subjects is that in those fields, and many others, where complex goods and services are being sold, there is an asymmetry of information, knowledge and know-how between the provider of the services and the customer.
§ Moreover, in relation to the privatised industries, if there are Members opposite who feel that the advent of competition in the field of gas or electricity may mean that the specific industry regulators of Ofgas, Oftel, and 116 so on, can be abolished or done away with, I would suggest that their role is not just to control prices (a process which is at present needed to prevent overcharging by monopoly suppliers) but is, or should be, to ensure what the consumer wants above all, perhaps even above price; namely, adequacy, regularity and assurance of supply. In both the water and electricity industries there has been rightful concern about those matters in recent times. I believe that the objectives of the regulator must also include such environmental concerns as energy conservation and equity between different types of customer. The way things are going, I am a little worried in case domestic customers may have to pay the costs of large discounts to industrial customers.
§ I welcome the fact—at least, modestly—that some competition is being introduced into the various privatised industries, including, although they do not seem to have gone terribly well, the trials in the West Country for the supply of gas. If competitive gas suppliers emerge, it will be a good thing. But, unfortunately, that seems to have been rather badly managed. Indeed, my friends in the Devon Trading Standards Department publicly made available a report last week showing, for example, that companies were allowed to push householders into signing up with new suppliers before all the potential players had declared their intentions and before any independent advice was available.
§ The noble Lord, Lord Ezra, who is to speak later, initiated a debate in this House on 13th December last. Like him, I would argue that many of the problems besetting the regulation of the privatised utilities arise from the way in which they were privatised in the first place. Unfortunately, in the main, great monoliths were created which faced little or no competition. If I may personalise it, it seems to me that Sir George Jefferson in British Telecom and Sir Denis Rooke in British Gas should never have been allowed to have their way.
§ Moreover, although some competition is now coming in, it is difficult to discern any consistency in government policy. The noble Lord, Lord Ezra, asked a Question earlier this afternoon and I listened to the response. In fact, we have seen events go wider than those mentioned in the Question: we have seen cross-utility mergers being allowed between the electricity companies and the water companies. They may adversely affect competition or the consumer interest, yet they were not even allowed to be referred to the Monopolies and Mergers Commission before consideration. We also saw a merger between Scottish Power and ManWeb which, similarly, did not go to the MMC. Then, to the astonishment of all, including Members of this House who heard the Minister's response to that Question earlier today, the President of the Board of Trade barred the two English power generators from acquiring regional electricity companies. Neither the City nor the Financial Times—nor, indeed, many others—would have been able to understand what was going on had it not been for the fortuitous fact that the reports of the MMC in those cases were leaked and two powerful politicians of the government party, Mr. Norman Lamont and Mr. John 117 Redwood, made clear that they were not in favour of the view of the MMC and not in favour of the generator merger going ahead.
I regret that I was not able to take part in the debate on 13th December, but at that time I was only a Peer in embryo. I believe I can say that I was expected but that I had not yet arrived. Therefore, I should have liked to say a few words at the conclusion of my comments on price regulation for the utilities and on regulatory institutions for the privatised utilities in order to complement what the noble Lord, Lord Ezra, said. However, I see from the clock that I have run out of time so I had better cease at this point. I shall listen to what other speakers have to say about that and, indeed, about other matters. My Lords, I beg to move for Papers.
§ 3.37 p.m.
§ Lord Kingsland
My Lords, I am perfectly happy for the noble Lord, Lord Ezra, to continue if he wishes; indeed, I do not feel any sense of precedence at all. I see that the noble Lord does not wish to continue. I am much obliged.
I should like, first, to congratulate the noble Lord, Lord Borrie, on initiating today's debate. He brings to it not only a formidable academic reputation, but also many years of experience as a Director-General of Fair Trading. From listening to the noble Lord, I must say that all that experience has come through in his speech. I should also like to congratulate the Government on their initiative in March of this year in producing not a Green Paper but a blue one entitled, Tackling Cartels and the Abuse of Market Power. I believe that it is entirely appropriate that it should be blue and not green, and I should like to address my remarks to the content of that paper.
The truth is that the dominant feature on the landscape of British competition law is the European Community, and has been so since 1972. That dominance is the consequence of two articles in the Treaty of Rome—Article 85 and Article 86. The first article deals with contractual restrictions and the second with monopolistic powers. They have direct effect on the territory of the United Kingdom. If an individual or an enterprise feels in some way restrained by the behaviour of an enterprise contrary to those articles, that individual can go to any court in this country and seek relief. So they are formidable weapons in the hands of the European Community. But they only apply to restrictions or monopolies which have a consequence for inter-state trade. Therefore, there is an important role for competition policy at national level. It has been a fact that our arrangements to date have not borne any relation to the prohibitions laid down in Community law.
The fundamental purpose of this excellent document—which shows a remarkable open-mindedness, even by the standards of this 118 Government—and its central feature, is that it seeks to align British competition law with European Community competition law. That is an admirable objective. In the case of Article 85—the article which deals with restrictive distorting agreements—the approach taken is almost identical to that taken by the European Community. Any such restrictive agreement is void ab initio, and there is an absolute prohibition imposed upon it. Moreover, the system of investigation and remediation proposed for dealing with this is a system similar to that adopted by the European Commission. There is only one qualification I have with that. One of the questions the Government ask in this blue paper is whether or not so-called vertical agreements should be contained in the national prohibition. Their inclination is, I think, to exclude them. With great respect, I wish to warn them against that inclination. Vertical agreements are included in the Community prohibition. While it is true that many vertical agreements can be shown to enhance rather than retard competition, there are some notable exceptions. The Community and the national regime would not dovetail satisfactorily if we were to exclude vertical agreements from our national prohibition. Therefore, I urge Her Majesty's Government to look carefully at this issue before they decide to implement what they say they intend to implement in the blue paper.
The more controversial area relates to Article 86 on monopolistic—and what I think is called in the economics profession oligopolistic—practices. Here the British system is different to the Community system. I am somewhat concerned to see that the dovetailing approach taken in relation to Article 85 is not to be the approach taken in relation to Article 86. I urge Her Majesty's Government to look at this preliminary conclusion carefully before including it in legislation. I see no reason why, if a contractual arrangement which restricts trade under Article 85 is to be prohibited, a similar prohibition should not apply to a monopolistic or oligopolistic practice under Article 86. It is an important point of principle. We shall lose an important legislative opportunity if we do not take that opportunity to dovetail the two systems exactly.
I have one final comment to make. Why do we need an elaborate set of institutional and administrative arrangements to administer competition policy? If we are to prohibit restrictive agreements, why do we not simply leave it to the injured party to go to the ordinary courts of the land and claim that an agreement or a practice is void, and demand damages? There is some suggestion in the recent comments of the European Commission that this is the direction in which the European Community itself is going. The reason is simple. The administrative arrangements for examining monopolies in the European Community are snowed under. Some companies which seek permission to operate certain agreements are having to wait years before they can find out whether or not they have obtained it.
Therefore the Commission is saying to the member states, "Look, we would like you to take on a much greater burden of examining these agreements and it can 119 be done through your national courts. If a judge is uncertain about whether or not an agreement is restrictive, we are prepared to give our view in your court". Just at the moment when the Commission is trying to unload a substantial portion of the burden, we find our own Government thinking of introducing an onerous and elaborate system to consider national agreements.
I am not saying that we should not do this. As long as it is our intention to fine wrongdoers, we have to have a system which gives the alleged wrongdoer every right to defend his position and to prove that his agreement is lawful. If we do not do so, we shall be caught out by the European Convention on Human Rights. As long as there is the prospect of a fine, which is a criminal penalty, that follows.
We are faced with a fundamental question of principle here. If we want as simple a system as possible operated by the civil courts of the land, we must accept that a fine is not an appropriate penalty for a company engaged in a monopolistic or a restrictively concerted practice. Of all the questions that the Government have to consider before this legislation is put into place, I believe that is the most fundamental.
