Competition Bill [H.L.]

HL Deb 09 February 1998 vol 585 cc873-936

3.33 p.m.

Report received.

Clause 1 [Enactments replaced]:

Lord Morris of Manchester moved Amendment No. 1: Page 1, line 14, at end insert— ("( ) Paragraphs 5 to 9 of Schedule 13 make particular transitional provision in relation to the Restrictive Trade Practices Act 1976 and the Resale Prices Act 1976.").

The noble Lord said: My Lords, while it has never involved any financial benefit to me personally, I have an interest to declare in the debate and it is one in which I take pride. My interest is that of a recent former President of the Co-operative Congress, the highest honour the British co-operative movement can bestow. Moreover for 33 years in another place I was a co-operatively-sponsored Member of Parliament for my native city. Thus the concern expressed by National Co-operative Chemists about the issues addressed by my amendments to this Bill is of particular importance to me. I am grateful to them as well as to David and Sue Sharpe and Justine Keil of the Community Pharmacy Action Group for their invaluable help.

I want also at the outset to pay tribute to my right honourable and noble friend Lord Graham for all his work on these issues at the Bill's Committee stage. He is temporarily abroad and, while he has been away, I have heard the excellent news of his having been made a fellow Privy Counsellor. Naturally I look forward very much to his return when I can congratulate him on the award and, as it were, welcome him aboard.

In Opposition we on these Benches gave our backing to community pharmacy, whose future depends very much on this Bill, because it was the right thing to do. It is still the right thing to do and I was heartened to hear the statement in another place by my right honourable friend the Secretary of State for Health on 27th January 1998 when he said that, we (the Government), want to retain as many local community pharmacists as possible".—[Official Report, Commons, 27/1/98; col. 131.]

The Competition Bill provides the means of helping us to do just that.

The amendments I have tabled have two purposes: first, to ensure that the Director-General of Fair Trading cannot proceed with litigation under the old Act. It is unfair and wasteful and indeed could involve pharmacists in double jeopardy to fight under an Act that is more than 30 years old just when Parliament is discussing a new competition regime. Thus my amendments call for proceedings by the Office of Fair Trading to be stayed for a period of two years, so that regulations needed to give effect to the new Act can be brought into force. In the unlikely event that the new Act does not commence within two years then, of course, the director-general can resume proceedings.

Secondly, my amendments seek to ensure for resale price maintenance (RPM) on over-the-counter medicines a minimum five-year period of transition before it can be tested by the Director-General under the new Act. I cannot emphasise too strongly the central importance of staying, for a limited period, the legal proceedings now commenced under the old law. Community pharmacists are not looking for an indefinite exemption. But at the very least they should be allowed an opportunity to develop their role in the Government's healthcare agenda and RPM should stay in place while there is a proper analysis of the pharmacy market and the full implications of ending RPM are known.

Community pharmacy plays a key role, not just in the provision of medicines, but in a wide range of primary healthcare services which are crucial to the communities they support. Pharmacists give free advice on common health problems 1 million times a day. They provide a 24-hour emergency cover and on-call services. They dispose of unwanted medicines and provide drug addict care. They keep a product range of 2,000 items: far more than any supermarket would ever stock. But the future of community pharmacy is now under threat. If this Bill abolishes RPM on over-the-counter medicines it could precipitate the closure of thousands of pharmacies as more and more businesses become no longer viable, and the threat of that happening is made more urgent and more serious by the Director-General of Fair Trading having sought leave to end RPM through court action.

Mendes France said that to govern is to choose and at the heart of today's debate is a crucial choice of public policy—that between access to medicines and the advice that small community pharmacies offer on the one hand, and a slightly lower cost of those medicines on the other. We cannot have both and must choose; hut as we do so let it be acknowledged that prices in Britain today are among the lowest in Europe. Let it be clearly understood too that if RPM on over-the-counter medicines goes, thousands of local pharmacies will face closure at a time when independent researchers state that perhaps as many as 3,000 are already barely viable. They clearly would be among the first to close if RPM goes.

The Office of Fair Trading's own investigations have found that 36 per cent. of those surveyed would switch their purchases to Asda and other chains, and away from community pharmacy. It is said, much to its credit, that paradoxically your Lordships' House is often the most reliable barometer of public opinion in this country. So what do the public think? In a MORI opinion poll conducted only three weeks ago they were asked whether they would prefer to pay slightly more for medicines, around 6p to lop per week, to keep their local pharmacy open or see RPM go. Overwhelmingly they supported RPM as a means of safeguarding access to medicines and primary care advice. Seventy per cent. believe access is more important than price. And let no one be in any doubt who will suffer most if chemists close. They will be the people who use local chemists most. They include elderly and disabled people, mothers with young children and people with no access to a car. Believe it or not, they are a majority of the British people and they deserve all the protection we can give them.

What use is it to them if the supermarket on the edge of town is loss leading on a few products if they cannot get there? In any case, supermarket shelves cannot offer the advice or care on which they so often depend. Supermarkets do not build close relationships with customers or keep their medical records. Nor do they refuse to sell products that could harm the individual customer. But pharmacists are bound by a code of professional ethics, which means that they have to refuse to sell what may be harmful.

In an important statement today, the medical, pharmacy and nursing professions state: We firmly believe that medications should not be treated in the same way as ordinary articles of commerce and should be purchased for the most part only where advice from an appropriately qualified health professional is available".

Medicines are not like other products. This has been recognised also by government which is why, for example, a limit has been imposed on the size of packets of Paracetamol to prevent people overdosing.

From the evidence that I have seen, we do not have too many pharmacies in the UK. Nor are they charging too much. A further independent study by National Economic Research Associates has shown that large supermarket retailers enjoy substantially higher gross margins than their smaller competitors; that the UK is not over-provided with pharmacies compared with the average for the European Union; that UK pharmacy margins are the lowest in the EU; that our over-the-counter prices are among the lowest in the EU; and that far from being unusual, price controls for over-the-counter medicines are found in a large number of EU countries.

It is no exaggeration to say that this Bill can determine the fate of community pharmacy in this country. The public service it provides makes its cost an undoubted bargain for British consumers, not least, as I know my noble friend the Minister recognises, for the most needful and vulnerable among them. Moreover, the service it provides does not cost the Treasury a penny; but if RPM goes and pharmacies close, then the health service and ultimately the Treasury will have to pick up the cost. The case for protecting community pharmacy is socially and morally of high importance. It is in my view unanswerable. I beg to move.

3.45 p.m.

Lord Newton of Braintree

My Lords, I support the noble Lord, Lord Morris of Manchester, in the concerns he expressed. In doing so, I should mention the fact that I am an adviser to the Royal Pharmaceutical Society of Great Britain many of whose members clearly would have a strong interest in the matter. It is a particular pleasure to join forces with the noble Lord over those concerns. Although he and I have been on opposite sides for many years, either at the other end of the building or in this House, we have more often than not been on the same side of the argument—even if I was sometimes restrained from making that as clear as I might have wished.

The noble Lord has set out his case clearly and comprehensively and I shall not take the time of the House merely to reiterate the facts and figures he gave and the points he made. However, I observe that I believe he has made points which cannot be, and I hope will not be, lightly dismissed.

As he indicated in the course of his remarks, what we have here is something with which I became familiar over many years as a member of Her Majesty's former government—a classic case of the need to balance different objectives of public policy between which there is a quite powerful tension. It is of course a proper objective to seek to ensure competition, to encourage efficiency and thus to restrain or reduce prices in this or any other field. But it does not follow that that is an end which can be pursued in all circumstances without regard to other objectives of public policy—in this case the desirability of a strong and viable network of community pharmacies. That has certainly become no less desirable in the light of the recent White Paper—the Health of the Nation—and the Green Paper, with the emphasis which both place on the importance of primary care.

There is to my mind an obvious parallel from the field of social security, which I know even better. Potentially there is no doubt whatever that there are large administrative savings, and in that sense efficiency gains, to be made from the much wider adoption of automatic credit transfer into people's bank accounts, and a move away from the weekly payment of benefit to the monthly payment of benefit. In itself that can be seen as almost obviously desirable. But whenever we looked at that over a long period, we came to the conclusion that the effect on another aim of public policy—namely, the maintenance of sub-post offices, especially rural sub-post offices—meant that, to put it mildly, great caution was required.

In my view that is true in this case also. I should be surprised if that view was not shared by current health Ministers, as I am sure it would have been in the previous administration. Indeed, I know that the present Secretary of State has expressed his concerns, as the noble Lord mentioned.

I hope very much that the points raised by the noble Lord will he given most careful consideration by the Minister when he responds.

Viscount Waverley

My Lords, we should not give way to cavalier supermarkets, which often pay scant regard to the consequences. What briefing has the Minister received from the Department of Health? That is the department from which we need to hear an all-encompassing, well thought-through strategy. Until that happens, we should reject this piecemeal approach. Until the Government devise a strategy that protects the public, so that guaranteed, convenient primary care is secured in such a way as to relieve pressure on our beleaguered National Health Service, the present arrangements should stand. We should be strengthening the role of pharmacies, not undermining them.

I wish to put one further question to the Minister. What has changed since the courts decided in the 1970s that similar moves to those proposed in the Bill were against the national interest? We should support the amendment.

Lord Campbell of Alloway

My Lords, I support the amendment. I was involved professionally, as counsel, in one of the monopoly reference cases concerned with pharmaceutical goods. I accept that the day may come when, as a matter of policy, the supermarkets will oust the pharmacies, grocers, butchers and everything else. But that day has not yet come.

I wholly support the spirit of the amendment. The only problem is that it is so drafted as to include many aspects other than pharmacy and the sale of products in local pharmacies. I therefore ask the Government to consider the introduction of a special measure of interim safeguard in whatever terms, albeit for a period of time, at least to hold the position of pharmacists, for the reasons given, so that they may supply the needs of the public and avoid being scattered, with unemployment and all the misery pertaining to it.

Lord Jacobs

My Lords, I remain troubled that the consumer interest is so seldom supported in either House. In this case it seems that the Community Pharmacy Action Group has been very active indeed. Its objective is simply to protect the profits of pharmacies (chemists' shops) in the interests of the community. The group has sent out 14 pages of closely-worded argument to explain how strong its case is. It has even apologised to every Member of this House that it was unable to contact each one of your Lordships individually. It mounted a very strong lobbying campaign. However, there is no lobbying or campaigning on the part of the consumer groups. Someone has to speak for them, and I shall try to do so.

The action group claims that the poorest members of society will lose out if RPM is abolished and the prices of branded non-prescription medicines are reduced. It argues that even if prices are reduced by as much as 20 per cent., there will be nowhere within reach for the elderly and mothers with young children to go. Consumer groups, however, do not appear to have supported the amendment or to have said anything about it. It may be that their resources are more limited, or they are not as well organised as this particular pharmacy group.

Pharmacies are basically the distribution arm of the great pharmaceutical companies. If we look at the pricing policy of such companies, it is recognised that they usually charge very heavily for medicines that are under patent. I agree with that approach as they have to fund all the research and development. But just look what happens when medicines that have been under patent for 16 years become free of patent. There is an illness from which I am sure none of your Lordships suffers. It used to be called gout. The charge for the best known branded medicine for treating this condition is £42 per 100 tablets, and one has to take one tablet a day. If I sound like a sufferer, it is because I am. As every pharmacist will agree, the generic product is identical in quality, purity and performance. The charge is £5.50 per hundred tablets. That suggests that not only the pharmacists but the pharmaceutical companies are in a sort of friendly pact to keep prices as high as possible. That cannot be in the interests of the community.

There is, however, a valuable role that some community pharmacies play. They give advice in certain areas to individuals. Some deliver medicines to old people who are unable to get out. So I accept that pharmacies play a good role. If RPM is abolished perhaps the Government should consider the possibility of compensation to those who carry out those special roles in the community. The present situation should not be left as it is, since everybody pays higher prices.

My 40 years of business experience has taught me that, if you have to choose a business from scratch, you should first try to find a monopoly—preferably of a product with an inelastic demand—in other words, however high the price is, people have to have the product. That is to some extent true of medicines. If you cannot find a monopoly—and these days they are very few and far between, I am glad to say—then you should find a product with resale price maintenance. Then you have only to concentrate on giving quality and service and you know that your profits are assured.

A street near to my office in London is about 300 yards in length. There are four chemists' shops in that street, one every 75 yards. If that does not tell noble Lords the position of profitability in the pharmaceutical industry, I do not know what does. It is not high demand that produces four shops in that short distance; it is the fact that for a relatively small turnover they can make very good profits.

RPM is great for business, but generally speaking it is bad for the consumer. I agree that prices in this country may be favourable compared with those in the rest of Europe. But nobody mentions the United States—for the very simple reason that in the United States the medications that one buys are significantly cheaper. There is no resale price maintenance.

These matters are likely to be considered by the Restrictive Practices Court. Therefore, I recommend that the amendment is rejected and that we leave it to others with more time on their hands to evaluate the issue more carefully.

Earl Howe

My Lords, I spoke in Committee in favour of the amendment tabled by the noble Lord, Lord Graham. I do the same today in support of the noble Lord, Lord Morris. I agree with everything that the noble Lord said. It would be crazy if, as a result of this Bill, we put in jeopardy a community service which is every bit as much a part of primary patient care as is the GP's surgery.

My noble friend Lord Newton is right to draw attention to the need to balance the benefits of different aspects of government policy. This amendment stands absolutely four-square with the Government's wider health objectives. I hope that the Government will respond to the strength of feeling that is in evidence on this issue.

Lord Milverton

My Lords, I support the amendment. It seems crazy to disband pharmacists. One can go into a pharmacy and receive excellent advice. I am afraid I cannot accept the argument from the Liberal Benches; I accept far more the argument put by the noble Lord, Lord Morris of Manchester, and by my noble friend Lord Newton. I hope that the Minister will accept it—or, if he does not, that he will take it back, re-examine it and consider an even more thorough provision.

Lord Desai

My Lords, there are problems with this amendment. My mind is not yet made up but I wish to highlight the problems. The argument from my noble friend Lord Morris is that the community pharmacy gives a bundle of services, one of which is selling drugs. He suggested that because there are all the other services, we ought to subsidise them by having resale price maintenance. I sympathise with that argument but I also feel that to the extent that we can unbundle some of the services, we ought to do so.

If the community pharmacy gives primary healthcare services, advice and so on, could the Government not find a way of making payments for those services, while not having resale price maintenance? There are a number of medicines which people can take without having to seek advice from anyone. Those drugs at least should be available without resale price maintenance because taking advice and receiving primary care are not relevant. It might be possible to lift resale price maintenance from some medicines and not others; that is a technical matter with which I am not familiar. However, to the extent that those services are bundled up, it is always a bad idea to link an extra price to other services. If we want other jobs to be done, then they ought to be covered specifically by other devices.

To the extent that we can spread the benefit of lower prices, we ought to do so. If the community pharmacists have other functions to perform, we ought to find ways of paying them for it, but so far as possible we should not mix the two things.

4 p.m.

Baroness Ludford

My Lords, I find myself very much in sympathy with the views expressed by the noble Lord, Lord Desai. The idea of retaining resale price maintenance in one sector troubles me, as an economic Liberal and former employee of the Competition Directorate of the European Commission.

However, while I also agree to some extent with my noble friend Lord Jacobs, perhaps I should point out to him that I have a briefing from the National Council of Women of Great Britain which expresses support at least for the objectives of the amendment. I am identifying a common view on the objectives of the amendment, while some of us are concerned about the means. The need to maintain the valuable community service, including the enlarged community service, through the provision of primary care and advice is something I very much support. As a councillor in an inner city ward, I know that it is not only in rural areas that there is concern about the loss of independently owned pharmacies. There are many elderly people in areas like mine, densely populated areas, who are only mobile to the extent of being able to walk a few hundred yards to their local pharmacy. So there is great concern.

I should welcome hearing from the Minister whether he has considered other means of reaching the objective of helping local pharmacies to stay in business. It may perhaps be through a means which I mentioned at Committee stage, the uniform business rate or enabling local authorities to help. I realise that there is a problem in that it means public moneybeing sought, whereas at the moment the services are cost free, at least to the Treasuryand to public resources, because the price is being paid through the retail mechanism. I do not know how to solve that. My hesitation is that I am unhappy about doing so through resale price maintenance in one sector.

Lady Saltoun of Abernethy

My Lords, perhaps I may bore the House for a minute or two with an example of the kind of thing which the Bill may lead to. I live near the village of Braemar in Aberdeenshire. For 20 years we had no chemist in the village, the nearest was 17 miles away in Ballater. A prescription from the doctor had to be put in a locked box and sent down to Ballater on the bus. The medicine had to be put in the box and returned on another bus. Then you had to go and collect it. Sometimes that meant you did not get your medicine until late evening or even the following day.

Last summer, after 20 years without one, we got a chemist in the village. But just across the road is a small supermarket—very small, but one of a large chain. If that supermarket can undercut our chemist on such staple items as aspirins, indigestion mixture and so forth, it may very well be that our chemist will no longer find his business viable. He might have to give up. Then we would be back to having the nearest chemist 17 miles away. I think that probably Braemar is not the only village in the country where that kind of situation obtains. So I support the noble Lord, Lord Morris of Manchester, very heartily in his amendment.

Lord Fraser of Carmyllie

My Lords, I am grateful to the noble Lord for returning to the subject on Report. We have already discussed it at earlier stages of the Bill. As my noble friend Lord Newton said, it would appear that here are two government policies in conflict. That is self evident. However, at Second Reading, the noble Baroness. Lady Jay, when asked what was the attitude of the Department of Health, said that the department was neutral on it. I find that an astonishing proposition, particularly now that the Minister for Health himself—and the noble Lord quoted it—said in another place: We want to retain as many local community pharmacists as possible and to encourage trained pharmacists to make a greater contribution to the national health service than they are making at present".—[Official Report, Commons, 28/1/98; col. 131.]

He said later at the same column: We want to maximise the convenience of all potential users of pharmacies, and to encourage and extend the contribution that trained pharmacists can make".

