Lords Sitting of 18 July 2002

Preamble
The House met at three of the clock (Prayers having been read earlier at the Judicial Sitting by Lord Bishop of Derby): The LORD CHANCELLOR on the Woolsack.
The Lord Chancellor: Leave of Absence
The Lord Chancellor (Lord Irvine of Lairg): My Lords, before public business begins, I take this opportunity to inform the House that I am to perform the formal opening ceremonies of two new magistrates' courthouses at Beverley and Bridlington on Wednesday, 24th July, when the House will sit. Accordingly, I trust that the House will grant me leave of absence.

British Airports
3.1 p.m.
Lord Wallace of Saltaireasked Her Majesty's Government:
What action they have taken to ensure that programmes of modification and improvement now under way at British airports allow for the possibility that the United Kingdom may in the future opt in to the full provisions of the Schengen Convention.
Lord McIntosh of Haringey: My Lords, British airports plan their facilities on the basis that the United Kingdom will retain its existing system of frontier controls.
Lord Wallace of Saltaire: My Lords, does the Minister remember that the report published more than two years ago on Britain's Schengen opt-out suggested that it would be reasonable in all future modifications to British airports to take the precautionary approach that at some point the Government might change their mind? Does he recall that there was strong evidence from the British Airports Authority that the costs of doing so at speed if the Government were to change their mind would be considerable and perhaps prohibitive?
Does he accept that, now that the Government have opted back in to most provisions of the Schengen agreement, it is not unlikely that the Government will change their mind during the next few years, and that joined-up government would suggest that modifications now under way to Heathrow, and so on, should have started better to segregate passengers arriving from outside the European Union from those arriving from within the EU?
Lord McIntosh of Haringey: My Lords, the Government would certainly have no objection if the
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British Airports Authority or individual airports were to plan their future provision on the basis of the Schengen agreement. But I cannot agree with the noble Lord that we have changed or will change our view. We have not signed the implementing convention of 1990. The Schengen protocol allows us to implement all or part of the Schengen Convention, on the basis of which we have opted in for police and judicial co-operation on crime but out on immigration controls. The frontier protocol enables us to retain our frontiers. That is the current position.
Baroness Knight of Collingtree: My Lords, will the Minister accept my gratitude, and take note that, as joining Schengen would force Britain to abolish all its frontier controls, many people will appreciate what he has said today and give him their full support?
Lord McIntosh of Haringey: My Lords, that is the position that the Government took. I am grateful for the words of the noble Baroness.

British Passports: Fraud
3.3 p.m.
Lord Campbell of Croyasked Her Majesty's Government:
Whether they will make changes to the procedure for issuing British passports in order to eliminate fraud.
Lord Bassam of Brighton: My Lords, the United Kingdom Passport Service takes passport fraud seriously and already has a range of checks in place to prevent and detect fraud. Those now include a check on the death records of under-18 year-olds in England and Wales. That new check represents a significant step forward in our efforts to crack down on the fraudulent use of birth certificates. The Passport Service has a major programme of work under way to counter identity fraud. That work is complementary to the recommendations arising from the Cabinet Office's identity fraud study, which was published on 3rd July and could lead to future changes in passport issuing procedures to take account of the increasing threat from fraud.
Lord Campbell of Croy: My Lords, I thank the Minister for his reply. Is the report correct that the method used to obtain a British passport in the book and film, The Day of the Jackal—searching parish and graveyard records—is still possible? If so, what action are the Government taking in view of the present threat of international terrorism?
Lord Bassam of Brighton: My Lords, the Government take the so-called "Day of the Jackal" loophole seriously. Of course, any person is entitled in law to see publicly available indexes to the civil registration records and to buy a certified copy of any

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register entry. The events of September 11th have ensured that a sharpening of procedures and significant broad checks are in place.
The UKPS requires the provision of information declared to be true on its application form. Birth certificates are not proof of identity; additional evidence—driving licence, medical card, national insurance card or benefit book—is sought in certain cases. On occasion, passport applicants are called in for a personal interview.
We take identity theft very seriously and a detailed action plan is now in place to prevent it. I may add that the statistics for fraud are very low. It is estimated that 0.03 per cent of all issues are fraudulent—about 1,500 cases out of 5.5 million passports issued annually.
Lord Dholakia: My Lords, when the maroon passport replaced the black one, we were given to understand that the new passport could be electronically scanned to avoid fraud. I pass through our airports on many occasions, but never once has my passport passed through any electronic gadget. When is such a system likely to be introduced to avoid fraud?
Lord Bassam of Brighton: My Lords, the noble Lord is right to say that machine-readable detection methods are being developed. The pace and development of that technology must be sharpened, because we want to crack down on fraud as far as is humanly possible. Other important developments are likely to take place with biometrics, in which the iris, handprint or fingerprints can be read. All of those options are possible; they are all under active consideration and are being investigated by the UKPS as ways further to crack down on fraud.
Lord Lipsey: My Lords, will my noble friend remind the House of the number of passports going missing in the post between the Passport Office and the applicant? If he does not have the figure to hand and decides to write to me with it, will he do so rather more expeditiously than have the Government in reply to a related Question on lost documents that I tabled on 14th January?
Lord Bassam of Brighton: My Lords, my noble friend is entitled to a fulsome apology for that delay. I understand that his Question is due for reply during the next week.
Baroness Blatch: My Lords, does the Minister agree that, in addition to an apology, the noble Lord, Lord Lipsey, deserves an Answer to his Question? If entitlement cards are introduced, is it envisaged that the Passport Agency would manage and operate the scheme?
Lord Bassam of Brighton: My Lords, the entitlement card project is open for consultation, so those finer details have yet to be worked out. It is important that we respect the consultation period. The matter is delicate. Of course, there are great benefits to be
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gained by the development of the entitlement card. The Driver and Vehicle Licensing Agency and the UK Passport Service are working closely together on those projects.
Lord Marlesford: My Lords, may I draw the Minister's attention to a large loophole in passport administration? I am sure that he knows, because I received this information in a Written Answer some time ago, that less than 5 per cent of the passports of people who die are sent back. Is he aware that the street value of a dead person's passport is about double that of a stolen passport—for the obvious reason that the chances are that the stolen passport has been reported and, at least in theory, cancelled? Last year, I asked the Government twice whether the Passport Service was now notified of someone's death, so that their passport could be cancelled. On 31st October, the Minister, in a Written Answer, said:
"The Passport Service is seeking to establish arrangements to receive routine notifications of death as part of its work on improving fraud countermeasures".—[Official Report, 31/10/01; col. WA 161.]
Two weeks later, I received the following Written Answer:
"We have not started to establish arrangements requiring the Government to be routinely notified of the death of United Kingdom passport holders, and we have no plans to do so".— [Official Report, 14/11/01; col.WA 81.]
Will the Minister kindly put into effect immediate plans to ensure that the Passport Service is notified by the Registrar General that people have died, so that their passports can be cancelled?
Lord Bassam of Brighton: My Lords, that was a valuable question, and my brain cells are working overtime on it. I shall take the important suggestions made by the noble Lord. Lord Marlesford, to heart. I shall have words with the director of the United Kingdom Passport Service.
Lord Roberts of Conwy: My Lords, have the Government taken steps to prevent multiple applications for passports? The Minister will recall that, after 11th September, some people in this country who were not unconnected with those events were found to have more than one passport.
Lord Bassam of Brighton: My Lords, I am sure that the UKPS is taking steps to deal with such problems. The UKPS has a useful system that contains details of persons known to have made fraudulent applications in the past. With the benefit of the measures that have been put in place partly as a consequence of 11th September, the UKPS is pursuing such cases and is doing extremely well. Earlier, I gave figures on fraud detection, and much other encouraging progress is being made.
Lord Berkeley: My Lords, I congratulate my noble friend the Minister on the improvement in the service for issuing passports, but I share the problems experienced by my noble friend Lord Lipsey as regards receiving passports through Royal Mail. Two

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passports for members of my family have recently been lost. Will the Government consider other means of distributing passports? Doing a deal with someone in the Royal Mail would be a wonderful way for someone to get duplicate or multiple passports.
Lord Bassam of Brighton: My Lords, the Royal Mail remains the most reliable agency for ensuring that people receive their passport on time. The UKPS is doing very well. I am told that the average turnaround time for a passport is 4.24 days, which is a big improvement on the time that many customers experienced four or five years ago. Then, it took much longer— 17 or 18 days.
Baroness Williams of Crosby: My Lords, can the Minister say when the requirement for a paper car licence, as well as the plastic driver's licence, will be dealt with? The Minister will be aware that, in many countries, the vehicle driver's licence is used as a form of corroborative evidence for people raising questions about the validity of passports. It is inconvenient that, in the UK, we still have the requirement for a useless plastic driver's licence as well as a paper one.
Lord Bassam of Brighton: My Lords, I take the point. I said earlier that the driver's licence was one of the documents used to check applications. The current driver's licence is in paper and plastic form.
Lord Rotherwick: My Lords, would it be possible to go back to the first part of the question asked by the noble Lord, Lord Lipsey? He asked about the loss of passports. Does the Minister have any figures on that?
Lord Bassam of Brighton: My Lords, I have no figures for lost passports, but I will investigate the matter. I shall write to my noble friend Lord Lipsey and make the information available to other noble Lords who are interested.
Lord Glenarthur: My Lords, can the Minister say whether passports are normally sent by registered post, which is traceable? If not, why not?
Lord Bassam of Brighton: My Lords, they are not, I think, usually sent by registered post, but I will check t hat. My children recently received their new passports through the post in the normal way.

Gibraltar
3.15 p.m.
Lord Blakerasked Her Majesty's Government:
Whether they plan further discussions on the future of Gibraltar with the Government of Spain during the parliamentary Recess.
The Minister for Trade (Baroness Symons of Vernham Dean): My Lords, we hope to hold further discussions in the autumn.
Lord Blaker: My Lords, is it not likely that the agreement in principle by Her Majesty's Government
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to surrender some part of sovereignty will have persuaded the Spanish Government that their policy of bullying the Gibraltarians is producing results and will therefore make them more likely to continue with it? At the same time, is not that policy having the effect of making the Gibraltarians more resolute in resisting any surrender of sovereignty?
If Spain wants to influence the Gibraltarians in her favour, the right policy would be to woo the Gibraltarians, not to bully them. If the Government have already suggested that to the Spanish—I dare say that they have—should they not abandon their existing policies and make that point to the Spanish at every opportunity?
Baroness Symons of Vernham Dean: My Lords, as we have already discussed on a number of occasions, it is clear that Spain will have to make any deal attractive to the people of Gibraltar. As the British Government have made clear over and over again since 1969, anything that effects the sovereignty of the people of Gibraltar will be put to the people of Gibraltar in a referendum.
Of course, we reiterate to our friends in Spain that it is important that the issues that cause such irritation in Gibraltar—border delays, problems with telephone numbers and the other issues that your Lordships have discussed over many years—must be put right, if any deal is to go through.
Lord Temple-Morris: My Lords, is not my noble friend the Minister well aware that successive governments have, on various occasions, endeavoured to get agreement on this difficult matter? All too often, they have backed away because of parliamentary and other pressure. Recess or no recess, will the Government please press on with the brave efforts that they have made to reach a settlement, bearing in mind the necessary safeguards for the people of Gibraltar and the undoubted fact that a settlement is in their interests?
Baroness Symons of Vernham Dean: My Lords, the Government will pursue the path to which we are now committed. I remind the House that it was a Conservative government who originally said that sovereignty could be included in such discussions.
My noble friend is right. It is in the interests of the people of Gibraltar that the Brussels process be pursued. The dispute is 300 years old, and its resolution must be in everybody's interest.
Lord Howe of Aberavon: My Lords, does the Minister recall that the original Brussels agreement—in which I declare a semi-paternal interest—which launched the process, aimed at overcoming all the differences between Spain and the United Kingdom over Gibraltar, including issues of sovereignty? It was welcomed at the time by the Chief Minister of Gibraltar and by our Prime Minister as being, in her words,
"very much in the interests of both Gibraltar and Spain".

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Does the Minister also recall that that agreement spelt out clearly the full commitment of Her Majesty's Government to honour the wishes of the people of Gibraltar? Has not the present regrettable deadlock arisen largely because of the serious imbalance in the Government's approach to the negotiations? They are much too willing to accommodate the requirements of the Spanish Government and much too willing to be heedless of the need for Spain—even more than Britain—to gain and maintain the confidence of the people of Gibraltar.
Finally, if the negotiations are to be resumed—as I would hope, but only after the dust has settled a little—is it not essential that that should be on the basis of proven Spanish willingness, as promised in the original 1984 agreement, to take the early action necessary to allow effective air communications and free movement of persons, vehicles and goods between Gibraltar and Spain?
Baroness Symons of Vernham Dean: My Lords, the noble and learned Lord, Lord Howe, has an excellent memory. He is absolutely right because I have in front of me the text of the Brussels communiqué. He also has the great integrity to use his memory, which is a point that might be reflected on by some of his honourable friends in another place.
The noble and learned Lord went on to talk about a serious imbalance. From the beginning of our discussions on this issue, I have very much regretted the absence of Mr Caruana from them. He was invited to join the discussions and that invitation remains open to him. I very much hope that, on reflection, he will decide that his proper place is at the negotiating table.
However, I should remind noble Lords that in the Statement made last week by my right honourable friend Mr Straw in another place, he pointed out that not only had the issue of shared sovereignty been discussed, but also that Gibraltar should have more internal self-government; that Gibraltar should retain its British traditions, customs and way of life; that Gibraltarians should retain the right to British nationality; that it should be free to retain its institutions and that it should be able to participate fully in the EU single market. I do not think that that reflects an imbalance in the position. That reflects a truly balanced position and one that has at its heart the interests of the people of Gibraltar.
Lord Thomson of Monifieth: My Lords—
Lord Hoyle: My Lords—
The Lord Privy Seal (Lord Williams of Mostyn): My Lords, there is plenty of time for all noble Lords to speak.
Lord Thomson of Monifieth: My Lords, is the Minister aware that noble Lords on these Benches broadly support the efforts being made by the
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Government with Spain over the question of Gibraltar? We broadly support the effort to carry forward with Spain the original Brussels process. The noble and learned Lord, Lord Howe, has just mentioned that he was a distinguished member of the government who initiated that process. Does the Minister agree that, since we already share sovereignty with Spain and others in the European Union and in NATO, there is no issue of principle over Britain sharing sovereignty with Spain over Gibraltar? Indeed, it would be in the interests of the people of Gibraltar, as well as of those of Britain, Spain and the European Union in general, if such a sharing of sovereignty, together with a more general package, could be worked out. Will the Government use the parliamentary Recess to make major efforts to persuade the people of Gibraltar of the advantages of the Brussels process and, as has been mentioned already, to persuade the Spaniards to be a good deal more tactful in their approach to the people of Gibraltar?
Baroness Symons of Vernham Dean: My Lords, I am aware of the position of the Liberal Democrat Party on this matter. It is to be congratulated on the remarkable consistency of its support on this issue, which was also reflected by the noble and learned Lord, Lord Howe.
With regard to the point of principle, I shall say this. The point of principle with regard to shared sovereignty is that it must be a matter for a referendum of the people of Gibraltar. The other points mentioned by the noble Lord are not the crucial issues in this instance. What is crucial is that any change in the sovereignty of Gibraltar must be a matter for decision by the people of Gibraltar.
We have also said that any agreement reached must be permanent and that existing military arrangements would have to continue. Of course, as noble Lords would expect, we shall use the Summer Recess to continue to do all we can to further the possibility of reaching an agreement that would be in the interests of the people of Gibraltar.
Lord Hoyle: My Lords, does my noble friend agree that there is a terrible smell of hypocrisy in the air in relation to Spain's claim for sovereignty over Gibraltar, given that Spain has sent warships, fighters, helicopters and special forces to remove six Moroccan soldiers from an uninhabited island which Morocco claims as its territory?
Baroness Symons of Vernham Dean: My Lords, I see that a number of noble Lords enjoyed that question. However, as a spokesman for the Government, let me say that we see this issue as one that should be resolved peacefully and quickly. We have good relations with both Spain and Morocco and we look to them to sort out their differences over the island of Parsley.
Lord Tebbit: My Lords, first, does the noble Baroness agree that there is more than one way to resolve the issue of sovereignty? One of those ways would be for Spain to accept British sovereignty, as she