§ 3.45 p.m.
§ Lord Ezra
My Lords, I apologise to the noble Lord, Lord Kingsland, for having tried to speak in advance of him. I was so anxious to congratulate my old friend Lord Borne that I got quite carried away. I now wish to express appreciation to the noble Lord, Lord Borne, on his remarkable speech, bearing in mind his great experience on the subject. I am pleased that I heard what the noble Lord, Lord Kingsland, had to say because I agree with a great deal of it. The first three speeches in this debate at any rate will show a remarkable degree of consensus.
I start from the thesis that the best safeguard for consumers is the provision of goods and services in a competitive market. However, it is necessary to ensure that the competition is fair, that monopolies do not distort the market place, and that standards of health, safety and quality are maintained. It is the task of government to put in place the machinery to ensure that those objectives are achieved. I feel that the purpose of our debate today is to examine whether that machinery is adequate or whether it is in need of change or amelioration. That it exists of course there is no doubt; the question is, could it be made to work more effectively? I believe that the answer is in the affirmative as regards the three cases that I shall mention and which the previous speakers have already touched on.
In the case of competition policy, as the noble Lord, Lord Borrie, pointed out, it is now getting on for seven years since the Government produced their White Paper—now diminished to a consultative document—pointing out what needs to be done. There is no doubt in the Government's mind—as stated in this blue document—that the law needs to be changed. That is admitted on all sides. I agreed entirely with the noble Lord, Lord Kingsland, when he welcomed what the Government are proposing to do in regard to Article 85 120 of the Treaty of Rome, which is to prohibit anti-competition agreements. He was quite right to query why they do not do the same as regards Article 86 which prohibits abuse of dominant positions in the market place. If one is to adopt one of these provisions, it is difficult to appreciate why one should not adopt the other. To have two different systems running in parallel strikes me as confusing. In the one case there is a clear prohibition but in the other it will be a case-by-case approach. In this consultative period we should put pressure on government to change their mind on the subject.
There is also the question—which has been debated for a long time—as to whether the OFT and the MMC should be brought together, or in some way modified. The case for bringing them together was pressed strongly by the Trade and Industry Select Committee in the other place, to which the noble Lords. Lord Borrie and Lord Kingsland, referred. The Select Committee pointed out clearly—and I thought convincingly—how they thought this could work. That is a matter which must be taken seriously. However, if it is decided that it is better to have two separate bodies, their roles and their functions need to be looked at again. This morning the CBI produced some ideas on the subject which certainly merit serious consideration. In the whole area of competition policy there is undoubtedly a need for change. The Government have anticipated some needs but, in my opinion—it is a belief shared by the previous two speakers—they have not gone far enough.
I turn next to trading standards with which the noble Lord, Lord Borrie, and I have had a close association. He is the current president of the institute; I was the previous president. There is no doubt that the trading standards organisation throughout the country is doing a remarkable job, and is recognised throughout the world as having done so. It leads the way. However, unfortunately the great skills which those dedicated people possess are gradually being eroded by the reconstruction in local government which in its train brings fragmentation.
It is the nature of trading standards these days to deal with many things of great complexity, such as counterfeiting, fraud and the operations of large multiple concerns. To consider that those matters can be dealt with at very low local level is totally misguided. We need to think again about the structure of the trading standards organisation. We need to ensure that there is a regional level at which these important strategic issues can be dealt with, as well as being supported at local level in giving advice to individuals and small firms. I believe that in that area, too, we need to be aiming for amelioration of the existing system.
Finally, I turn to consumer protection in the privatised industries—a subject on which, as the noble Lord, Lord Borne, pointed out, I touched in the debate that I introduced in December. Here, too, we must look again at the issue. What is becoming very apparent, in particular in relation to the energy sector, the gas and electricity sectors, is that they are moving closer together. The gas distributors are distributing electricity; the regional electricity companies are all distributing gas; and, therefore, the time is coming 121 when we have to consider seriously whether the regulators should be brought together. Alongside a single energy regulator, I believe that there should be a clearly defined and independent energy consumer council with local representation.
The noble Lord, Lord Borrie, referred to the report prepared by the Devon County Council. I have a copy here. It points out that consumers who wished to make complaints went naturally, first, to their supplier. But if they did not receive satisfaction from their supplier, none of them thought of going to the regulator in the gas or electricity industry, or to the consumer councils. Apart from gas, they had not heard of them anyway. Those individuals tended to go to the local authority, the citizens advice bureau or the trading standards officer. Therefore, either we need an effective consumer council in those industries or none at all. I believe that we are in a half-way house where no effective use is being made of those bodies because people do not know about them. That comes out extremely clearly in the report that I hope the noble Baroness has read with care; and on which I hope that she will comment.
We have in place regulatory bodies to deal with market distortions and consumer interests. However, we need a sharpening of those operations; and I have indicated some of the ways in which I believe that that should be accomplished.
§ 3.54 p.m.
§ Baroness Lockwood
My Lords, I thank my noble friend Lord Borrie for the comprehensive way in which he introduced the debate. I shall follow the example of the noble Lord, Lord Ezra, and concentrate my remarks on the privatised utility industries. Those industries are of vital importance to our economy and have a strategic interest for the nation as a whole. Hence the reason for their being in public ownership previously.
There are four players in those industries which the regulator needs to take into account: the shareholders; the customers; the workers; and the state or the Government as guardian of the national interest. Any regulatory system has to balance the interests of those groups. Sometimes one group may be of overriding importance, but generally the interests need to be kept in balance. That is not perceived to be happening at present. Consequently there is great dissatisfaction with those industries and with the regulatory system. Customers or consumers are very critical. People believe that too much weight has been given to the shareholder interest, in particular at director and senior management level, at the expense of the customer or consumer.
A regulatory system inevitably contains contradictions and tensions. That seems to reflect the contradictions in the Government's own policy. Deregulation was a corner-stone of that policy. Yet even the Government recognised that in privatising those utility industries unfettered market forces could not be trusted to safeguard all the interests. Hence we had a regulatory system attached to each privatisation Bill.
As regards the interests of the four stakeholders, let us consider, first, the shareholders. Enough has been said about them in the press and media. Certainly in the 122 short term their interests have been catered for by rising profits. So we look, secondly, at the customers. Customers are becoming increasingly critical not only of the industries but of the regulator. The gas industry is an example where customer complaints have doubled during 1995 from some 18,000 to 37,000 complaints. In the water industry there is similar dissatisfaction. Since privatisation prices have risen by 42.5 per cent. Profits have also risen very considerably. But the service to the consumer has been severely under threat in recent months. It is felt that instead of concentrating on capital development—which is badly needed in the water industry—and on good management, far too much time and money has been spent on mergers, diversification and overseas investment. In the North-West area customers are questioning whether that has been at the expense of the home market.
As regards mergers, in reference to the consideration by the Monopolies and Mergers Commission of the bid for Northumbrian Water by Lyonnaise des Eaux, the regulator of Ofwat argued that the merger would be against the public interest as it impaired his ability to carry out his statutory functions by reducing the number of comparators.
The question arises as to where the final power lies in the whole regulatory system. The regulator's advice was overturned by the Monopolies and Mergers Commission. In turn, as has already been said, recently the commission's advice on the electricity industry was overturned by the Minister. So we must ask whether the powers and authority of the individual regulators are strong enough, where the balance of power lies between the different regulators and where the final policy decisions are made. Both my noble friend and the noble Lord, Lord Ezra, referred to that. We need to know whether decisions are being taken within a consistent framework of government policy. That seems not to be so.
The third group of interests or stakeholders, the workers, is one where the full brunt of the Government's deregulation policy has been felt. No one wants an industry—a utility industry or any other—to be run solely in the interests of the workers. But the workers are stakeholders and have a legitimate interest. Enlightened government and enlightened companies recognise that and build it into their policies. As a result, the workers accept that they are partners and therefore have a vested interest in the success of their company.