I say to the Government that I regard that as an excellent policy. If they wish to pursue it, I have no doubt that on this side of the House we would give them warm support for greater involvement of pharmacists in relieving the load on so many GPs who are too frequently burdened with requests for advice when patients could obtain the advice adequately and satisfactorily from their local pharmacists.

That is where the conflict lies. It seems absurd not to face up to it. I do not know what the noble Lord intends to do, but it would not be our proposal at this stage to seek to divide the House. Apart from anything else, the way this has been put together makes it an incomplete package. There are later amendments to another schedule and that might be a point at which we could examine the matter further, if necessary.

I hope that we can obtain from the Minister a firmer indication of how the conflict will be resolved. I notice with considerable interest that there is an Early Day Motion in another place which is signed by no fewer than 94 Members of Parliament, of whom 86 are Government Back-Benchers. So the idea that this is simply a matter that has been stirred up from this side of the House is not the case. The signatories to the Early Day Motion have indicated exactly what I understand to be the problem They say that they further note: that the loss of RPM [retail price maintenance] on OTC [over-the-counter) medicines could lead to the closure of many independent community pharmacies, an outcome which would seriously undermine the Government's health strategy and increase the burden on GPs; and the Motion calls on the Government to ensure that a nation-wide network of community pharmacies remains in place to serve the needs of all the community, in particular the elderly, the infirm and mothers with young children".

Perhaps I may say to those 86 Labour Back-Benchers that it seems to me that they have a good solid point to make. I do not expect that the noble Lord will be in a position to indicate now where the Government stand on this. But I hope that before we return to the matter another day on Report or on Third Reading. we can obtain a clear indication of a resolution of the problem. I hope that it is clear to the Minister, not only from the contributions made in your Lordships' House at Second Reading, in Committee and now on Report, but also from the concerns expressed by a wide section of Members of Parliament, that the Government should recognise that this conflict must be resolved. There is a real concern that community pharmacies should be maintained throughout the country. It is not only extremely important for places like Braemar to have a local pharmacy, the issue is far wider than that. I hope that the Government will at long last seek to resolve it.

The Minister of State, Department of Trade and Industry (Lord Simon of Highbury)

My Lords, first, I thank my noble friend Lord Morris of Manchester for standing in for my noble friend Lord Graham and for putting the arguments so clearly and convincingly. In response to the noble and learned Lord, Lord Fraser, I say at once that we know that this matter will be returned to at a later stage of Report and I shall therefore confine myself to the principles involved in the issue.

This is a matter to which we have given careful consideration and we are mindful of the importance attached to it by a number of interested parties. The Bill does not of course provide for the abolition of resale price maintenance of over-the-counter medicines as has been suggested at times by the press. That is not its purpose. An agreement maintaining resale prices would in due course come to be assessed against the Chapter 1 prohibition and the exemption criteria in the Bill, as would any other agreement. Nor do the Government dismiss the arguments that have been advanced seeking to demonstrate that resale price maintenance in this sector is in the public interest. We have always understood the important role that community pharmacies play.

The issue is not whether resale price maintenance of over-the-counter medicines should be abolished; the issue is whether the arguments should be looked at again. After nearly three decades, the director general decided that the arguments should be reassessed and sought leave of the Restrictive Practices Court. It is entirely reasonable that the matter should be capable of being reviewed. It would be wrong for us to use the Bill to stop this legal process. It would also be wrong to prevent the arguments from being looked at again. Indeed, we heard a number of important arguments put forward forcefully by, among others, my noble friend Lord Morris. However, as we heard today and in Committee there are forceful arguments on both sides, some put forward by my noble friend Lord Desai and some from the Liberal Democrat Benches by the noble Baroness, Lady Ludford.

We are clear that resale price maintenance ensures access to healthcare on the high street—and on many village high streets as far away as Braemar. Those are important issues. We know that independent pharmacies would close if it was merely a matter of repealing price maintenance. We know that access and choice are important—more important than price to 70 per cent. of those people asked. We heard from the noble Viscount, Lord Waverley, from my noble friend Lord Desai, from the noble Baroness, Lady Ludford, and, finally and most convincingly, from the noble and learned Lord, Lord Fraser, that pharmacists have a crucial role to play in developing and delivering the Government's healthcare policy with an emphasis on self-medication.

It is not my purpose today to decide the health policy; my purpose is to look at the Competition Bill. It is not for me to reject or even to take a view on the forceful arguments put both for and against resale price maintenance on this category of product. Let me emphasise again that the issue we are debating in relation to the Bill is not whether resale price maintenance is a good thing and should continue; it is whether the arguments should be capable of being looked at again at this stage. Let me add a further point. For the Restrictive Practices Court to look again at the same issue it would need to be satisfied that the test is met that there is prima facie evidence of a material change in the relevant circumstances since its last decision. That seems an entirely proper process. I do not believe that it is right to use this Bill to cut across the judicial process now started.

If the Restrictive Practices Court were to find again, as it did in the 1970s, based on forceful arguments, that resale price maintenance for over-the-counter medicines is in the public interest, we recognise that there is a case for providing generous transitional arrangements before the Chapter I prohibition applies. It would be wrong for the arguments to be capable, even in principle, of re-examination at the moment the prohibition comes into effect. We agree that if the court maintains the exemption for over-the-counter medicines it is right that there should be a five-year transitional exclusion from the Chapter I prohibition from the date the court proceedings reach a conclusion. That is, of course, likely to be some time off given the nature of the extended reviews.

Furthermore, there is a case, as my noble friend Lord Morris outlined, to remove the ability that the director general would have to propose to terminate the transitional exclusion early should the court find in favour of the continuation of resale price maintenance for OTC medicines. As my noble friend Lord Morris pointed out, that point was raised in Committee by my noble friend Lord Graham of Edmonton and, as mentioned by the noble and learned Lord, Lord Fraser, we shall return to the matter.

I appreciate that there will need to be further debate. But that further debate should come when we reach Schedule 13. In the meantime, given the seriousness we attach to this matter, I hope that my noble friend Lord Morris will be prepared to withdraw his amendment at this stage.

4.15 p.m.

Lord Morris of Manchester

My Lords, I am grateful to my noble friend the Minister for the care he has taken in replying to the debate. Overwhelmingly, those who took part did so supportively of the amendment. The principal critic was the noble Lord, Lord Jacobs. He was corrected by his noble friend Lady Ludford about the mistake of thinking that consumer groups are not working with the Community Pharmacy Action Group.

Adding to what the noble Lady said, I can inform the noble Lord that the Patients' Association; Scope. formerly the Spastics Society; as well as the National Council of Women, among other organisations which work closely with consumers, are supporting the amendment. As my noble friend the Minister said, we shall be returning to these important issues later. Meanwhile I was encouraged by his reply. He recognised that a transition period of at least five years is extremely important; and I ask him to think very carefully about my point concerning double jeopardy before we come to take a definitive decision on 19th February.

In the light of what my noble friend said, and in keeping with the general feeling on both sides of the House not to divide at this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 [Agreements etc. preventing, restricting or distorting competition]:

Lord Fraser of Carmyllie moved Amendment No. 2: Page 2, line 21, at end insert— ("( ) Subsection (I) applies only if the agreement, decision or practice has, or is likely to have, a significant effect on competition within the United Kingdom.").

The noble and learned Lord said: My Lords, in moving this amendment, I return to a point that was raised in Committee. We believe it correct that the word "significant" should be included and that the wording of the provision should be explicitly confined in that way. That is how the prohibition was originally drafted in the 1996 draft Competition Bill and it enjoyed widespread support in the business community.

However, when I raised this last time round not only the Minister but the noble Lord, Lord Borrie, pointed out to me that, according to the jurisprudence of the European Union, the scope of Article 85 was limited to arrangements which had an appreciable effect on competition and that, accordingly, it was not necessary to include the word "significant". I beg to differ. It still seems to be desirable both for industry and business more generally, but also to ensure that a large number of unnecessary notifications are avoided. That would be a worthwhile result. My understanding is that because of the wide interpretation of Article 85 adopted by the European Commission, the outcome in practice has been a significant number of unnecessary notifications, causing delay. At times the Commission has almost reached the point of being unable to cope.

The further argument which I understood to be addressed to me last time round by the Minister (at col. 259 of the Official Report) was that this would be at variance with what goes on in Europe, that we must be Euro-treu and that we must not put in things which cause our law to develop in a way that is not compatible with emerging European jurisprudence. However, over the weekend I was whiling away my time reading through Dutch competition law. The noble Lord may be impressed to know that I discovered that Article 6 of Dutch competition law is exactly the same as our Clause 2. It reflects the language of Article 85. But Article 7 of the Dutch code says that the Article 6 prohibition shall not apply to agreements, decisions and concerted practices if no more than eight undertakings are involved in the relevant agreement, or if no more than eight undertakings are involved in the relevant association, but that one tests against the combined turnover of the undertakings. They define it in terms of such small sums as 10 million Dutch guilders or, in certain other cases, as low as 2 million Dutch guilders. Further, it is said that, by general administrative order, Clause 1 may be declared inapplicable to categories of agreement which are, of clearly minor significance from the point of view of competition".

So, even if within the DTI the view is that it is undesirable to express in domestic legislation nothing more than what is to be found in Article 85, that same approach has not been taken in The Hague. I should like to avoid spending future weekends reading through the competition law of other countries to discover whether they have restricted themselves rigidly to the wording of Article 85 or have, in their own way, sought further additions to give some explanation and some proper context for the application of Article 85 within the domestic context.

I urge the Minister once again to consider putting back into what was the original draft the word "significant". I beg to move.

Lord Campbell of Alloway

My Lords, I support the amendment. Significant effect on competition is measured by turnover. That surely must be right. The amendment restricts the jurisdiction to that of our courts within the United Kingdom. This is the very area where problems of claim of extra territorial jurisdiction arise, particularly as regards the United States of America. It is right, surely, not only to avoid an overlap with the jurisdiction of the Commission but also any possible assumption of extra-territorial jurisdiction, which is not the intent of the Bill, as I understand it.

Lord Borrie

My Lords, perhaps I may point out in response to the noble Lord, Lord Campbell of Alloway, that Clause 2 as it stands is concerned only with agreements between undertakings and so on which may affect trade within the United Kingdom. Furthermore, while the turnover point he mentioned may well be relevant, it depends on the particular market. There are local markets for a number of local goods and services—for example, buses—where the turnover of the company may be quite small but where a restrictive agreement or cartel between companies which is restrictive of competition should be prohibited even though it is small scale compared with major industrial concerns.

I am mildly surprised that the noble and learned Lord, Lord Fraser of Carmyllie, has returned to this matter and mildly surprised that his weekend has been upset by his perusal of Dutch law, which, so far as he described it—I bow to his very recent knowledge of it—does not seem to be that helpful to us in the UK at this time. I am surprised that he has returned to this matter since the Committee stage because it seems to be generally accepted that the European jurisprudence, which is incorporated into the Bill though Clause 58, says that anything that does not have an appreciable effect on competition—which I think we can all interpret as meaning almost the same as significant—is not prohibited by Clause 2. As the noble and learned Lord has not added any new arguments, except ones I did not perhaps entirely follow from the Dutch law, I am surprised that he has returned to wanting to pursue what is really not necessary.

At various points of the Committee stage we discussed the work of the Director General of Fair Trading, sometimes in conjunction with the other regulators who have a role under the Bill, dealing with telecommunications, gas, electricity and so on. He is going to produce what the Minister, I think for convenience, called guidelines under Clause 50. We shall come to that clause later on. The fact is that the Director General of Fair Trading accepts his educational role—his role in giving guidance to industry, big and small—as to the effect of the prohibitions and the effect of the new law. Therefore, I do not think it is necessary to add to the wording of the clause what the noble and learned Lord has suggested.

Lord Ezra

My Lords, in spite of what the noble Lord, Lord Borne, has just said, the aspect of the matter that worries me is the large number of apparently unnecessary notifications which find their way to the Commission as a result of the interpretation of the wording in Article 85. If that were to happen over here it would not only be massively to the disadvantage of enterprises but it would clog up the work of the OFT and the other regulators. That aspect has seriously to be considered. I should be interested to know from the Minister how he feels that in practice this will develop if the amendment is not adopted.

4.30 p.m.

Lord Kingsland

My Lords, the noble Lord, Lord Ezra, has made the point very well. Even with the discipline of the expression "appreciable" in European jurisprudence, the European Commission is still over-faced with the amount of notification with which it has to deal. So the inclusion of the word "significant" would act as a very important discipline which would tend towards the de-bureaucratisation of our own system.

I have one further observation to add. I know at Committee stage the Minister placed great emphasis on the importance of our being consistent with European jurisprudence and practice. But that ought not to be fatal to a change of heart because there are other areas in this Bill where he has not been consistent over incorporating European practice. I am thinking particularly of the area of remedies and procedures where, as I understand it, he is proposing to adopt solutions which differ widely from those included in Regulation 17.

Lord Simon of Highbury

My Lords, we have reflected most carefully on the arguments advanced during the first Committee day by the noble and learned Lord, Lord Fraser, and the noble Lords, Lord Ezra and Lord Campbell, in support of the same amendment we are now debating.

I think we are all agreed that the UK competition regime should concern itself only where the anti-competitive effects of an agreement are significant or appreciable. We appear to be debating those two words yet again.

The case law of the European Court of Justice clearly establishes that Article 85 only applies where there is an appreciable effect on trade and competition. Furthermore, UK courts, in interpreting EC competition law, have clearly held that an agreement is only caught by Article 85 where there is an appreciable effect on competition. Take the example of the High Court in Society of Lloyds v. Clementson. The court concluded that to the extent that the central funds arrangements of Lloyds had the effect of restricting competition its impact on competition was not "appreciable" and therefore was not caught by Article 85. The UK courts are therefore used to applying the EC appreciability test in EC cases which come before them. The governing principles clause will require the same interpretation for the UK prohibition of anti-competitive agreements.

So, what of the argument, suddenly, that we should insert an explicit significance test for clarity and the avoidance of doubt? The court seems clear. I am very much in favour of clarity. But an explicit appreciability test here would increase, rather than reduce, uncertainty. Article 85(1) contains no express appreciability test. By departing from the language in Article 85(1), we would create the impression that we were trying to depart from established European principles. That was the point made by the noble and learned Lord, Lord Fraser. We should be Euro-treu, if that is the word that I heard him use. It might have helped him over his thoughts at the weekend if, in his mind, he had been able to capture that famous aphorism that I learnt when I lived in Holland. I have only changed it very slightly. In matters of competition the fault of the Dutch is giving too little and asking too much. Had the noble and learned Lord had that, he might have been able to re-position the statement.

I remain concerned that an express significance test might inadvertently create so high a threshold for action that we could impede the effective tackling of anti-competitive agreements. I believe that this is the most important issue. The secondary issue is that the lack of clarity could give rise to even more work rather than less. I agree with the noble Lords, Lord Kingsland and Lord Ezra, who said that that is what we are trying to achieve with the translation through Article 85 of the European jurisprudence into the UK base.

I do not believe that the director will have interest in applying the prohibition where there is no appreciable effect on competition. I believe that my noble friend Lord Borrie has made clear, and it is helpful, that the director's guidelines will specifically address the question of appreciability. That will certainly provide additional comfort for business. So on the grounds of clarity and of the law base already being understood in this country—and we have that evidence—and on the grounds that we should not always learn from the Dutch, I remain convinced that we should not insert an explicit significance test. Therefore, I urge the noble and learned Lord to withdraw the amendment.

Lord Fraser of Carmyllie

My Lords, I cannot say that I am entirely persuaded by the argument. I am surprised that the noble Lord, Lord Borrie, found difficulty with my argument because it is a fairly simple one. The argument advanced at Committee stage was that we can do nothing to Article 85 and that we must not circumscribe it in any way as it appears in our domestic law. The simple point I was making is that a year ago, when confronted with the same issue, the Dutch had no difficulty whatever in adding a significant circumscribing of Article 85. If the noble Lord wishes to see it it runs to about two and a half pages.

More importantly, I believe that we shall have to return to this matter because I do not believe that we have yet had a full enough answer to the point that my noble friend Lord Kingsland and the noble Lord, Lord Ezra, raised. With this amendment we are seeking to ensure that business understands what is expected of it in terms of notification. It seems to us that it is desirable that it understands that as clearly as possible, not only for its own purposes but also for those who have to deal with the notifications that the number is reduced to the sensible minimum. From past experience the Commission's problem, as we see it, is that it has been seriously over-burdened with unnecessary notifications. What really lies behind our amendment is an attempt to reduce that burden. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Fraser of Carmyllie moved Amendment No. 3: Page 2, line 24, leave out subsection (4) and insert— ("( ) Any decision or provision of an agreement which is prohibited by subsection (I) is void, but this will not affect the remaining provisions of any such agreement.").

The noble and learned Lord said: My Lords, this is an even shorter amendment. The wording of Clause 2(5) might be read as indicating that the whole of any agreement would be void. This amendment is designed to ensure that should there be a specific anti-competitive part of it it should be severed but the rest of the agreement can stand. The amendment tries to eliminate that problem. I do not believe that the argument needs further elaboration. I beg to move.

Baroness Nicol

My Lords, I hope that my noble friend will be able to accept the amendment. I raised this concern at Committee stage. In response my noble friend said, The application of the prohibition to a contract should not always lead to the entire contract being void".

He went on to say, The best way to avoid such a possibility is to mirror the language of Article 85(2)".—[Official Report, 13/11/97; col. 267.]

I withdrew the amendment, but I said that I would take advice and might return to it. I have since been advised that there is still some concern that the English courts may not apply what is known as the blue pencil test and that therefore there might be difficulty caused which we would hope to avoid. I hope that my noble friend will look kindly on the amendment.

Lord Kingsland

My Lords, the Minister will have no difficulty this time with the restrictions of European practice because I believe that the approach of the European Commission and, indeed, of the European Court of Justice, is to take the view that, as far as the techniques of civil ability are concerned, it is a matter for each member state to adopt such techniques as are typical in its own law.

