HL Deb 16 July 2002 vol 637 cc1095-101

3.8 p.m.

Lord Sainsbury of Turville

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Sainsbury of Turville.)

On Question, Motion agreed to.

House in Committee accordingly.


Clause 1 [The Office of Fair Trading]:

Lord Kingsland

moved Amendment No. 1:

Page 1, line 8, at end insert— () In discharging its general functions the OFT must, so far as is reasonably practicable, have regard to—

  1. (a) the desirability of maintaining the competitive position of the UK;
  2. (b) the need to minimise the adverse effects on competition that may arise from anything done in the discharge of those functions; and
  3. (c) the objective of minimising the regulatory burdens placed on UK business and commerce.
() The OFT must make and maintain effective arrangements for consulting practitioners, consumers and organisations and individuals in UK business and commerce. () In managing its affairs, the OFT must have regard to such generally accepted principles of good corporate governments as it is reasonable to regard as applicable to it The noble Lord said: Amendment No. 1 is one of a series of probing amendments designed to tease out the Government's views on what might generally be described as corporate management. Noble Lords will be aware that the Director-General of Fair Trading and his organisation are bodies established separate from government. That means that the Secretary of State for Trade and Industry is not directly accountable to your Lordships' House for the conduct of the Director-General of Fair Trading.

Since that is the case, it is extremely important that a constitutional system is established in the Bill which will ensure that the director-general and his board are fully accountable to Parliament. Amendment No. 1 is one of the amendments designed to achieve that objective.

Other amendments seek, first, to ensure that the chairman of the new board and the director-general of the new board are not one and the same person; secondly, to establish a system of reporting on an annual basis that will entitle your Lordships' House and another place to scrutinise fully the conduct of the director-general, his team and his board during the course of the previous year; and, thirdly, although it has not been made explicit on the face of the amendment, to enable the appointment of the director-general, before it is finally made by the Secretary of State, to be examined by the Select Committee on Trade and Industry of another place.

Bearing that in mind, I suggest to the Minister that a good example of how the relationship of an independent regulatory authority to the Government and to the Crown should function is to be found in the Financial Services and Markets Act 2000. The Minister will note that Section 2 of the Act sets out the authority's general duties, while subsection (3) of the section states: In discharging its general functions the Authority must have regard to". The purpose of the section is to provide a framework of law within which the Financial Services Authority should operate. If it exceeds that framework, then the courts may entertain judicial review actions against the board or against any individual member of the board.

I seek to secure in Clause 1 the same objective with regard to this Bill; that is, to set out the general functions to which, so far as is reasonably practicable, the OFT must have regard. That will provide a statutory discipline within which the OFT has to operate.

Noble Lords will note that I have been extremely kind to the Minister. Instead of setting out seven or eight matters to which the OFT should have regard, I have listed only three. However, they are all important. The first is, the desirability of maintaining the competitive position of the UK". That is not the same as ensuring that a particular market is competitive. I would submit that, when the OFT undertakes its work, it is appropriate to look at the competitive position of the United Kingdom in the international economy.

There is no point in reaching a certain decision on competition in the context of a special market only to discover that the scale of enterprises in that market is so small that they are incapable of taking on their major international competitors. Of course the scale of a company is only one factor, but the general point is pertinent. When the OFT examines the competitive position in the market, it should address the overall competitive position in the European and, indeed, the global market.

Paragraph (b) of my amendment complements paragraph (a) by declaring that if, as a result of having to intervene in the market, the OFT requires companies to observe certain regulatory standards, those standards should then be the minimum necessary. I do not think that the Minister will have any difficulty in entertaining that proposition because it is part of the Government's overall objective with regard to deregulation.

Finally, paragraph (c) asks the OFT to have regard to, the objective of minimising the regulatory burdens placed on UK business and commerce". This form of wording would require the OFT to look further than individual companies functioning in the market and address the regulations that the Government themselves are making for particular markets. That mirrors a provision in the Financial Services and Markets Act where, as the noble Lord is very well aware, the Financial Services Authority is responsible for setting the overall competitiveness of its regulatory measures. It seeks simply to reflect that very important provision in the proposed Bill.

Turning from the amendment before the Committee to the general intention of the Bill, perhaps I may say at the outset that I look forward with enthusiasm to the Committee stage. I had the honour of sitting on the Opposition Front Bench during the passage of the 1998 Bill and the pleasure of looking straight in the eye of the noble Lord, Lord Borrie. I believe that he participated as regularly as I did.