The fourth partner is the Government or the national interest. I do not regard myself as a xenophobic nationalist, but I cannot help questioning whether the takeover of utility companies, especially by overseas companies, is in the interests of the country and of our economy, bearing in mind the importance of the industries to the social structure. We also bear in mind that many overseas companies now see the British system as lightly regulated and one where the profit motive can be of great significance.
So it seems that we need to take a fresh look at the whole of our regulation of the nationalised industries. I suggest that now is the time to do so.
§ 4.3 p.m.
§ Baroness Wilcox
My Lords, I am grateful to the noble Lord, Lord Borrie, for introducing the debate. Of course, he is familiar to me, since I worked with him when he was Director General of the Office of Fair Trading. As Chairman of the National Consumer Council, I spoke to him on many occasions. We did not always agree but he always listened to me and I hope that today will be the same.
I stand today as a businesswoman, a trader, a consumer representative and a consumer. I believe that free markets are the best markets. When they work well, free markets are wonderful for consumers; when they work well, they give us access, choice, safety, information, equity, redress and representation. But the world is not a perfect place, and sometimes it is necessary to interfere with and regulate the market to keep the balance of power between business and the consumer.
Britain has a long tradition of self-regulation which has been much admired and often emulated: that badge of trust we knew, the handshake of the City of London dealers, the codes of practice of professional bodies; of the guilds; of the societies; fiercely guarded and upheld. But I suspect that, as all national boundaries are blurred by international trading, technology and science, those voluntary codes will, perforce, be replaced by statutory codes with a much wider geographical application. Regulation and enforcement will have to be and are even today being looked at anew.
More and more in these fast-changing days, businesses recognise their need for regulation. At the Institute of Directors' recent conference on the subject, representatives of 800 small companies attending called for more and better regulation in areas like retailing, wholesaling, tourism, the licensing trade and, inevitably of course, car boot sales. They recognise that good regulation can help to improve quality standards and business performance.
However, implementation and application are causing such businesses great concern. They are looking for more clarity, for the law to be written in plain language that they can understand; better on-going information to aid compliance; fairness of application of regulation; a European approach to applying European directives reflecting the spirit rather than the letter. My noble friend Lord Kingsland has already alluded to that. At a cost to UK business of £43 billion a year, regulation must be necessary, effective, fair and meet consumer and industry demands.
But I believe that in future it will be much more difficult to achieve. We live in an increasingly complex world where science and technology are moving markets and consumers into areas and languages that none of us is fully able to comprehend. There are many new forces at play, huge amounts of capital roaming the world, free-wheeling supranational companies, often more powerful than the governments of the countries in which they manufacture, trade or consolidate, able to influence and alter local conditions. New challenges to the regulation of British business are upon us, as this timely debate proves.
124 With your Lordships' permission, I shall mention three areas where we can see the changes happening. First, on technology, there are many significant changes taking place in the industry. The development of the information superhighway could bring enormous benefits to us all, particularly those with disabilities who cannot leave their homes or who live in remote, rural areas. The information society will fail to deliver its full potential unless consumers have effective systems of regulation and representation to ensure that the information society develops in ways to benefit everyone. There is no regulatory structure for the technology at the moment.
There are many bodies involved in the regulation of broadcasting and telecommunications. But technologies are changing. Telephone, television and computer can now work together across frontiers. Our Government acknowledge the need for review of the regulatory structure for broadcasting and telecommunications. But what of the information technology? How soon do the Government think they should start a review? It will be a long and complex picture and the sooner we start it the better.
Secondly, there are new risks. New challenges arise from new diseases such as BSE. The Government's responsibility is to introduce appropriate regulatory measures to protect humans from the disease. The Government introduced a number of measures, including the offal ban, as we remember. They relied on it to protect the human food chain from tissues known potentially to harbour BSE infectivity. It is important that such measures are properly monitored and enforced. It is welcome news that that is happening. But there will be new risks, and the need to ensure that regulations are properly monitored and enforced will have to be well supported, both nationally and locally.
Thirdly, and finally, on the green claims the Department of the Environment commissioned the National Consumer Council to look into them and we discovered that most of the claims are vague, devoid of meaning, often accompanied by symbols or logos and other green imagery which none of us really understands. We are keen to encourage shoppers to buy products which are less damaging to the environment; and I am delighted that the Government have now said, in the light of the National Consumer Council's report, that they will help to instigate a code of practice on the marking of "on product" claims. They will consider possibilities for changing the legislative framework for helping to protect the consumer against misleading information.
That is a welcome response, but as the three brief examples show, regulation will be no easy task in the future. Businesses, government agencies and consumer bodies will have to form new alliances—more often, much earlier and more openly—if we are to regulate, where necessary, to achieve the balance whereby British business can flourish and the British consumer remains king.
§ 4.10 p.m.
§ Lord Haskel
My Lords, I begin by declaring an interest as a non-executive director of a cable company. Obviously, it is a firm that is regulated.
125 The noble Baroness, Lady Wilcox, spoke of the convergence of broadcasting and telecommunications. What she did not say is that at least 10 different agencies have regulatory responsibilities for different aspects of telecommunications and broadcasting. With 10 different agencies, it is difficult for businessmen and consumers to find out what the current regulatory principles are. That gives rise to a whole new industry dedicated to second-guessing the regulator. We must move the debate forward and see how regulation can be applied to the real problems of the economy. I thank my noble friend Lord Borne for giving us the opportunity to do so.
To move the debate forward, it is obvious that in some sectors more regulation is needed and in others less. A flourishing, dynamic economy is moving all the time; so the need for more or less regulation will be constantly changing. My noble friend Lord Borne suggested that to introduce competition alone is not enough. He is absolutely right. Good regulation will improve the quality of competition; and that will improve the economy as a whole.
Regulators are obliged to control prices, encourage competition and look after the consumer. Let me briefly examine each of those duties in turn. In recent months, difficulties have appeared with the RPI-X price cap system. Takeover bidders and the stock market seem to think that this formula leaves a lot of scope for excessively high profits and excessively high executive pay and perks. They seem to be right. During the period 1991–94, Oxford Economic Research calculated that the average total return to shareholders of the regional electricity companies was in excess of 38 per cent.; whereas the average total returns calculated on the same basis in the Financial Times All Share Index has been just under 16 per cent.
That price formula is further complicated by the fact that many costs are outside the control of the utility. For example, we have heard from the Government all about lower gas prices. But they are not the result of privatisation or competition only. They are lower mainly because the price of gas itself has gone down by 50 per cent. Similarly, electricity is cheaper, largely because the fuel that drives the power stations has gone down in price. Telephone charges are less, partly because of competition introduced by the Government, but also because fibre optics and computerisation have cut costs considerably. What has regulation done? It has speeded up the passing on of those price reductions to the consumer. And that brings me to the second task of the regulator—competition.
As other speakers said, we have been promised a government policy for competition since the mid-1980s. At last, in March this year, the consultation document appeared. There is no doubt that the burden of regulation has been greater than it need have been because of the absence of a competition policy. Instead of vigorously introducing competition policy in the early days, the Government have used regulation as an excuse to delay it. I thought my noble friend Lord Borne was rather kind to the Government in his comments on that. To privatise monopolies for the purpose of introducing competition, and then for the Government to produce their policy for competition many years later, is an example of incompetence on quite a grand scale.
126 For some time the utilities regulators have warned that existing laws are insufficient to control the powerful groups that they oversee. Referring decisions to the Monopolies and Mergers Commission now seems to add to their difficulties. The Secretary of State's decision, first of all to accept the MMC's recommendation and allow mergers in the electricity industry, and then, contrary to the recommendation, to block bids by National Power and PowerGen for electricity distributors, has only served to emphasise that uncertainty.