Lord Ezra

My Lords, this amendment, which I support, is in line with the intention of the previous amendment; namely, to make clear to enterprises where they stand on the matter. As has been pointed out, it is reasonable that enterprises should know where they stand if part of an agreement deals with a prohibited aspect but the remainder does not. In practice, it would probably be all right, but I believe that a point of this importance should be stated on the face of the Bill.

Lord Simon of Highbury

My Lords, as the noble and learned Lord, Lord Fraser, noted, we debated a similar amendment on the first Committee day, tabled by my noble friend Lady Nicol. As I said then, I think we are all agreed that the application of the prohibition to a contract should not always lead to the entire contract being void. This is the result under Article 85. The European Court of Justice has held that it is only those elements of an agreement which are prohibited under Article 85 which are void, leaving the question of the enforceability of the remaining provisions to national laws to determine. That point was clearly put by the noble Lord, Lord Kingsland. How do we achieve the same result for the UK system? I remain convinced that the best means is to mirror the language of Article 85(2) of the EC treaty, which deals with the consequences of an agreement being caught by the EC prohibition. This is what we have done in subsection (4).

This principle of European Community law will apply to the interpretation of the Chapter I prohibition as a result of Clause 58. Whether the infringing elements are severable from the agreement as a whole so that what is left is enforceable is a matter for the general law of contract applicable in England and Wales. Scotland and Northern Ireland.

So, if we are clear that we do not want the whole contract to be automatically void, what is the harm, you may ask, in expressly providing so. As I said in Committee, we consulted on the basis of language very similar to that set out in the amendment and we received comments from legal practitioners that it would displace normal UK rules of severance and prevent the normal rules of severance applying, with the possibility of severing "offending" parts of whole "provisions". Moreover, by not copying out the words of Article 85(2) it would risk divergence from EC law. A different type of severance test might develop from that applied by the UK courts in applying Article 85. This in turn could create burdens for business by having to deal with two subtly different types of severance test under the EC and UK prohibitions.

Copying the language of Article 85(2) means that the courts will look to EC law for the meaning of the provision as to voidness. Having decided what provisions of the agreement are void the court will then apply the rules in the relevant domestic law to decide what the effect of those provisions being void may he on the enforceability of the remaining provisions of the agreement.

The relevant test of severance in English law is whether, after severing the void terms, that alters entirely the scope or intention of the agreement or removes the heart and soul of the agreement. If the answer is no, the remaining provisions of the agreement will remain enforceable. I am satisfied of the clarity of that, after taking legal advice. Therefore, I urge the noble and learned Lord, Lord Fraser, to withdraw the amendment.

Lord Bruce of Donington

My Lords, may I ask the Minister to clarify a point about my understanding of his position? If the European Court of Justice comes to a decision that part of the activities ought to be prohibited, but the remainder remains free of the judgment, do I understand the noble Lord's position to be this: because the remainder has been, as it were, ignored by the European Court of Justice, our courts nevertheless have to have regard to the fact that the Commission might not (and perhaps unofficially) agree with the Court's opinion and our courts therefore have to follow an Act of Parliament on the supposition that the Commission might act to prohibit the activity and, in order to remain within the ambit of Articles 85 and 86 of the Treaty, they should leave it at that and merely follow it so that the whole activity is barred? Is that the noble Lord's position?

4.45 p.m.

Lord Simon of Highbury

My Lords, for clarification, the point that I was making, and which I now repeat for my noble friend, is that European law may speak to voiding part of the contract. If it does not void the whole of the contract, it looks to the national law base to decide whether any other parts of the contract not voided by the European judgment will be voided by the national court.

Lord Fraser of Carmyllie

My Lords, even if I have failed to persuade the Minister to incorporate this amendment in the Bill, following our exchange I am confident that I have secured that his words on the matter will be repeatedly quoted in courts of law in the future. With that satisfaction, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 4 not moved.]

Clause 3 [Excluded agreements]:

Baroness Wilcox moved Amendment No. 5: Page 2, line 41, leave out from ("exclusions)") to end of line 42.

The noble Baroness said: My Lords, in moving Amendment No. 5, I should like to speak also to Amendment No. 67. I return to an issue that I raised in Committee: the way in which the Bill deals with professional rules. As with other parts of the economy, the professions must be properly scrutinised to make sure that they do not indulge in anti-competitive practices. History has shown that some rules, such as advertising and fee-setting, can be anti-competitive and need monitoring.

When we last debated the issue, I pointed to an issue of current concern with the Office of Fair Trading: the legal profession and multi-disciplinary practices. Solicitors' rule books have prevented them entering into agreements with other non-solicitor professions, such as accountants. They prevent fee-sharing with non-solicitors and restrict the work of solicitor employees. At the same time, however, the commercial pressures on law firms have been growing with the larger firms of accountants (such as Arthur Andersen, Price Waterhouse and Coopers & Lybrand) expanding and developing their own international network of law firms.

I suggest that the legal profession here could be under commercial pressure for another reason. The extension of conditional fees and the decline of legal aid, as announced by the Lord Chancellor last autumn, could result in significant changes to the way in which the legal profession operates. Some of the smaller legal firms may need to find new ways of operating to survive in an increasingly commercial world. Multi-disciplinary practices could be a way forward for them if the Law Society were to change its rules.

In many ways, the Bill will result, I believe, in a considerable improvement in the competition system. It will be simpler, more consistent and more streamlined. However, it is not when dealing with professional rules. Therefore, would it not be more straightforward, clearer and more consistent with the Bill's overall approach if all the professions were brought within the overall scope of the Chapter I prohibition, as my amendment proposes? Why should surveyors, for instance, be treated differently from estate agents?

I agree with the noble Lord that not all professional rules have competition implications—indeed, some professional rules exist for the protection of the public— but if professional rules were to be treated as part of the prohibition, could not the professional bodies apply to the Director General of Fair Trading for their rule books, or even parts of their rule books, to be exempted from the prohibition under Clause 4? Professional rules could then be treated in the same way as other agreements subject to the prohibition. I suggest that those professions who produced acceptable rules would have nothing to fear. Surely, such a system could work alongside the other systems of approval of professional rules.

This is a point of principle which is about ensuring that different parts of the economy are treated in the same way with regard to competition law without singling out certain parts for special treatment. One hopes that it is also about maintaining consistency and clarity in the way in which the new system will operate to the benefit of all. I beg to move.

Lord Bruce of Donington

My Lords, I rise to speak in support of Amendment No. 17 which is very much on the same point as that dealt with by the noble Baroness, Lady Wilcox. The essence of this Bill—I shall touch on certain ambiguities when I deal en passant with the definition provisions clause, Clause 58—is that it prohibits a whole series of activities and removes the prohibition as far as concerns those not covered by it. Everything is prescribed unless it is exempted.

Clause 3(1)(d) refers to professional rules that are dealt with in Schedule 4. Schedule 4 exempts certain professional services from the operation of the prohibition provided for in earlier clauses of the Bill. One sees set out various matters: the services of barristers, the provision of medical or surgical advice, the services of nurses et cetera. I should like to refer to one extraordinary provision that deals with accountants. I declare an interest as a practising accountant. When one looks at accounting and auditing, the definition is: The making or preparation of accounts or accounting records and the examination, verification and auditing of financial statements".

Apparently they are not prohibited. But there are many engaged in the accounting profession who do not come within that particular definition. I cite my own firm which is now one of the larger ones that deals mainly with taxation matters. Am Ito assume that in the course of the normal expansion of the firm, particularly in the field of taxation, even though it may achieve a position of some dominance that the commission may not like, it will nevertheless be quite in order for it to go ahead? The whole matter is a little ambiguous. If one can be precise about dentists, nurses, architects and so on, one can at least have some degree of precision about the accounting profession.

It is for this reason that I have tabled Amendment No. 17 which adds to Clause 3 of the Bill immediately after subsection (5): (6) The Secretary of State may at any time by order amend Schedule 4, with respect to the Chapter 1 prohibition. by adding one or more professional services to the list set out in Part II of that Schedule",

a summary of which I have just rendered to your Lordships. The amendment also adds the following subsection: (7) The Secretary of State must keep the list of professional services set out in Part 11 of Schedule 4 under review".

That seems quite logical. If one is dealing with matters of such importance as the complete prohibition of an activity it is up to the Secretary of State, if necessary with the aid of the professions concerned, to keep that matter up to date and to ensure that the members who are subject to their own professional disciplines are not thereby disadvantaged.

I sincerely hope that this will find favour with the Government. It is not a very onerous responsibility for the Secretary of State to keep in touch with the various professional bodies to make quite sure that they are not disadvantaged in their own country. That seems to be a normal thing to do. I hope that in the normal way the Government will accept the amendment. However, in my experience over the past 20 years or so it is very rare for any government to accept amendments at Report stage unless they have been specifically solicited by the Government themselves. This is a very convenient administrative apparatus that has become enshrined by the passage of time in the proceedings of your Lordships' House. But I should have thought that this would have been sufficiently significant.

The real reason that the Government are not prepared to accept the amendment is that there may be a possibility, nay a probability, that we shall be in conflict with Community law. I hope to be in a position perhaps in five years' time, God willing, to tell your Lordships, "I told you so five years ago".

I should like to refresh your Lordships' memory of this matter because this did not appear to be adequately emphasised in Committee. Since the other place pays perfunctory attention to matters of detail of this kind, I venture to acquaint your Lordships with the contents of the definition clause that governs this particular part of the Bill. I refer to Clause 58. I trust that your Lordships will forgive me if I read this because the provision is quite incredible when taken in conjunction with the law as we formerly understood it in this country. The provision reads: (I) The purpose of this section is to ensure that so far as is possible

—that is a nice precise term to which I have no doubt British law is well accustomed— (having regard to any relevant differences between the provisions concerned)"—

that is a lovely little sentence, is it not? It goes on: questions arising under this Part in relation to competition within the United Kingdom are dealt with in a manner which is consistent with the treatment of corresponding questions arising in Community law in relation to competition within the Community".

What a lovely text to incorporate into British law, which is normally interpreted by reference to the letter of the law, not various inferences that may be drawn from generalities that refer to it. I invite your Lordships to listen to the following: (2) At any time when the court— that is a British court— determines a question arising under this Part, it must act (so far as is compatible with the provisions of this Part and whether or not it would otherwise be required to do so) with a view to securing that there is no inconsistency between—

1. (a) the principles applied, and decision reached, by the court in determining that question; and
2. (b) the principles laid down by the Treaty and the European Court. and any relevant decision of that Court, as applicable at that time in determining any corresponding question arising in Community law".

I leave it to others, notably the noble and learned Lord, Lord Ackner, whom I am pleased to see here, to solve that ambiguity for us. It is of course a load of nonsense. There is no question of trying to get British law and British courts, which rely mainly upon the letter of the law and precedents under the statutes, to begin to accept the generalities of Community law—so-called—which relies largely upon its recitals and preambles. Cannot we at least have recourse to our own law which we can respect and enforce rather than endeavour to merge it in some mysterious way, outlined in Clause 58, which blurs the line in making any question of law in this country properly enforceable and leaves it open to good and honest ridicule?

5 p.m.

Lord Howie of Troon

My Lords, your Lordships will be pleased to learn that I do not intend to follow my noble friend in his interesting and labyrinthine speech.

A noble Lord

Why not?

Lord Howie of Troon

My Lords, because I do not know enough about it. When he said that five years from now he would be able to tell us, "I told you so five years ago", he was under-estimating his position, because he will be able to say not five years ago, 10 years ago, 15 years ago, but probably 25 years ago. if not more. I do not wish to irritate him. I wish to suggest to my noble friend the Minister that he oppose the amendment.

When I came into the Chamber I was surprised to hear the matter raised again, because we had a brief discussion of it in Committee. At that time I thought there was some confusion about the nature of the professions as against the nature of business. I have to declare an interest of a sort. As a chartered civil engineer I am bound by the rules of the Institution of Civil Engineers, and the professional rules of the Engineering Council, or at any rate I was while I practised. I still hold them in my heart, having ceased to practise.

In Committee we tried to draw to the noble Baroness's attention the fact that professions are not the same as businesses. She naturally wishes to put everything into the straitjacket of the business community, as if everything were a public liability company, to be bound by the same rules and to work under the same conventions. Professions are not like that. As she partially admitted, the rules of a professional body are, to a large extent, directed towards the protection of the public. They are mainly concerned to ensure that the person who offers a professional service is, first, fully qualified to offer that service. That is different from the business community where no such obligation exists. That is the key difference between those two functions.

I do not want to go on, because we have had a fairly lengthy debate on this short amendment. During our previous debate I remarked to the noble Baroness that if she wanted to find out the difference between business and the professions in detail she should turn her attention to a well known book called The Acquisitive Society, written by R. H. Tawney in 1923, where the matter is gone into in great detail. Tawney proposes that the business community adopt the rules and regulations of the professions rather than the other way about, as has been suggested here.

I know that I shall be told that a number of things have happened in the business and professional worlds since 1923. That is true. A number of professions have gone down the route that the noble Baroness would like to see. Some of us do not like to see it. I assume that as the noble Baroness has tabled the amendment again she did not take my advice, go to the Library and read R. H. Tawney. I suggest that she do it now. The kind and polite thing to do would be for her to withdraw the amendment. That would be much appreciated in the professions. If she does not feel inclined to do that, I hope that my noble friend will kick her into touch.

Lord Lyell

My Lords, I support what the noble Lord, Lord Bruce of Donington, said on Amendment No. 17. I, too, have to declare an interest. I am a non-practising member of the Chartered Accountants of Scotland. The Minister will be interested to know that much of my apprenticeship was spent under the green and yellow banner, which I think occupied him until recently. The firm Traneby will not be unknown to the Minister.

There was much merit in the opening remarks of the noble Lord, Lord Bruce, especially when he referred to paragraph 11 of Part II in Schedule 4. The definition in that paragraph is narrow. The noble Lord tempted me, and I suspect your Lordships, to look at the other services performed by accountants and others. For that reason, I strongly support the noble Lord, Lord Bruce.

Even with all the training that I received in Scottish commercial and other law, the noble Lord, Lord Bruce, lost me when we came to Clause 58. I was fascinated. I wonder what the Minister has been able to do to his noble friend, because I ask the Minister to agree that the noble Lord, Lord Bruce, has been turned into something of a tabby cat this afternoon. I do not know what persuaded the noble Lord, Lord Bruce, to be so succinct and brief. I was expecting considerably more in line with what happened in Paris on Saturday or at Lansdowne Road. All the same, I was impressed by his opening remarks in relation to Amendment No. 17. I shall desist from commenting on the amendment moved by my noble friend Lady Wilcox. Will the Minister reply to the opening remarks of the noble Lord, Lord Bruce?

The Earl of Buckinghamshire

My Lords, I support Amendment No. 17, tabled by the noble Lord, Lord Bruce. I do so despite the fact that I had the good fortune in my maiden speech some years ago on the Insolvency Bill to follow him. I do not wish to risk the ire of my noble friend Lady Wilcox by supporting the amendment. Her amendments will make it unnecessary for the amendment of the noble Lord, Lord Bruce, or mine on the actuarial profession, to go through.

So far as I can see, without the amendment there is no power for the Secretary of State to amend the list of professions, which would then accordingly require primary legislation. If the answer from the Minister is that primary legislation is not required, and we can rely on Clause 58 to do the job, I should be glad of that confirmation.

I have a number of concerns about Clause 58. Does the Minister consider that Clause 58, as currently drafted, is in direct conflict with Clause 2 as it presently stands?

Viscount Bridgeman

My Lords, I, too, support the amendment moved by the noble Lord, Lord Bruce of Donington. A number of amendments make special pleas for various professions. Again, I declare an interest as a member of the Institute of Chartered Accountants of Scotland. The advice from my own profession is intertwined between audit accountancy and taxation work. More generally, I support in particular my noble friend Lord Buckinghamshire. It is a waste of time for an amendment to have a primary legislation effect. All these professions are organically growing and secondary legislation—orders—would be most helpful in this context.

Lord Haskel

My Lords, the noble Lord, Lord Lyell, was brave to call my noble friend Lord Bruce of Donington a "tabby cat"—

Lord Lyell

My Lords, I did not say that he was neutered.

Lord Haskel

My Lords, it is not a phrase which would have come to my mind. I shall speak to Amendments Nos. 5, 17 and 67. We discussed the question of whether Schedule 4 should stand part of the Bill on the first day of Committee. I am sorry that the noble Baroness, Lady Wilcox, was not convinced by our arguments at that stage. Perhaps I could try and re-formulate them and explain the provisions for competition scrutiny of professional rules under the Bill. Schedule 4 to the Bill is not in any sense a licence to introduce anti-competitive rules. We shall discuss amendments to the schedule later. For those professions whose services were exempted under the Restrictive Trade Practices Act, the Government do not believe that it would be right to subject their professional rules to the procedures in the Bill.

We believe that it would be unwarranted to apply processes designed primarily for private sector business to the quasi-public law processes of drawing up and enforcing professional rules. I think that my noble friend Lord Howie of Troon put this well in Committee when he said that he opposed competition at the design stage. But it is only the design stage. Far from excluding from the director's scrutiny those rules which professional bodies do draw up, Schedule 4 requires him to retain a copy of each designated professional rule and to maintain a list of them. I draw that requirement to the attention of my noble friend Lord Bruce. Paragraph 5 of the schedule places him under a statutory duty to keep the list under review and to advise the Secretary of State whether he considers, that, with a view to restricting the exclusion provided by this Schedule, some or all of the rules of a particular body should no longer be designated"—

that is to say, to enjoy the benefit of exclusion. The price, therefore, which must be paid for exclusion at the design stage is that the director is required to review the rules and consider whether the exclusion is justified. I hope that that answers the point raised by my noble friend Lord Bruce. The Secretary of State has certain obligations.

If there are competition concerns there must of course be some mechanism for addressing them. One would hope that a professional body would have regard to any criticisms the director may make and consider whether its rules should be amended. If not, and if after consulting any relevant Minister, the Secretary of State considers that the exclusion should end, the Bill will enable her to revoke the designation of a professional rule and bring it within the Chapter I prohibition, subject to affirmative resolution by your Lordships and another place.