When they have completed their assessment of the amendment, will the Government say why they think that this Bill is necessary at all. I ask that because less than four years have passed since the Competition Act became law, while many provisions of that Act did not take effect until several years later. In my judgment, we have not yet been able to assess clearly whether what was done in 1998 was sufficient to guarantee the competitive market that we all seek.

I suggest to the Government therefore that, in so far as the Bill addresses market competition, much of what is in it is premature. If the Bill completes its course and becomes an Act, the Government should think carefully about delaying the onset of its content until we see how the measures already in place have worked themselves through the economy.

I have taken a slight advantage on the opening amendment to raise a general point, and I hope that the Minister will forgive me for doing so. It is a matter that may well arise again later in the proceedings. I beg to move.

3.15 p.m.

Lord Hodgson of Astley Abbotts

I shall say a few words in support of the amendment moved by my noble friend, in particular as regards the competitive position of the UK. It must be our objective, no matter what may be our political affiliation, to create within Britain world-class companies that can lead the way in their fields. That was a point I made on Second Reading. It is extremely important to ensure that the actions of the authority should not in any way inhibit such developments. There are altogether too many difficulties for British businesses competing on the world stage. The competition authority should have regard to any barriers they seek to put in the way of success.

A further important point was made by my noble friend with regard to the regulatory burden. It is something that arrives like barnacles on a ship, one by one. Each barnacle of itself may seem reasonable. Each barnacle has a protagonist who declares that, "This is an essential barnacle". However, over a period of time the ship of British business is slowed down by those barnacles. Unless a real effort is made to ensure that the ship is streamlined, our competitive position in the world will be affected.

I support both the important points made by my noble friend.

Lord Sainsbury of Turville

The question of why the Bill is necessary was covered in detail at Second Reading, but perhaps I may repeat the main issue which emerged from that debate. The Bill tackles issues which were not tackled by the Competition Act 1998 and seeks to develop our policies in those areas. We shall need to debate the Bill clause by clause. I am happy to debate any part of the Bill which Members of the Committee feel is not necessary and does not achieve new and important aims.

The amendment would place a number of demands on the OFT, not all of which are relevant to its remit. The first subsection of the amendment is particularly problematic. The OFT's goal is to, make markets work well for consumers". Markets work well when there is vigorous competition between fair-dealing businesses. When markets work well, good businesses flourish. Competitive markets provide the best means of ensuring that the economy's resources are put to their best use by encouraging enterprise and efficiency and widening choice. Where markets work well, they provide strong incentives for good performance, encouraging firms to improve productivity, to reduce prices and to innovate, while rewarding consumers with lower prices, higher quality and wider choice. By encouraging efficiency, competition in the domestic market—whether between domestic firms alone or between those and overseas firms—also contributes to our international competitiveness.

The noble Lords, Lord Kingsland and Lord Hodgson, both commented on the desirability of maintaining the competitive position of the United Kingdom. That struck me as a throwback to the world of national champions and Japanese industrial policy, which I did not expect to hear from noble Lords opposite. Most of the accumulated evidence on national competitiveness shows clearly that people perform best in international markets where there is strong competition in home markets. Different countries strongly support the view that strong competition at home produces the champions who are successful in international markets. Attempts to choose national champions to protect businesses on the basis that they can build up a strong position in their home markets from which to launch attacks on international markets have again and again proved to be wrong.

Focusing on the broader objective in the way that the amendment suggests could lead the OFT to make short-term, narrow-sighted decisions. We believe that the right approach is for the OFT to focus on targeted functions, which will in turn drive up productivity. We want UK businesses to prosper through fair competition which plays by the rules. That is what the OFT should ensure.

The second issue in the first subsection relates to adverse effects on competition. Given the OFT's goal to, make markets work well for consumers", the OFT is already well placed to ensure that the anticompetitive impacts of any of its actions are minimised.

The third issue in the subsection relates to minimising the regulatory burdens on UK businesses. This is not something which is wholly within the OFT's gift. The OFT must enforce laws and regulations made by Parliament. It does not itself make regulations. It will be consulting fully on how it intends to carry out many of its responsibilities under this Bill. The OFT is already fully seized of the importance of less regulatory approaches. For example, under Clause 8 of the Bill it will actively promote the use of good quality consumer codes of practice to help consumers to identify reputable traders and to give those traders a marketing edge.