In reply to the Question tabled today by the noble Lord, Lord Ezra, the Minister said that using "golden" shares to block those bids was not confusing. He may be right. But it is certainly weak and indecisive government.
Let me give an example of the absence of effective regulation. The Government own the Post Office and are successfully exploiting its monopoly in the absence of regulation by taking out £925 million over the next three years, which effectively means that they are taking every pound earned by the Post Office. Inevitably that means that postage prices will be raised. Would a regulator in the private sector have allowed that? I doubt it.
The third person the regulator is obliged to look after is the consumer. I assume that "the consumer" means the domestic user, and particularly those on low incomes. Apart from to the elderly and the disabled, the social obligations of the privatised utilities are pretty minimal. They are mainly an obligation to provide universal service in gas and to satisfy all reasonable demands for electricity. How do the Government ensure that small users are not paying high prices by virtue of standing charges and that consumer rights are protected?
Regulation has increased as our life becomes more complicated. We have arrived at the position today whereby, if eating beef is risky, we do not blame those who fed infected sheep carcasses to cows or ignored regulations in abattoirs. No, we hold the Government responsible by virtue of their poor regulation.
The state as provider is being replaced by the state as regulator. That demonstrates the futility of the government slogan that more regulation is bad and less regulation is good. The reality is that, as life becomes more complicated, we come to depend more on regulation because we cannot control everything ourselves.
§ 4.17 p.m.
§ Lord Dixon-Smith
My Lords, like everybody else I welcome this debate. Indeed there is almost a danger of our arriving at a state of sweetness and light over the whole subject. I intend to take a slightly different tack.
I well remember, some 12 years ago, landing at Dover late one evening on returning from a foray into France, and finding myself listening to an old friend on the radio as I drove up the A.2. It is somewhat ironic that, had he made it to this eminent place, he would have been sitting on the Benches opposite. The subject under debate was then very topical. It was the question of the regulation of the City. It is a very big subject, and not one that 127 I am competent to go into in any detail. The point of my friend's argument was that, previously, the City had run on a high standard of honour, high standards of ethics and a high moral code in business.
The substance of his argument was that no regulation could replace that system. He said that you could bring into being all the regulators you chose and could give them all the legal powers that could be created, backed by the courts; but if the system of morals and ethics in business were not adequate then the regulators could not take their place.
We should do well to remind ourselves that all the regulation that has come into being since that time has not prevented malpractice. It cannot. Occasionally it takes steps to bring it under control. But somewhere in all of us there is—heaven help us!—what I call the schoolboy ethic of testing the limits of what is permitted. We need to bear in mind when considering the issue of regulation that, if our education system—we go right back to that—is not inculcating people, as a matter of instinct, with sound basic moral and ethical principles, particularly in matters of business but of course in all matters, then we certainly have a problem. Education is not the subject of our debate today. Nonetheless, it is relevant to it.
My second point is that, if one has those standards, regulators and regulations change nothing. I shall use two simple examples which are matters of law rather than regulation as such. I well remember that in my time in local government we were required to have a debate about employment policies because of the impact of the race relations legislation. The employment practices in County Hall were quite simple: the best person available for the job was employed. In those days, County Hall employed some 50,000 people, though there were—I cannot remember exactly—several hundred and probably a thousand separate employing establishments, all working on that system.
The law was passed and there had to be an employment policy to deal with the question of race. So a standing committee solemnly considered the matter; a paper was solemnly produced; and a policy was solemnly adopted and sent to every employing establishment. Everybody involved in employment was aware of it and they carried on doing what they had done before, which was to appoint the best person for the job. Exactly the same thing happened with the equal opportunities legislation, for quite obvious reasons. So it is legitimate to remind ourselves that the question of standards is fundamental.
Much has been made this afternoon of the problems of the privatised utilities, which often find themselves in a monopoly situation. The noble Lord, Lord Haskel, drew attention to that point. It has to be said that some of them have not always behaved in the most discreet and wise way. Although it has not been mentioned specifically this afternoon, I infer from what has been said that, despite the problems with the existing situation, it is preferable to the one that existed before when there were national monopolies, which were not subject to regulation but were subject to an enormous 128 amount of political complaint and interference. At least now we have got down to something a little more manageable.
Generally speaking, the performance record of the privatised utilities is vastly superior to their previous record. We should be pleased with the progress that has been made. I infer from what has been said that there is no intention of trying to return to the earlier position.
Business and commerce exist for only one reason: they have customers. They do not have a symbiotic relationship, each working for the other's best interest. There are very real problems. But with all the regulation in the world, I still know of no sounder advice to give to any customer than the old Latin phrase caveat emptor. My humble opinion of regulation is that it is rather like insurance: it is always too much when you do not need it and never enough when you want it.
§ 4.24 p.m.
§ Lord Desai
My Lords, we are very grateful to my noble friend Lord Borne for having introduced this important topic. So far the speeches have displayed a range of specialist knowledge on the subject. It is a debate which we must read with great care when it is published tomorrow.
Basically, I have a total lack of practical knowledge in this matter but I want to use my academic knowledge to as much advantage as I can. Let me first say that traditionally British policy has to been to leave things well alone—laissez faire —rather than employ an active enforcement of competition. In that we differ from the United States. The United States believes in free markets but also believes in vigorous enforcement of competition policy. By and large we have let things be. We have been much more tolerant of cartels, for example, than we ought to be.
That said, we now have to operate within the context of European law, as many noble Lords pointed out. There is a difference between cartels, which clearly fall foul of Article 85, and other matters, such as misuse of market power, which come under Article 86. I want to point up the contrast between Articles 85 and 86.
What is said about Article 85 is fairly clear. By raising prices and through, as it were, collusion between suppliers, cartels clearly represent an area which ought to be regulated. I am less sure about "oligopoly", as described by the noble Lord, Lord Kingsland. The doctrines of monopoly, oligopoly, and so on, were invented by columnists at a time when markets were by and large domestic, industries were simple, and one could more or less say of a certain industry that it had three, four or five competitors. As noble Lords have pointed out, with the current state of technology and the tremendous mobility of capital, it is not at all certain that industries can be defined as easily as they were. We have already discussed today how, in the regulation of the public utilities in the energy sector, it would be very good to have a cross-fuel-source competition. There should be competition for gas, electricity and other energy sources. We should have a policy which allows for that—not merely a lot of competitors in one industry. We should all think about competition across energy sources. That is obviously a matter for consideration.
129 The House recently discussed broadcasting and the question of market power arose. How is market power measured? If one measures it in that sector—broadly speaking, the media sector—it is not enough to look at how many people are in the business of television production. One should go across to the print medium and other areas as well. So the notional market power that economists used to measure industry by industry and product by product may no longer be very relevant. There must be some new thinking about the relevant sphere of substitution across products. We must put forward a policy to promote competition in such a way that at the end of the process the result is an efficient, reliable and cheap supply of the commodity or service to the consumer. That is what we want. Rather than go by rules which say that there ought to be x number of competitors in the industry, we ought to ask ourselves how we achieve that result.
My noble friend Lady Lockwood said that she was not xenophobic but she did not like foreigners coming and taking over our industry. I am perhaps xenophilic, if anything. But we are in very much a global situation—a global competitive situation with an increasing degree of freer trade. For instance, in the 1950s people like the economist Galbraith used to think that the American automobile industry was oligopolistic and so powerful that it could control consumers. But once that industry allowed German cars to be imported, which were good competitors, its market power was undermined. Similarly, IBM, which was dominant in the computer industry, was undermined by a number of small personal computer producers.
Given the great amount of technology, if we do not restrict free entry and do not go down the path of protectionism much of what we want to achieve will be secured by competition between producers and by technological change. One good thing which may come out of this debate is that it is better to take a broader, more comprehensive view of industry and the economy rather than a sectional view. It is by competition across products and across industries that consumer interests will be better protected.