Thus, the Bill will ensure that any competition concerns to which professional rules give rise will be addressed, but in a focused and targeted way, without subjecting the professions' rule-making and enforcing processes as a whole to the procedures in the Bill. I hope that on reflection the noble Baroness will see that this is in no sense letting the professions off from the requirements of competition law. If there are competition concerns about professional rules I assure her that the Bill will enable them to be addressed.

The noble Baroness asked about solicitors' rules. Unlike, say, the profession of barrister, solicitors' rules are, we believe, statutory ones. They are a requirement of the law. As such, they are not "agreements" and would not therefore ever be prohibited under Chapter I.

The noble Baroness also asked about multi-disciplinary practices involving solicitors. I think there is some confusion about this. Section 66 of the Courts and Legal Services Act 1990 abolished the section of the Solicitors Act 1974 which, in effect, prevented solicitors from entering into partnership with persons who are not solicitors, but without prejudice to the Law Society's ability to make rules on such matters. Such rules would in all likelihood be statutory. They would have nothing to do with Chapter I of the Bill, which is about a prohibition of agreements.

The noble Baroness also asked about professional rules. They are not necessarily the same as the normal run of agreements that businesses may enter into. Their purpose is to protect the public. They have attached to them disciplinary arrangements which often involve some judicial process and under which penalties can be severe. They are often subject to approval by Ministers or members of the judiciary. In these ways, they are a form of quasi public law.

I turn to Amendment No. 17 and the points raised by my noble friend Lord Bruce of Donington. In the first place, it is clear that the amendment would enable the scope of the exclusion in the Bill to be widened, and it would therefore potentially provide for a wider exclusion of professional rules than that provided under the Restrictive Trade Practices Act.

Given the ambition of this legislation to provide a thorough and effective reform of competition law—and the fact that we have, as I have explained, narrowed the existing exemption of professional services under that Act—I do not think that that would be appropriate. Perhaps I may again recall that some noble Lords have expressed some concerns about the width of the existing exclusion, never mind increasing the exclusion.

However, perhaps more importantly, I do not see a case on procedural grounds for excluding professions which have hitherto been subject to competition law in the shape of the Restrictive Trade Practices Act. Those professions must have had to accommodate that law, and I do not see why their procedures cannot accommodate the new law. The unique point about the professions on the list in Schedule 4 is, of course, that they have not been subject to the Act.

The Government have reflected on the point raised in Committee by my noble friend Lord Bruce of Donington and the noble Lord, Lord Skelmersdale, but have concluded that it would not be right to provide the Secretary of State with a power of this kind.

My noble friend Lord Bruce was displeased with Clause 58. The purpose of the Bill is to make British competition law consistent with Community law. Competition law must be relevant in all countries. Clause 58 explains that rather well. It must be consistent, and that is what the clause provides.

I hope that my noble friend will understand the reasons for that and will feel able to withdraw his amendment. I hope that the noble Baroness will understand the reasons that I have explained about the professions and will also agree to withdraw her amendment.

The Earl of Buckinghamshire

My Lords, before the noble Lord sits down, he has not answered the question as to whether primary legislation is required under the amendment proposed by the noble Lord, Lord Bruce of Donington, and also whether Clause 58 is in conflict with Clause 2, making it inoperable.

Lord Haskel

My Lords, the purpose of Clause 58 is to put Clause 2 into effect.

Lord Bruce of Donington

My Lords, I am sorry but not surprised that my noble friend has declined to accept my amendment. There is a large difference between us. For my part, as an inhabitant and citizen of the United Kingdom, I do not wish such provisions as there are—and generally speaking, British law is good—to be subject to the generalities which emanate from time to time in Community law, so-called.

There must be a choice. I am under no illusion that there will be massive support in this place for the amendment.

Baroness Farrington of Ribbleton

My Lords, unfortunately, as my noble friend is not the mover of the amendment, he does not have a right of reply at this stage.

Baroness Wilcox

My Lords, I thank the Minister for his explanation and for the time which he has taken on this matter. I raised this issue, perhaps expressed differently, in Committee. For me and for consumers, it is a point of principle about ensuring that different parts of the economy are treated in the same way with regard to competition law without singling out parts of it for special treatment.

That is the second time I have said that and I apologise for repeating myself. However, that is possibly the most important thing that I have said. It relates to singling out certain parts of the economy to be treated differently. The noble Lord, Lord Howie, talked with nostalgic affection of his club—the civil engineers. I have worked for seven years representing the ordinary consumer, the ordinary man on the Clapham omnibus, the single person very often trying to stand against such professional organisations. The noble Lord talks of professional organisations with pride and of the business community with contempt. I have been part of the business community, as has my family before me, for many years. We talk about free and honest trade. We talk about the rogues being found out and other such matters openly, in the marketplace. We do not have anywhere to run and hide.

I feel as emotional about this subject as the noble Lord did talking affectionately and, as he said, nostalgically, about his club. I shall not ask him to go off and read any reference books, although no doubt, if I took the time, I could do so. However, those parts of the business community which do not enjoy that protection must stand up and face the Office of Fair Trading. That is no bad thing.

I am sorry that it is the second time that I have had to raise this issue with the Minister. This is a good and open Bill which tries to make it easy for ordinary people to understand quite what competition and anti-competitive practices mean. I know that today we shall not get any further on this matter.

Lord Howie of Troon

My Lords, I do not wound easily but I wish the noble Baroness would draw a veil over the word "contempt". That is not my view of the business community.

Baroness Wilcox

My Lords, of course I shall withdraw that word if the noble Lord finds it offensive.

I return to the amendment. I shall not press the matter to a Division. I am sorry that the Government are not able to make that small adjustment which brings everybody together under the same administration. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Fraser of Carmyllie moved Amendment No. 6: Page 2, line 42, at end insert ("or (e) Schedule (Exclusion for Vertical Agreements) (exclusion for vertical agreements)").

The noble and learned Lord said: My Lords, the Minister may think it somewhat churlish of me to return to the matter of vertical agreements so shortly after he was courteous enough not only to write to me on the matter but also to send me an extremely interesting report. However, I should like to have it placed on the record exactly where we stand in relation to vertical agreements and their exclusion from the Bill.

As far back as September we knew that it was the Government's view that many if not all of those vertical agreements should be excluded. But we are now into the month of February and we still do not have the outcome of the Government's deliberations on that exclusion. It is important that we discover exactly what is being proposed.

I recognise that the Government have set up a task force and have included a number of organisations and individuals who are extremely knowledgable on the subject and there must be some cause for optimism that that task force will come forward with some solutions.

However, I hope that there will be some chance that we shall see the outcome of those deliberations before the Bill leaves this House. It is not simply a matter of our own interest, but there is a view that once the matter leaves this House it leaves the last Minister who has any real understanding about competition policy, and we should wish to have that Minister's observations on what is being put forward and his explanation before the issue moves to the House of Commons. It is extremely important that that should be done.

Secondly, real concern is building up about particular interests, not only in the drinks trade but covering a wide range of activities, which are wondering whether they are to be excluded and what is proposed. The Minister will be very familiar with off-shore oil engineering in the North Sea and the Crine arrangements. Those are extraordinarily elaborate integrated arrangements. I have even had queries about whether some of those agreements might be caught if there is not a properly explained exclusion.

I hope that the noble Lord can give some indication of where matters stand. I simply leave it to him with this observation that the report of the analysis prepared by Professor Whish and Dr. Bishop is extremely good and interesting. However, it raises not only questions about which horizontal or vertical agreements may be excluded and how those exclusions might be framed but also a very interesting set of observations as to how frequently, within the European Union, Article 85 has not been used to handle vertical agreements but has been used to forward the arrangements which are to be found in relation to single market integration. It would appear that it has been used more frequently for that purpose than for the more obvious vertical agreement problem. In my view, that will undoubtedly lead us into some very interesting debates when we get to Clause 58. However, unlike the noble Lord sitting on the Benches immediately behind the Minister, I do not propose at this stage to go into the complexities as to what is and what is not excluded from that clause. I merely mention it because it is most important for us to find out exactly what the Government propose to exclude; otherwise it will have an effect not just on the issue of vertical agreements but will, in turn, also affect our understanding of some other very complicated provisions in the Bill. I have already indicated that I shall not be pressing my amendment today. Nevertheless, I beg to move.

5.30 p.m.

Lord Simon of Highbury

My Lords, before turning to any discussion on the detail of the amendment, which I believe will not be necessary at this stage, I should like to speak in more general terms about the approach to vertical agreements. As the noble and learned Lord, Lord Fraser, said, since we last discussed the issue in Committee we have continued our efforts to achieve a workable solution to the matter of vertical agreements.

My department has convened a vertical agreements task force, to which the noble and learned Lord referred, to consider the issue. We have experts from the CBI, OFT and MMC all working in the group. I am especially pleased that both the competition authorities and the business community are represented in that group, because I believe that it will be the only way of finding a workable solution.

As the noble and learned Lord also mentioned, we have also secured the services of Professor Richard Whish and Dr. Bill Bishop to assist the department and the task force in this work. Professor Whish is a renowned authority on competition law as well as a practising solicitor in the field. Dr. Bishop heads an economic consultancy specialising in competition issues. Their combined knowledge of the economics and law of competition makes them well qualified to assist us in seeking to crack what was referred to in Committee as "a conundrum". Indeed, despite the time taken, which has not been overlong considering the time that noble Lords opposite took to consider such matters without arriving at a conclusion, it is still a conundrum.

The initial work has been to consider the manner in which vertical agreements have been treated under Article 85 of the EC treaty. That is of crucial importance in allowing us to understand the nature of the issue, as it is European jurisprudence which will determine the interpretation of the Chapter I prohibition within the limits of the governing principles clause, which we have already discussed today. As the noble and learned Lord pointed out, any special treatment for vertical agreements must fit properly within that structure.

Therefore, the work is very important. The analysis of the Commission's formal decisions demonstrates that the overwhelming majority of cases in which the Commission has condemned vertical agreements have been on the basis that they conflict, as the noble and learned Lord remarked, with single market objectives. Of the 30 cases in which the Commission has imposed a fine against vertical agreements for breach of Article 85, in only one of these was it not acting wholly or predominantly on the basis of its single market objectives.

The study also illustrates that a substantial number of the judgments of the European Court of Justice and Court of First Instance relating to vertical agreements have concentrated on single market interests. The Commission's zeal to attack vertical agreements posing a threat to single market objectives has generally been upheld by the courts.

In a small number of cases the Commission has found vertical agreements which do not raise single market concerns to be in breach of Article 85. Most of these are where the Commission has acted against resale price maintenance, although a few relate to cases where the Commission has found foreclosure of the market.

As I said in Committee when discussing the governing principles clause, single market objectives would not be imported into the interpretation of the Chapter 1 prohibition. Such questions cannot be said to be "corresponding", within the meaning of that term, in the governing principles clause to competition issues in a domestic system. As single market objectives are not relevant to the interpretation of the Bill, the analysis of the Commission's formal decisions indicates that the risk of purely "domestic" vertical agreements, to which Article 85 would not apply, falling foul of the Chapter I prohibition should be far lower than under Article 85. If agreements are caught by Article 85, there is of course nothing that we can do to validate them.

Therefore, that is an important factor which the task force will have to look at and consider. However, it is also clear that the absence of single market objectives from the interpretation of the Chapter I prohibition is not an all-embracing panacea. In particular, the report analyses the informal practice of the Commission in relation to vertical agreements. That includes, for example, cases which are settled without the need for the Commission to take a formal decision. Here, it cannot be said that the majority of the Commission's interventions are invariably based on single market issues. Although these cases do not strictly have any legal force, they are indicative of the Commission's policy stance with respect to a particular type of agreement.

Many have been critical of the way that the Commission has extended the application of the prohibition. The matter has not been directly tested in the European Court. However, under the Bill the director and the courts must have regard to Commission statements in applying the prohibitions.

There remains a case therefore for special treatment of vertical agreements under the Bill to avoid the burden of unnecessary notification and to ease the so called "straitjacket" which existing European block exemptions impose. Of course, it remains important not to provide a loophole for seriously anti-competitive agreements to escape nor, equally important, to make things worse by drawing an arbitrary line which led those outside it to feel that they had to notify. That would simply add another straitjacket to what is already there.

However, the nature of the analysis of Professor Whish and Dr. Bishop is to emphasise that any special treatment may be more in the nature of an "avoidance of doubt" provision. Such provisions are always difficult. They can create more doubt than they remove. However, clearly we will have to think carefully about what they say. The task force will, therefore, continue its work. The case analysis prepared by Professor Whish and Dr. Bishop has, as the noble and learned Lord said, provided an interesting and important step forward.

While we are debating the issue of exclusions, I should also like to raise the treatment of land under the Bill. I can tell your Lordships that I have placed in the Library of the House a discussion document which sets out how we think such an exclusion might be framed. My officials have discussed the issue with interested parties in the property field. It is clear from the document that the issue raises difficult conceptual problems, but I hope that it will be possible to bring forward a suitable amendment on Third Reading or, perhaps, even in another place.

The aspect upon which I shall probably not satisfy the noble and learned Lord is that of a timetable. As I said, my department continues to work very closely with the CBI and the regulators in order to try to solve the conundrum in relation to vertical agreements. I sincerely hope that we will be able to bring forward some form of special treatment for vertical agreements. I know and understand quite fully that that would be widely welcomed.

However, for all the reasons of which I believe we are all fully aware, the provision must be very carefully thought through. The difficulties that I have highlighted in the discussion to date, given the way that the Commission and the Court have proceeded, are matters which the task force must consider very carefully. The task force is certainly the best route for devising a workable solution for treatment of vertical agreements under the Bill. However, I cannot at this stage say that we have reached a firm conclusion about timing. With that perhaps not totally satisfactory reply, I urge my noble friend and the noble and learned Lord, Lord Fraser, to withdraw the amendment at this stage.

Lord Fraser of Carmyllie

My Lords, I have certainly achieved my objective in obtaining a full and helpful statement from the Minister as to where we have reached in the deliberations on finding an exclusion for vertical agreements. For that I am extremely grateful to him. I suppose I did not expect to get a clear indication of a precise timetable from him, but I repeat that if it were to prove possible to bring forward an amendment on an exclusion for vertical agreements at Third Reading I give him the clear assurance that he would receive no complaint from us that it had appeared rather late in the passage of the Bill through this House. We would certainly prefer at least to have a look at it before the Bill moves to another place. I thank the noble Lord not only for what he said about vertical agreements but also about land. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Simon of Highbury moved Amendment No. 7: Page 2, line 45, leave out from beginning to second ("or") and insert ("providing for one or more additional exclusions").

The noble Lord said: My Lords, Amendment No. 7 is a technical amendment. I speak also to Amendments Nos. 8 to 16 and 25, 26 and 27.

I hope it will be acceptable to noble Lords that some of these amendments refer to amendments introducing new exclusions which we will come to later. This group has a unity, however, in that all the amendments concern the powers to amend and remove some of the exclusions in the Bill and to provide for new exclusions and their amendment or removal. They reflect the development of our thinking, as we have been drawing up those exclusions, as to the powers the Secretary of State may need to deal with future exclusions and any amendment of some of the existing ones.

The new proposed exclusions for agreements cleared under Section 21(2) of the RTPA and for agriculture agreements contain a power for the director to clawback the exclusion in respect of a particular agreement in certain circumstances. This is not a new concept for the Bill, as paragraph 4 of Schedule 1 already empowers the director to clawback particular agreements from the merger exclusion. The utility of such a provision has, however, become more apparent as we have been working on new exclusions. Such a power should enable us to give greater comfort and certainty to business by providing somewhat broader exclusions than we might otherwise be prepared to contemplate because we can be confident that anti-competitive agreements which do not deserve to be excluded can still be addressed. I would expect, for example, that any exclusions in the land agreement that we discussed earlier would contain such clawback power, but would be framed more widely under these circumstances than would have been possible before. Because any exclusions which we provide under the Clause 3 powers may need to contain a clawback provision, Amendment No. 16 puts beyond doubt that that would be within the scope of the powers.

Any additional exclusion in Schedule 3 will, of course, be subject to the limitation in subsection (4) of the clause, which presently provides that the powers may be exercised only if it appears to the Secretary of State that agreements which fall within the new exclusion do not in general have an adverse effect on competition or, if they may have that effect, are best considered under Chapter II of the Bill or the Fair Trading Act. Noble Lords will note that the "in general" only applies to the first limb of this test. However, if the Secretary of State were to make an additional exclusion with a clawback power it would be clear that she or he contemplated that at least some agreements within the exclusion might need to be considered under the Chapter I prohibition. Amendment No. 16 therefore relaxes the limitation a little by providing, in respect of the second limb, that the Secretary of State may provide an additional exclusion if agreements within it "in general" are best considered under Chapter II or the Fair Trading Act.

Amendments Nos. 12 and 14 enable the proposed new exclusions for Section 21(2) agreements and agricultural products to be amended or removed under Clause 3. Amendment No. 13 similarly enables the present exclusion of coal and steel agreements from the Chapter I prohibition to be amended or removed and Amendment No. 25 makes the corresponding provision in respect of the exclusion from the Chapter II prohibition. The reason for this is that although the European Coal and Steel Community Treaty is due to expire in 2001 and we intend the exclusion automatically with it, we now consider a power to amend the exclusion to be sensible to provide flexibility, for example, in dealing with any transitional provisions the Community might make.

We think that the concept of adding, amending or removing "a case" which runs through Clauses 3 and 19 could have led to uncertainty as to the scope of the powers. Amendments Nos. 7, 8, 9, 10, 26 and 27 make clear that the powers are to provide for certain additional exclusions and to amend or remove provisions in certain existing exclusions and in additional exclusions. I am sorry for the technical nature of my remarks. I hope that I have explained the position as briefly and as succinctly as possible. I beg to move.

On Question, amendment agreed to.

5.45 p.m.