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did when the Treaty of Utrecht was signed. Secondly, can the noble Baroness explain in exactly which ways the Spanish wish to interfere in Gibraltar, for if they do not wish to do so, then surely they would not wish to exert even joint sovereignty?
Baroness Symons of Vernham Dean: My Lords, of course there is more than one way of solving the question of sovereignty. Theoretically it is possible that Spain might cede its claim, but as the noble Lord, Lord Tebbit, knows full well, that is not the real world. Spain has been clear and unequivocal on the point; it is not going to resile from its claim. We shall not resile from our position; namely, anything negotiated that affects sovereignty must be put before the people of Gibraltar. That is our red line, as indeed is the red line that I spoke of in an earlier response; that is, any solution must be a permanent one and the existing military arrangements would have to continue.
The noble Lord has asked why the Spanish would want to interfere. The word "interference" is very loaded, but I hope that Spain would want to cooperate in making the lives of the people of Gibraltar very much better than they are today—in dealing with the problems of border delays, in dealing with the questions over aviation and in dealing with the issue of telephone numbers. In those ways Spain could make a real difference.
The Earl of Sandwich: My Lords, can the noble Baroness confirm that the Spanish Government made a comparison between Gibraltar with Hong Kong? Does she agree that that was somewhat far-fetched and have the Government made any response?
Baroness Symons of Vernham Dean: My Lords, I believe that the comparison is far-fetched. A number of analogies have been drawn. A moment ago my noble friend Lord Hoyle referred to the dispute over the island of Parsley and I refer to the Spanish enclaves in Morocco. The historical context of all those is very different, as is the legal position. I do not believe that it helps any of the parties involved in trying to resolve the issue to make such unhelpful comparisons.
Baroness Park of Monmouth: My Lords, the noble Baroness referred to the difficulties being experienced by the people of Gibraltar, such as the issue over telephone numbers. Can she say why it has not been possible for Her Majesty's Government, as a member of the European Union representing Gibraltar—which I believe has a standing in the Union—to press for Spain to behave as it should towards another member? Why is it necessary to consider issues of sovereignty before we consider using our position within the European Union to persuade Spain to do what it should and to stop doing what she should not?
Baroness Symons of Vernham Dean: My Lords, the fact is that we have tried to use every avenue possible in order to resolve the issue. It has been suggested that we take some of these issues to the international courts. But in order to reach any kind of resolution
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through such multi-lateral fora, we would have to have a willing partner in Spain. The fact is—I refer back to what the noble Lord, Lord Tebbit, said—we have not had a willing partner in Spain.
What we do have is the helpful mechanism negotiated by the noble and learned Lord, Lord Howe, during his period in office as Foreign Secretary; namely, the Brussels process. That is the way in which Britain and Spain have decided to try to resolve this issue. So I agree with the noble Baroness: it is a pity that we cannot use to better advantage the European Union. We have tried to do so, but it is not possible. We are using the mechanisms open to us.
Baroness Williams of Crosby: My Lords, given that there is in place a procedure for negotiation and given the real difficulties of striking poses on the issue, does the Minister accept that we on these Benches strongly support the answers that she has given and believe that there is no way forward except by pursuing an understanding negotiation between the two sides, even though that may take quite a while?
Baroness Symons of Vernham Dean: My Lords, I am grateful to the noble Baroness for her support. In answering I should say that I think it a pity that more of those who do understand the real position in relation to Gibraltar do not have the courage demonstrated by the noble Baroness to state that as unequivocally as she has done.
Lord Howell of Guildford: My Lords, the original Brussels negotiations initiated by my noble and learned friend Lord Howe were a sensible and ingenious mechanism. Why have things got into such a mess under the present Government? Everyone recognises that the handling has been a bit deficient. Will the present agreement in principle become null and void if and when the people of Gibraltar vole it down, or will it stay on ice?
Following on the intervention of the noble Lord, Lord Hoyle, I cannot resist asking the noble Baroness whether she sees any contradiction between the continuous, long-term insistence on the part of Spain on total sovereignty and in the meantime her use of the bullying tactics referred to by my noble friend Lord Blaker, and the rather zealous protection of the sovereign enclaves of Spain in Morocco.
Baroness Symons of Vernham Dean: My Lords, I do not accept the noble Lord's premise that the handling of this matter has been "a bit deficient". There were 13 years of Conservative government after the agreement in 1984. I point out to the noble Lord that we have got further in one year of negotiation than the party opposite did in the 13 years during which the process was available.
As I have explained previously, we have made it absolutely clear that no deal is better than a bad deal. I reiterate that to your Lordships. If we are not able to negotiate a deal which we believe will be in the interests of the people of Gibraltar, we shall haw no hesitation

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in saying so. We are engaged in an honest endeavour and enterprise to make their lives better. If we are not able to do so, it will not be for want of trying.

Business of the House: Defence Expenditure
3.30 p.m.
Lord Gilbert:My Lords, with the leave of the House, perhaps I may ask the Leader of the House a question of which I have given notice; namely, whether or not the extremely important Statement on defence expenditure made earlier today at the other end of this corridor is to be repeated in this House; and if not, why not?
Lord Williams of Mostyn: My Lords, I think the noble Lord knows the position. It is not intended that the Statement on defence should be repeated. The usual procedures were followed. The Statement was offered to the Conservative Opposition, and they did not wish to take it. It was offered in the usual way to the Liberal Democrats. They did not wish it to be taken. There is nothing different about this. Exactly the same set of circumstances obtained as recently as last Friday, when there was a Statement on Gibraltar which was offered, and the usual channels decided to decline, as they are perfectly entitled to do.
Lord Gilbert: My Lords, that shows the wisdom of never asking a question unless you know the answer in advance—which, of course, I did. It is very sad that Her Majesty's Government have not sought to repeat the Statement in this House, as it is open to them to do. It lays out fair and square that this is the first time that there will be real increases in defence expenditure for five consecutive years.
I wonder whether my noble and learned friend can help us as to the motives of the Opposition. I do not normally rise to my feet on partisan matters in this House, but I think it quite extraordinary. Are they frightened to examine a Statement which contains such good news from the Government on defence expenditure; or do they lack the self-confidence—this applies to the Liberal Democrats as well—to find fault with it?
Unfortunately, I shall be at Farnborough next Wednesday and shall not be present for the debate on procedures. It is deplorable that the Cross-Benchers are not consulted on these matters. They include five former Chiefs of Defence Staff and many other senior experts in defence matters. The whole process of consultation in this House with respect to Statements is sadly lacking. I very much hope that my noble and learned friend can promise us a debate on this important Statement very soon after we return from the Summer Recess.
Lord Williams of Mostyn: My Lords, it is not for me to intrude into private grief. I do not know what exercised the Conservatives or the Liberal Democrats, but this is the procedure that we have. We have honoured the procedure; so have the Opposition, and so have the Liberal Democrats.
Lord King of Bridgwater: My Lords, I am not sure whether the procedures of the House allow me to intervene. However, as the noble Lord, Lord Gilbert, was allowed to get away with a statement, perhaps I may make this point. Anyone who has listened to the Chancellor's recent announcements will know that it is a very wise thing to look at them carefully, then read the small print, then study the actual results. The suggestion that this represents a massive increase in defence expenditure is very much open to doubt.
The matter will not be resolved by a Statement and exchange of this kind. I hope that it will be possible—I ask the noble and learned Lord the Leader of the House, those in my party who are responsible for these matters, and the usual channels—when this House returns for the overspill, to have a serious and considered debate on the real issues of defence, and that we shall be much better informed than the Chancellor has made us so far as to the actual figures for defence spending.
Baroness Williams of Crosby: My Lords, I strongly echo the words of the noble Lord, Lord King. That is precisely why we thought that on this occasion it was not sensible to take the Statement. We also recognised that the House had an obligation of scrutiny in regard to a Bill going through this House which is of a serious nature and contains a number of controversial matters. I refer to the Enterprise Bill. We therefore felt that it was more appropriate to give what limited time the House still had to that, while fully recognising the importance of defence and the opportunity to discuss it further at a later stage.
Lord Williams of Mostyn: My Lords, every point that has been made will be faithfully transmitted through the usual channels.
Lord Cope of Berkeley: My Lords, as my party has been mentioned by the noble Lord, Lord Gilbert, I thought to intervene briefly. However, my noble friend Lord King set out some of the reasons that lay behind our decision this morning. It is sometimes difficult to decide the priorities that this House should follow in its discussions. We were offered two Statements. We are taking one of them and not the other. That is not necessarily a judgment on which is the more important in the long term. Nevertheless, that is the decision that we took.
At present, this House is under great pressure of legislative business. It will be extremely difficult to finish the Enterprise Bill and the other Bills before the House in the time that the Government have currently allocated. That makes these decisions quite difficult to take. Like the noble Lord, Lord Gilbert, I hope that we

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can have a debate on defence when we have had time to consider this and other matters relating to defence in due course, but not before the Recess.

Housing and Planning
3.36 p.m.
The Minister of State, Office of the Deputy Prime Minister (Lord Rooker):My Lords, the previous exchanges might indicate that I have bad news. I do not. With the leave of the House, I shall now repeat a Statement made in another place by the Deputy Prime Minister on sustainable communities, housing and planning. The Statement is as follows:
"I want to make a Statement on this Government's plans for a step change in our policies for building successful, thriving communities.
"The Chancellor has been generous. He has given a good settlement for local authorities, regional development agencies, regeneration, housing and planning. Today, I want to talk about two elements of our settlement—housing and planning—to provide decent, affordable homes for people wherever they live. And I want the House to join together to make a step change in our approach.
"Anyone looking at the record over past decades will recognise that all governments have failed to meet the housing needs of our people. There has been a continuing decline in the provision of all houses—social and private. We in this House should recognise that we have failed to meet the needs of this generation, let alone the needs of our children. The situation will get worse unless we take radical action now.
"In the last 30 years, we have seen unprecedented economic growth, rising incomes, smaller households, people living longer. We have seen an increasing demand for housing, but overall we are building 150,000 fewer homes today than we were 30 years ago. No wonder house prices are rocketing. No wonder many people cannot afford to live where they were born, in both urban and rural areas.
"There are different problems in different places in our country. We are failing to adjust to geographic changes in economic activity. We are failing to tackle abandonment and dereliction. We are failing to provide homes for teachers, nurses and other key workers. We are placing our public services under pressure because they cannot get enough skilled staff.
"So, today, I am announcing a step change in housing policy. And I propose to do that by promoting sustainable communities, making the best use of our land, increasing development on brownfield sites and protecting and enhancing our green belt and valuable countryside.
"The shortage of housing in London and the South East is causing record housing costs which are impacting directly on living standards. They make it more expensive for companies and public services to recruit and retain staff. They make it more difficult
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for young people to get a foot on the housing ladder. They affect our public services and force more families into bed-and-breakfast.
"Two years ago, in Regional Planning Guidance 9, I put in place a 'plan, monitor and manage' approach to planning for additional housing in the South East. I said then that local authorities should provide for new homes at the rate of 23,000 a year in London and 39,000 a year in the wider South East, outside of London.
"Today, we have to be open and honest, and recognise that these targets are not being met. We estimate that over the past two years the shortfall was approximately 10,000 homes. We cannot allow this to continue. I am therefore announcing today a number of measures that will meet the real pressures and challenges that we face.
"First, I will insist that all local authorities deliver the housing numbers set out in regional planning guidance. Tackling housing shortage is a national responsibility and we must all play our part—central and local government alike. I am therefore putting local authorities on notice that. where they fail to meet their targets, I will take action to intervene.
"Secondly, I will accelerate the existing proposals for significant growth in the four growth areas identified in regional planning guidance for the South East. Two years ago I asked for reports to be prepared on potential growth in the Thames Gateway, Ashford, the Milton Keynes area and the London-Stansted-Cambridge corridor. Those studies are complete or nearing completion and show how economic development will increase the number of homes we need. Over the coming months, taking account of these studies, I will work with regional and local partners in each of the four areas to establish where, at what scale and how quickly growth can be achieved.
"Overall we estimate that at least 200,000 new homes could be created in the growth areas. In the Thames Gateway in particular, I will be putting a renewed emphasis on delivery and, in discussion with the Thames Gateway Partnership, will establish new means of delivering rapid regeneration.
"Thirdly, we need to make better use of land, by improving design, increasing densities and using brownfield sites to the full. In 1998 I committed the Government to a target that 60 per cent of new homes should be on brownfield land. We have met that target eight years early but we need to keep up the pressure. To help with this, I will establish a register of surplus brownfield land held by government and public bodies. I am instructing English Partnerships to use its new role on brownfields to search out and deliver even more land for housing.
"I can also announce that we will be proceeding with a further three millennium communities, in East Ketley in Shropshire, Milton Keynes and Hastings. These add to the four we have already