Finally, in relation to what was said by the noble Baroness, Lady Wilcox, when it comes to issues of health we need a tough regulation policy. It is important that we obtain as much understandable, non-misleading information as possible. I dare say that had beef been supplied by two or three firms, we would not have tolerated the situation that arose in respect of unsafe processes. Any decent corporation would have withdrawn the product long ago and improved its processing systems.
§ 4.31 p.m.
§ Lord Blease
My Lords, I commend my noble friend Lord Borrie for his initiative in tabling this timely and challenging debate. I wish to compliment him and other noble Lords who have so cogently and forcefully presented relevant arguments on the many issues directly concerned with corporate governance, business regulation and consumer protection.
130 Having had only a brief glance at the Department of Trade and Industry consultation document, Tackling Cartels and the Abuse of Market Powers, I am conscious that my contribution to the debate will be rather pedestrian. I propose to speak about some current provisions and measures concerning consumer interests and protection in Northern Ireland.
In addition to the various regulatory and law enforcement agencies which exist to ensure fair competition—to which reference was made by a number of noble Lords—it is important also to provide legislative arrangements that give an effective independent voice to consumers with adequate remedial action. Eleven years ago the Government established a General Consumer Council for Northern Ireland. Among the principles on which the council was founded was the need for a unified, comprehensive voice, the avoidance of confusion among consumers and the acceptance of the concept of independent funding for the consumer representative body to avoid capture by any industry or sectional interest, or even the suspicion thereof.
Today the General Consumer Council is the principal consumer body for Northern Ireland. Its aim is to promote and safeguard the interests of consumers and to campaign for the best possible standards of service and protection. The General Consumer Council gives consumers a voice and makes sure that the voice is heard by those who make decisions affecting consumers. In addition, it has specific responsibilities in relation to energy, transport and food. It investigates, researches and publishes reports; it seeks to influence both the public and private sectors and campaigns for a fair deal. But perhaps its strongest feature is its high public profile in Northern Ireland. Consumers recognise it as the body that looks after their interests.
The reasons for having a unified general organisation are pronounced. It is strongly held that the dilution of effort either increases the cost or results in ineffectual consumer attachment. Those points emphasise that it is widely accepted in the Province that we need to avoid a plethora of bodies; a rag-bag of structures which can be costly, ineffective and easily confuse the public and erode confidence. I underscore that point by reference to some of the remarks made by the noble Lord, Lord Ezra, in regard to regional and local bodies which bear upon specific arrangements.
The council is comprised of 12 members, including the chairman, representative of Northern Ireland's citizens and appointed by the Northern Ireland Office. It has a staff of eight full-time and three part-time members. Its budget for 1994–95 was £420,000, which was met by a grant from the Department of Economic Development. I hold that by any standards that is good value for money with the results achieved.
The chairman of the Northern Ireland General Consumer Council is Lady McCollum. Her 1995 annual report stated:The Consumer Council, armed with 'the power of persuasion', must increasingly play its part in protecting the rights of the consumer. For ten years we have been doing just that. We have been giving consumers a voice, and have endeavoured to make that voice heard by those who take decisions affecting consumers. It is an 131 uphill task to try to persuade providers to make changes for the better. Our past record shows nonetheless, perhaps against the odds, that we are excellent persuaders. We have been able for the past decade to convince public and private sector providers that the council makes realistic recommendations; and wise and sensible people listen to good sense".In that respect, the noble Baroness, Lady Wilcox, will be aware that the Northern Ireland General Consumer Council works closely with her national body and will therefore already know the details of the background that I am giving. The reason I felt it necessary to give that background at local and regional level is that it is evident that there is an urgent need at United Kingdom level to identify the growing gaps in consumer protection law and enforcement. The DTI consultative document glaringly presents those gaps in its text and the flow charts. The four main laws governing competition in the United Kingdom are policed by four different authorities all with overlapping roles and leading to inconsistency, loss of valuable time and resources.
It appears to me that a fair and forceful case can be and indeed has been made by a number of noble Lords today, for the establishment of a United Kingdom consumer affairs authority with suitable, regionally-based organisations along the lines of the Northern Ireland General Consumer Council. That point again was reinforced by the noble Lord, Lord Ezra. The United Kingdom consumer affairs authority should have powers to deal adequately with competition policy and regulation. It should also represent consumer interests and commission consumer research. I shall be pleased to hear the Minister's reaction to that suggestion.
§ 4.39 p.m.
§ Baroness Seear
My Lords, it is—or should be—the mark of any democratic government that they are not in the pocket or, to put it less bluntly, unduly influenced by any specific lobby or sectional interest group. It is a constant battle among democrats to see that that does not happen. It is a point which has tied many of us to these particular Benches—but that is for another day.
The lobbies are one of the great problems of today, even though they are important. It is important that lobbies and individual sectional interests should be properly represented. There is considerable danger that lobbies have too much influence and are able to sway government far more than is appropriate. I would like to say more about that on some other occasion because I believe it is a central issue in getting the right government in this country.
We have talked almost exclusively about regulations, but those are for the benefit of the consumers who are the real subject of the debate today. Consumers have lobbies themselves: they can be regarded as, and in some contexts are, lobbies for particular interests. There is a great difference between the consumer lobby and others because all of us are consumers, and we would be in a very poor state if we were not. Therefore, one can distinguish the consumer lobby from any of the others. It is appropriate that the consumer's voice should be heard and heard very clearly.
132 How are consumers best protected? There can be no doubt that competition is the way in which they ultimately get the best deal. That is why we have always been in favour of free trade. Protection has always been put up in furtherance of the objectives of particular interest groups rather than in the interests of consumers as a whole. Genuine competition is far and away the best protection for the consumer.
The consumer has to be protected in a market economy. We have to remind ourselves that this is where regulation comes in. We have to remind ourselves also that the market is not a jungle. The laws of the jungle are that everyone grabs what they can for themselves and runs for it. All markets, from medieval times onwards, have had a degree of control and regulation. So there is nothing incompatible about arguing for some degree of regulation while at the same time arguing the importance of the free market as being the best protection for the consumer.
But what do we have in this country by way of regulatory machinery to protect competition in the interests of the consumer? As everybody knows, we have two organisations; namely, the Office of Fair Trading and the Monopolies and Mergers Commission. Surely, one of the results of today's debate should be to look again at the case for not having two organisations, especially if they do not both work with the degree of competence and efficiency that is desired. There is a considerable amount of criticism about the way in which the Monopolies and Mergers Commission is working. A very strong article in the Economist recently drew attention to the way in which cases of unfair competition had been put to the MMC concerning industries as wide apart as instant coffee and, if I recall rightly, cars. Those cases had been turned down as not having any validity by the Monopolies and Mergers Commission. I have not read the cases, but it seems surprising that in a considerable list of cases given in the article the judgment of the Monopolies and Mergers Commission should go unchallenged. It is interesting that the CBI in today's press, I believe, has come out in favour not of the amalgamation of the two but of a change of a very drastic kind. It suggests giving the detailed investigation to the Office of Fair Trading with the commission hearing further appeals, as it were, if decisions are not totally acceptable.
One of the matters we should look at and should now be pressing is the division between the Office of Fair Trading and the Monopolies and Mergers Commission. It is strange that so many people in the commission are part-timers. How do we know that these people are able to give the time and attention necessary for an organisation as important as that and the development of competition in the interests of the consumer?
The Government say they are in favour of competition. The party has been converted to competition over the years. To be fair to this Government, they have always expressed approval of the idea of competition and free trade. That is a welcome conversion from the history of that party. But how well have the Government served the consumer? I wish to look at an example at how ill the consumer has been served in the recent debates, discussions and 133 anguish over beef. Repeated Statements about what is happening in the beef market have been given to this House and column after column has appeared in the press, but nearly always from the point of view of the farmer and agriculture. How much attention has really been given to the problems of the consumer in the beef fiasco?