As to the second subsection of the amendment, I agree that it is important that the OFT should consult widely on its activities. As I have said, it will do so on many of its responsibilities under the Bill. Indeed, it has already published three draft guideline documents on aspects of the Bill, with each one sent directly to a substantial number of business and consumer organisations and law firms. The drafts are also available to the wider public on the OFT website. The OFT will consult widely on its annual plan.

As to the final subsection of the amendment, I expect the OFT to act in accordance with the principles of good governance in so far as they are relevant to the OFT. I am not convinced, however, of the need to set this out in the Bill. That is more appropriate for documents such as the statement of purpose—the mission statement—and the annual plan. The OFT chairman can be summoned by parliamentary Select Committees. I am sure that the Trade and Industry Select Committee and others will be very interested indeed if they think at any time that the OFT has acted in a way that is contrary to good governance principles. This is a matter of good administration rather than something which is appropriate for the Bill.

I hope that I have reassured the noble Lord that some elements of his amendment are already catered for elsewhere and that others are not strictly relevant to the Bill. In view of these arguments, I invite the noble Lord to withdraw his amendment.

The Earl of Erroll

The Minister referred to giving reputable traders a market edge. I attended a meeting this morning where concern was expressed about the monopolistic position occupied by a very large company in the field of IT and software which could leave the Government and many traders vulnerable. Representations have been made to the current OFT—which it has not taken up—that it should do something about this abuse of a monopolistic position. I hope that the new OFT will, in this particular case, ensure that open sources and open standards for software are adopted. This would give people a competitive edge and ensure that one person does not dominate the market place. I agree that reputable traders should get a market edge, but we have to be careful not to buildup monopolistic positions which may be abused. This may be happening already.

Lord Sainsbury of Turville

I cannot comment on a situation when I do not know what it is. Clearly the Bill is directed towards ensuring, above all, that small companies are not put in an adverse position because of monopolistic companies in the market place. That is one of the main purposes of the Bill.

As to the point I made about reputable traders having a marketing edge, I simply meant that companies which sign up to codes of practice should have an advantage when it is known to their customers that they have done so.

The Earl of Erroll

In the case I have referred to it will be large companies and the Government which will be most disadvantaged. I shall tell the Minister about it later.

Lord Sainsbury of Turville

If the noble Earl writes to me, I shall certainly look into the situation.

Lord Kingsland

I thank the Minister for his reply. The Minister will recall that, in the opening phases of my moving of the amendment, I drew his attention to the Financial Services and Markets Act 2000. Section 2(3)(e) of that Act mirrors paragraph (a) of the first subsection of my amendment. My amendment refers to, the desirability of maintaining the competitive position of the UK". Section 2(3)(e) of the Financial Services and Markets Act states: In discharging its general functions the Authority must have regard to … the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom". Why is it desirable that the Financial Services Authority should have this objective but undesirable that the OFT should have it?

Section 2(3)(f) of the Financial Services and Market Act refers to, the need to minimise the adverse effects on competition that may arise from anything done in the discharge of those functions". If the Minister turns to paragraph (b) of my amendment, he will see, the need to minimise the adverse effects on competition that may arise from anything done in the discharge of those functions". Paragraph (c) of my amendment mirrors almost entirely paragraph (g) in the Financial Services and Markets Act. What I am trying to elicit from the Minister is an understanding as to why the constitutional position of the Financial Services Authority should be so very different from that of the OFT.

I mean no disrespect to the Minister when I say that he made a rather disparaging remark about the commitment of myself and my colleagues on these Benches to central planning. I must say that I find that a hit rich coming from the Government Benches. But that aside, it was quite clear that the Government were prepared to adopt this formula in the Financial Services Act. So to the extent that the Minister's remark is a criticism of me, it must be a criticism also of the Government.

Lord Sainsbury of Turville

We are talking about organisations which are constituted to do radically different things. This is a body which is constituted specifically to deal with issues relating to competition. The Financial Services Act clearly has a different remit; namely, to control the financial services industry in this country. That is clearly completely different. There is no reason why every organisation should have the same set of objectives when they are doing completely different things.

Lord Kingsland

With respect to the noble Lord, surely that strengthens my point. If the specific responsibilities of the OFT are exclusively about the management of competition, then the requirement that they address the international competitive context is all the more important.

I am most grateful to the Minister for his opening remarks and subsequent comments. I shall look at them closely in Hansard. I suspect that I shall wish to return to them on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 1 agreed to.

Lord McIntosh of Haringey

I beg to move that the House do now resume.

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

House resumed.