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agreed in East Manchester, Allerton Bywater, Greenwich and King's Lynn, bringing the total number of communities to seven and the homes which will be delivered to more than 6,000.
"But to produce more sustainable development we must use land more efficiently in order to reduce overall land-take. To do this I am announcing that I intend to intervene in planning applications for housing that involve a density of less than 30 dwellings per hectare. I am also setting a new target to protect valuable countryside. Since 1997, I have increased the green belt by 30,000 hectares. Today I can announce for the first time a public service agreement target which commits us to protecting the valuable countryside around our towns, our cities and in the green belt.
"We will not tolerate urban sprawl, and we will not concrete over the South East—as some have speculated in the press—or any other region. But housing pressures in London and the South East are acute and require ambitious solutions. My strategy of providing for sustainable, high quality, well-planned communities in the growth areas will benefit everyone. It will mean that we reduce the pressure elsewhere in the South East and will protect valuable countryside for the benefit and enjoyment of all.
"There needs to be not just more homes, but more homes that people can afford. We have said schools and hospitals first. That means special attention to helping nurses, teachers and other public service workers get affordable homes. Since 1997 the Government have almost doubled funding for affordable housing to £1.2 billion per year and this is now supporting the creation of 20,000 new affordable homes every year.
"Subject to further detailed consideration about how best to use the new money available, we will now be able to increase that funding to provide additional homes for key workers and new social housing for the homeless and families in bed and breakfast accommodation. In addition to this new funding, we will be looking for ways to extend our existing programmes for affordable housing through greater partnership with employers and public and private landlords.
"The problems in the North and the Midlands are different but just as pressing. Some of our towns and cities are experiencing a renaissance in their economic and cultural fortunes. But many also have communities where properties are almost worthless, leaving people trapped in negative equity and facing the problems associated with social exclusion. We are building the wrong kind of houses in the wrong places and failing to tackle fully urban decay.
"Earlier this year we announced the creation of nine Pathfinder projects to tackle the most acute problems of low demand and abandonment in the North and the Midlands. I can announce that we will be taking those projects forward to help tackle the blight afflicting properties in the Pathfinder
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areas. In addition I can announce that, following EU approval, we will be going ahead with our new housing gap-funding scheme which will allow support for housing programmes where the market price is less than the cost of development.
"We will also reinforce our efforts to improve the overall condition of our housing and ensure that everyone has the opportunity of a decent home. In 1997 we released £5 billion of capital receipts to target the backlog of repairs to council homes. Over the past five years we have trebled council funding for housing to £2.4 billion a year, and in 2000 we set ourselves the challenging target of making all social housing decent by 2010. These actions have allowed us to make good progress on housing conditions.
"Overall, 1.7 million improvements have been made to council homes, and we are well on track to meet our interim target of bringing a third of the worst social housing—550,000 homes—up to a decent standard by 2004. We will work towards that target by devoting even more resources to refurbishment; by allowing all local authority arm's length housing companies receiving either a 'good' or 'excellent' rating to apply for this additional funding; and by reviewing all policies that contribute to our 2010 decent homes target to ensure that they are as effective as possible and provide value for money.
"It is not just social housing that needs attention. People in the private sector suffer some of our worst housing conditions. All too often housing benefit is funding the provision of unfit housing to the detriment of the tenant and the benefit of the landlord. This is unacceptable. As soon as parliamentary time allows, we will legislate to tackle the minority of unscrupulous landlords and boost our drive against poor conditions.
"Over the last five years we have provided funding to local authorities to help improve 30,000 private homes per year. I can announce today that we are setting a new objective to help improve more non-decent private sector homes occupied by vulnerable households. We are investing large sums of money in improving all housing, so we must have an inspection regime that drives up standards across the board and ensures reform.
"I am announcing today that I will establish a single housing inspectorate, building on the excellent work of the Audit Commission and the Housing Corporation. I am also announcing that we will establish strong regional bodies, going with the grain of our proposals for regional governance. These will bring housing investment together in a single regional pot. And they will link that investment with planning, infrastructure and economic growth strategies. I will announce further details later in the year when I have discussed them with key stakeholders. And I will put the new arrangements in place as soon as possible.
"In order to achieve a step change we need to increase resources for the planning system and bring about much-needed reform. We are therefore

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providing an extra £350 million for the planning system over the next three years. This must be targeted where it will improve performance the most. And I give notice that if poor performance does not improve, I will intervene. The extra money will be linked to reform and I am publishing today three documents: our response to the recent planning Green Paper consultation and supporting papers on compulsory purchase and on regional and local plans. Copies are in the Library.
"These put in place extensive reform, and I would like to summarise some of the key points. First, we will give counties a new statutory role in underpinning the new regional planning system, but we will abolish county structure plans themselves. Secondly, we will introduce business planning zones to deliver growth, jobs and productivity without sacrificing quality of development. Thirdly, I will speed up the planning of major infrastructure projects by setting out the Government's objectives in clear policy statements and changing inquiry processes to make them more efficient.
"I have accepted the Select Committee's arguments that parliamentary procedures for major infrastructure projects are not the best way forward. Finally, I will not change the right for objectors to make their case to the inspector at inquiries into plans. But I will take action to speed up the inquiry process.
"The proposals I have announced today focus on creating sustainable communities which meet the needs of all, regardless of where they live or the size of their pocket. But they are just the start. I will return to the House by the end of the year with a comprehensive long-term programme of action. This will meet the different needs of both the North and the South. Whether it is the key workers in need of affordable accommodation or families trapped by negative equity, we must work together to find solutions to their problems.
"Our long-term programme will link policies on housing, planning, transport, education, health and regeneration. It will demand a new standard in how we build houses and communities, seeking improvements in density, design, environmental standards and construction techniques and it will protect and help to revitalise the countryside for those who live in it and those who seek their leisure there.
"This is a strategy for the long term. We know the problems, we have the commitment, we have the resources. We must recognise in the country and on all sides of the House that we have simply not done enough over the years. We need more homes where people want to live, near where they work, in the North and in the South, at a price people can afford and in a way that protects the countryside. This is a challenge to all of us. I believe that the strategy I have put to the House today will begin to rise to that challenge".
My Lords, that completes the Statement from the Deputy Prime Minister.
3.51 p.m.
Baroness Hanham:My Lords, I thank the Minister for bringing the Statement to the House. It lays out the Deputy Prime Minister's thoughts and provides an analysis of the current housing position. Perhaps understandably, it is breathtakingly short on detail. But it contains some pointers to the future.
The proposals will push ever more responsibility into the hands of unelected regional bodies. Going with the grain of the Deputy Prime Minister's proposals for regional government, as he said, housing investment will be brought together into a single regional pot, with planning, infrastructure and economic growth strategies included. Is it proposed that there should be yet another regional body to deal with that, or is it anticipated that the undemocratic regional assemblies will be tasked with this extra responsibility, of which they have no experience?
The Government have made it abundantly clear that regional government will be introduced only where regions vote for it. Is this another example of the Government jumping the gun and introducing regional government by stealth? We should be told. If the electorate do not want regional government, they may simply be whistling in the wind with their votes in a referendum because local government's responsibilities for housing, planning and many other areas will have gone there anyway. That is a fine example of things being pulled up rather than being pulled down.
Where is it anticipated that local government will fit into the picture? How is it intended that local authorities should be able to influence how much housing will be placed in their areas and where? I fit is intended to give planning responsibilities to these new regional bodies, how much say will local planning authorities continue to have? In passing, what is meant by saying that county councils will be given a statutory underpinning role in the new regional planning system? County councils currently make and organise the structural plans. Presumably, under this new wording they will have no responsibility for the structural plans. Somewhere along the line, despite what has been said and all the consultation that has taken place rejecting the removal of county councils from structural plans, that is precisely what will happen.
Of course this is an interim statement. We are promised flesh on the bones later in the year. The flesh of local government should be beginning to creep at the outline thoughts presented here. Even where responsibilities are to be left, the Deputy Prime Minister is threatening intervention if local authorities do not perform to key government objectives and meet the targets on housing numbers set out in the regional planning guidance and some as yet unstated arbitrary standards—including, apparently, where permission is given for too few dwellings per hectare. Perhaps this is a policy of build them thick and build them high. Plans are clearly well advanced for four growth areas in the South East regional plan. How much of the land anticipated in those areas will be from the green belt?

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The Deputy Prime Minister says that he will not concrete over the South East or anywhere else. Tell that to Stevenage, where acres of green belt land are being consumed.
An extra £1.2 billion is promised for affordable housing—some for key workers and some for property improvement. Money is always welcome, but whether it achieves its objectives depends on how it is spent.
The Deputy Prime Minister is anxious to help key workers into housing. London is desperately short of people to support its services. As chairman of a hospital in London I know that. However, whether all those key workers would want to live together in a suburb of Essex, for example, is debatable. New developments will have to be of mixed occupancy. If not, the Government cannot meet their targets for increasing the priority categories for the homeless and getting others out of bed-and-breakfast accommodation, never mind those others in need of decent housing, such as asylum seekers.
There will have to be additional infrastructure, too, to support the densities envisaged in the Statement. I am told that Kent already has a land bank of 11 years worth of housing, but it cannot develop it because some of the land is contaminated and there is no money to clean it. More importantly, there is also no money for the development of new schools, hospitals, roads and transport, not to mention the non-existent access to the additional water supplies that major schemes would require. Is any of that £1.2 billion to be devoted to that supporting infrastructure?
It is welcome news that the Government have decided to give more money to planning. I hope that the money will be used to increase staff numbers in local authorities to help with the movement of planning applications. I also welcome the decision not to give Parliament a role on major infrastructure applications. That proposal was excoriated by just about everyone. We recently had statutory instrument proposals for major infrastructure and changes to the inquiry system. What other proposals are coming forward to deal with major inquiries?
It is notable that the Statement proposes to continue with the little-admired business planning zones. As the Select Committee pointed out,
"it is based on the misconceived idea that the planning system is stopping desirable development rather than helping to enable it. There is no evidence of that".
This is yet another area that will he taken beyond local authority control.
Too few houses have been built in recent years, but that is no reason why, in redressing that problem, changes should be made to the whole system of local government, with increasing centralisation. I hope I am wrong in my surmise that this will be the intended or unintended result of the proposals.
Like the proverbial curate's egg, there will be some good in the proposals and some bad. Without the details of what lies behind the Statement, only time will tell. We look forward to the debates that will ensue.
3.59 p.m.
Baroness Scott of Needham Market:My Lords, I thank the noble Lord the Minister for repeating the Statement made in another place and declare an interest as a member of Suffolk County Council—of which I have been an elected member for 12 years. We welcome also that the Statement puts housing higher on the agenda. Implicit in the Statement is a recognition that the policies of successive governments have failed thousands of citizens in respect of their most basic need.
We caution against one-size-fits-all policies, which fail to recognise enormous regional disparities. Neither must the pressures of economic growth in the South East be allowed completely to overshadow the different needs of the North.
We welcome the emphasis on the development of brownfield land. The fact that local authorities have delivered the Government's demanding targets eight years ahead of schedule demonstrates that when local authorities are given the tools, they can deliver a great deal. However, it costs a lot more to develop a brownfield site than to build on new land. Do the Government have any plans to introduce a levy on greenfield development, with that money used to redeem brownfield sites for housing? Is the noble Lord the Minister aware that some building societies are reluctant to lend money to purchase properties on land that was once contaminated? Does he know that a great volume of land is kept empty for long periods? Sometimes that is because landowners are waiting for values to rise and sometimes—which is more sinister—because such land is being held back for its ransom value, where it could form part of a much larger development.
Has any progress been made with the plans in the rural White Paper to end the 50 per cent rebate on second homes, with the money raised to be ring-fenced and used for housing? That measure would have a significant impact on the plans announced today. Are there any proposals to change the VAT system, to make it more cost-effective to undertake conversions and repairs? Something like one-fifth of the housing stock is either unfit or in poor condition. Such a change would do more for the housing stock than yet another level of inspection and audit of the kind that the Statement holds out.
The recent Green Paper failed to ask the real purpose of planning. We believe that planning is about the development of sustainable communities, sustainable economies and a sustainable environment. When the House debated that Green Paper, it was not until my noble friend Lady Hamwee summed up that the word "sustainability" was used. The emphasis so far has been on the planning process and we have rather lost sight of the outputs. The Green Paper diagnosed the problems, then drew entirely the wrong conclusions. Planning processes are too lengthy—largely because planning operates in a vacuum, with little in the way of a national framework in terms of spatial strategy, energy policy and transport. A raft of over-prescriptive government rules for the planning

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process has grown over the years and they are entirely in the hands of the Government to remove. There is a lack of skilled planners, so we welcome the promise of an extra £350 million—although we have yet to hear exactly how that money is to be spent.
Will it be possible to rationalise the new system in a hierarchical way? In terms of timing, there is no sensible relationship between county structure plans, regional plans and local plans. We welcome that the Government have listened to those who said that the parliamentary process is no way to deal with major infrastructure projects, but regret that the Government have not seen fit to retain county structure plans, despite the fact that 90 per cent of those consulted felt that they should be kept. We are many years from a democratically elected regional tier. For major planning decisions to be taken in the way proposed is a retrograde step.
The separation of land use from waste, minerals and transport planning will cause severe problems in future. The Statement recognises that a sub-regional planning tier is needed. We already have one—the county council. We regret that the opportunity has been lost to introduce a limited third-party right of appeal. If one adopts the view taken by the Green Paper, as we do, that community support for planning processes is paramount, the right to appeal against a decision hated locally should be introduced.
We regret the tone of the Statement. Its use of phrases such as,
"putting local authorities on notice",
and the emphasis it places on intervention will not help to develop a good relationship between local authorities and central Government. We are concerned at the proposal that the Secretary of State, advised by civil servants in London, will have the ability to override locally elected representatives.
4.5 p.m.
Lord Rooker:My Lords, I am grateful to both noble Baronesses for their broad welcome for the Statement, even though they had legitimate questions. I say to the noble Baroness, Lady Hanham, that it is not insignificant that the only parts of the country that she mentioned were Essex and Kent—exactly the same as in another place. There is more to the country than Essex and Kent. Millions of people live outside Essex and Kent. Why the Front-Benchers in both Houses seem to concentrate just on Essex and Kent is beyond me.
Baroness Williams of Crosby: My Lords—
Lord Rooker: I was referring to Tory Front-Benchers, my Lords. I listened to all the questioning on the Statement in another place and was surprised. The honourable Member for Brentwood and Ongar, Mr Pickles, was completely isolated and not supported by any of his Back-Bench colleagues.
We are not planning any new regional bodies of the kind for which the noble Baroness asked. The Housing Corporation, regional development agencies and the
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Government are not planning a new quango. The noble Baroness did not ask for one but that was implied by her question. Neither are we jumping the gun. At present, all relevant decisions will still come to Ministers. There is no question of decisions that should legitimately be made by Ministers accountable to Parliament being passed to an unelected group of people—however esteemed and qualified they may be. For the interim, decisions will be made by Ministers.
County councils will retain their rights in respect of minerals and waste but we are abolishing the structure plans. We are not abolishing county councils. Tory governments abolished county councils. Labour governments are not in that business. We do not want to impose another layer of planning—which would happen if we left county structure plans in place and be an undue burden on all concerned.
I do not want to bandy figures, but the Statement makes it clear that, since 1997, the Government have redesignated or physically added 30,000 hectares to the green belt. From 1979 to 1997, the figure was virtually stable. I do not have to apologise for anything. There is much more green belt under Labour than there was under the Tories. In no shape or form can any charges about attacking the green belt be levelled against the Deputy Prime Minister. We are pledged, as a public service agreement objective, to add to the green belt irrespective of our plans for more housing because we know that can be done. Green belts are not necessarily synonymous with green fields—which some people refuse to accept.
Density is not a question of piling them high and selling them cheap. Such properties do not last long. We have learnt the mistakes of the past. I invite your Lordships to study the publication Better Places to Live: By Design—a companion to PPG3. Unfortunately, it was published in September last year, when everyone's mind was on other matters.
In the document, example after example is given, supported by the Commission on Architecture and the Built Environment, of good quality dwellings, designed with good environmental standards and built at high density all over the country. There are examples in Norwich, Manchester, Southwark, Islington, again in Manchester and in Kendal of density building of 50 to 100 dwellings per hectare, whereas the average in the South East has been approximately 20.
There are other examples of density building of 30 to 50 dwellings per hectare in Bishop's Stortford, Lewisham, Dorchester, Liverpool and Newcastle. All have details of good quality desig:n. People are not piled on top of each other. The building is not done cheaply and corners are not cut. Therefore, there is absolutely no excuse for people to argue that higher density means poorer standards and poorer quality. We shall ensure that that is the case, in particular, in the growth areas. We shall focus a big push on the four growth areas to ensure that local authorities, planners and builders take account of the ideas and views of organisations such as the Commission on Architecture and the Built Environment.