I gather that a study has been undertaken in Birmingham concerning over 300 retailers. Despite the fact that there has been inspection by the Government's meat hygiene service there are still appearing in the shops items of food which should have been banned but which nonetheless have been passed by the Government's agency. What are the Government doing to keep consumers properly informed? A plea has been made that there should be far more information given to the consumer. The Government say there is nothing to be afraid of; but people are very afraid. At least the consumer should be able to discover from labels whether articles contain beef. There is no such information available at present. The Government should be concerned about the consumer as well as the farmer. I am not against the Government being concerned about farmers because they are very important people but they are only there to produce the food that the consumers want to eat. If the consumers do not receive protection as regards food, there is a very serious gap indeed.
There is another fatal flaw in the organisation in this country which deals with these matters. I have urged a merger between the Office of Fair Trading and the Monopolies and Mergers Commission, or at least some radical change. It is an extraordinary arrangement that one government department looks after both agriculture and food. In the past many people have urged a separation of responsibilities, one department looking after the interests of agriculture and another concerned with the consumer. I wonder whether the noble Baroness has heard what I am saying because this is a very important suggestion. It has been put forward by other people, but I want to bring it to the fore. It has not been mentioned previously in today's debate.
To have food and agriculture controlled by one department in government brings a conflict of interest, which cannot be in the best interests of the consumer. This matter has been pressed before and I press it again today because this is the debate in which it should be stressed. There should be a separation of responsibilities. The department looking after consumers' interests in food should not be housed alongside the agricultural interests, which dominate the whole time, within MAFF.
§ 4.48 p.m.
§ Lord Peston
My Lords, we have had a particularly interesting debate, introduced so ably by my noble friend Lord Borrie. It has covered a large number of topics, most of which I shall have to leave on one side because of the lack of time. My heart goes out to the Minister in having to deal with several topics which I had no idea were likely to arise today.
134 As regards competition policy in particular, much has been said with which I agree. Again, I shall be unable to say anything on that because of the lack of time. Perhaps I may add that we do boast about how excellent your Lordships' House is in debating fundamental matters. In that connection I believe that the Government should find time for a debate on their recent Green Paper on competition policy. It would be a pity to let that go. What I would most like to do in that regard is to pursue in detail the type of important points raised by the noble Lord, Lord Kingsland. Therefore, I hope that noble Lords will forgive me if I do not go into those matters today.
I intend to speak on the subject which I thought the debate was about; namely, regulation. Even in talking about regulation and the regulators, I shall leave on one side financial regulation which is an enormous topic for which there is no room today. Financial regulation is in a terrible mess, but perhaps we could debate that on another occasion.
I am talking about a relatively new form of statutory regulation. We should bear in mind that so-called "self-regulation" has a statutory basis. It derives from the privatisation of the former nationalised industries and the need to regulate them in some form or another because most of them had immense monopoly power. That was the beginning and the end of it. I should say immediately that although we started off with the nationalised industries, during the past few years several new companies have emerged, operating in the very same economic areas. In addition, some of the original privatised enterprises have been purchased—or it is proposed that they will be purchased—by conglomerates. That too changes their economic position but, much more importantly, it complicates the position of the regulator. We have talked about the emergence of competition. Again, that changes the role of the regulator although that is not necessarily to say that we do not need regulators any more.
We have all said that we are concerned with the consumer first and foremost. I stand second to no one in supporting Adam Smith's dictum that consumption is the sole end of production. The whole point of production is consumption. However, having paid tribute to the greatest of all economists, I always add that if you do not produce anything, you cannot consume anything. It is worth bearing that in mind when looking at the way in which the economy works.
Having said that and having looked at the privatised industries, one of the tasks before us which has not yet been mentioned is to try to discover new ways of promoting competition. What has happened in the gas industry is a good example and I am glad that my noble friend Lord Borne raised it, particularly as it looks as if the experiments to which those of us who dealt with the Gas Act were looking forward have got off to a bad start. I hope that that can be put right in the fairly near future.
To echo the noble Lord, Lord Ezra, I am totally puzzled by the extraordinary mess in the electricity supply industry. It seems that the only person who thinks that everything is clear is the Minister who 135 answered on behalf of the Government at Question Time. The rest of us, who thought that we knew something about the subject, have it in common that we are all completely puzzled by what is going on. However, there is never any harm in a Minister being in a minority of one.
It is worth bearing in mind that the regulators were mostly new to the task. They had little knowledge or experience of regulation per se and, for the most part, they were not experts in the industries that they sought to regulate. For them and their staff, regulation has been a learning process which is by no means at an end. I hope that I am not being more acerbic than usual when I suggest that although some of the regulators have performed reasonably well, a few are hopeless and seem to have learnt nothing from their high-salaried jobs. Perhaps I may add in that regard that it seems that in more than one case the interests of the shareholders have too easily overridden the interests of the customers.
We are aware of the classic problem to which my noble friend Lord Borne referred in another context. The Americans, experts in this area, are certainly aware of it. I refer to the asymmetry between the information that is known to the regulated enterprise and the information that is available to the regulator. I wonder whether too much is hidden under the cloak of commercial confidentiality. I also wonder whether the regulatory offices have sufficient expertise fully to protect consumer interests. Viewing regulation as a game of strategy—that is surely how it should be viewed—leads me to suggest that the rules are too heavily biased against the regulator and therefore against the consumer.
The role of the regulator is to bring us, in practice, closer to the outcome that would emerge from a correctly operating and competitive market if that were possible to achieve. The point that I make—I have made it before—is that in competitive markets profits are not guaranteed; nor is survival. That is the very essence of the market mechanism: you win some, you lose some. It follows that it is not the task of the regulator to guarantee profits or to create a cosy life for managers and shareholders. However, in my view that is precisely what the regulators have done. We have to find a way of ensuring that that does not continue to be the case in the future.
On the other hand, I am not seeking to say that the regulator should behave arbitrarily or that he should be able to add regulatory risk to the other risks that any business has to face. I argued that point when we considered the Gas Act. In the modern world, firms have enough problems without having to cope also with irrational regulation. Therefore, regulation must be rule-based and it must be transparent. However, we must recognise at the same time that in a changing economic environment, the process of regulation will have to adapt. What is not desirable—I state this strongly—is the ad hoc case-by-case approach, so beloved of the Monopolies and Mergers Commission, which is probably our most disastrous area of government at the moment—
§ Lord Peston
I agree that that is a pretty strong statement, so perhaps I should add "within the area which I have to consider".
It is certainly time to take stock of the regulatory process. It may well be that there is a group within the Department of Trade and Industry which does precisely that. I am interested to know whether that is the case and whether we may get a Green or a White Paper assessing the regulatory experience of the past decade-and-a-half and making suggestions with regard to the future. Perhaps the noble Baroness, Lady Miller, will be able to tell me whether there is such a group in the department.
I should also be interested to know whether the regulators tend to get together at joint meetings to exchange ideas. It would be interesting if they did. I should certainly like to know the outcome of any such meetings.
Looking to the future, another possibility is to establish a committee of inquiry. That might interest your Lordships because it is precisely the sort of area which one of our committees could consider. Yet another possibility, which is not incompatible with the others that I have mentioned, would be a large-scale academic study of the subject of regulation. Your Lordships will not be surprised to hear that suggestion from me because it would be a form of employment creation. Whichever way we do it, it would be a pity not to monitor or to learn from past experience.
It would be undesirable, but not unusual, to make policy changes without a full appreciation of where we are now and how we have got here. However, having said that I would not like to see a policy change without a firm research foundation, I am not insisting that the statutes under which the privatised industries and their regulators operate are perfect. Last year's consideration of the Gas Act in your Lordships' House convinced me that we must look again at all the relevant legislation.