Lord Simon of Highbury moved Amendments Nos. 8 to 16:

• Page 3, line I, leave out ("case") and insert ("provision").
• Page 3, line 5, leave out from beginning to second ("or") and insert ("providing for one or more additional exclusions").
• Page 3. line 6, leave out from ("any") to ("added") in line 7 and insert ("provision— (i)")
• Page 3, line 9, leave out ("which falls within") and insert ("included in").
• Page 3, line 9, after ("1") insert ("or 1A").
• Page 3. line 9, after ("1") insert ("or 6").
• Page 3, line 9, after ("1") insert ("or 6A").
• Page 3. line 13, leave out from ("or") to ("best") and insert— ("(b) are, in general,").
• Page 3, line 14, at end insert— ("( ) An order under subsection (2)(a) or (3)(a) may include provision (similar to that made with respect to any other exclusion provided by the relevant Schedule) for the exclusion concerned to cease to apply to a particular agreement.").

The noble Lord said: My Lords, with the leave of the House, I beg to move Amendments Nos. 8 to 16 en bloc.

On Question, amendments agreed to.

[Amendment No. 17 not moved.]

Clause 17 [Enactments replaced]:

Lord Fraser of Carmyllie moved Amendment No. 18: Page 10, line 11, after ("practices)") ("and those provisions of the Fair Trading Act 1973 relating to the investigation of a structural or scale monopoly").

The noble and learned Lord said: My Lords, we dealt with this matter rather more broadly at Committee stage. Those who followed it then, and who follow it now, will appreciate that it is a rather more restrictive proposal relating only to structural or scale monopolies. Although I cannot say there were many issues on which I secured much agreement from the noble Lord, Lord Borrie, at Committee stage, at least when we discussed scale monopolies he said, As regards scale monopolies, the case is less strong".—[Official Report, 13/11/97; col. 299.]

It is not just less strong; I think that the noble Lord in his heart of hearts knows perfectly well that it is a non-existent case.

The retention of these provisions in addition to a wide-ranging prohibition based on Article 86 would, in our view, quite clearly give the director-general excessive powers. The argument that this additional power of investigation and remedy is necessary on the basis that there might in future be problems which the prohibition cannot solve is, in our view, extremely tenuous. These provisions have not to date been extensively used or shown to be indispensable and could easily be relinquished if a prohibition is introduced.

The Minister will appreciate that these scale monopoly provisions are deeply unpopular in industry, and rightly so. There is only one argument for the retention of this power once the new prohibition is in place. The best argument that I have heard advanced for it is that at least we know how it works. That is the argument of bureaucracy. There is no point in retaining this additional power. I have no doubt that the Minister appreciates that this could be immediately dispensed with if the Article 86 prohibition is to be incorporated into our law. It would certainly avoid unnecessary duplication. Even if the Minister does not like my drafting, I invite him to give some signal that he, too, realises that the issue of scale monopolies is not one that needs to be retained as a specific way of dealing with the problem. I beg to move.

Lord Borrie

My Lords, the noble and learned Lord, Lord Fraser of Carmyllie, referred to my comments in Committee that there was a less strong case for keeping the scale monopoly reference provisions than the complex monopoly reference provisions. I did indeed say that. I am delighted that he is no longer opposing the continuation of the complex monopoly reference provisions because they are a useful reserve power for the Director General of Fair Trading across the whole of industry. I am glad that the provision will be retained in the Bill without further opposition from the noble and learned Lord.

I believe that there is a case, to which the noble and learned Lord did not refer, for retaining the scale monopoly reference provisions. The provisions are to be found in the Fair Trading Act. As a result of a reference to the Monopolies and Mergers Commission under that Act it is possible for a structural remedy determined and recommended by the commission to be put into place if the Secretary of State accepts it. A divestment from the monopoly would be used when competition was required to be put in place as a result. There are no structural provisions in the Competition Bill. It would be a pity to lose that possibility by getting rid of the power to make scale monopoly references.

It is true that over the years in the United Kingdom divestment as a remedy for competition problems has been used rarely. I have identified that in the past 20 years there have been only four cases where divestment has been used. Those were in the cases of domestic gas appliances; razors and razor blades; roadside advertising; and beer. In only the razors and razor blades case was there clearly and solely a scale monopoly. It is clear, therefore, that there has not been a great deal of use in this country of the divestment powers in cases which are solely scale monopolies. Nonetheless it is a useful power, and in the unknown world into which we go with the new Bill and the new prohibitions it is not a power which should be thrown aside lightly.

I advance one further reason for retaining the power of the director general to make scale monopoly references. It is the problem of a scale monopolist with high profit margins. The European Union jurisprudence—as we have said many times, it is incorporated in the Bill via Clause 58—suggests that high profit margins alone are not sufficient to create an abuse of a dominant position. It is not clear therefore whether or not Clause 18 of the Bill will apply where a scale monopolist is enjoying over a long period high profit margins at the expense of the public or the consumer. That may suggest that at least an inquiry should be made in the public interest by the Monopolies and Mergers Commission if the director general thinks it appropriate in the circumstances.

I believe that there is a case for keeping scale monopoly references alongside the new powers and prohibitions in the Bill. For the noble and learned Lord to describe those powers as excessive, as he did a few moments ago, is a rather excessive use of language, if I may say so. All that is involved is an inquiry into whether or not something should be continued in the public interest. That is surely a power we should retain.

Lord Kingsland

My Lords, I disagree profoundly with the noble Lord, Lord Borrie. I understand from the Minister that one of the main objectives of the regime is to have as light a touch as possible to enable British industry to be competitive and as free as possible from bureaucratic constraints. It is conceivable that former public utilities will now face not two, but three, disciplinary regimes: the regime of the regulator; the regime of the Director General of Fair Trading; and the regime of the former Monopolies and Mergers Commission which will now become the competition commission. I submit that this is highly undesirable. I hope that the Minister will look again at his apparent determination to continue with complex and scale monopolies.

Lord Campbell of Alloway

My Lords, the noble Lord, Lord Borrie, opposes the amendment on the ground that the law is not clear and therefore should be allowed to continue to be unclear, whereas my noble and learned friend's amendment clarifies the law so that we know where we are. I should have thought that there was something to be said for a clear law that would let us all know where we were. The subject is complicated enough without encouraging want of clarity.

Lord Simon of Highbury

My Lords, I am grateful to the noble and learned Lord, Lord Fraser, for prompting another interesting debate on the subject. I am grateful for the contributions we have had.

It is important that we review why the scale monopoly provisions are there in the first place. These provisions enable impartial investigation of markets in which a single company has a significant market power, and enable, if matters are found to be contrary to the public interest, wide ranging remedies to be imposed. There is a case—my noble friend Lord Borrie put it eloquently to us—for retaining the powers to investigate situations where it is fundamentally the structure of the market, and not any specific abuse, which is the problem. In these circumstances the scale monopoly provisions enable the more flexible imposition of structural remedies, including, as the noble Lord, Lord Borrie, said, the divestment of part of a business.

The new prohibition on abuse of market dominance will replace these provisions in large part. This is what we said in our consultation document in August. The provisions will be very much a reserve power. Nevertheless, we should not discount the possibility that they may prove of value as the only real means of remedying a market in which structural factors inhibit free competition.

In the utility sectors, for example—they were mentioned by the noble Lord, Lord Kingsland—full competition is developing, but it is not yet fully established. It is not inconceivable that there will be cases in which the more flexible powers available under the scale monopoly provisions to enable structural remedies to be imposed could prove necessary in order to protect or promote competition. I recall the noble and learned Lord, Lord Fraser, himself saying in the debate in Committee, at col. 301 of the Official Report of 13th November, that if there are gaps to be filled then they should be filled.

We cannot rule out the possibility of important gaps appearing in the future. I hope that the noble and learned Lord, Lord Fraser, will consider what I have said, in particular about the reserve nature of those powers considering the specific gaps to which I have alluded, and which he recognised as important. I hope that he will withdraw his amendment.

Lord Fraser of Carmyllie

My Lords, I have heard the Minister advance arguments with a greater degree of conviction than he did in answering this brief debate. If I noted his remarks correctly, he said that we must not discount the possibility that it might prove useful at some point in the future.

The provision is not necessary. I do not withdraw from the word "excessive". I believe that there is excessive duplication. The noble Lord might have read on from what said at col. 301 of the Official Report. I said: For the sake of UK business",

and we should regard it from that standpoint and not only from the standpoint of those who have the duty to administer the law, we should not have unnecessarily heavy regulations and any duplication must be kept to the bare minimum. In our view, it is probably highly unnecessary to retain this set of complicated legislative provisions at the same time as introducing the two prohibitions".

That remains our view. I am bound to say that I am not persuaded that it is a necessary part of the armoury that is required. I shall not press the matter at present; however, I indicate to the noble Lord that we are not much persuaded by the argument. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6 p.m.

Clause 18 [Abuse of dominant position]:

Lord Kingsland moved Amendment No. 19: Page 10, line 14, after ("undertakings") insert ("which carry on business in the United Kingdom").

The noble Lord said: My Lords, I shall also speak to Amendments Nos. 21 and 23.

I believe that this is one of those rare areas where the Minister and the Opposition Front Bench are in agreement—though I suspect that the Minister will disabuse me of that belief when he rises to reply.

The issue is one of drafting. Our concern is to make sure that the true nature and scope of the geographical market is taken into account in relation to a particular practice of a particular industry. As Clause 18 is drafted, it looks as though a market which is genuinely, say, European or genuinely, say, global, is to be artificially limited to the United Kingdom alone. We believe that the recasting of Clause 18 by the Minister, while helpful, does not make that point clear. The purpose of the amendments is to make it crystal clear. I beg to move.

Lord Simon of Highbury

My Lords, I am grateful to the noble Lord, Lord Kingsland, for raising this issue again. He may be surprised to hear that I do not think there is anything between us in terms of substance.

I explained in Committee how we intend Clause 18 to operate in relation to the relevant geographic market for assessing dominance. Indeed, your Lordships' Committee accepted two amendments on that same point. In moving those amendments I explained that it was our intention that Clause 18 is not read as limiting the geographic market to the United Kingdom. There may well be circumstances in which the relevant market includes—but is wider than—the United Kingdom.

This House decided in the case of Pepper v. Hart that reference can be made to statements in Hansard in certain circumstances to clarify the meaning of legislation. We believe that the amendments we made to this clause in Committee met the point about which the noble Lord is concerned. However, should the courts consider that the meaning of Clause 18 is ambiguous in this respect, they will be entitled to look at the statement I made. I believe that the noble Lord and I are at one as to what the effect of the clause should be on this point. I hope that my remarks will satisfy the noble Lord on the wording of the clause, and I ask him to withdraw the amendment.

Lord Kingsland

My Lords, I am most grateful to the noble Lord for that statement. In those circumstances I am very pleased to withdraw the amendment. I beg leave to do so.

Amendment, by leave, withdrawn.

The Deputy Speaker (Lord Murton of Lindisfarne)

My Lords, if Amendment No. 20 is agreed to, I shall not be able to call Amendment No. 21 because of pre-emption.

Lord Kingsland moved Amendment No. 20: Page 10, line 14, leave out from ("undertakings") to end of line 26 and insert ("in a dominant position which is carried out with the intention of eliminating a competitor or of substantially lessening competition within a relevant market including the United Kingdom shall be prohibited.").

The noble Lord said: My Lords, this amendment is not an area where the Minister and ourselves are in agreement. It relates to the definition of "the prohibition". In our submission it is important to include the intent of the competitor in making a decision as to whether or not a particular prohibition has been breached.

I understand that the Minister does not accept this approach, and that one of the reasons is that the jurisprudence of the European Community does not incorporate "intent" into the definition of the prohibition. However, the Minister will be aware that it is his intention to give the Director General of Fair Trading considerably greater investigatory powers than the European Commission has in examining the activities of a particular company. In those circumstances, does he not think that it would he perfectly within the capacity of the Director General of Fair Trading to determine whether or not there was a particular anti-competitive intent in the minds of those who directed the company that was being investigated? I beg to move.

Lord Desai

My Lords, it was not clear whether the noble Lord was also speaking to Amendment No. 22, or whether he intends to speak to that amendment separately.

Lord Kingsland

My Lords, Amendment No. 22 raises a different point. I should prefer to wait.

Lord Desai

My Lords, Amendment No. 20 is a good stab at defining the problem more clearly than is currently the case under Clause 18. It is the effect that such behaviour is likely to have on competition about which we are worried, not merely the problem of dominant position in general.

When I look at the way in which the amendment is framed, I wonder how intentions can be proved. Perhaps the noble Lord means, "which could have the effect of' eliminating competition, or "which is likely to have the effect of eliminating competition. Some such phrasing might have been better. However, I entirely agree with the motivation behind the amendment, and I support it.

Lord Simon of Highbury

My Lords, I have to agree with the noble Lord, Lord Kingsland: this is an amendment in relation to which there is profound disagreement between us on the underlying principle. The first amendment seeks to replace the prohibition in the Bill which is modeled on Article 86 of the Treaty, with a very different prohibition.

The first thing to note about this new prohibition, as the noble Lord correctly pointed out, is that it is limited to conduct carried out with the intention of committing an abuse. While I can see, as my noble friend Lord Desai pointed out, that this idea is superficially attractive, it has two serious defects. The intention of the Bill is to prohibit conduct that has anti-competitive effects. An abuse may be the effect of conduct on the part of a dominant company without being the intended result. Even more seriously perhaps, this amendment would require the director to demonstrate intent every time before an abuse could be stopped.

I have to say that that seriously risks driving a coach and horses through the prohibition. My noble friend Lord Desai would like to find a way of easily proving intent. All I can say is that it is one thing to show the result of conduct on competitors; it is quite another to establish the intention on the part of an undertaking in pursuing that conduct. The first thing that any would-be abuser would do would be to make sure that there was absolutely nothing incriminating as to its intention. Nothing would be committed to paper. Without written evidence, such as meeting notes, or perhaps incriminating statements in strategic terms, intent is extremely difficult, if not impossible, to demonstrate. The undertaking concerned will claim that there were other reasons for the conduct complained of. The director could then find himself unable to act through the conduct observed. It could have a very serious impact on all competitors. One could be aware of that, but nobody would be able to move because there would be no proof of intent. The prohibition, as we understand it, would be toothless.

But there are several other difficulties with the new prohibition. If the Bill were to be changed as proposed, the governing principles clause could not apply to the new prohibition. The alignment with Article 86 would be lost. So what would be the effect of the new prohibition?

If we ditch the EC treaty model in the way proposed, there will be two effects. First, very many of our businesses would have to deal with two different prohibitions of abuse, one at domestic and one at EC level. We think that that would be more burdensome. Secondly, the application of the new prohibition will be entirely uncertain too. No one will be able to look to EC case law as a guide to the application of the domestic prohibition. That would basically be more confusing for the business community.

I used the expression "a coach and horses". It is extremely difficult to conceive how we could accept the amendment, because even if we do not accept the "coach and horses", what is meant by "substantially" in this context? If the threshold lets off lots of abuses, would that be a good thing? Surely an abuse is an abuse, even if it is only small players who are harmed. It is a serious hurdle under EC principles to show that conduct is an abuse. Once that hurdle is crossed and an abuse of dominance has been demonstrated, our belief is that it should be stopped. I hope that the noble Lord will acknowledge those points and see fit to withdraw the amendment.

Lord Kingsland

My Lords, I have noted the Minister's complete intransigence on the point and in those circumstances I am a realist. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 21 not moved.]

Lord Kingsland moved Amendment No. 22: Page 10, line 26, at end insert— ("( ) Conduct described in this section shall not constitute such an abuse unless—

1. (a) dominance is used to facilitate the abuse; and
2. (b) dominance in one market—
   1. (i) is the cause of the abuse in that market, or
   2. (ii) is the cause of the abuse in another market and, as a result of that abuse, that dominance is strengthened.").

The noble Lord said: My Lords, very telegraphically, this amendment arises out of the consequences of a decision by the European Court of Justice called Tetra Pak II. The decision involved the manufacture of UHT milk cartons. In those circumstances, the company was held to have a dominant position. It also supplied a related market for packaging in non-UHT milk, ordinary pasteurised milk. Although it was held not to have a dominant position in that market, nevertheless the disciplines of the European Community were imposed on it, as if it had a dominant position. That, in my submission, seems a highly unsatisfactory decision and one that in all the circumstances ought not to be followed in the United Kingdom. That is the background of the amendment. I beg to move.

Lord Simon of Highbury

My Lords, it is correct that EC case law shows that in certain circumstances Article 86 may apply where an undertaking is dominant in one market and commits an abuse in a different, neighbouring market. The relevant jurisprudence will be imported into the interpretation of Clause 18 via the governing principles clause.

The noble Lord says that he does not like this particular piece of jurisprudence. I do not think it would be sensible to pick and choose which individual EC cases we wish the director and the courts to look to. The noble Lord referred to Tetra Pak. We are aligning ourselves with the EC system, for all the reasons that we have debated at length before. I am sure we shall continue to debate them. In the case to which the noble Lord referred, the court found that in all the circumstances, an undertaking's dominance in one market enabled it to commit predatory behaviour in another neighbouring market. It is not for me to comment on the wisdom of the court's judgment. But I am clear that there is no justification here for rewriting our prohibition and departing from the Article 86 model as a consequence.

Under those circumstances, I hope that the noble Lord will acknowledge the point and withdraw the amendment.

Lord Kingsland

My Lords, I wish to thank the Minister for his reply, which was all that I expected. I give him notice now that when it comes to Amendment No. 58 I shall hold him to everything he said about conforming with EC law. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 23 not moved.]

Lord McNally moved Amendment No. 24: After Clause 18, insert the following new clause— ABUSE OF DOMINANT POSITION BY NATIONAL NEWSPAPER

1. (".—(1) Any conduct on the part of one or more national newspaper undertakings which amounts to an abuse of a dominant position is prohibited if it may reduce the diversity of the national newspaper press in the United Kingdom by reducing, retarding, injuring or eliminating competition.
2. (2) Conduct may, in particular, constitute such an abuse if it consists in
   1. (a) any of the forms of conduct specified in section 18(2);
   2. (b) other action which may reduce the diversity and independence of the national newspaper press;
   3. (c) imposing selling prices below marginal cost of production on a persistent basis.
3. (3) In this section "dominant position" means holding a substantial degree of market power in the national newspaper market in the United Kingdom.
4. (4) The prohibition imposed by subsection (1) is referred to in this Act as "the press diversity prohibition".").