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With regard to the inquiry system, as my right honourable friend said, we have published three papers alongside today's Statement. One gives the Government's response to the consultation on the Green Paper. It does not give the Government's response to the Select Committee report. That will be done as part of the normal process. The 44 recommendations deserve a proper detailed response, and that will be done within the normal period of two months following publication. However, we have set out our response to the planning Green Paper.
In the inquiry system we want to maintain the right of all objectors to be heard. That is absolutely crucial. It is possible that, under different procedures, the inspector will be able to hear objectors either in an informal way or through mediation before the grand inquiry begins. Either way, objectors will have the right to be heard.
We also want to allow the inspectors to take issues concurrently as well as consecutively, as is the case at present in relation to major infrastructure inquiries. I give the example of Terminal 5. That was an exception but it is an example that people have in mind. During the course of that inquiry, the Deputy Prime Minister—then Secretary of State for Transport and the Environment—could not say what he wanted to say about transport in that area because that would have opened up completely new avenues in the inquiry. He was constrained. We want inspectors to be able to examine different aspects of big inquiries concurrently rather than one after the other.
If in an infrastructure project inspectors operate within the framework of a government statement on policy, they will not spend half their time with those appearing before the inquiry trying to work out what the policy is and then deciding whether the project fits the policy. Therefore, we believe that we can cut the time spent on major infrastructure inquiries by some 50 to 60 per cent.
Together, my right honourable friend the Deputy Prime Minister and I currently have 59 years' experience and membership of the other place. It did not take us too long to see that asking Parliament to take an almost statutory or constitutional role in an executive matter would be fraught with considerable difficulties for all concerned, including the Members of both Houses.
As we have said, we do not agree with the Select Committee on the matter of planning zones. We believe that such zones are achievable. It would not be a question of a free-for-all or a case of "anything goes". That is not our intention. It will not be a question of drawing on a map and saying simply that anything goes. Buildings must be of quality and good design. I hope that I have covered most of the issues raised by the noble Baroness. We shall return to the matter later in the autumn with a Statement containing further detail.
Baroness Hanham: My Lords, before the Minister sits down, perhaps I may ask him to clarify what he said. On page 8 of the Statement, the Deputy Prime Minister says:
"I am also announcing that we will establish strong regional bodies".
The Minister suggested that it was proposed to add them on to something that was already there, but that is not what the Deputy Prime Minister said.
Lord Rooker: My Lords, it is not intended to create a brand new body. We are talking of the coming together of existing bodies which currently do not talk around the table in a structured fashion. We want them to do that, whether those involved are a government office, the director of the regional housing corporation or the RDA. We want to put the situation on a firmer footing. In that sense, it will not be a new body.
4.15 p.m.
Lord Hanningfield: My Lords, I declare an interest as Leader of Essex County Council. I find it extraordinary that the Minister should say that we keep on mentioning Essex and Kent. We are talking about four sites for 200,000 houses, and three of those are in Essex and Kent. In fact, two are in Essex. Therefore, that is 100,000 houses for Essex. If Essex and Kent do not have a particular interest in the matter, I do not believe that anyone has.
Two of those sites—one is at Stansted and one at the Thames Gateway—could possibly take 50,000 houses. Again, the Minister said that we were not going to concrete over the South East. If 100,000 houses were built in Essex, that would constitute concreting over a considerable proportion of that county.
The Minister also said in the Statement that we were not delivering the number of houses in the South East. I say immediately that in Essex 18 months ago the Government published targets for regional guidance on planning. They set a target in Essex of 5,000 houses a year. We have been exceeding that target every year since then, and we are likely to exceed it even more. I shall not comment on other parts of the South East, but certainly Essex has exceeded its targets over those years and is meeting the Government's requirements. Therefore, I believe that the Minister should reconsider that comment.
I want to raise a point of particular concern to me about the whole Statement. While I certainly recognise, as do others, the need for more housing, I concur with the comment of my noble friend Lady Hanham concerning the need for infrastructure as well. We could do more in Essex now, but those who have lived in Essex will know that one has to go somewhere to work. Therefore, all the development in our county or other counties in the South East must also be accompanied by employment.

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The Thames Gateway, which we also support as a regeneration area, needs employment as well as houses. I did not hear a suggestion in the Statement about the need to ensure that employment is created together with houses. If we do not do that, we shall create only more congestion and more problems, with no trains and no transport networks in the South East to cope with them. Therefore, I want the Minister to give us more information about how the infrastructure will compete with and complement the new houses.
I also concur with the noble Baroness, Lady Scott, who said that 90 per cent of the people commenting on the planning Green Paper wanted to support the counties retaining the structure plans. I believe that we are doing a great disservice to planning systems in this country. Counties have been a bulwark in preparing the structure plans. We could do with processes to speed them up—we all agree with that. I hope that the Minister will reconsider his statement about not leaving the counties with the structure plans; I believe that they could be helpful.
Therefore, can the Minister respond to the points that I have raised and provide an answer as to how the infrastructure will fit alongside the 200,000 houses in the South East? Will money be available for roads, rail and other networks in order to enable people to commute around?
Lord Rooker: My Lords, the noble Lord is brilliantly qualified to speak on behalf of Essex. I was simply making the observation that, on the Front Bench, one tries to take a national view of matters. It seems a little narrow for Members of both Houses to stick to only two counties out of the whole country when the Statement covered the North and the South.
I shall be brief in responding to the points raised by the noble Lord. The plans, projects and vision that exist in relation to the Thames Gateway, for example, will not work if only housing is to be considered. They will not work without new Thames crossings, and they will not work without infrastructure being put in place before work begins on the housing. I absolutely accept what the noble Lord said, and that is axiomatic throughout the rest of the Statement. On two occasions I referred to jobs and economic progress rather than simply housing.
I was not having a go at Essex; I was simply making an observation. Essex and Kent make valuable contributions to growth in this country, particularly through the Thames Gateway and the vision throughout the linear city. People will not have to travel tens of miles from their homes to work. We need jobs and sustainable communities, not only amorphous housing estates; otherwise, we shall make the mistakes of the past.
The Earl of Erroll: My Lords, taking a national view, it seems to me that this is a recipe for more regulators, more regulations and more inspectors. Will anyone be left to create wealth for the Government to tax in order to pay this new army of busybodies?
Lord Rooker: My Lords, absolutely. Regulators can save a great deal of money. The point raised by the
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noble Earl gives me an opportunity to answer a question put by the noble Baroness, Lady Scott, that I neglected to answer earlier. At present, the inspection of housing operates from two arms: the Audit Commission carries out one aspect and the Housing Corporation another. On inspection, we want a single body not three bodies. With the stakeholders concerned we are discussing the best way forward to create a single housing inspection. We do not want more busybodies or quangos. We want a single body where two exist at present.
Baroness Maddock: My Lords, it is a refreshingly frank Statement from the Government about the state of housing in this country. First, why has it taken so long to reach this decision? For two decades on average the household formation has gone ahead of the number of homes built by 31,000. Secondly, can the Minister be more definite about when the Government intend to regulate the private rented sector? They have been promising this for five years. Can we please have a guarantee that we shall not be told in another five years that we shall deal with the issue when we have parliamentary time. Thirdly, will the Government consider selectively suspending the right to buy in some areas? The Government are putting a lot of money into building new social housing. Yet last year 53,000 local authority homes were sold and only 18,000 were built to replace them.
Lord Rooker: My Lords, on the latter point I say to the noble Baroness what the Deputy Prime Minister said in another place. The issue is not just new homes. Sometimes in order to rebuild and reinvigorate communities, particularly in the north where we have the problem of market collapse, the right-to-buy issue pops up just as we are about to demolish, costing the country millions of pounds. In some areas there has been flagrant abuse. These issues are under consideration at present. I can say no more than that.
I regret to say that I have to hide behind the old caveat about the private rented sector and selective licensing. We have a proposal for that. We have a manifesto commitment. The issue is being worked on. I cannot say when it will come before Parliament. I do not know what will be in the Queen's Speech later in the year. We are working on the plans. We are making statements. We are pursuing matters within the department with our advisers so that we are ready and available when the opportunity arises. We are getting on with the preparatory work. As regards waiting for 20 years—you wait a long time and then along comes a Labour government.
Lord Swinfen: My Lords, in the Statement the Minister mentioned affordable housing. What will the Government do about the inflationary practices of mortgage lenders? In the 1960s and early 1970s they would lend a maximum of one and a half times an individual's annual income and twice the combined annual income of a husband and wife. They would lend only a percentage of the value of the property. I understand that today they will lend

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up to four times the annual income; and that they will lend up to 115 per cent, if not more, of the value of the property, which must force up prices. What are the Government doing to curb this inflationary practice?
Lord Rooker: My Lords, we do not control the market in that sense. It is a matter for individual companies. On the other hand, shortages create price increases. We seek to tackle that issue by increasing supply in the right place and, where we have market collapse, reversing the process by putting value back into properties which have negative equity because of wholesale abandonment of hundreds of thousands of dwellings. In some ways, we have the wrong houses in the wrong place and the wrong people in the wrong place. We have jobs in the wrong place. To that extent, we have a mis-matched economy. We seek to tackle that issue.
There is no doubt that mortgage lenders have considered the low interest rates—they are the lowest we have ever had—with low inflation in the long term. Under the pressures of the market and of customers, they are bound to seek to lend for longer periods. I cannot say that that is the key to the inflationary aspect. It may not be so at the affordable end but it is the effect on the market. Underlying the issue is an acute shortage of supply. The probable root cause of the problem is that there are fewer houses than the number of household formations, as the noble Baroness mentioned.
Baroness Billingham: My Lords, I thank the Minister for the Statement. I listened to it with the ears of one who chairs an urban regeneration company in the Midlands. The whole idea of an urban regeneration company is to roll up a series of partnerships—those are the ethics of the board—with communities, county councils, borough councils and partnerships with RDAs.
Twelve new urban regeneration companies have been announced in the past 18 months, Corby being one. One of our aspirations is to build 22,000 new homes. Most of those will be on Brownfield sites, a relic of the old steelworks. I am listening carefully. I wonder how the Government will target assistance to urban regeneration companies which clearly have a reverse role when most people talk about housing. We say, "Bring us your people". We want to expand. We want to have a much larger critical mass within the Midlands.
What help will be available for urban regeneration companies such as Corby Urban Regeneration Company? Will the future bring more help in planning and housing? Our responsibilities are not only new build but also to improve the existing housing stock.
Lord Rooker: My Lords, I cannot go into figures today although the noble Baroness has not been slow in lobbying me along with the elected Members for the area in putting the case for Corby. I accept that there is substantial case for new housing and better
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infrastructure and transport arrangements. One of the growth areas is Milton Keynes and the south Midlands which includes the area to which the noble Baroness refers. We shall come forward with firmer proposals once we have talked to all the stakeholders in that area.
Lord Greaves: My Lords, the Minister said that in declining areas in the north of England there is a market collapse: with the wrong houses, the wrong jobs and the wrong people in the wrong places. Those of us who live in such areas do not think that we are the wrong people. I live in a valley where the towns are slowly dying. The population is and has been declining for some time. I refer to towns such as Nelson, Burnley and Accrington.
Part of the purpose of planning is not simply to accept that economic activity and growth exist but to influence them. Have the Government abandoned the old ideas of regional development—that in areas of declining regional activity one of the purposes of government is to resuscitate and encourage economic activity?
In the Statement it is proposed that housing expenditure in future should be in one regional pot. Can the Minister tell us whether the new Pathfinder projects—one is in our valley in north-east Lancashire—will be part of that regional pot or will they be kept separate?
Lord Rooker: My Lords, the Pathfinder projects have been especially delineated. The money has been specially organised for them. We shall get on with it. We need an urban renaissance in the northern towns as the noble Lord said; otherwise they will die. The issue is not just housing. We have to regenerate the whole economy, infrastructure and community. If we do not have sustainable communities, we end up with nothing.
The noble Lord is right. We have to look at the vehicles we use to create this change. The Pathfinder projects are one such vehicle. The money and resources will be put in the Pathfinder projects and we shall get on with it.
Baroness Dean of Thornton-le-Fylde: My Lords, I declare an interest as chair of the Housing Corporation. I welcome the Statement. Some of the points raised after the Minister sat down surprise me. An almost pessimistic view was expressed in response to what was very good news. It was a most wide-ranging Statement. It may have been brief but a long statement is not always good news. There was a lot of good news in today's brief Statement.
The Statement recognises, as I do as chairman of the corporation, many points. Part of our remit is to advise the Government about the issues concerning the northern counties, in relation to which market failure is addressed in the Statement. Market failure has not occurred in each of the counties, but there is market failure in some of the towns, as the noble Lord, Lord Greaves, said.

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We welcome the Statement, but we know that the pressure pot is in London and the South East. The Thames Gateway, for example, covers three regional areas—not just one county or one region. The Housing Corporation welcomes the requirement for parties to come together to talk about investment and it welcomes being involved in that. It is one of two inspectorates, so it also welcomes the idea of entering into sensible talks with the Government about merging two jobs into one, which will streamline the position. We welcome the Statement and look forward to the detail. It is good news and we should not walk away from it.
My noble friend Lord Clarke of Hampstead wanted to be present for the Statement but had to attend a Select Committee. He asked me whether I would say on his behalf, as a chairman who looked after the inner city problems in Burnley, that in his view the people of Burnley would regard this Statement about the northern counties as optimistic.
Lord Rooker: My Lords, I am grateful to my noble friend. She chairs what is by any stretch of the imagination and by any Whitehall measure a first-class organisation. It has been wholly positive, supportive and incredibly helpful to the new department in the past few weeks as we have been preparing for the effects of the Comprehensive Spending Review and preparing this Statement. I look forward to the discussions about how we shall combine the two inspectorates with their good operations and differences in their ways.
The noble Baroness made a valuable point about the Thames Gateway. It is a huge operation. Fourteen zones have already been identified and there will not be a single delivery mechanism in the area. She is right to say that there are three regional development agencies and several counties, including the London boroughs. Of course, the Greater London Council and the Mayor also have a crucial role to play.
The point about the North is well made. This Statement is not just about the hot-spots of London and the South East. We are responsible for the whole of England. The pressures and problems are different in each area. It is not that the North is full of collapsed economies and communities and it is not the case that the South does not have any empty housing. There is a mixture of problems which we have to address.
Lord Brooke of Sutton Mandeville: My Lords, I congratulate the Government on having reached their 60 per cent target for brownfield sites for new homes as early as they have. If the achievement for new housing had been greater, as the Government may wish it to have been, would that still have been the case? Will postmen be regarded as key workers? Can the Minister contemplate a simplified version of the government response to the consultation on planning because the language at the moment is fairly opaque?
Lord Rooker: My Lords, we can always improve the quality of our communications. I accept what the
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noble Lord, Lord Brooke, has said. If a simplified version of what is quite a short document is possible I shall see whether I can provide him with it.
In terms of key workers, if public services are not delivered one wonders why. One recognises a key worker when the service is not delivered. We talk about nurses and teachers and since the Government came to power the pressure has been on education and health, but if the post is not delivered postmen become key workers. That is the same issue. He makes a fair point which I do not seek to deny.
The figure is different in different regions, but overall we have reached the target of 60 per cent brownfield development of new housing eight years ahead of time with a low house building total. I do not know what the result would have been if there had been a higher house build level. Because we know the amount of brownfield land around, although there is no register of it. English Partnerships are working on that so that we can parcel it up and check it out. I do not know whether we would have met the target or not. However, we are hell-bent on keeping to the target and stepping up the housing output. Therefore, the pressure is on to find more brownfield land.