In conclusion, my main desire is to end the debate on the note struck by the noble Lord, Lord Dixon-Smith, when he said that this is a subject on which we can have a meeting of minds. We can disagree, but our disagreements do not necessarily have to be ideological. In my view, they need not be ideological at all. This is a subject to which we can all contribute.
§ 4.59 p.m.
§ Baroness Miller of Hendon
My Lords, this has been a most interesting debate, with excellent contributions from all noble Lords. I am certain that my noble and learned friend Lord Fraser, who is away on a trade mission, would have liked to be present to hear all the excellent contributions. Possibly your Lordships would have preferred that because he would be much more able than I to answer the points raised. For my part, I hope that I am able to do it justice. The noble Lord, Lord Peston, was right to say that the subject was extraordinarily wide ranging. My officials have given me so much information: although they believe that I am a fast reader, I would have to inhale all of the words to get through them. If I do not manage to mention all noble Lords who have spoken or cover all of the points 137 that have been raised, I will look at Hansard and my notes to see what I have left out and reply in writing. However, I have never had to do that because I have managed to get through it.
The noble Lord, Lord Borrie, has made some interesting proposals on the regulation of British business and the protection of the consumer. I have also followed closely the wide-ranging and fascinating debate which has followed. As others have remarked, the noble Lord draws on a wealth of knowledge and experience, including as a long serving and greatly respected Director-General of Fair Trading. Other noble Lords have also brought us the benefit of their experience in the constructive and helpful points they have made. The Motion before us links regulation of business with protection of the consumer. I have no difficulty in acknowledging that there are circumstances where, at least in the short term, the interests of business and the consumer may diverge. Regulation may be the appropriate policy response. But it is all too easy to slip into the frame of mind which sees regulation as a cure for all ills. In most cases, competition is the more effective remedy. Competition is at the heart of the Government's economic policies, and our aim is to let it flourish. In regulating business, the Government aim for the greatest possible effectiveness in promoting competition and providing the necessary protection for the consumer while avoiding unnecessary burdens on business. In our approach to proposals in the European Union we seek to promote the same aims.
We must be careful to ensure that regulation does not inhibit competition or stifle entrepreneurial activity. Regulation, or rather over-regulation, must not be an excuse to interfere in the detailed decision-making of companies. The unhappy experience of nationalisation demonstrates the blind alley into which that philosophy sometimes takes us. Through privatisation we have sought to liberate whole sectors of the British economy from the unnecessary constraints imposed by government. There may be some who see regulation as a means of putting back the shackles. That is not the Government's position. Through the Government's deregulation initiative we have sought to strip away the dead hand of outdated, ill-fitting and often petty rules, or rules which, while once valid, are no longer relevant but remain unchanged through sheer lack of legislative or administrative time. Red tape is not just a nuisance. It puts a real cost on our economy—a cost in profits, jobs, investment and inefficiency.
Every extra burden placed on business drives up its costs. These costs fall disproportionately on the small businesses which are a major contributor to the UK economy. Unnecessary regulation also stifles innovation by adding to the time taken for new products to reach the market. Of course, it is the consumer who ends up footing the bill. Deregulation can also be of direct benefit to the consumer. For example, over 50 per cent. of shoppers now do their shopping on Sunday thanks to reform of Sunday trading. This means greater choice for consumers as well as business.
138 As I said earlier, competition is at the heart of the Government's economic policies. It is competition, not regulation, which provides the best possible guarantee of value for money for the consumer. But make no mistake. The Government's steadfast promotion of competition through privatisation, liberalisation and deregulation does not mean that we are content to see the law of the jungle prevail, to use the words of the noble Baroness, Lady Seear. Consumer confidence is an essential element in the operation of an effective market. Consumers need to have confidence in the quality and safety of the goods and services which they buy. As we continue to dismantle barriers to competition, ensuring an adequate framework for competition law is of crucial importance. We are not content to rest on our laurels. The Government are conscious that certain aspects of the current competition law regime are definitely open to improvement.
We are committed to the introduction of legislation to prohibit anti-competitive agreements and to strengthen the powers of the Director-General of Fair Trading to deal with abuse of market power. The consultation paper published by the Secretary of State for Trade and Industry in March, to which the noble Lord, Lord Borrie, and other noble Lords have referred, underlined the Government's commitment to introduce meaningful reforms. They will provide further stimulus to the continued development of an enterprise economy where competition can flourish, while imposing the minimum necessary regulatory burden on business.
I am conscious that one of the most critical interfaces between the regulatory framework and the interests of consumers arises in the privatised industries. These utilities touch the daily lives of every single consumer throughout the country. It is therefore vital that they perform efficiently and provide top quality services. It was equally vital that they had access to capital resources for much needed investment without the constraint of the PSBR or having the Treasury constantly perched on their shoulders. Indeed, it was the desire to see improvement in the level of performance, investment and service which led the Government to privatise the utilities and introduce competition where feasible. A stable regulatory regime is crucial to overseeing the transition from nationalisation to competition and ensuring that consumers benefit from increased efficiency, lower prices and better quality.
I should now like to turn to the many points made by noble Lords in the course of today's debate. My noble friend Lord Kingsland and the noble Lords, Lord Borrie and Lord Ezra, have commented on the strategy of the Government for updating the framework of competition law in the United Kingdom. I have already referred to the major consultation exercise which the Government have launched—and about which my noble friend Lord Kingsland has made such generous comments—with a view to ensuring that our competition regime is equipped to deal with the challenges that face it. Perhaps I should say just a little more. The essence of these proposals is two fold.
First, we intend to replace the existing restrictive trade practices Act with a prohibition on anti-competitive agreements, such as cartels. The 139 Government believe that this will be the most effective way to target genuinely anti-competitive behaviour. The new prohibition is along lines similar to the prohibition contained in Article 85 of the EC Treaty. It is a prohibition which has been adopted by many OECD countries, although the Government have been consulting on how to introduce reforms which will best suit our national interests.
Secondly, the Government propose to strengthen provisions in the fair trading and competition Acts to deal with situations involving abuse of market power. This will make it harder for dominant firms to shut out potential competitors. The Director-General of Fair Trading will be given stronger powers of investigation and powers to enable him to impose interim orders.
My noble friend Lord Kingsland and the noble Lord, Lord Ezra, have argued that the Government should introduce an EC-type prohibition on the abuse of market power. The Government recognise that there are shortcomings in the existing arrangements to deal with such abuse in the economy at large. In particular, where a business is damaged by an abuse of market power at present it is not possible for that business to seek a restraining order temporarily halting that behaviour while an investigation is carried out. But the Government remain to be convinced of the need to adopt a prohibition approach. There is a danger of inhibiting genuine competitive behaviour and stifling innovation and enterprise. We believe that the better approach is to strengthen the powers of the Director-General of Fair Trading to investigate and to provide him with powers to impose interim measures, giving a more certain and rapid response to abuses of market power. However, the strengthening of existing legislation now does not preclude the adoption of a prohibition approach at some future date if compelling arguments for it develop. The Government are calling for public debate about these issues. This does not and should not preclude action in the meantime to address weaknesses in the current regime.
The noble Lords, Lord Borrie and Lord Ezra, have criticised the delay in introducing the reforms. I believe that another noble Lord touched on the same point. The introduction of legislation is always subject to the parliamentary timetable. It is not always possible to bring forward every piece of reform as soon as ideally it would be desirable. Nevertheless, the recent consultation demonstrates the Government's continuing commitment to bring about a reform of the United Kingdom's competition law as soon as practicable. We are grateful for the support of the noble Lord, Lord Borrie, for the Government's deregulation initiative to remove unnecessary regulations on business. He rightly draws attention to the need for regulations to be fairly enforced. I welcome his support for the local business partnership scheme which the Government are actively pursuing.