The noble Lord said: My Lords, a great deal of press comment has been made in recent days about the observations of the noble and learned Lord on the Woolsack, Lord Irvine, about the possible need to restrict the right of press reporting in certain areas. Freedom of the press is important; indeed, it is an essential ingredient of a free society. But if freedom of the press can be imperilled by restrictive laws, it can also be threatened by restrictive ownership.

This amendment has one intention and one only: to promote the framework of fair and transparent competition in our newspaper industry, with the intention of sustaining diversity, quality and choice. It does make a distinction between newspapers and other goods and services because we believe that newspapers are different from tins of beans. They are not only a product, they are, as I have said, an essential ingredient for a functioning democracy.

My amendment is signed by noble Lords from all parts of the House. It is, I understand, going to be resisted by the Government. I find that a curious position for the Government to take. The amendment is in no way a wrecking amendment. It is designed to clarify and strengthen competition in an important sector. Although it is not a full harmonisation with EU law, neither are other parts of the Bill. In addition, other EU countries have non-harmonised laws to protect the diversity of their press. Most curiously of all, the amendment is full square with the position taken by the Labour Party when in Opposition.

Three-and-a-half years ago, on 20th July 1994, in another place, Mr. Robin Cook—then spokesman on competition policy—said at col. 445 of the Official Report: there are two requirements from our media if we are to have a healthy democracy. First, we should have a variety of newspapers and, secondly, those papers should contain a diversity of views".

He also said at col. 444, referring to Mr. Rupert Murdoch: A … proprietor who insists that his editors preach competition is currently practising unfair competition. A proprietor who, through his newspapers, preaches the supreme virtue … of consumer choice is now acting in a way that is calculated to restrict consumer choice in the newspaper industry".

Those words were true three-and-a-half years ago, they are even more valid today.

But let me make it clear that the amendment is not aimed at any single individual or any particular newspaper group. Some of my best friends write for The Times. If, as last Saturday, they publish 15 year-old photographs of me, I shall still continue to read it! The amendment seeks to create competition, which would be followed as much by David Montgomery, Tony O'Reilly or Conrad Black as Rupert Murdoch. Perhaps, as importantly, it will provide the fairness in competition which would make it possible for newcomers to enter the market. One of the great things about the 1980s was that the work—some of it done by Mr. Rupert Murdoch—that removed restrictive practices from the newspaper industry, that brought in new technologies, allowed newcomers to enter the newspaper industry. We saw both the Independent and Today launched during that time. But in recent years, because of predatory pricing, we have seen competition replaced by anarchy, where our national newspapers are invited to compete only to see who bleeds to death first.

I say that this amendment is aimed at no specific company; but it would encourage a thorough investigation of the policy and strategy of News International. What is Mr. Murdoch up to with his price-cutting policy which has cost him tens of millions of pounds over the past four years? Nye Bevan asked us, "Why look in the crystal ball when you can read the book?" We know from the initial competition between British Satellite Broadcasting and Sky that Mr. Murdoch is not afraid to sustain large losses over a long period in order to see who blinks first.

The pricing policy of The Times does not make sense unless it is to clear the field of two major competitors—the Independent and the Telegraph; indeed, the Independent may be the only accidental casualty in the cross-fire between The Times and the main target, the Telegraph. In crude business terms, a broadsheet field cleared of major rivals with the prospect of perhaps a 2-million circulation would be extremely good business for The Times and its owner. But what is good business for Mr. Murdoch is not necessarily good sense for a healthy democracy or for a diverse and vigorous press.

It is difficult to anticipate ministerial replies tonight. There have been several over recent days. We have been told that this is merely a "belt and braces" amendment. If that is so, why do not Ministers indulge us? Surely a belt and braces amendment is better than ministerial trousers around their ankles if they get this wrong. We have been told that it prevents us from harmonising with European law. But as I pointed out, European law allows protection of bi-nationals, and how we protect the diversity of our press is a national responsibility.

I want to make it clear tonight that I intend to press this issue to a Division. I know that taking on a government against a three-line Whip is no easy task, so I make two appeals. The first is to Ministers to think again before they tarnish rather than strengthen the Bill. The second is to the House at large. We are increasingly asking ourselves, "Why are we here?" I submit that there is no greater justification for an advisory and revising second Chamber than to champion the cause of a free and diverse press.

When Robin Cook tried three-and-a-half years ago to act in exactly the way that I am trying to act tonight, the then Director General of Fair Trading, Mr. Carlsberg, rebuffed him with these words, At times there is a fine line between aggressive price competition and predatory pricing".

Quite so. This amendment draws that line more clearly and distinctly than does the general Bill. It gives powers that are special because the diversity of press ownership is special. Accepting this amendment will make it a better Bill and a stronger Bill. If the amendment is carried, instead of losing titles, we will be opening the door to newcomers; instead of consolidation of power, which is already reaching dangerous and unacceptable proportions, we shall be encouraging pluralism and choice. I commend the amendment to the House. I beg to move.

Lord Borrie

My Lords, in rising to support Amendment No. 24—indeed, my name is attached to it—I must declare an interest as a non-executive director of the proprietors of the Independent and the Independent on Sunday newspapers. Because of that interest I seriously considered whether I ought to attach my name to the amendment. I concluded that, particularly because of my involvement over many years with the workings of competition policy as Director General of Fair Trading, it would be perverse were I to refrain from demonstrating clearly on this occasion my commitment to strengthening the provisions of the Bill dealing with conduct amounting to an abuse of a dominant position.

News International, publishers of The Times, has been engaged in a price war in the daily newspaper market since September 1993 when it slashed the price of The Times from 45p to 30p. Since then it has engaged in a persistent policy of predatory pricing—that is, selling below the marginal cost of production—thereby distorting competition and seriously damaging not just the Independent but also the Daily Telegraph and of course creating a climate in which any potential competitor is seriously deterred.

News International holds a substantial degree of market power in the United Kingdom national newspaper market and is able, for long periods, to cross-subsidise its loss-making newspaper sales from its highly profitable operations in satellite television. News International's price cutting tactics have taken a variety of forms in the past four-and-a-half years. It has not been a short-term marketing or promotional exercise but a permanent feature of the market place. Recent manifestations, as your Lordships will know, include selling The Times on Mondays for 10p as from September 1996, raised last month to 20p, and selling Saturday's edition with several sections and a magazine at 20p. Estimates I have seen of the Saturday edition show costs of production of 90p per issue, offset by advertising revenue of about 40p. Until there is some sort of official investigation into the accounts of News International, it is impossible to know the extent of its current loss making, let alone the totality of its losses over the past four to five years.

Only last week, in a letter to the Guardian, the director of corporate affairs at News International—Miss Jane Reed—did not deny the allegation that The Times lost considerable sums of money last year. In a carefully drafted sentence she wrote that, the current pricing policy of The Times is leading to profitability for the first time in living memory".

At the Committee stage of this Bill, my noble friend Lord Haskel, for the Government, responding to concerns expressed by each of the four whose names appear on Amendment No. 24, sought to argue that the broad provisions of Clause 18—it is still Clause 18 in the Bill today—which in effect incorporate Article 18 of the Treaty of Rome into our law and prohibit conduct amounting to an abuse of a dominant position, are themselves sufficient to cover predatory pricing tactics. My noble friend said that, such practices carried out by a dominant undertaking may constitute an abuse under Article 86 of the treaty, depending on the particular circumstances of the case".—[OfficialReport, 13/11/97; col. 313.]

It is my belief that the Minister was right to be cautious as to whether Clause 18 of the Bill, as it stood then and as it stands today, covers the kind of conduct about which we are concerned in the newspaper market. As he admitted, the clause merely provides a framework against which the competition authorities—the Director General of Fair Trading and the competition commission—will assess whether or not any specific conduct is prohibited. In any case, those authorities are independent and autonomous. They cannot be directed by Ministers as to whether any specific conduct is a breach of Clause 18. Moreover, the principles of European Union law, which are in effect brought into our law through the Bill by Clause 58, are not at all clear as to whether Article 86 necessarily applies where dominance exists in one market but there is an abuse in another.

My noble friend Lord Simon of Highbury, on another amendment earlier today, made some points on this matter. It seems clear that News International is dominant in the satellite TV market. But the abuse through cross-subsidy has its anti-competitive effect in another market—the newspaper market. If one examines European Union case law, emphasis has been given—the Minister himself said this in response to a debate on another amendment a short time ago—to whether the two markets have to be "neighbouring" or "related", or the abuse must be in a market that is "ancillary" to the market where dominance exists. There is surely no way in which Ministers can reassure the House that the broad provision in Clause 18, eked out by such European Union case law as there is through Clause 58, will lead to a conclusion by the Director General of Fair Trading that the distortion of competition evident in the newspaper scenario I have described is prohibited.

Indeed, it seems inconsistent for Ministers to assert that Clause 18 covers the ground adequately, while accepting and maintaining, as they have done, that it is for the Director General of Fair Trading, the competition commission and the courts to determine specific cases.

The Government believe that it would be wrong—I am relying on what was said at the Committee stage—for the Bill to have a specific provision dealing with one industry or product. I leave aside the fact that there are many exemptions in the Bill dealing with specific industries and products. There is agriculture; there is civil aviation; and there are other professions. What is being suggested in the amendment is that there should be a special provision dealing with the newspaper market.

I would not suggest that the legislation should try to deal specifically with all the possible abuses that might arise in all possible industries and in all circumstances in the future. Legislation must be for the general. But this amendment does not deal with any product. It does not deal with beer, or buses, or building materials, each of which industries have featured in the concerns of the UK competition authorities over the years. They may be important industries—they are important industries—but competition and diversity and choice in those industries are not as vital to democracy as they are in the media.

In the principal competition legislation, the Fair Trading Act 1973, there are specific provisions over several sections dealing with mergers and takeovers in the newspaper industry. Why are those special provisions there for the newspaper industry? They are there for the simple reason that mergers and further concentrations of ownership in the newspaper industry can seriously reduce the availability of choice and diversity of opinion that a range of newspapers helps to ensure. The continued availability of a range of newspapers and a diversity of news and views is surely at risk not just from mergers but from the persistent tactic of price-cutting by a newspaper group with pockets deep enough to enable it to go on doing that year in and year out from another business to the extent that other newspapers are either eliminated or badly crippled in the service they can provide to their readership.

This amendment is designed to strengthen and clarify the Chapter II prohibition in Clause 18 in the field of newspapers. 1 hope that Ministers will see their way to accepting the value of Parliament making the law more certain rather than leaving the competition authorities and the courts to wrestle with this matter and to wrestle with an uncertain message over the years to come.

Lord Mishcon

My Lords, before my noble friend sits down, I wonder whether for me personally he will kindly clarify one thing. Why does not Clause 18(2)(a) cover the position that he has just been talking about?

6.30 p.m.

Viscount Trenchard

My Lords, I should like to speak briefly in support of the amendment tabled in the names of the noble Lords, Lord McNally and Lord Borne, the noble and learned Lord, Lord Ackner, and my noble friend Lord Astor, who is unable to be in his place today. My noble friend has asked me to apologise to your Lordships for his unavoidable absence and to speak on his behalf in support of this amendment, which I believe has widespread support on all sides of the House.

I should have thought that what has been going on in the newspaper industry is precisely the kind of abuse of a dominant position which the Bill is intended to prohibit. On Saturdays and Mondays the Independent and the Daily Telegraph suffer a damaging circulation fall as a result of the predatory pricing policy which The Times has maintained consistently for some four years. As noble Lords may have seen if they watched BBC Television's "On the Record" yesterday, Mr. Alistair Darling, now Chief Secretary to the Treasury, tabled in another place on 5th July 1994 an Early Day Motion that, reaffirms the belief that the newspaper industry is not only an important business but also a vital organ of the democratic process, and further believes that predatory pricing with the intention of forcing rivals out of the market will reduce choice and undermine competition".

It was signed by 81 MPs, of whom I believe 79 are Labour Party members, including Mr. Nigel Griffiths, the Minister responsible for competition. In fact I believe that 21 of the signatories to the Motion are members of the Government. The noble Lord, Lord McNally, has already reminded us of the words of Mr. Robin Cook at the same time. Speaking in support of the intention of the Motion, he said in another place on 20th July 1994 that he unequivocally did not want to see an increase in the market share of News International.

The Government are not doing in office what they proposed in opposition. In the absence of anti-competitive agreements or abuses such as those which this Bill is intended to prohibit, I would tend to side with those who would protect the rights of undertakings to charge what they will for their products and services. However, this Bill is intended to tidy up competition law and, inter alia, prevent the abuse of a dominant position, whether or not it is financed by cross-subsidy.

As I believe the noble Lord, Lord Simon, has acknowledged, the Government themselves are not clear that the Bill will actually catch the kind of consistent and sustained predatory pricing that has been and is being perpetrated in the newspaper industry. In a democracy, competition, plurality and diversity in the press are of the utmost importance, as your Lordships are well aware. That was recognised in the Fair Trading Act 1973, which provided a specific regime for the press, and for very good reasons. That legislation is not being repealed, and for the sake of consistency and clarity the Competition Bill should therefore also provide a specific regime for newspapers.

Today's Guardian editorial states: Today's amendments are intended to import elements of the US Sherman anti-trust legislation to outlaw predatory pricing and to put the onus of monitoring newspapers back with the Office of Fair Trading".

The Government are opposing this amendment even though it simply reflects what the Labour Party itself was saying before the election. I understand that a spokesman for the Department of Trade and Industry has said that the amendment would create more difficulties in the market place. I should like to ask the noble Lord the Minister to explain why he thinks that is so.

Your Lordships' House has an opportunity this afternoon to protect and preserve the richness and diversity of our national press for which we are admired throughout the world. I hope that noble Lords, without regard to narrow and temporary party advantage, will support this amendment and thereby assist the Government in their declared aim of strengthening and clarifying competition law.

Lord Harris of High Cross

My Lords, I cheerfully declare my interest as an independent national director of Times Newspapers Limited. We own The Times, the Sunday Times and three excellent specialist supplements. At the outset of my remarks I hope to spread a little light on what may increasingly become a rather shady debate. Of course, I yield to no one in my concern for a free, diverse national, regional and local press. Unlike some noble Lords who have already spoken, I rejoice that Britain can boast of an unrivalled, lively, vigorous and varied choice of daily, weekly, and monthly newspapers and journals.

The situation in this country could not be further from the fevered imaginings of a press monopoly and the survival of democracy that obsesses the supporters of this amendment. As a regular reader of The Times and the Daily Telegraph, like millions of other readers, I am grateful to be getting better value for my money now than before the competition that so agitates the noble Lord, Lord McNally, and others.

The amendment is no doubt great fun if you like that kind of thing. It provides a field day for Liberal Democrats and sundry other malcontents, to let off steam against Rupert Murdoch whom I persist in regarding as the saviour of what we used to call Fleet Street. If we leave aside personal and political opportunism, I believe that support for this amendment, even when it is most earnestly well intended, as by my noble and learned friend Lord Ackner, is nevertheless fundamentally misguided. In brief, criticism of The Times strategy is founded on a myopic view of markets that is at once too narrow and too short-term.

All this impassioned rhetoric and moral indignation starts from a factual error. It proceeds via a couple of logical inconsistencies and takes in a number of economic fallacies, before arriving at a primitive commercial misconception. I shall return to this charge in a moment, but first, I fear, a very brief history lesson.

I became a non-executive director of Times Newspapers in 1988. I was able to witness the steady decline in The Times circulation to about 350,000, which was even below the Guardian. It was falling further behind the Daily Telegraph, which, with 1 million circulation, had been the market leader in broadsheets since the 1930s. Pray note: that dominance was achieved through the time-honoured fashion of well-judged price cutting!

In the 1980s and, indeed, for most of its recent chequered history, The Times made losses—that is to say, it was sold below cost. But no one complained so long as its circulation was falling. Indeed, the paper nearly went bust several times. It was rescued first by Northcliffe in 1908, then by the Astors in 1922 and by Roy Thompson in 1966. By 1980 huge losses brought the paper to the very brink of closing. Of the potential buyers, Rupert Murdoch was chosen as the best guarantor of its survival as an independent paper.

In 1993 The Times reached its lowest ebb. The entrepreneurial decision was in effect to relaunch an improved paper. Judging that the cover price of broadsheets had risen far too high and far faster than inflation, a long-term strategy was launched, led with price cutting, which this sour amendment now calls into question.

What really angers the critics is that this bold, competitive strategy has been so spectacularly successful. Now, four or five years later, The Times' circulation has doubled from 350,000 to around 700,000, thereby enabling advertising revenue, which is a major source of income, to more than double. The result is that The Times has moved from chronic losses to break-even. Price cutting was reinforced by a massive increase in editorial spending and increased quality and quantity of The Times followed, under competitive pressure, by the Daily Telegraph. Not least, the lower prices of both papers due to direct price cutting by The Times and special offers by the Daily Telegraph, have increased the total market for broadsheets by no less than 14 per cent.

So, in conclusion, perhaps I may summarise the reasons for rejecting the myopic arguments advanced by supporters of a mischievous amendment artfully dragged into a reform of the general law on competition. It starts with a factual error that there is cross-subsidisation from other businesses to finance price cutting. That is plainly untrue since in 1993 The Times was already financing large and increasing losses, which have now been stemmed and indeed eliminated, to produce a highly profitable business. I can give an assurance that not one penny piece of this tainted Sky TV money has been necessary to help finance that particular strategy.

We come to the first logical inconsistency: the claim that The Times abused a dominant position. In 1993 The Times was in terminal decline. It was the challenger rather than the top dog. In the economic text books predatory pricing means cutting the price to destroy competition and then recouping the losses by exploiting the monopoly position in today's broadsheet papers. There is nothing in the Sherman Act, frequently bandied around, or in any other anti-trust law, that would condemn the pricing strategies of The Times.