Animal Health Bill
4.35 p.m.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord Whitty): My Lords, I beg to move the Motion standing on the Order Paper. It relates to the order in which the House will take the Animal Health Bill in Committee. I have a few words of explanation.
This Motion is moved in order to proceed to the Committee stage of the Animal Health Bill, which was delayed by an amendment to the Motion carried by your Lordships on 26th March. The conditions of that amendment have now all been fulfilled. That amendment stipulated that debate could not proceed further until three steps had been taken by the Government. Those related to the consideration and publication of the findings of two of the independent inquiries into last year's foot and mouth outbreak and to the publication of our response to consultation on the implementation of powers contained in the Bill.
Your Lordships will wish to note that I have arranged for a copy of the government response to consultation to be placed in the Library of the House and, following the publication of the reports of the two inquiries, that completes the remaining steps specified in the amendment.
We are of course mindful of the needs on the part of the interested parties to have sufficient time to absorb the findings and lessons of the inquiries, not only of those that have been published, as referred to in the amendment—the Royal Society and the National Audit Office—but also Dr Anderson's report, which is expected to be published this coming Monday.

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For that reason we propose effectively to reverse the order in which the Bill is debated in Committee, starting with the provisions that deal with scrapie, which are Clause 5 and Schedule 2. They are not part of the subject matter of the reports or the consultation process. Under that arrangement we would not proceed to the areas that deal with foot and mouth disease and related matters until after the Summer Recess, by which time Members of the House will have had a chance to absorb the recommendations of the reports. I hope your Lordships will agree that that will be an acceptable order in which to debate the Bill during the course of the Committee stage. I beg to move.
Moved, That it be an instruction to the Committee of the Whole House to whom the Animal Health Bill has been committed that they consider the Bill in the following order:

Clause 5,

Schedule 2,

Clause 14,

Clauses 1 to 3,

Schedule 1,

Clause 4,

Clauses 6 to 13,

Clauses 15 to 18.—(Lord Whitty.)

The Countess of Mar: My Lords, I declare my interest in farming, although I deny the interest in "specialist goat disease making" as published in the Register of Lords' Interests. Perhaps that was a Freudian slip on the part of the registrar. I am in fact a goats' cheese maker.
When this Bill was last before the House on 26th March, my noble friend Lord Moran moved the amendment mentioned by the noble Lord, Lord Whitty. In the absence of my noble friend, he has asked me to convey to the House the following message. I would be grateful for noble Lords' indulgence. The message reads:
"I am very surprised that the Government has decided to resume the Committee stage of the Animal Health Bill. The amendment I introduced on March 26 was passed by 130 votes to 124. By this vote the House declined to consider the Bill any further until the various reports on the Foot and Mouth Disease had been received, considered and published by Her Majesty's Government. The National Audit Office's Report was published on June 21 but the Government has not yet responded to it".
I gather that the Minister has now said that the response is in the Printed Paper Office.
"The Royal Society's report was published on July 16. Neither the Government nor the House will have time to consider it and respond adequately before July 25. We are still awaiting the conclusions of the Lessons Learned enquiry, not due till next week, a couple of days before the scheduled Committee stage.
I am astonished that the Government has not considered it necessary to communicate with me prior to putting the Bill back on the Order Paper. The House authorities told me that they expected the Government to speak or write to me. They have not done so.
I have heard suggestions that the Government may have it in mind to propose that only Part II of the Bill, on scrapie, may be dealt with on the two days on the grounds that it is 'non-controversial'. If they think so, they are wrong. The proposals on
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scrapie are highly controversial. As I pointed out in January at Second Reading, the President of the Royal College of Veterinary Surgeons said that in this part of the Bill 'many unsupported scientific judgements are made'.
In any case, it is hard to see how the Government intends to proceed with a Bill that legalizes further mass slaughter when the Royal Society's report recommends that only 'diseased animals, and all those that are known, or very likely, to have been infected by them' be slaughtered. It does not recommend contiguous culling. On the contrary, its view is that 'emergency vaccination should be seen as a major tool of first resort, along with culling of infected premises and known dangerous contacts, for controlling FMD outbreaks'. It seems likely from early reports that the Lessons Learned enquiry will come to a similar conclusion. The Government will be faced with the alternative of ignoring the conclusions of the most eminent scientific body in the country or of abandoning or entirely rewriting the existing animal health Bill. Why, then, press ahead with a Committee stage now?
The Government has so far ignored all the criticisms made of the Bill in both Houses and by many organisations in the country. Their attitude is not unlike that of Edward Lear's Jumblies who sang:
'We don't care a button, we don't care a fig
In our sieve we will sail to sea'.
Clearly, it would be much more sensible for the government to hold over further consideration of these problems until after the summer recess, when they and we will have been able to study and reflect on all three of the relevant enquiry reports (all commissioned by the Government itself) and decide on the best way forward".
That is the end of the remarks of my noble friend Lord Moran. In my opinion, my noble friend makes an eminently sensible proposal. The Minister's Motion asks us to deal first with the scrapie measures. What is the point of us dealing with what amounts to about a third of the Bill before the Summer Recess when it seems likely that the remaining two-thirds will have to be substantially rewritten in the light of various reports?
I would go further than my noble friend. I suggest to the Minister that he dumps this Bill and drafts a completely new one during the Summer Recess—one that takes into account the many recommendations contained in the reports commissioned by Her Majesty's Government following the recent epidemic of foot and mouth disease, and also takes into account the many valid objections to Schedule 2 to the Bill.
I am confident that both the Minister and all noble Lords must see the sense in our having placed before us a Bill that has been carefully drafted and which, with a little luck, will need little amendment, rather than struggle on trying to put some sense into this current defective Bill. The Minister already has more powers than he needs to deal with transmissible spongiform encephalopathies in our livestock. There is therefore no urgency for Schedule 2 to be enacted. I fully recognise the need for strong measures to control animal diseases. However, I want to see good, sound law that is both reasonable and enforceable.
Finally, I am very disturbed by the Minister's apparent discourtesy to my noble friend Lord Moran and to the House. Why did he not consider it necessary to communicate to my noble friend before this Motion was put on the Order Paper? In the light of their importance, why has he not allowed us more time to

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consider the contents of the relevant reports? As noble Lords will have gathered, I wish to oppose this Motion.
Lord Livsey of Talgarth: My Lords, we are examining the successful amendment of the noble Lord, Lord Moran, in relation to the Animal Health Bill. Factually, the Government have considered the responses, at least theoretically, to the consultation on the implementation of powers in the Bill. Their response has arrived in the past 24 hours so I now understand why the noble Lord, Lord Moran, did not get that information. It has been placed in the Library of the House so technically it is in the public domain. Even though I do not like some of its conclusions or the way in which this has been handled at such short notice, the Minister has made a statement and provided assurances. I should be grateful if he would repeat in his summing up that we are going to consider only Part 2 of the Bill which addresses the issue of scrapie.
There are, as has been said, a number of important scientific issues in relation to the control of scrapie. I believe that it is possible to proceed with Part 2 of the Bill next week. However, I give warning that my party will examine Part 2 of the Bill together with amendments that we have put down. If we believe that scientifically the Bill is not sound, then we shall not hesitate to try and defeat it on Report. However, that is no reason why Part 2 of the Bill should not proceed.
Part 1 of the Bill, concerning foot and mouth and infectious diseases, will not be taken until October. Therefore there is time to consider the results of the Royal Society, the NAO report and other reports such as the Anderson Report into foot and mouth. Therefore, on balance, we cannot see a reason to delay the Animal Health Bill further, as long as only Part 2 is taken next week.
Lord Skelmersdale: My Lords, while I accept the Minister's assurance that Schedule 2, which is the operative part of the Bill to be discussed next week and the week after, has nothing to do with the reports referred to in the Motion of the noble Lord, Lord Moran, passed some months ago, it occurs to me that there are parts of Schedule 2 which have a conformity with other parts of the Bill and other parts of the animal health legislation that will remain on the statute book. That being so, if the Government themselves seek to amend, for example, the enforcement provisions of this clearly controversial schedule, may we have an assurance that there will be reciprocal amendments to other parts of the Bill and animal health legislation more widely? If not, I have no doubt that all this time which has been found will be wasted and there will be quite serious cause for Schedule 2 to be recommitted after we come back from the Summer Recess.
4.45 p.m.
Baroness Byford: My Lords, I should like to comment on the letter referred to by the noble Countess, Lady Mar. Before doing so, I should like to remind the House of our family's farming interest.
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Like other noble Lords, I am slightly disturbed by the way the Government wish to push ahead with this Bill. The scrapie section is not a deeply infectious or deeply worrying part. It is actually the least worrying part of the Bill. The need for urgency is, therefore, slightly beyond me. I have a briefing sent to me by the RSPCA this morning, appertaining to the whole Bill but particularly the scrapie section. The RSPCA,
"are concerned that there is no time indication in the Bill. Any disease eradication programme for scrapie should be phased in over a number of years, for example 10 plus years".
I know that the industry has already raised this issue with the Minister. The briefing continues:
"The RSPCA would like to see the testing programme phased in over a period of time. Testing of all breeding ram, and the year's lambs one year ahead and then focus on other groups or herds over the next years".
There is a concern even within that organisation. It is not a breeding organisation, but an animal welfare one. But it fears that,
"too rapid a cull could devastate the gene pool leading to other health problems".
We believe that pushing ahead with this section is unwise. Other noble Lords have already referred to the fact that we have had the outcomes from the National Audit Office and the Royal Society.
It is to the latter that I should like to draw the Minister's attention. The Government maintain that there is nothing in those two reports that affect the scrapie section. Perhaps I may turn the Minister's attention to page 141, Annex A: Terms of Reference:
"This inquiry was commissioned by the Royal Society, jointly by the Chief Scientific Adviser and the Permanent Secretary of DEFRA on behalf of the Prime Minister and the Secretary of State. The commission stressed that the inquiry should be clearly independent. This meant that the terms of reference were agreed mutually between the Society, the Office of Scientific Technology and DEFRA".
The report goes on to say that the terms of reference agreed were:
"To review the scientific questions relating to the transmission, prevention and control of epidemic outbreaks of infectious disease in livestock in the UK".
At the bottom it says that transmissible diseases have the potential for very serious and rapid spread, irrespective of national boundaries. They can have serious social and economic or public health consequences and are a matter of major importance in the international trade of animals or animal products. From my reading of that—the Minister will correct me if I am wrong—the report particularly refers to the scrapie provisions in the Bill. So I return to the position we are in at the moment and ask: is it wise that we should press ahead with the Bill at this time?
One or two other points particularly concern me. The first is that this Bill has already technically been through the other House and arrived before your Lordships today. If the Government find that they have to introduce many new amendments, our democratically-elected colleagues in the other place

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will not have a chance to debate the substance of a Bill which will be democratically altered to an unknown degree.
The Countess of Mar: My Lords, does not the noble Baroness mean "undemocratically" altered?
Baroness Byford: My Lords, the noble Countess, as ever, is quite correct. I must choose my words more carefully. But what I am saying is that if we make huge changes to the Bill, because of the way that Parliament works—as noble Lords know well we discuss only the amendments tabled in this House—the other place will not have a chance to discuss those changes. As we know and accept, the guillotine Motion is used in the other House and we could see huge swathes of this Bill going through undebated. I am concerned therefore about the procedure for Bills going through this House. I hope that the Minister will take that into consideration because it is enormously important.
As the Minister is aware, I wrote to him twice—once on 29th May and again on 2nd July—warning that we would not consider the scrapie provisions without taking into consideration the powers of enforcement and other aspects of the TSE regulations which we debated at great length. It was only this morning that I finally received a reply to my letter. It was a very full reply and I do not know whether other Members of this House have had a chance to see it—I do not intend to read four pages of it now. It underlines my concern about the speed at which we are progressing.
The department's letter acknowledges that major concerns were raised when we took the TSE regulations through. It says it now intends to consult again with the industry on some of the provisions. How sensibly can we pursue the enactment of provisions relating to scrapie in a Bill containing powers for the control of animal disease while the Government are still consulting? I hardly think it wise to push ahead at this time.
I return to two earlier points. The first is that we are told that we will have two days in Committee—the first on Tuesday of next week and the other on the Monday of the following week—to deal with the scrapie provisions, which the Government consider to be uncontroversial. But as the noble Countess, Lady Mar, indicated when reading the letter from the noble Lord, Lord Moran, many of us believe that there are controversial aspects to consider. We are given two days for those provisions, which cover only one-third of the Bill. We have been given only two further days to consider the other two-thirds.
How does the Minister think we can handle the whole of the Bill in four days if he recognises, quite rightly, that we need two days to consider the scrapie provisions? Would it not be wiser to withdraw the Bill at the moment and wait until we have heard the various recommendations, particularly from the Anderson inquiry which reports this Monday, before we push ahead? The noble Lord may accuse me of trying to delay and putting the Bill off. But I would be
1424
more protective of our parliamentary time. I fear at the end of the day we shall take longer going back over work than we would if the Bill was withdrawn today.
Lord Carter: My Lords, I see two arguments for proceeding with the Bill in the way suggested by the Government. The first is an agricultural one and the second constitutional.
I should say at the outset that, as the noble Countess, Lady Mar, quoted the noble Lord, Lord Moran, the noble Lord, Lord Plumb, who unfortunately could not stay because his wife is unwell, made it clear that he supports the Government in their proposal to take the Bill forward in this way. The President of the National Sheep Association says that its members are anxious to get to grips with the scrapie situation. The NFU also supports the Bill. It has some concerns about compensation but that will be dealt with in the autumn when we come to the later part of the Bill.
So there are strong agricultural arguments for progressing the scrapie provisions. Of course the NAO report, to which reference has been made, relates entirely to foot and mouth disease and not to scrapie; it concerns the FMD outbreak.
Earlier this year 77 amendments were tabled on Schedule 2. I have not read the whole of the Royal Society report, but I find it hard to believe that there will be an enormous amount of extra amendments to the schedule required as a result of that report, which is a major scientific investigation which will need a long time and a great deal of consultation before any legislation finally appears—perhaps an all-embracing Animal Health Act much later. I believe I am correct in saying—I shall be corrected if I am wrong—that the Royal Society report excludes TSEs. It contains four paragraphs on the sheep industry generally and scrapie is mentioned in passing in one paragraph.
That is the agricultural argument for getting on with this part of the Bill dealing with scrapie. Even if a large number of amendments are tabled on Schedule 2, in my experience two days will be sufficient to deal with that part of the Bill.
The constitutional argument is that there is a powerful convention in this House which we tamper with at our peril. The elected Government are entitled to have their business considered. What we did in March had not been done since the 19th century. I regarded it as highly irresponsible. If there had been an outbreak of foot and mouth disease—thank God there has not been—or if one were to occur in the recess and the Government found that they did not have all the powers they needed to deal with it, those who supported the noble Lord, Lord Moran, would bear a heavy responsibility.
I cannot find any example, certainly in my 15 years in the House, where an order of consideration has been voted against. So yet another precedent would be created. The Government met the requirements of the Moran Motion, which only specified the NAO report and the Royal Society report. It was an oversight on the part of the noble Lord, Lord Moran, to omit