The noble Lord, Lord Borrie, also mentioned the decisions last month of my right honourable friend the President of the Board of Trade on the MMC reports. My right honourable friend considered the reports very carefully. As he made clear, he also took into account 140 the advice of the Director-General of Fair Trading, the views of the Director-General of Electricity Supply and the dissenting note in the MMC report. My right honourable friend the President of the Board of Trade explained the reasons for his decision in his announcement on the 24th April.
The noble Lord, Lord Borrie, suggested that trials of gas competition in the West Country have not gone well. Consumer interest is strong. About 35,000 consumers have already signed up with new suppliers—5,000 within the past fortnight. We have ensured that customers have a right to cancel should they wish to do so.
My noble friend Lord Kingsland queried the need for a system of penalties imposed by an administrative body rather than recourse to court action. The Government recognise the importance of private actions and see a role for administrative action and a court system for dealing with anti-competitive agreements.
A number of noble Lords suggested reforming those institutions currently responsible for implementing UK competition policy—the Office of Fair Trading, the MMC and the Department of Trade and Industry. As noble Lords will know, the Government are far from complacent about the state of competition law. A number of practical steps to reinforce the powers of the competition authorities are the subject of the Government's consultation paper on competition law reform. We see no benefit to be gained from a radical overhaul of the institutional framework. Of course the sceptics cannot believe that the existing tripartite structure can work without causing confusion and bureaucratic delay. But the current set up ensures a clear and rational delineation between the tasks entrusted to the Director-General of Fair Trading, the MMC, and the Secretary of State for Trade and Industry. That well-ordered distribution of roles provides the scope for the necessary checks and balances to operate. We believe strongly that the existing structure represents a healthy institutional balance, and one which operates in practice as a constructive and responsible partnership.
The noble Lord, Lord Peston, cast doubt about the effectiveness of the MMC. I cannot accept the description of the MMC that he put forward. In the overwhelming majority of cases the Secretary of State accepts the findings of the MMC. The combination of the specialist expertise of its members and the experience of its full-time staff provides a sound basis for thorough and well-argued conclusions. The noble Baroness, Lady Seear, wondered about part-time members of the MMC. For a short while until I came here, I was a part-time member of the MMC. When one has experience in business as a businesswoman and as a consumer—as we all are, as the noble Baroness said—and have to face the day-to-day problems it is a good thing to have part-time members. They do not sit in their ivory towers.
§ Lord Peston
My Lords, I was very brief. I wish the noble Baroness would not tell me how to behave, because that takes even more time.
Is the Government's position as clear as the Minister said—they are perfectly happy with the MMC? Is that what she has just said?
§ Baroness Miller of Hendon
My Lords, I was reading quickly. I believe I said that I could not accept the noble Lord's description. I did not use the words, "We are perfectly happy", but the noble Lord said that it was absolutely useless, or something to that effect. I said that I did not accept that. I think we will leave it at that.
The noble Lord, Lord Ezra, suggested that there should be just one energy regulator. There is of course an inter-relationship between the energy markets, and the present regulators work closely together. The major changes in prospect in the gas and electricity markets require the undivided attention of specialist regulators to assist the transition to competitive markets in 1998. After 1998 of course there may be stronger logic in having one regulator and one consumer body for those markets.
The noble Lord, Lord Ezra, suggested also that the reform proposals amount to aligning UK rules with EC competition laws. Although it is proposed that the new prohibition on anti-competitive agreements is along similar lines to the EC prohibition contained in Article 85 of the EC Treaty—a prohibition which, as I said, has been adopted by many OECD countries—the Government have been consulting on how to introduce reform which will best suit our national circumstances. We are not just seeking harmonisation within the EC for harmonisation's sake.
Several noble Lords pointed to the criticism that domestic consumers gain least of all from utility privatisations. The noble Baroness, Lady Lockwood, was selective in the example she gave of how bad it was for consumers. If I had time, I could give many of the benefits of the other privatised utilities. However, the initial thrust of competition has been directed towards the larger customers. They have benefited substantially. Since privatisation, industrial gas prices are down 48 per cent. in real terms, while electricity prices are down 11 per cent.
Competition is growing for both business and domestic customers in telecommunications where prices are down about 40 per cent. since privatisation. I have many examples of benefits in the domestic market, but I shall pass on because we do not have time for them.
The noble Lord, Lord Borrie, and my noble friend Lady Wilcox, draw on great experience within the area of consumer policy. As the noble Baroness, Lady Seear, said, we are all consumers. Consumer policy cannot be seen in isolation from our initiatives to promote competition in domestic markets and overseas. It is the stimulus of competition which will be the most effective guardian of the general consumer interest over the longer term. The Government recognise that consumer confidence is also vital.
142 Consumers need to have the legal rights necessary to ensure that contracts are fair and enforceable. In order to do that, the Government promote better information for consumers to help them make informed choices. We also support voluntary arrangements where they can be effective in promoting best practice for consumers. On the other hand, as the noble Lord, Lord Borrie, and my noble friend Lady Wilcox said, the world is not a perfect place. We do not hesitate to use legislation and formal regulation to protect consumer interests where that proves to be necessary.
As the noble Lords, Lord Borrie and Lord Ezra, have said, the trading standards service plays a vital role in protecting consumers by ensuring compliance with the regulations by businesses. By providing an important advisory information service, it assists consumers to make an informed choice, and of course businesses also benefit.
The noble Lord, Lord Haskel, drew attention to the need for good regulation. We agree. By good regulation we mean regulation in which the costs arising are outweighed by the benefits. That is why the Government now require all regulatory proposals to be assessed for their costs as well as for their benefits.
My noble friend Lord Dixon-Smith suggested that ethics are better than regulation as a protection for the customer. The Government believe that there must be a framework of legislation which provides necessary protection for the public. The purpose of the deregulation initiative is to ensure that departments adopt a more rigorous approach to regulation. That means undertaking a thorough analysis of regulatory proposals to ensure that the benefits justify the costs and all those affected by the proposed regulations have an opportunity to comment.
The noble Lord, Lord Blease, referred to the General Consumer Council of Northern Ireland. We agree that it works well. Here we have the National Consumer Council and the Office of Fair Trading as a fair balance.
The noble Lord, Lord Desai, put forward an interesting analysis. If he will forgive me, we shall reflect upon his suggestions.
This has been a stimulating occasion. The Government are certainly not complacent about the challenges facing them in ensuring that the regulatory system allows business to thrive while ensuring a proper level of protection for consumers. We certainly do not dismiss the need for adequate regulation.
When it comes to protecting the consumers' interest, regulation will often be a blunt instrument in comparison to the rapier-like qualities of competition. It is, I am sure, vigorous competition which will serve as the best guarantee of the consumers' interest, and it is competition which the Government have consistently and successfully striven to promote within the British economy over the past 17 years.
§ 5.19 p.m.
§ Lord Borrie
My Lords, perhaps I may express my considerable gratitude to the Minister for explaining the broad principles of government policy in relation to 143 consumer interests, and for replying in such a full and complete way to the points made on all sides of the House.
There are just two things I should like her to take beyond today's proceedings. The first is to suggest that the important consultation paper that the Government have produced has not been mentioned adequately. I wonder whether the Minister would take away the suggestion made by my noble friend Lord Peston that the Government might find time for a debate on that subject so that the Government's consultation process will have the benefit of having included within it the thoughts of Members of this House.
The other matter that I would like the Minister to consider was raised by the noble Baroness, Lady Seear, in relation to the structure of MAFF and its attempt to represent industrial farming interests as well as those of the consumer, about which many of us are concerned, and the structure of the regulatory bodies for the privatised industries. A number of noble Lords have mentioned the words "profusion" and "proliferation". Obviously, as the structure of the industry changes the old regulatory structure may no longer be appropriate.
Again, I thank the Minister and all noble Lords who have taken part in the debate. I beg leave to withdraw the Motion for Papers.
Motion for Papers, by leave, withdrawn.