Another inconsistency is the claim that selling below cost was unfair and even sinister. The truth was that for all those early years of huge losses The Times was in effect selling below cost. How can what was acceptable for decades from a declining enterprise, selling below cost, suddenly become unacceptable from a reviving enterprise?

There is the further inconsistency that competition, it is said, may be legitimate against a stronger rival, but not if a smaller player might be hurt. This amendment is equivalent to writing in a clause that says, "Competition is fine, but don't be beastly to the Independent".

I approach the conclusion of my remarks and refer to what I believe are economic fallacies. One position taken by critics of The Times is that competition is a fine and necessary thing, but not if it drives prices down too far. Alternatively, there is the opposite thought: price is the only determinant and dimension of competition and therefore has some special taboo. The truth is that improvements in the quantity and quality of The Times have contributed powerfully to its outstanding success in the market place.

Another economic fallacy is that lower prices succeed only by taking—snatching—business from other customers. That is obviously not true in this case because the effect of competition has been that the total market for broadsheets has increased by some 14 per cent. Only the Independent has gone down.

Finally, I come to the commercial misconception that the calculation of profit or loss in a large business can sensibly be made over a year or two in a business with chequered fortunes in this case going back over 200 years. It is now in profit for the first time in living memory.

The reality before us in this amendment is of a massive, orchestrated campaign of special pleading for the Independent in which BBC TV on Sunday intervened in a quite disgracefully partisan way. Yet at its peak the Independent had a circulation of approaching 400,000. I remind your Lordships that in 1993 the circulation of The Times was down to 350,000. The Independent is owned by two powerful groups. Why cannot they learn from the success of The Times? If they cannot do so, another buyer is in the wings, ready to try his luck in the competitive market place with the Independent. The defenders of the Independent have no business coming to this House and trying to rig the market to protect their special interest.

Lord Murray of Epping Forest

My Lords, when moving the amendment, the noble Lord, Lord McNally, referred to Mr. Murdoch's impact on Fleet Street. The noble Lord, Lord Harris, seemed to ask us to award Mr. Murdoch some brownie points for what he did in that context. Let us give Mr. Murdoch what credit he deserves in that regard. There is no doubt that some of the practices in Fleet Street were indefensible—and we said so at the time. Many of them were defended by appeals to freedom and to the right of trade unions concerned to do almost whatever they wanted. I acknowledge that it was right to set some bounds on their freedom to act.

However, it is a pity that Mr. Murdoch was necessary to sort out the consequences of a long history of poor and weak management in Fleet Street. I once told Mr. Murdoch that Fleet Street employers had got the unions that they deserved. His reply to me was—I winced when he said it—"Yes, Mr. Murray, and now the unions have got the employer that they deserve". It was right that some limits should be set on the power of the employees to take the action that they did and to use—and, indeed abuse—their power.

However, it is true that in the reaction to what may well have been the excessive regulation of some industries, as was the custom in Fleet Street, competition has now become elevated to the level of a moral imperative. It is seen as a cure-all for all sorts of conditions and ills.

However, the threat to our press—there is a threat—illustrates that competition is not in itself an automatic and inevitable guarantee of social well-being. In some cases, boundaries and limits to competition have to be set and enforced. It is right that each case should be judged on its merits, but I believe that competition law should state clearly—not merely imply or hint—that in the case of the press, those limits need to be set and enforced in the interests of us all.

Lord Desai

My Lords, the noble Lord, Lord Harris, said something about malcontents. Having been a signed-up malcontent more or less since I was born, I have to speak in support of this amendment.

I should like to deal first with the case outlined by the noble Lord. When moving the amendment, the noble Lord, Lord McNally, said that the amendment applies as much to Mr. Murdoch as to Mr. Montgomery, Mr. Black or any other newspaper proprietor. The amendment would apply to the newspaper industry and to whoever in it engages in predatory pricing. There are difficulties with the economics—the noble Lord, Lord Harris, illustrated some—and in discerning exactly when predatory pricing is operating. If, as has been said, Mr. Murdoch has not engaged in predatory pricing and can prove so to the Director General of Fair Trading, that would be fine under the amendment. This is a belt-and-braces amendment which could only prove his case. Therefore, the noble Lord, Lord Harris, should support the amendment because if it were passed and Mr. Murdoch's case were proved, he would be doubly virtuous. He would then be unassailable—but perhaps that is not an appropriate word to use in the British political context. I do not know what the noble Lord is complaining about.

There is a difference between selling at below cost when one's business is going down because one cannot help doing so, and selling at below cost when one has the ability to sell at above cost because one has a market, but one is pricing in that way not only to secure one's own market, but to eliminate someone else. I know that the distinction is a difficult one to make and that lawyers will have a bonanza with all this. Economists never get any money from such things; only lawyers do that.

There are precedents in American law, such as the Reder Turner clause which sets out the conditions under which predatory pricing can be identified. There are two components. The first is the relationship between price and marginal cost. The other relates to a point which the noble and learned Lord, Lord Fraser, identified when moving Amendment No. 20 which he then withdrew with the leave of the House. In that connection, my noble friend did not like the word "intention". I tried to explain that if we removed the word "intention", but stated instead, "would be likely in the opinion of the director general to have the effect of eliminating a competitor" rather than "intending to eliminate a competitor", we would remove the problem. That would have implied that if a firm was making persistent losses when it was in a position to avoid doing so—that is an important caveat—predatory pricing would have occurred.

For a long time, British competition law has been very lax about this. We have believed in laissez-faire which has meant that we have allowed monopolies to remain monopolies. We have not been active in that area. However, both American and Australian law have actively enforced competition. There can be no more competitive society than the United States of America, as I am sure the noble Lord, Lord Harris, will agree. If the United States has such laws to forbid predatory pricing, what harm could there possibly be in our adopting such rules?

Once again, I urge noble Lords to remember what the noble Lord, Lord McNally, said: this is a belt-and-braces amendment. If we include it in the Bill, we strengthen Clause 18 which is not clear at present. The inclusion of the amendment would settle this issue by putting the matter in the hands of the Director General of Fair Trading who is an independent authority. There would then be careful examination of the records and issues such as power in related industries would also have to be considered. I was glad that my noble friend rejected Amendment No. 22, which was moved by the noble Lord, Lord Kingsland, because I believe that dominance in related markets is very germane to the issue. That is why, unlike the noble Lord, Lord Harris, I urge noble Lords to accept that this is a harmless amendment. We would do no harm by passing it. The cause of truth would be supported by it—and not only one, but every, newspaper owner who could possibly think of reducing diversity would be punished. What better amendment could there be?

The Earl of Stockton

My Lords, I should declare a mild interest in that between 1964 and 1974 I was an employee of the Daily Telegraph. We have been here before, have we not? Those of your Lordships who participated in our debates on the Broadcasting Act will find many of the arguments, personalities and defences entirely familiar. Some of the personalities have changed a little. Instead of the noble Viscount, Lord Whitelaw, now the noble Lord, Lord Harris, goes in to bat for News International. But he also makes the claim that the success of The Times is due in part to its enormous quality. I do not believe that that is a pattern that is familiar to most noble Lords. It seems to have had a most unhappy history. I believe that the phrase is "dumbing down". We saw that happen in the case of the Daily Mirror in the face of competition from the Sun. Under Cecil King the Daily Mirror was one of the great educational and inspirational journals of this country. That was dumbed down by competition from News International. We have seen it happen in the case of both the BBC and some of the independent television companies. They have been dumbed down by competition from Sky. I believe that we should reject the argument of the noble Lord, Lord Harris, on that ground alone. But whether it be television, books or newspapers, surely one of the duties of this House is to resist any reduction in choice, be it in the name of Murdoch, Maxwell or, dare I say, even Macmillan.

7 p.m.

Lord Judd

My Lords, I believe that history will record that the noble Lord, Lord McNally, and the co-sponsors of this amendment have tonight done a profound service for our democracy. I support that thesis for two reasons. First, I hope that noble Lords on the Government Front Bench will understand the anguish on these Benches about the issues at stake in this amendment. Many noble Lords believed that we were emerging in human affairs from a period of political history dominated by ideology into a more creative period when rationality, reason and values would prevail. Those of us who aspired to that hope realised that the essence of good governance, as it had always been, was to try to bring together the disciplines, excitement and enterprise of the private sector with the overriding responsibility of democratic government to intervene for the common good.

The second reason why some noble Lords have been anguished by the issues raised in the amendment is that, coupled with the argument put so well by the noble Lord, Lord McNally, democracy cannot be better than the quality of the information on which it functions. It cannot be better than the diversity and vigorous debate in the media about the issues that face the nation. I do not believe that I speak only for myself when I say that when the Government, whom I greatly applaud, put their hand to the tiller in the cause of the reinvigoration of our democracy they must break free of the technocratic approach which is that the reinvigoration of democracy can be achieved by structural changes alone. The reinvigoration of democracy will be achieved by the quality of analysis, advocacy and debate. I am saddened that there should be any degree of uncertainty at this stage of our deliberations about the commitment of the Government whose approach to a democratic system geared in the fullest sense to the challenges of the 21st century I wholeheartedly support. They should make clear beyond doubt that one of their highest callings and greatest responsibilities is to ensure that whatever else happens in our affairs, the quality, diversity and richness of our media are admired and envied by the world as a whole.

Lord Rees-Mogg

My Lords, it is a pleasure to have the opportunity to support the Government this evening. I always like to support the Government whenever I can. I find that surprisingly I am often able to do so in this House. I join in the expressions of interest on various sides. I write for The Times. I have not consulted The Times on this matter, and I have had no business connection with The Times since 1981. Nevertheless, the connection is there. I also have a connection, which matters a good deal to me, with the Independent. I was one of the founder writers at the Independent and worked there for six years. I was very proud of doing so. I believe that the Independent was an admirable addition to the broadsheet press of Britain. I very much hope that it will survive.

However, as the survival of the Independent is regarded as an intrinsic part of this amendment, two questions must be asked. First, are we talking about the survival of the Independent or the survival of the Independent in its present ownership? One can fairly say, although I am sure that some would deny it, that the other four managers of broadsheet newspapers in London regard the management of the Independent, taking into account the twin proprietors, as the least effective of the body of five. I do not believe that in the event that the present ownership, which is basically the Mirror and Irish Independent, decided that it had had enough, that would lead to a closure of the Independent; nor should it. I believe that it would probably fall into other more supportive and effective hands.

Recently, we have suffered the loss of a brilliant editor of the Independent in Andrew Marr. He is a first-class journalist and a man of the highest quality. He was lost because he was not supported. He has been replaced by a seven-day-a-week editor—all experience is that seven-day-a-week editing seldom works—who in my view is a less interesting journalist, although I make no general criticism of her editing of the Independent on Sunday. We are saying that we must have an amendment to stop the Independent being sold. The best thing that could possibly happen to the Independent from the point of view of its competitiveness is that it should be sold.

I should like to analyse what the amendment would achieve. We are making laws. It is perfectly all right for people to have a jig around the question of whom they like and do not like in the British press. But we are making law and trying to get it right. When one considers the terms of the amendment one finds it extremely difficult to believe that subsection (2)(c) is superior to Clause 18(2)(a) of the Bill as it stands. The proposed subsection (2)(c) provides: Conduct may, in particular, constitute such an abuse if it consists in … imposing selling prices below marginal cost of production on a persistent basis".

I spent 20 years trying to deal with the problem of newspaper pricing. During those 20 years when the Thomson family owned The Times and I was on the board of either the Sunday Times or Times Newspapers as far as I can remember we never thought that revenue from sales could be separated from the likely consequences to revenue from advertising. We never asked ourselves, "What is the marginal cost?", and we must get a bit more than that. Neither on the Sunday Times nor on The Times did we usually manage to achieve that. I have not gone back and looked up all the figures, but I can remember a time in the early 1970s when it would have been so difficult to achieve a profit on one's marginal cost that the cost of the newsprint itself was approximately equal to the cover price that we were obtaining.

This is not a viable rule, and it never will be a viable rule, for a number of reasons. It is not viable because of the fluctuations in newsprint cost. Newsprint is an extremely volatile commodity, which sometimes comes up virtually to the value of the whole newspaper itself as sold. It is not viable for another reason: it would stop one enlarging one's paper; it would also stop one increasing one's advertising take. That is a real difficulty. A big paper has a higher run-on cost than a small paper.

A paper which has advertising and publishes extra material editorially has a higher run-on cost than a paper which does not publish much editorially and does not have any advertising. We should be saying that if you ran a successful paper with a lot of advertising that meant you had to push the price up. That makes no sense at all. One can see the extreme example which arises with the free sheets. Those are excluded from the amendment, because it refers only to national newspapers. The principle of the free sheet is that you give away the newspaper and make the whole of your revenue from the advertising. The principle of the free sheet is entirely reasonable. You create greater quality in a newspaper by expanding its services and its advertising. The effect of the amendment would be to cut across the whole of that process in an arbitrary way.

There is a final point that I should like to make. It is the market leader which does not want to have price competition. The market leaders are the Sunday Times—a paper which is controlled by Mr. Murdoch—and the Daily Telegraph—a paper which is controlled by Mr. Conrad Black. Those papers have an immense advantage from having the largest circulation. They dominate their market. They are the papers in relation to which newcomers to the market, or people trying to bring a paper from low in the market to high in the market, have to have a pricing option in order to compete. We should therefore be excluding newcomers to the market, which is the one thing we have been told would be benefited by the amendment.

7.15 p.m.

Lord Ackner

My Lords, during the 21 years that I served as one of Her Majesty's judges, the courts' supervisory jurisdiction—judicial review—has become greatly developed. That jurisdiction is invoked whenever there is an abuse of power. When I listened to the debate in Committee, I intervened becausewhat I had heard described seemed to me to indicate a grotesque abuse of power—grotesque because it seemed to strike at the very fundamentals of democracy.

In a democracy one expects to find a vigorous diversity and choice of news and opinion. That abuse of power was striking at the freedom of the press and the freedom of speech by ensuring, if successful, that the diversity would cease, and what the public would have would be the disadvantages of the exercise of a monopolistic power which deprived the everyday reader of the choice to which he was entitled.

Those freedoms to which I have referred are of course not the prime interest of Mr. Murdoch. His interest is not in freedom, but in personal power—power that gives control over the news and opinions which the public read, by the simple process of killing off, by unfair competition, those who wish to offer a choice.

There have been references to the attitude of the Government when in opposition. Quite clearly, a government, when they come to power, are entitled to a volte face when they so desire, but that tends to have an effect on the integrity of the decisions when in government if they do so. It is generally accepted that the abuse alleged, if correct, should not occur, either now or in the future. In those circumstances, why on earth should there be any objection to the amendment?

It has already been pointed out that what is relied upon by the Government as making the amendment unnecessary is open to argument. Why should there be a potential argument on a matter so obviously requiring a remedy as this? The only resistance is, "This is unnecessary". I am bound to say that I am not persuaded that that is the case. I, and the greater part of the public, will say, "It is not a question of it being unnecessary; it is merely the result of a government in power, intent on remaining in power, and intent on doing nothing which may prejudice that prospect", and accordingly ceasing to have the courage to do that to which they aspired when in opposition.

Lord Peston

My Lords, I have no animus against News International. I take The Times, albeit I take it for the crossword and the obituaries, but at least that is better than nothing. If I were not speaking in your Lordships' House, I should be sitting in front of my television set watching Crystal Palace play Wimbledon on Sky Sports 2. So I have no problems with News International.

I support the amendment, much more as a matter of principle than because of any ad hominem argument that might be put forward. I do not see myself as part of any conspiracy to save the Independent. Indeed, until the remark was made I had no idea that that was what the debate was about. I thought that we were debating the Competition Bill, and especially misuse of dominant position and related matters, which is what I am going to talk about.

What the noble Lord, Lord Harris of High Cross, said, seemed to bear no resemblance to serious economics—a subject which I have studied and taught for many years. However, this is a matter of serious economics and deserves analysis.

I am a passionate believer in competition. I believe that in practice competition is the best, almost the only, way of protecting consumers. Therefore, I do not wish to see the limitation of competition. If I had had the opportunity to participate more in the Bill I would have criticised it more strongly for not doing enough for competition. Therefore, in suggesting a special arrangement I speak as one totally committed to the competitive process as the best way of protecting consumers.

We are talking about predatory pricing and the abuse of dominant position. Therefore, we are not talking about competition as known and advocated by Adam Smith or anyone else in the following 200 years. The type of predatory behaviour we are discussing does not succeed by meeting consumer demand. As a matter of technical economics, that is not its objective. It depends on who survives. In technical terms it is known as a game of survival. A well-established theorem in economics is that the winner of a game of survival is the person with the deepest pockets. It is not the person who best satisfies the consumer; it is the person with the largest war chest. That is why such predatory pricing is perhaps legal when it could be made illegal. It is not anti-competitive behaviour; it is anti-competitive pricing.

I echo a remark made by my noble friend Lord Borne. The issue is not simply about competition between existing participants in the market; potential competition is equally damaged by predatory pricing. Anyone thinking of entering the serious newspaper business would immediately reflect on what they have observed during the past few years; namely, the ruthless predatory pricing coming from one specific source.

Anyone looking at the situation can see what is happening. The only two people who seem unable to see what is happening are the director general and the Minister. The rest of us can look and see what is happening in the industry; that is, predatory pricing to drive out competitors. That is what is happening and one would like to see it stopped.

My next point was made by my noble friend Lord Borne and by my noble and learned friend Lord Ackner. There are two possibilities. The first is that we do not need predatory pricing and without peradventure the newspaper industry is covered by Clause 18. Secondly, given that we can all see predatory pricing, we can assume that the moment the Bill becomes law the director general, knowing that he has the powers, will immediately intervene and deal with the matter.

The real point before us, made by my noble friend Lord Borne and by the noble and learned Lord, Lord Ackner, is that there is, to put it mildly, doubt as to whether the powers exist and can be employed. My noble friend Lord Haskel, when replying to the issue on the previous occasion, left us, to put it mildly, uneasy. He did not say categorically that without a shadow of doubt the powers exist and can and will be used. He used more moderate, careful language, such as "may", "maybe", "perhaps" and so forth.