1425
Anderson, but all that was required was publication and response to those reports. In fact, in the terms of the Motion the Government would have been entitled to proceed with the Bill in the order in which it is printed. But they are waiting for the Anderson report. So the House will have the chance to consider the NAO report and the Anderson report—the two main reports dealing with FM D in this Bill—and the Royal Society report, which deals with vaccination and so forth. That will affect the Bill but not in terms of major amendment.
The House will have the whole summer to consider the three reports. That is a sensible way of dealing with the Bill. We explored this procedure much earlier—I am not revealing any secrets of the usual channels—after the vote on the Moran Motion. It was then thought that this might be a way forward. But the Government waited to meet the terms of the Moran Motion. They have done so. Two reports have been published, though only one has any effect on scrapie, and that only in passing. So there are agricultural and constitutional grounds for proceeding. To oppose the order of consideration of this Bill and the way that the Government wish to proceed would, in my view, be extremely dangerous.
5 p.m.
Lord Lucas: My Lords, I gather from my noble friend on the Front Bench that this order has not been agreed by the usual channels. She said so much against it that it seemed to me that the usual channels could not have been involved in deciding the way in which things should be done.
Baroness Byford: My Lords, in fairness, I must put the noble Lord right. I was indeed approached by the usual channels to consider taking the Bill in the order suggested. We have not got as far as that at the moment. I have the minute of the noble Lord, Lord Moran, in front of me and I refer it to the noble Lord, Lord Carter. It states that,
"Her Majesty's Government have received, considered".
I do not believe that they have considered. When I saw that I read it through very carefully. As regards the correction as to clarity, yes, I was asked that we take these matters in the sequence that we have. The report of the Royal Society had not appeared and I was not expecting it to have any reference at all to scrapie and TSE, but it has. That is why we are having this short debate.
Lord Lucas: My Lords, that answers one of my questions. But it appears that this is another occasion when the usual channels appear to have forgotten that Back-Benchers exist. We are not asked whether we should have Statements taken in this House. There was a little debate about that earlier today. I find it particularly extraordinary when what is a truly Back-Bench amendment succeeds without whipping or support, as far as I am aware, from any of the Opposition Benches in this House and the originator
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of the amendment is not told, consulted or informed in any way of the Government's plans for responding to it as the reports appear.
We are looking at how this House should operate in the future and, as Back-Benchers, we need to have care for our rights and abilities to make a difference in this House. We need to make sure that the usual channels, which are useful on many occasions, pay attention to us. Perhaps the mechanisms are not there for doing so at the moment because we seem to be forgotten more often than should be the case. To that extent I unreservedly support the noble Countess. Lady Mar. I do not have any particular comment to make on the substance of the Motion. I shall listen to what the Minister has to say.
Lord Whitty: My Lords, despite the wide-ranging nature of this discussion, all we have before us today is the order in which we should consider the Bill. The order is to facilitate discussion in the sequence I have described and to which the noble Baroness Lady Byford, referred.
I apologise if there was any discourtesy to the noble Lord, Lord Moran. However, we used the normal procedure in order to discuss both the tinting and the order. It may well be that the wider points raised by the noble Lord, Lord Lucas, can be taken up in a separate context. We certainly intended no departure from the normal procedure.
As regards justification for suggesting the order in this way, the words which the noble Countess, Lady Mar, read from the noble Lord, Lord Moran, related to dealing with scrapie because it was non-controversial. That was not the motivation although it was less controversial than other parts of the Bill. The reason was that the issues were not covered by the reports or the reports on the consultation.
Although the noble Baroness, Lady Byford, indicated that the terms of reference of the Royal Society report could have included TSE, it did not in fact include any substantive discussion of it principally because the focus was on List A diseases, as defined, which do not include TSEs. The only references to those in the report relate to information and not how to deal with them. Therefore, there is no implication for Part 2 of the Bill in the report of the Royal Society and none whatsoever as regards the National Audit Office report, which is being dealt with in the normal way in another place through the Public Accounts Committee. Some noble Lords will be aware that the Permanent Secretary of my department had a fairly lengthy and interesting session with the Select Committee on the report a few weeks ago.
As regards other issues, the noble Countess rather let the cat out of the bag by saying that the main motivation of the noble Lord, Lord Moran, was to dump the Bill. That may or may not be the case.
The Countess of Mar: My Lords, I do not believe that that was the view of the noble Lord, Lord Moran, but mine.
Lord Whitty: My Lords, that is even clearer and I therefore apologise once again to the noble Lord, Lord Moran, in his absence. If the noble Countess wishes to make it clear, it is also necessary to make it clear to the House that that was not the purpose or content of the Motion passed by this House in March. That was to delay the Bill until we had received and considered the reports and the response to the consultation relating to parts of the Bill.
The Government have already considered them and the House has the opportunity to do so in the summer before we reach the relevant points. The scrapie provisions are not affected or any of the stipulations in the resolution passed in March which, as my noble friend Lord Carter said, was an extraordinary Motion in the first place. It would be even more extraordinary if we rejected a scheduling Motion today.
Others have queried why we should proceed so rapidly on the scrapie part of the Bill. It is a part of the Bill which is widely supported by the industry, which needs reassurance on some aspects of it. We are discussing the logistical aspects. The eradication of scrapie from the national herd will take several years, but virtually everybody in the sheep industry wishes to begin the process as rapidly as possible and therefore to get onto the statute book as rapidly as possible the legal powers to do that. That is why it is equally urgent that we proceed with the scrapie part of the Bill as the Government consider the provisions are needed as regards the foot and mouth disease. No doubt others will take a different view.
I shall be making a Statement in the House on the report of the Royal Society and on the Anderson report, due on Monday, after we have received it. Some of these matters can then be discussed more widely. But before the House today is a Motion which enables us to adopt a sensible timetable, but it is only about the order in which we take the Bill. I therefore hope that the House will accept the Motion and not take the unprecedented step of voting against it. Some of the substantive points which have been raised can be dealt with in the normal way in Committee in this House. I commend the Motion to the House.
On Question, Motion agreed to.

Enterprise Bill
5.7 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Sainsbury of Turville.)
On Question, Motion agreed to.
House in Committee accordingly.
[The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Fookes) in the Chair.]
Lord Kingslandmoved Amendment No. 84:
Before Clause 16, insert the following new clause —
"APPEALABLE DECISIONS
In section 46(2) of the 1998 Act. there is inserted after paragraph (h)—
"(i) to issue a notice under section 26 requiring the production of specified documents or information;
(j) to investigate premises without a warrant under section 27;
(k) to investigate premises with a warrant under section 28: (1) not to investigate a complaint under Chapter I or II;
(m) not to grant interim measures under section 35.""
The noble Lord said: This amendment concerns Section 46 of the Competition Act 1998. It seeks to insert some new paragraphs after paragraph (h). None of the measures stipulated in the amendment is capable of being appealed to the Competition Commission Appeal Tribunal which, as the Committee is aware, is to be re-named the Competition Appeal Tribunal under the Bill. Nevertheless, each of the additions has significant effects for the party concerned and can be challenged only by judicial review. The amendment is consistent with the Government's declared wish to have competition matters dealt with by bodies versed in competition law and practice. The decisions on the additions listed above should go to the CAT and not to the courts.
On the very day that the Bill was introduced in March 2002, an important decision was taken by the Competition Commission Appeal Tribunal in a case called Bettercare. The case concerned whether a complainant had a right to appeal against a rejection of a complaint by the OFT—a matter not listed in Section 46. The OFT argued that it had not taken a decision but had merely decided not to exercise its discretion to open proceedings on the grounds that the Competition Act did not apply to the party complained about. The party complained about was a local authority. The CAT nevertheless held that this was an appealable decision.
The situation now seems to be, therefore, that if the OFT rejects a complaint on substantive grounds its decision is appealable; but if it decides not to investigate on grounds of, say, lack of resources or lack of the importance of the subject matter, that would be challengeable in the High Court only by way of judicial review. That will plainly lead to confusion. It might not, in particular, be easy to determine what was the basis for rejection: indeed, the OFT might be encouraged to base all rejection letters on judicial review-type grounds which would not be conducive to good decision making or to transparency. Moreover, a complainant who brought his appeal in the "wrong" forum might find himself out of time because of the difference in limitation periods for the two procedures.

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There is absolutely no reason whatever not to provide that all competition-related decisions, including rejection of complaints, should be reviewable by the CAT and not by the ordinary courts. I beg to move.
Lord McIntosh of Haringey: The amendment would add to the list of decisions by the Office of Fair Trading that could be appealed to the competition appeal tribunal under the Competition Act 1998. I think that the reference in the amendment should be to Section 46(3) and not to Section 46(2). But that is of no matter.
Section 46(3) of that Act lists a number of decisions taken by the Office of Fair Trading that can be the subject of a full appeal to the tribunal. Further decisions of the OFT may be added by regulations under Section 46(3), and, in the case of third party appeals, Section 47(1). With one exception, we do not propose to add any new category of appealable decisions.
The exception is the category covered by paragraph (m), which the amendment proposes to add. I agree with the noble Lord, Lord Kingsland, that decisions not to grant interim measures should be appealable under Section 46, or, as I think is more likely, by third parties under Section 47. We stated our intention to implement this change in the July White Paper. As the Minister said in another place, we will be bringing forward the relevant secondary legislation as soon as is practicable. But it is unnecessary to make the amendment on the face of the Bill.
Having said that, I am not minded to take action on the other proposals in the amendment. The list of appealable decisions in Section 46(3) consists of substantive decisions by the OFT requiring an analysis of the merits of the case, and with only one exception taken at the conclusion of a procedure or investigation. The sole exception is the current right to appeal against interim measures taken under Section 35, which we are prepared to extend by order to include decisions not to grant interim measures.
We do not think it appropriate or necessary to provide for a full right of appeal on any intermediate, investigatory step in the OFT's proceedings. Parties are not without an avenue—as the noble Lord, Lord Kingsland, has reminded us—of judicial redress in any of the circumstances stipulated in the amendment. The option of applying for judicial review in the High Court will always be available. In that case the court will have full powers to impose remedies such as injunctions.
The noble Lord, Lord Kingsland, referred to the Bettercare case. Section 42(3) is clear that decisions as to whether the Chapter I or Chapter II prohibitions have been infringed can be appealed to the competition appeal tribunal. That includes decisions that a prohibition has not been breached. The Bettercare case establishes that the Director-General of Fair Trading may have made a decision that the prohibition has not been infringed, even where the position has not been taken at the end of a full administrative procedure and is not formally entitled
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a decision. It is sufficient if the DGFT had in substance made the determination of the issue—for instance, in the course of correspondence with the complainant— rejecting a complaint.
This is a substantive decision. It can be appealed to the tribunal. I hope that deals with the concern expressed by the noble Lord, Lord Kingsland. It was always the intention behind Section 46(3). My noble friend Lord Simon of Highbury during the debate on the 1998 Competition Bill said that it was our intention that substantive decisions by the director should be appealable to the Competition Commission. With those two, I hope, convincing points, I hope that the amendment will not be pursued.
5.15 p.m.
Lord Kingsland: I am grateful to the noble Lord for his full reply. He will not be surprised to hear that I am disappointed by it. I shall certainly return to the matter on Report. He is quite right about the subsection designation. The amendment should have referred to Section 46(3). I apologise to the Committee for that.
The Bettercare case is a good example of the illustration I gave about the OFT being tempted to cast its decision in terms of reasons which fall within the judicial review, rather than the appeal category. I think in this case of paragraph (1) of my amendment.
Judicial review in competition cases is hardly a remedy at all. As the noble Lord is well aware—if for no other reason than because of his experience with the Financial Services Bill—it is not normal in judicial review cases for judges to permit either cross-examination or discovery of documents. In those circumstances, it would be extremely difficult for a complainant before a judge in the Administrative Court to get anywhere with judicial review proceedings in relation to that matter. For those reasons, I shall be returning to the matter on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 16 agreed to.
Lord Razzallmoved Amendment No. 85:
After Clause 16, insert the following new clause—
"TRIBUNAL: REGULATIONS
(1) The Lord Chancellor and the Secretary of State may together make regulations—

(a) empowering the courts to transfer to the Tribunal for determination by it any issue arising in any civil proceedings the determination of which depends on whether provisions of Chapter I or II of the 1998 Act or of Article 81 or 82 of the Treaty have been infringed where, in the opinion of the court making the transfer, the transfer would be conducive to the efficient conduct of the proceedings;

(b) making any rules that the Lord Chancellor and the Secretary of State may deem to be appropriate as ancillary to the power to make such transfers or to be reasonably required in connection therewith and in particular, but without prejudice to the generality of the foregoing, to the effect that—

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(i) on making such a transfer, the court making the transfer may state facts that the Tribunal shall then treat as established for the purposes of determining the issues transferred to it;

(ii) after having made its determination, the Tribunal shall remit the matter to the court that made the transfer to it, declaring the determination of that issue by the Tribunal, which, subject to any clarification or amplification by the Tribunal of its determination that may be requested by the court that made the transfer, shall then be treated as a determination of that issue by that court;

(iii) enabling courts that have made, or have in contemplation the making of, such transfers and the Tribunal to co-operate together in any way that they deem to be appropriate to enable issues arising in the proceedings before them to be determined as efficiently as possible.

(2) The Lord Chancellor may appoint as President and as chairman of the Tribunal judges of any of the courts provided that, before appointing a judge of the Court of Session or sheriff courts under this subsection, the Lord Chancellor shall first consult the Lord President of the Court of Session.
(3) In this section references to "the courts" are to the High Court of Justice and the county courts in England and Wales and Northern Ireland and the Court of Session and the sheriff courts in Scotland.
(4) The power to make regulations under this section is exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.
The noble Lord said: Amendment No. 85 seeks to test the Government's intent on one or two quite complicated issues that relate to the functions of the competition appeal tribunal and the function of the courts. I am grateful for the representations that have been made to me in this respect by a number of practitioners in the competition law area.
The concern which the amendment seeks to remedy is that the Bill, if passed in its current form, would be in danger of getting the competition appeal tribunal to perform functions that it is not eminently qualified to deal with and getting the High Court to perform functions that it is not properly qualified to deal with. That is the substance of the amendment. It is designed to give the Government power to bring in regulations, on which there will need to be extensive consultations, to attempt to ensure that the right functions can be placed with the right bodies.
The background is that, for the first time, the Bill contemplates that where there are breaches of regulations and laws regarding competition legislation the power is given for private actions to be brought. We on these Benches certainly welcome that.
But the question is whether what was Clause 16 and is now Clause 17 appropriately assigns the power to make decisions on damages to the tribunal. In our judicial structure, the body that is eminently qualified to deal with questions of damages is the High Court. One of the underlying principles of the amendment is that the High Court, rather than the tribunal, should deal with damages.
Conversely, under the Bill, in many cases the competition appeal tribunal will not be assigned to deal with what it will be eminently qualified to deal: significant issues involving the interplay between the law and the economics of a case. High Court judges are
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not usually qualified to make such determinations. The amendment is intended to ensure that regulations can be introduced by the Government and that the competition appeal tribunal will deal with the matters with which it is eminently qualified to deal—complicated factual economic issues, for example, determining whether the exemptions in Article 81(3) apply.
Such issues have been increasingly determined in Europe, but because of the way in which European law is beginning to develop they will soon return to be matters to be determined by domestic tribunals or courts. Such issues should be determined by the tribunal. Conversely, the High Court is the appropriate place to determine issues of damages. That is the purpose of the amendment. I beg to move.
Lord Kingsland: I support the amendment. It is primarily due to the work of the distinguished competition lawyer Sir Jeremy Lever that the matter is before us today.
As the noble Lord, Lord Razzall, explained, for a variety of reasons, mainly connected with the content of the Bill and the likely move of the European Commission to delegate much of its competition decision-making to national authorities, the volume of competition cases in national courts will grow substantially. Essentially, the amendment implies that the Government have got matters the wrong way round in the Bill. The Government seek to concentrate responsibility in the new competition appeal tribunal for determining damages following decisions by the responsible competition authorities.
The philosophy behind the amendment is that measuring damages in competition cases is not an especially complicated matter for Queen's Bench judges. Given the huge volume of work that the competition appeal tribunal is about to undertake, why not relieve it of the task—or at least of the exclusive task—of doing something that can just as well be done by other courts?
On the other hand, the Bill as drafted will, in private actions, require ordinary High Court judges to deal with the most sophisticated and complex competition matters—those under Article 82(3), for example—which the CAT is uniquely qualified to consider and undertake.
The amendment is intended to provide a transfer mechanism in the opposite direction to that of the Bill. It is intended to provide the power to take cases that arise in the ordinary courts and transfer them to the competition appeal tribunal. In a sense, we are trying to change the flow. The Bill will send damages matters to the competition appeal tribunal; it should send competition matters to it.
The amendment has no political content. It is an attempt to assess where the burdens will lie on the judicial system when the Bill is enacted. It is in everyone's interest to get that right. The Government have taken a certain view in the Bill. I hope that they

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will give the amendment serious consideration, if they have not already done so, so that we can develop the idea during our proceedings.
Lord Razzall: For the record, I think that the noble Lord meant Article 81(3), not Article 82.
Lord Kingsland: Yes. I have got off to a bad start with my statutory designations; I apologise.
Lord McIntosh of Haringey: I do not think that we are worried about damn dots!
I listened carefully to what the noble Lords, Lord Razzall and Lord Kingsland, said. I certainly recognise that they feel strongly about this issue. I should like to consider their remarks between now and Report, but I must address myself to the amendment before us and point out the difficulties with it.
The amendment would achieve two things. It would enable the Lord Chancellor and the Secretary of State to make regulations enabling courts to transfer certain competition issues to be determined by the competition appeal tribunal. It would also, although this has not been spoken to, allow the Lord Chancellor to appoint judges directly to the positions of president and chairman of the tribunal.
Under the amendment, we should have the strange position whereby a tribunal made a decision on an issue arising in a case before a High Court judge that was then binding on that judge. It is true that, as a result of Clause 19, findings of infringements of competition law will be binding on the courts, but that will be only when the full appeal route has been exhausted and only in relation to claims for damages. So that is narrowly circumscribed.
Introducing such rules could lead to inconsistency in the way in which cases are dealt with. That could depend on the working practices of a particular judge. Some judges might refer some parts of a case to the CAT; but a different judge might decide to keep the whole case. That would be unsatisfactory for the parties involved because they would not have a clear idea of the path that their case would take.
The point was not spoken to, but the amendment would also involve a substantial enlargement of the powers of the CAT as currently proposed. It appears to allow the CAT to take initial decisions on competition law breaches that are currently taken by the Office of Fair Trading. As the noble Lord, Lord Razzall, is nodding, perhaps that is what he meant to achieve. The CAT has the power to make decisions relating to breaches of competition law, but only those that have been the subject of an OFT decision and are subsequently appealed to the CAT. That is why it is called an appeal tribunal.
Shall I speak to the issue of the direct appointment of judges by my noble and learned friend the Lord Chancellor?
Lord Kingsland: Please do.
Lord McIntosh of Haringey: The proposal that my noble and learned friend the Lord Chancellor should
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be able to appoint judges directly cuts across the policy of the Lord Chancellor's Department that all appointments to the tribunal should be by way of open competition. Open competition does not rule out the possibility that some judges will be appointed chairmen, but they will have to apply for the posts when they are advertised. We would be delighted if some judges were to apply; they have valuable expertise to offer the tribunal, not least in the two new areas of damages and judicial review. However, we see no need to make express provision to allow for the direct appointment of judges. The policy favoured by my noble and learned friend of running a competition, which will have a set of chairmen in place by the time that the provisions of the Bill commence, is the right one.
5.30 p.m.
Lord Borrie: Does my noble friend the Minister agree that, in any case, judges are already eligible, under Schedule 2, for the appointments to which the amendment applies? All judges have the 7-year or 10-year qualification referred to in the schedule.
Lord McIntosh of Haringey: I hoped that I had said that. That is the Government's position.
Lord Kingsland: The amendment would have covered that issue as well. However, I understood that the view of the Lord Chancellor's Department was that the noble and learned Lord had the power to appoint judges in the way suggested by the Minister. That is why it was thought unnecessary to cover the matter in the amendment.
Lord McIntosh of Haringey: My noble and learned friend does, of course, have that power, but he has made it clear that he intends to open up the system for the appointment of judges to competition. I would have hoped that that would be generally welcomed.
Lord Kingsland: The noble and learned Lord the Lord Chancellor may well wish to open the system up to competition, but he can still assign the winners of that competition in any way he likes.
I shall deal with the principal objections that the Minister raised, although I am sure that the noble Lord, Lord Razzall, will deal with them too. The Minister said that it would be inappropriate for a second court to accept a determination of issues that had been raised in the first court. Essentially, he asked why the second court should accept the findings of the first court, if the case were transferred to it.
Lord McIntosh of Haringey: I am sorry to keep bobbing up and down. The issue is not whether the second court should accept the decisions of the first court; it is whether those decisions are binding.
Lord Kingsland: There is nothing exceptional about the situation. Even before the enactment of this Bill, that will often be the position. Findings of fact will have been made in public law proceedings under

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Chapter 1 or Chapter 2 of the Competition Act 1998 or under Articles 81 or 82 of the EC treaty. Subject to certain conditions, such findings of fact will be treated as determinative in subsequent actions. That has always been the case.
The Minister's second objection was that the amendment would, in some way, expropriate the Office of Fair Trading or the competition authorities of the European Community of their powers. That is not so. We are discussing the transfer of matters that are the subject of private actions in the High Court—that have been brought either under Articles 81 or 82 of the EC treaty or under the corresponding provisions of Chapter 1 and Chapter 2 of the Competition Act 1998. The intervention of the competition authorities is not an issue.
Lord Razzall: I welcome the fact that the Minister said that he would consider the matter. Some important points have been raised. As the noble Lord, Lord Kingsland, said, it is not a party political matter. There is no politics in it: we are just trying to get the Bill right.
One point to which the Minister did not refer is that the amendment looks ahead to what we believe will be the structure of competition law in a year or two. Perhaps I did not emphasise that enough in my opening remarks. The noble Lord, Lord Kingsland, and I made the point that most practitioners anticipate that the powers devolved by the European Commission will come back to the structure in the UK. In other words, many decisions currently taken in Brussels will be taken in the UK.
It is likely that those decisions will, initially, be made by the OFT and that appeals will go from the OFT to the competition appeal tribunal. We are unlikely to have further legislation in place when that happens, but the amendment would create a structure so that the right bodies—the courts or the competition appeal tribunal—will be ready to hear the appeals. The courts will determine the damages and the competition appeals tribunal will determine cases relating to the complex inter-relationship between law, fact and economics, of which the classic example is appeals about the exemptions in Article 81(3). If the Government accept that that is what will happen, we must then ask what the composition of the CAT should be.
In the history of English law—I say, "English law", although we should bear in mind that it is an issue for the whole of the UK—when a raft of particular cases comes to the judiciary, people with expertise in that area are appointed to the High Court Bench. There is, in effect, a commercial court: judges are appointed to the High Court to deal with complicated commercial cases. I presume that, when the noble and learned Lord the Lord Chancellor introduces his new policy of advertisement for the judiciary, knockabout criminal lawyers from the Old Bailey will not apply for a job in the commercial court. Presumably, the noble and learned Lord will advertise for commercial court judges.
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We would not want to create a situation in which, because of the number of cases that come to the High Court, we would appoint to the High Court Bench only people with experience of competition law. We would want to build up a corpus of judges with competition law experience in the same way as the commercial court has developed. Those people should apply for appointment to the competition appeal tribunal because that is where they could best apply their judicial skills and their economic experience.
Lord McIntosh of Haringey: I shall say another word about the relationship between the court and the competition appeal tribunal. Under the Bill, the High Court can—as it already does—award damages in competition cases. That is not in question. The point is that the competition appeal tribunal offers an alternative route—only—for cases in which infringement of competition law has already been established. That will be the expertise of those on the tribunal.
Lord Razzall: I do not want to labour the point, and I know that the Minister will consider the matter. We are supposing that, not many years hence, a raft of decisions will be taken in the UK that, currently, are taken in Brussels. Major decisions are to be devolved to the UK. We want to see powers taken in the Bill under which the correct elements of those decisions should be taken by the competition appeal tribunal, the members of which will be qualified to deal with the complicated relationship between economics, facts and the law that practitioners in the field must have. The Bill is designed to confer on the Government powers to bring forward regulations to ensure that that can take place.
Although it is a complicated issue, in a nutshell it is what the noble Lord, Lord Kingsland, and I seek with the amendment. I am grateful to the Minister for his assurance that he will take the amendment away and think about it. On that basis, I am happy to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees (Viscount Allenby of Megiddo): Before moving on to Amendment No. 86, I should advise the Committee that if Amendment No. 87 is agreed to, I shall not be able to call Amendments Nos. 88 to 93 inclusive under the rules of pre-emption.
Clause 17 [Damages]:
Lord McIntosh of Haringeymoved Amendment No. 86:
Page 7, leave out lines 25 and 26 and insert—"
(1) This section applies to—

(a) any claim for damages, or

(b) any other claim for a sum of money,

which a person who has suffered loss or damage as a result of the infringement of a relevant prohibition may make in civil proceedings brought in any part of the United Kingdom.

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(1A) In this section "relevant prohibition" means any of the following—"
The noble Lord said: In moving Amendment No. 86 I wish to speak also to Amendments Nos. 87, 94 and 95. Late on Tuesday evening we dealt with a number of paving amendments which in themselves were not of great significance; the significance arises in this group of amendments. Later, Amendments Nos. 103 and 108 are consequential amendments that complete the pattern.
The amendments relating to Clause 17 replace most of the current clause with a redrafted version. There is nothing substantially new in the redraft, but it provides greater legal clarity and should reduce uncertainty.
Clause 17 amends the Competition Act 1998 to allow the competition appeal tribunal to hear claims for damages in cases where a breach of competition law has been established. This covers breaches both of the prohibitions in the Competition Act itself and breaches of the prohibitions in the Articles 81 and 82 of the European Communities Treaty.
The competition appeal tribunal will have jurisdiction to hear damages claims where a breach of competition law has been found by the OFT in respect of a Chapter I or Chapter II prohibition set out in the 1998 Act, or by the European Commission or the OFT in respect of Article 81 or 82. Once the appeals process for the relevant decision has been exhausted, parties harmed by the anti-competitive action will be able to seek damages before the competition appeal tribunal.
Parties will still be able to claim damages through the courts in the usual way. However, the CAT route will offer significant advantages by virtue of more streamlined procedures and the availability of expertise in competition law and the effects of anticompetitive activity. The noble Lords, Lord Razzall and Lord Kingsland, referred to those when discussing the previous amendment.
Amendment No. 86 expresses with greater clarity the point made by existing subsection (3); namely, that the scope of a damages claim made before the tribunal is to be the same as that made before a court. It also makes it clear that the damages which may be awarded include all monetary awards which can be awarded by a court in respect of the relevant infringement. This could conceivably include claims for the restitution of profits unlawfully made by the infringing company as well as in respect of loss caused to the injured party, although the scope for these will depend on the evolving jurisprudence of the courts.
Under Amendment No. 87, subsections (5), (6), (7) and (9) are merely reworded versions of current subsections (2), (5), (4) and (6) respectively. Subsection (4) simply teases out the wording that is currently at the beginning of subsections (4) and (5). Subsection (8) clarifies that the competition appeal tribunal will be bound by decisions relating to the various prohibitions in competition law.
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Amendment No. 94 clarifies that claims can be made under this section even if the cause of action arose before the commencement of these provisions. Of course such claims can already be made in the courts.
Amendment No. 95 is merely a redrafted version of Clause 18 that provides greater legal clarity. Clause 18 amends the Competition Act 1998 to introduce the right for consumer organisations to bring claims for damages on behalf of groups of named and identified consumers. These group claims for damages can be made only before the competition appeal tribunal, not in front of the courts. As in the case of individual damages claims brought in by the CAT, a claim can be brought only where a breach of competition law has already been established. Once the full appeals process relating to the relevant decision on the breach of competition law has been exhausted, organisations will be able to bring forward the claim. However, the consumers concerned must have given their consent before any claim can be commenced.
Before bringing a group claim, organisations will have to apply to be specifically designated by the Secretary of State. If they are to be included in the list of specified bodies, applicants will have to meet published criteria. The designation of bodies will be by a statutory instrument made by the Secretary of State and subject to the negative resolution procedure.
Subsections (1) to (4) of the new version of Section 47B take the place of current subsections (1), (2), (3) and (5). The redraft clarifies the relationship between individual claims and consumer group proceedings. Subsection (5) applies certain provisions of Section 47A, inserted by Clause 17, to ensure that an infringement of competition law has to be established before a group claim can be brought, and the right to bring a group claim does not affect the right to bring a claim before the court.
Subsection (5A) is the only true new paragraph introduced by the amendment. It enables the competition appeal tribunal to order the defendant to pay any monetary remedies to the body bringing the claim forward for onward distribution to the relevant individuals, as long as all consent. But this subsection makes it clear that the damages will still be awarded to the individuals rather than to the representative body, which will be acting on their behalf in receiving the amounts due. In other words, the amendment merely provides an alternative distribution mechanism; that is, from the defendant to the consumer body arid then on to the individuals. It will be necessary for both the consumer body and all the individuals concerned to give their consent before the tribunal can make the necessary order. That decision will have to be taken at the beginning of the process.
The other essential ingredient of the mechanism introduced by subsection (5A) is the ability for consumer bodies to enforce awards where an order has been made that the money should go to the body for onwards distribution. The ability to do that was introduced by government Amendments Nos. 68 and 69.

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I hope that the Committee will agree that these redrafts are clearer than the current versions. I beg to move.
On Question, amendment agreed to.
5.45 p.m.
Lord McIntosh of Haringeymoved Amendment No. 87:
Page 7, line 34, leave out from beginning to end of line 37 on page 8 and insert—
"(2) For the purpose of identifying claims which may be made in civil proceedings, any limitation rules that would apply in such proceedings are to be disregarded.
(3) A claim to which this section applies may (subject to the provisions of this Act and Tribunal rules) be made in proceedings brought before the Tribunal.
(4) But no claim may be made in such proceedings—

(a) until a decision mentioned in subsection (5) has established that the relevant prohibition in question has been infringed; and

(b) otherwise than with the permission of the Tribunal, during any period specified in subsection (6) or (7) which relates to that decision.

(5) The decisions which may be relied on for the purposes of proceedings under this section are—

(a) a decision of the OFT that the Chapter I prohibition or the Chapter II prohibition has been infringed;

(b) a decision of the OFT that the prohibition in Article 81(1) or Article 82 of the Treaty has been infringed;

(c) a decision of the Tribunal on an appeal from a decision of the OFT that the Chapter I prohibition, the Chapter II prohibition or the prohibition in Article 81(1) or Article 82 of the Treaty has been infringed;

(d) a decision of the European Commission that the prohibition in Article 81(1) or Article 82 of the Treaty has been infringed; or

(e) a decision of the European Commission that the prohibition in Article 65(1) of the Treaty establishing the European Coal and Steel Community has been infringed, or a finding made by the European Commission under Article 66(7) of that Treaty.