The noble Lord, Lord McNally, says that he is determined to divide your Lordships' House on the matter. I hope that that decision is premature because I believe that there are other possibilities. I am not in the confidence of the Government and therefore I do not know that the amendment will be rejected. I do not know that my noble friend the Minister will say that he does not like the wording and will come back on Third Reading with wording which will meet our demands. Therefore, I believe that my noble friend the Minister would be foolhardy to reject what he has heard from all sides of the House in favour of the amendment.

I, too, am worried about the phrase "marginal cost" in subsection (2)(c), but that is technical. We might be able to produce a better amendment. However, I shall regard the Government as foolhardy if they reject the amendment and make us divide your Lordships' House. I plead from my position on this side of the House. If my noble friend says that he cannot accept the amendment for one reason or another but that there is still time left to come back with another amendment and, more to the point, that he will meet with noble Lords proposing the amendment and come up with something which does the job, I shall be satisfied. I would be unable to support a simple rejection from my noble friend saying that he wants nothing to do with the amendment and that he is perfectly happy. If he is perfectly happy, I can say only that I am not.

Lord Marlesford

My Lords, I rise to speak against the amendment. I declare an interest as an independent national director of Times Newspapers Limited. I was fascinated by the comment of the noble Lord, Lord McNally, that newspapers are different from tins of baked beans: rather like, "New Labour is different from old Labour". Perhaps tonight when we have the vote I shall have a vicarious interest in seeing the relative strength of Blair's babes and old Labour.

The noble Lord, Lord McNally, also expressed the view that Mr. Murdoch is waiting—there has been no doubt in the debate as to who the enemy is—to destroy the competition. He mentioned the Telegraph. Perhaps I may remind your Lordships of two figures. When the price war began—it is a price war—the circulation of The Times was some 350,000 and the circulation of the Telegraph was just over 1 million. The circulation of The Times is now pushing 800,000 and the circulation of the Telegraph is still over 1 million. I sympathise with the Independent, for which there has been a great deal of pleading. The Independent is a fashion. It was an agreeable fashion, like the Spice Girls, but fashions come and go and sometimes they just wither away.

I was interested to hear the noble Lord, Lord Borne, who was once a keeper of the conscience of competition, tell us that he was worried about being perverse. I believe that his worry was almost justified. He was not correct—and I am surprised that he should make such a mistake—in saying that the losses of The Times were being subsidised by the television company. They are not. At all times, the price-cutting strategy has been financed from within News International Limited, which is a profitable company.

I particularly enjoyed hearing the noble Lord, Lord Murray of Epping Forest, because I am always reminded that at one time he was one of the most powerful people in the country. He referred nostalgically to the battle of Wapping. I was not sure whether he regretted the outcome of the battle of Wapping. However, I thought it strange that he then told the unions that they were the victims of weak management. Who was the victor of the battle of Wapping and what kind of management was that? Was it weak management?

We are talking about the need for more competition. We are talking about a cash flow which in newspapers comes from both circulation and advertising. I believe that what has been done for The Times has been to the benefit not only of The Times and Mr. Murdoch but the country as a whole. It is interesting to know that the circulation of broadsheets in this country during the period we are discussing increased by 14 per cent. We probably have a larger choice of national newspapers than any other country. I hope that in the vote which we are told is to follow no one will decide to vote for the amendment merely because he or she believes that they do not like Mr. Murdoch, especially if they have never met him.

7.30 p.m.

Lord Barnett

My Lords, before the noble Lord sits down, as a director of The Times—and I assume that there are no more left—will he give the House an assurance that it never occurred to the board of The Times that what was being done would put out of business other newspapers?

Lord Marlesford

My Lords, I was never present on an occasion when that was discussed and I have been a director of The Times from the time that the new price-cutting strategy was brought into force. What was intended was to increase the circulation and thus the advertising revenue of The Times and enable it to survive.

Lord Fraser of Carmyllie

My Lords, I rise very briefly because it seems to me that the mood of the House—given the fact that the noble Lord, Lord McNally, has indicated that he will wish to test the opinion of the House—is that I should rise now, if nothing else, to enable the Minister to follow me.

For those who have not participated in our discussions on the Competition Bill, I should explain the position from this Front Bench. Throughout we have sought to achieve a set of competition rules which can be applied generally across all sectors. We have not sought to advocate particular rules for particular sectors or utilities. To be credible, I hope that we can remain consistent.

Unlike others, I thought that the noble Lord, Lord Haskel, was sufficiently clear when he said: This Bill introduces stronger legislation on abuse of dominance … and also covers predatory pricing".—[Official Report, 13/11/97; col. 313.]

I believe that we should all agree that predatory pricing should be eliminated from our economic life. I say to the Minister that it would seem to be clearly incumbent on him now to satisfy your Lordships that predatory pricing is indeed covered by the provisions of the Bill. There is undoubtedly a very real anxiety that predatory pricing should be eliminated. That is a matter that he must now take on and about which he must satisfy the House.

Lord Simon of Highbury

My Lords, I rise to my feet both cautiously and with some humility, given the fact that the noble Lord, Lord McNally, has his eyes on my trousers. I do not wish to start my remarks with any feeling of levity at all. As an individual I am all for diversity and choice and I wish to state clearly that I share many of the feelings expressed during the debate. I add my regard to that expressed by my noble friend Lord Haskel in Committee for those, led by the noble Lord, Lord McNally, who have brought this debate to the level that it has reached this evening. I recognise that.

I respond immediately to the invitation offered to me by the noble and learned Lord, Lord Fraser of Carmyllie, as to whether the Bill covers predatory pricing. Clause 18(2)(a) refers to, directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions".

That constitutes one of the key elements in judging an abuse. Therefore, we should have no doubts in our minds that that is clearly covered.

When we discussed similar amendments in Committee my noble friend Lord Haskel made the position absolutely clear and that has been repeated by the noble and learned Lord, Lord Fraser. But he explained something else too which I should wish to repeat now. It would be wrong for the Government to take a view on whether or not the particular actions of an individual company, which have been the subject of complaint, are anti-competitive.

Newspapers have a very crucial role to play within our society. The discussion has been very interesting and has touched on extremely important matters. But our position remains the same as it was when my noble friend Lord Haskel spoke in Committee. I hope that the House will understand why I say that.

At the risk of being simplistic, as the noble and learned Lord, Lord Ackner, pointed out, when in government one has always to be very careful in what one says about specific competition complaints. Notwithstanding, as I said, the outstanding quality of many of the contributions that we have had this evening, many have centred on a specific competition case.

More to the point, the purpose of the Bill is to establish, as the noble and learned Lord, Lord Fraser of Carmyllie, said, a clear legal framework under which the Director General of Fair Trading, the competition commission and the courts can assess individual cases. It is important that Ministers avoid trespassing on their territory. Therefore, the question of whether a specific practice in the newspaper industry or elsewhere is or is not anti-competitive is not a matter about which I can properly express an opinion. If the noble Lord, Lord McNally, feels that his arguments in relation to a particular case are strong, he may take them to the Director General of Fair Trading.

Nevertheless, the amendment and the debate this evening raise issues of principle which I really do wish to address. The two prohibitions introduced by the Bill are general prohibitions intended to apply across the general economy. The basis of that approach is that the economic and competition principles they embody are common across the economy. We believe it is wrong in principle to have different prohibitions in different sectors. If we take predatory pricing as an example, the question of whether pricing is predatory turns on whether, for example, it has the effect of restricting or eliminating competition in the market. That is as true for the newspaper market as any other market.

Of course, subsection (2)(b) of the proposed new clause specifies that abuses can include other action which may reduce the diversity and independence of the national newspaper press. However, it is not at all clear what is meant by that. Would it cover an editor's decision to drop a particular columnist or a proprietor's decision to change his editor? It strikes me as being very difficult to extend the concept of abuse beyond the established economic principles covered by Clause 18 and Article 86. Prohibition is a very serious matter. There needs to be a clear framework in which business can operate. That seems to me to be absent from the prohibition proposed in the amendment.

For the same reason, we believe that it is wrong to adopt different definitions of dominance for different markets. Why should the test be different for newspapers alone? The economic principles underlying that market are the same as for other markets. Moreover, it is by no means clear how the test proposed in the amendment would be interpreted. How would the Office of Fair Trading and the courts interpret "substantial market power"? Once we move away from the principle of dominance, which is established in EC law, the application of the prohibition becomes more uncertain and that can lead only to confusion, unpredictability and unfairness.

I was asked by the noble Viscount, Lord Trenchard, to specify other ways in which the definitions within the proposed new clause prove difficult. I understand the desire to set out precise definitions of abuse in primary legislation. However, there are obvious difficulties in doing so and this amendment illustrates some of them.

I listened with interest to the immense amount of good advice from noble Lords who are economists. Many of them illustrated the difficulty in choosing a pricing basis. In purely theoretical terms, there may be a case for choosing the marginal cost of production as a bench-mark for predatory pricing. As has been said, in practice that is not always a workable measure.

Perhaps it would be a better bench-mark if we took average variable cost. I understand that many of the bases of European judgments take that to be a good indicator. It is not a perfect formula. We know that in some circumstances pricing above average variable costs may be predatory; in other cases it may not be. The problem with the belt and braces approach in the amendment, to which noble Lords have spoken, is that that has to fit all sizes to be useful. Here we would have a problem of how to size the belt and the braces. In short, much will depend on the specific economic circumstances of the case in question. The whole basis of the Bill is that it is effects-based, and gets away from the form-based nature of much of our existing legislation.

In conclusion, I should like to comment briefly on the Government's commitment under the Bill; indeed, my noble friend Lord Peston put it very clearly and I totally agree with him. The Government's commitment is to enhance competition. Why? The answer is that that enhances choice and brings the consumer lower prices. Much of the debate tonight has centred on the restriction of choice and whether prices are too low. I have not yet seen the evidence of restriction of choice, although I do understand the arguments about how low prices could go and their particular impact. However, that is something to which I shall return in just a moment.

Your Lordships' House should be in no doubt that the Government take the issue of predatory pricing extremely seriously. That is why I took care to read Clause 18 and to study its particular impact. Predatory pricing is bad for competition and the consumer. This Bill meets the Government's commitment to introduce stronger legislation against abuses of dominance, including predatory pricing. It is also a fact that the director general has confirmed that the required powers are in existence now under the monopoly provisions of the Fair Trading Act 1973, to enable an investigation of the pricing practices of a company which supplies 25 per cent. of a given market if a case for a reference were to be established.

Clearly there is always scope for debate about the precise limits of powers. Looking at the competition regime overall, there is a balance to be struck between, on the one hand, wishing to cover explicitly every conceivable anti-competitive action and. on the other hand, avoiding undue burden and uncertainty for business by following Article 86 closely.

However, having said that, I believe that we would be going off course if we started down the path of prohibiting conduct where there is no dominance or of having a different prohibition for one particular sector. There is no case for using the Bill to target an individual sector of the market, or one particular company; it is a broad framework of competition for all companies in all markets. Despite the seriousness of the debate, I hope that the noble Lord understands the issues that are at play and that he will see fit to withdraw the amendment.

Lord McNally

My Lords, if noble Lords did not know what the Minister was saying so eloquently, he was saying: "Get lost". The clause proposes a particular protection of the newspaper industry. For that very reason, the legislation of which the Minister is so proud could just as easily elicit the same response from the director general as Mr. Robin Cook received three-and-a-half years ago. I remind the House of that response: At times there a fine line between aggressive price competition and predatory pricing".

What I am asking the House to do this evening is to draw that line on predatory pricing.

Perhaps I may finish with one quote for the Benches opposite. It comes from Mr. Peter Kellner's article in the London Evening Standard, in which he said: Competitive markets do not happen by chance. They are social constructions that need to be carefully designed and stoutly defended. A defeat tonight for the Government might prove a blessing in the longer term".

Mr. Kellner is no enemy of Labour, neither am I. Let us all do the Government a favour by passing the amendment tonight. I wish to test the opinion of the House.

7.44 p.m.

On Question, Whether the said amendment (No. 24) shall be agreed to?

Their Lordships divided: Contents, 121: Not-Contents, 93.

Division No. 1
CONTENTS
Ackner, L.	Fookes. B.
Addington, L.	Freyberg, L.
Ampthill, L.	Geddes, L.
Annaly, L.	Geraint, L.
Annan, L.	Gilmour of Craigmillar, L.
Ashley of Stoke, L.	Greenway, L.
Avebury, L.	Grey, E.
Barnett, L.	Halsbury, E.
Beaumont of Whitley, L.	Hamwee, B.
Berkeley, L.	Harris of Greenwich, L.
Biddulph, L.	Hattersley, L.
Birdwood, L.	Hereford, Bp.
Boardman, L.	HolmPatrick, L.
Borrie, L.	Hooson, L.
Bridge of Harwich, L.	Howell, L.
Brookeborough, V.	Hylton-Foster, B.
Brooks of Tremorfa, L.	Jacobs, L.
Calverley, L.	Judd, L.
Carlisle, E.	Kimball, L.
Carnock, L.	Knight of Collingtree, B.
Castle of Blackburn, B.	Lawrence, L.
Chandos, V.	Lester of Herne Hill, L.
Chesham, L.	Linklater of Butterstone, B.
Clancarty, E.	Lovell-Davis, L.
Cox, B.	Lucas of Chilworth, L.
Craigavon, V.	Ludford, B.
Crook, L.	McConnell, L.
Currie of Marylebone, L.	Mackie of Benshie, L.
Dahrendorf, L.	McNair, L.
Darcy de Knayth, B.	McNally, L. [Teller.]
Denham, L.	Maddock, B.
Desai, L.	Mancroft, L.
Elton. L.	Mar and Kellie, E.
Evans of Parkside, L.	Methuen, L.
Exmouth, V.	Molyneauxof Killed, L.
Ezra, L.	Munster, E.
Falkland, V.	Murray of Epping Forest, L.
Fitt, L.	Napier and Ettrick, L.

Newall, L.	Shaughnessy, L.
Newby, L.	Shore of Stepney, L.
Nicholson of Winterboume, B.	Stokton, E. [Teller.]
Northesk, E.	Taverne, L.
Norton, L.	Taylor of Blackburn, L.
O'Cathain, B.	Teviot, L.
Ogmore. L.	Thomas of Gresford, L.
Park of Monmouth, B.	Thomas of Walliswood, B.
Perry of Walton. L.	Thurso, V.
Pesten, L.	Tope, L.
Plant of Highfield, L.	Tordoff, L.
Prys-Davies, L.	Trenchard, V.
Puttnam, L.	Tweeddale, M.
Redesdale, L.	Vivian, L.
Rochester, L.	Wallace of Saltaire, L.
Rodgers of Quarry Bank, L.	Waverley, V.
Russell-Johnston, L.	Wigoder, L.
St. John of Bletso, L.	Williams of Crosby, B.
Sandberg, L.	Winchester, Bp.
Sefton of Crarston. L.	Winchilsea and Nottingham, E.
Selkirk of Douglas, L.	Wise, L.
Sempill, L.	Young of Dartington, L.
NOT-CONTENTS
Acton, L.	Jay of Paddington, B.
Alton of Liverpool, L.	jeger, B.
Amos, B.	Jenkins of Putney, L.
Archer of Sandwell, L.	Kennedy of The Shaws, B.
Bassani of Brighton, L.	Kilbracken, L.
Baca L. Blackstone, B.	Lockwood, B.
Blease, L.	Lofthouse of Pontefract, L.
Brooke of Alverthorpe. L.	Lyell, L.
Burlison, L.	McIntosh of Haringey, L.
Caithness, E.	Mallalieu, B.
Camegy of Lour. B.	Marlesford, L.
Carter, L. [Teller.]	Mason of Barnsley, L.
Cledwyn of Penrhos, L.	Merlyn-Rees, L.
Clinton-Davis. L.	Milner of Leeds, L.
Cocks of Harteliffe, L.	Mishcon, L.
Davies of Coity, L.	Molloy, L.
Davies of Oldham, L.	Monkswell, L.
Diamond. L.	Montague of Oxford, L.
Dixon, L.	Nicol, B.
Donoughue, L.	Orme, L.
Dormand of Easington, L.	Paul, L.
Dubs. L.	Pitkeathley of Shulbrede, L.
Falconer of Thoroton, L.	Ponsonby of Shulbrede. L.
Farrington of Ribbleton, B.	Ramsay of Cartvale, B.
Gallacher. L.	Randall of St. Budeaux, L.
Gilbert, L.	Rees-Mogg, L.
Gladwin of Clee, L.	Rendell of Babergh, B.
Gladwyn. L.	Renwick of Clifton, L.
Gordon of Strathhlane, L.	Richard, L. [Lord Privy Seal.]
Gould of Pottemewton, B.	Sainsbury of Turville, L.
Grenfell, L.	St. John of Fawsley, L.
Hanworth. V.	Sewel, L.
Hardie, L.	Simon, V.
Hardy of Wath, L.	Simon of Highbury, L.
Harris of High Cross, L.	Stoddart of Swindon, L.
Haskel. L.	Stone of Blackheath, L.
Hayman, B.	Strabolgi, L.
Hogg of Cumbemauld, L.	Symons of Vernham Dean, B.
Hoyle, L.	Taylor of Gryfe, L.
Hughes, L.	Thomas of Macclesfield, L.
Hughes of Woodside, L.	Ullswater, V.
Hunt of Kings Heath, L.	Varley, L.
Irvine of Lairg, L. [Lord Chancellor]	Watson of Invergowrie, L.
Islwyn, L.	Wedderburn of Charlton, L.
Janner of Braunstone, L.	Whitty, L. {Teller.]
	Williams of Mostyn,L,
	Wolfson, L.

Resolved in the affirmative, and amendment agreed to accordingly.7.54 p.m.

7.54 p.m.

Lord McIntosh of Haringey

My Lords, I beg to move that further consideration on Report be now adjourned. In doing so I suggest that the Report stage should not be resumed before 9 o'clock.

Moved accordingly, and, on Question, Motion agreed to.