(6) The periods during which proceedings in respect of a claim made in reliance on a decision mentioned in subsection (5)(a), (b) or (c) may not be brought without permission are—

(a) in the case of a decision of the OFT, the period during which an appeal may be made to the Tribunal under section 46, section 47 or the EC Competition Law (Articles 84 and 85) Enforcement Regulations 2001 (S.I. 2001/2916);

(b) in the case of a decision of the OFT which is the subject of an appeal mentioned in paragraph (a), the period following the decision of the Tribunal on the appeal during which a further appeal may be made under section 49 or under those Regulations;

(c) in the case of a decision of the Tribunal mentioned in subsection (5)(c), the period during which a further appeal may be made under section 49 or under those Regulations;

(d) in the case of any decision which is the subject of a further appeal, the period during which an appeal may be made to the House of Lords from a decision on the further appeal;

and, where any appeal mentioned in paragraph (a), (b), (c) or (d) is made, the period specified in that paragraph includes the period before the appeal is determined.
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(7) The periods during which proceedings in respect of a claim made in reliance on a decision or finding of the European Commission may not be brought without permission are—

(a) the period during which proceedings against the decision or finding may be instituted in the European Court; and

(b) if any such proceedings are instituted, the period before those proceedings are determined.

(8) In determining a claim to which this section applies the Tribunal is bound by any decision mentioned in subsection (5) which establishes that the prohibition in question has been infringed.
(9) The right to make a claim to which this section applies in proceedings before the Tribunal does not affect the right to bring any other proceedings in respect of the claim.""
On Question, amendment agreed to.
[Amendments Nos. 88 to 93 not moved.]
Lord McIntosh of Haringeymoved Amendment No. 94:
Page 8, line 37, at end insert—
"(2) Section 47A applies to claims arising before the commencement of this section as it applies to claims arising after that time."
On Question, amendment agreed to.
Clause 17, as amended, agreed to.
Clause 18 [Claims on behalf of consumers]:
Lord McIntosh of Haringeymoved Amendment No. 95:
Page 8, line 42, leave out from beginning to end of line 9 on page 9 and insert—
"(1) A specified body may (subject to the provisions of this Act and Tribunal rules) bring proceedings before the Tribunal which comprise consumer claims made or continued on behalf of at least two individuals.
(2) In this section "consumer claim" means a claim to which section 47A applies which an individual has in respect of an infringement affecting (directly or indirectly) goods or services to which subsection (6) applies.
(3) A consumer claim may be included in proceedings under this section if it is—

(a) a claim made in the proceedings on behalf of the individual concerned by the specified body; or

(b) a claim made by the individual concerned under section 47A which is continued in the proceedings on his behalf by the specified body;

and such a claim may only be made or continued in the proceedings with the consent of the individual concerned.
(4) The consumer claims included in proceedings under this section must all relate to the same infringement.
(5) The provisions of section 47A(4) to (9) apply to a consumer claim included in proceedings under this section as they apply to a claim made in proceedings under that section.
(5A) Any damages or other sum (not being costs or expenses) awarded in respect of a consumer claim included in proceedings under this section must be awarded to the individual concerned; but the Tribunal may, with the consent of the specified body and the individual, order that the sum awarded must be paid to the specified body (acting on behalf of the individual)."
On Question, amendment agreed to.
[Amendments Nos. 96 to 102 not moved.]
The Deputy Chairman of Committees (Viscount Allenby of Megiddo): For the information of the Committee, Amendments Nos. 96 to 101 are preempted by virtue of the fact that Amendment No. 95 has been agreed to.
Lord Kingsland: I apologise to the Committee. Because I was taken completely unawares by the fact that three or four lines had been pre-empted, as has been said, I shall simply not oppose the Question that Clause 18 shall stand part of the Bill.
Clause 18, as amended, agreed to.
Clause 19 [Findings of infringements]:
Lord McIntosh of Haringeymoved Amendment No. 103:
Page 9, line 35, leave out "for damages" and insert "in which damages or any other sum of money is claimed"
The noble Lord said: This amendment is consequential on the redraft of Clause 17. It merely makes allowances for any proceeding where the claim is for a monetary remedy other than damages. So a claim might be brought for the restitution of profits unlawfully made by the infringing company, as well as in respect of loss caused to the injured party. I beg to move.
On Question, amendment agreed to.
Lord Kingslandmoved Amendment No. 104:
Page 10, line 4, after "OFT" insert "or the European Commission".
The noble Lord said: In moving this amendment, I shall speak also to the other amendments in the group.
As presently drafted, the new Section 58A would not operate to make a decision of the European Commission that there had been an infringement of Article 81(1) or Article 82 binding upon a national court in proceedings before it for damages. This is anomalous given that findings by the OFT in respect of precisely the same infringement would he binding upon a national court in these circumstances.
There would appear to be no justification whatsoever for the distinction drawn between decisions of the OFT and decisions of the European Commission in this respect. Both the European Court of Justice and the English High Court have recognised that decisions of the European Commission should generally be followed by national courts. Indeed, as a matter of English law, a national court is now bound to uphold a finding of the European Commission that there has been a breach of Article 81(1) or Article 82.
It is submitted that the fact that the common law achieves a similar result to that which would be achieved by the proposed amendment does not make the proposed amendment redundant. The common law must be applied to the facts of each individual case by the courts. Defendants will, of course, attempt to take advantage of a variety of technical legal arguments to escape the conclusion that any particular decision of the European Commission is binding.
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Requiring claimants to rely upon a developing body of case law rather than a clear legislative pronouncement introduces an additional element of uncertainty into any private action for damages. The proposed amendment would put the matter beyond all doubt and would encourage and facilitate private actions in national courts following a finding of infringement by the European Commission. I beg to move.
Lord McIntosh of Haringey: I hope that I can readily put the noble Lord's mind at rest.
Amendment No. 104 is unnecessary, as Article 81 and Article 82 decisions taken by the European Commission are already binding on UK courts by virtue of European law. I rely on the judgment of the European Court of Justice in the Masterfoods case, which is referred to in paragraph 82 of the Explanatory Notes (ECJ Case C-344/98 Masterfoods v HB Ice Cream, at paragraphs 45 to 60 of the judgment).
Indeed, Amendment No. 105 provides an illustration of the confusion that can arise if an attempt is made to codify in a statutory provision in our law the position under European law. A decision of the European Commission has binding effects on the national courts, notwithstanding that it may be the subject of proceedings before the European Court of Justice or the court of first instance. However, it would no doubt normally be sensible for the national court to stay its proceedings pending the outcome of the European proceedings, or alternatively to make a preliminary reference itself to the European Court. The amendment proposed would be an inaccurate summary of the position under European law, since it might suggest that the Commission's decision was without legal effect before the European proceedings had been determined.
Amendments Nos. 106 and 107 are consequential on Amendments Nos. 104 and 105.
Lord Kingsland: I am most grateful to the Minister. I shall go away and look at the case. If it does indeed illustrate the point that he makes, I shall happily allow the matter to rest there. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 105 to 107 not moved.]
Clause 19, as amended, agreed to.
Clause 20 agreed to.
Schedule 5 [Proceedings under Part 1 of the 1998 Act]:
Lord McIntosh of Haringeymoved Amendment No. 108:
Page 205, leave out line 20 and insert "or other sum in respect of a claim made in proceedings under section 47A, or included in proceedings under section 47B (other than a decision On costs or expenses) or the amount of any such damages or other sum; and"

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The noble Lord said: Amendment No. 108 is a consequential amendment that is required as a result of the redrafting of Clauses 17 and 18. The amendment ensures that any sums awarded in claims under Section 47A, or in claims included in group consumer claims under Section 47B, may be the subject of an appeal to the Court of Appeal or to the Court of Session in Scotland. I beg to move.
On Question, amendment agreed to.
Schedule 5, as amended, agreed to.
Clause 21 [Duty to make references in relation to completed mergers]:
Lord Kingslandmoved Amendment No. 109:
Page 10, line 35, leave out "shall" and insert "may at its discretion"
The noble Lord said: The purpose of this amendment is to give the OFT a discretion rather than leave it under an obligation to make a reference to the Competition Commission in relation to both completed and anticipated mergers.
The Bill introduces a significant change of emphasis. Under the Fair Trading Act, the Secretary of State had discretion whether or not to refer mergers, acting on the advice of the Director-General of Fair Trading, whose advice, since October 2000, has always been accepted. The formulation proposed in Clauses 21 and 32 requires a reference to be made in the case of completed mergers and proposed mergers except in certain limited circumstances. The Minister in another place stated that there were no other circumstances in which a reference need not be made.
In practice, the clause will lead to a situation of almost obligatory pre-clearance for all mergers. Although many parties do that now, it is at their discretion. On Report, the Minister stated that those who raised such concerns seemed to be ignoring the fact that the OFT would apply a competition test. The Minister said that only cases that could lead to a substantial lessening of competition would be referred.
However, until we have a track record of the OFT applying the "substantial lessening of competition" test, it is very likely that in practical terms the parties will regard the absence of any discretion as a reason for seeking clearances in more cases than under the present regime. Moreover, in the case of joint ventures, the substitution of a £45 million turnover test for the £70 million assets test will mean that potentially many more joint ventures will now come within merger control.
There was no consultation on this change of policy. It was not mentioned in the White Paper. No reason has been given for the Minister's assertion that the new emphasis would not result in a greater number of references. I beg to move.
6 p.m.
Lord Borrie: I wonder whether the noble Lord, Lord Kingsland, is right in saying that there is no justification for the Minister's assertion in the other place that the new formula would not result in the
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reference to the Competition Commission of a greater number of mergers. He is of course aware that Clause 21(2) makes it clear that the OFT may not make a reference if it believes that,
"the market concerned is not … of sufficient importance",
or if there are relevant customer benefits that,
"outweigh the substantial lessening of competition".
that would arise from the merger. That cuts down the number of mergers where the duty of the OFT to make references to the Competition Commission arises.
I shall not debate the points that we shall no doubt discuss under the next amendment of the noble Lord, Lord Kingsland, but the key provision is based on the substantial lessening of competition. In legal terms, the noble Lord is correct in saying that there is no track record, because it is a new statutory test. In the past there was no statutory test other than the broad one on public interest; and several criteria, of which competition was one.
But to say that there is no track record is a wrong inference. The record shows the test's existence not only since the Competition Act 1998, or the year 2000 to which the noble Lord referred, but for at least the past couple of decades since the famous Tebbit test was announced whereby mergers would—save in exceptional circumstances—be referred to the Competition Commission only where there was a significant likelihood of a reduction in competition. It may not have been a statutory test, but it has been the test applied by both the Office of Fair Trading and Ministers, who are still involved until the Bill becomes law. The concern of the noble Lord, Lord Kingsland, does not seem justified.
Lord Sainsbury of Turville: Amendments Nos. 109 and 117 seek to give the OFT a discretion, rather than a duty, to refer completed and anticipated mergers that meet the reference criteria. Perhaps it would be helpful to set out the Government's thinking on the reference test to be applied by the OFT. The OFT's duty in relation to referring mergers has been crafted to reflect the two key principles underlying our reform of the merger regime, that is, taking Ministers out of decision-making and focusing the regime on a clear, competition-based test. We think that those two principles should be closely linked. When handing over decision-making powers to an independent expert body such as the OFT, we think it is sensible to define closely the test that that body will apply. In this case, we wanted to ensure that the OFT would refer only on competition grounds; that is, where a merger may result in a substantial lessening of competition.
The amendments seek to leave the OFT with a discretion to refer such cases. They mean that the OFT would have the power not to refer a case that would result in a substantial lessening of competition. The amendments leave the decision as to what would be a reasonable exercise of the power to the courts to determine.
However, the Government's intention is to set out clearly what cases should be referred by the OFT. Broadly, we think that a merger that could create

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competition problems should be considered further by the Competition Commission. However, we believe that there are three circumstances that would justify no reference even where there may be a substantial lessening of competition. They include those pointed out by my noble friend Lord Borrie—first, where the market or markets concerned are not important enough to justify a reference; secondly, where customer benefits flowing from the merger would outweigh any substantial lessening of competition; and, thirdly, in the case of an anticipated merger, where the merger is not, or not yet, likely to go ahead.
For those circumstances we have given the OFT discretion over whether to refer the merger. We do not think that there are any other circumstances that would justify the clearance of a merger that may result in a substantial lessening of competition. We think it is important for Parliament to set out the parameters of the powers to be exercised by independent bodies. In this case, we are proposing a sensible test that focuses on the OFT's area of expertise, grants flexibility where it will be sensible for the OFT to exercise discretion, but does not—as the amendments would—leave the scope of the new regime to be determined by a body independent of Parliament and government. In view of those arguments, I invite the noble Lord to withdraw his amendment.
Lord Kingsland: I am most grateful to the Minister for his reply. Is it reasonable to assume that in practice there will be no change; that although there is a different test, and the relationship between the Minister and the OFT is changed, nevertheless the historic track record—to use the expression in a slightly different context from that in my opening speech—is a good guide to conduct in future? Is that what the Minister is in effect saying?
Lord Sainsbury of Turville: The OFT does not consider that the change to a competition-based test will result in a different number of merger references given the situation in recent years.
Lord Kingsland: So the new test is not really a change in policy.
Lord Sainsbury of Turville: No. Given that it has been accepted that the competition test is by and large the one that Ministers have said they will base their judgments on, that is likely to mean a continuity of policy.
Lord Kingsland: I am most grateful to the Minister. I shall reflect on these exchanges over the summer adjournment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Kingslandmoved Amendment No. 110:
Page 10, line 38, leave out from "resulted" to end of line 40 and insert "in the creation or strengthening of a dominant position, as a result of which competition is likely to be significantly reduced within any market or markets in the United Kingdom for goods or services"
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The noble Lord said: As we have just heard, the Government propose to introduce a new competition-based test to determine whether the OFT should refer a merger to the Competition Commission. It replaces the public interest test in the Fair Trading. Act 1973. We accept that a competition test has been applied for some time; nevertheless it makes sense to enshrine the change in the statute. The test the Government propose is the substantial lessening of competition, which is the test applied in the United States, Canada and Australia.
However, we urge the Government to reconsider their position and instead to adopt the dominance test, which is the test applied in the European Community. It is the standard for assessing mergers under the EC Merger Regulation. The new test would impose a different standard for assessing the potential effect of mergers from that at EU level. The recent judgment of the court of first instance in the Airtours case has shown that there is a significant difference between the dominance test and the SLC test, given the requirements now established for proving collective dominance.
Businesses operating in the United Kingdom should not be faced with a different merger test in this country simply because the transaction in question does not fall within the ECMR. In addition, as there is no established case law in Europe applying a statutory SLC test, the outcome of merger references will be less clear and predictable for UK businesses.
Most member states, to say nothing of the applicant states, have aligned their merger control provisions to the current dominance test. It would be more helpful for United Kingdom companies doing business across Europe to operate under a common standard.
The new test is one of the big surprises for me. When we debated the Competition Bill in 1998, the Government's clear underlying philosophy was to align our domestic law and its competition tests with European Community law and its competition tests. More times than I care to remember, Ministers said, "We want to simplify things for the British businessman. He is currently faced with a myriad tests. We want him to look at what he is doing in the context of one test". Yet four years later, when the Competition Act is only just beginning to bite in many respects, the Government have completely changed their approach on mergers.
Certainty in the law is important. If the Minister believes, as he said on the previous amendment, that the new test will not make much difference to the policy of the OFT and the authorities, that is a fortiori a reason for not introducing it. I beg to move.
Lord Borrie: Superficially there is a great deal in what the noble Lord, Lord Kingsland, says about European countries and the European Union itself having a dominance test, while we are proposing a different test of substantial lessening of competition. However, the noble Lord gave the impression that the test is new. As I said on the previous amendment, while it is new in legal terms because it has not been

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established in statute, it has in practice been operated for a couple of decades by successive Ministers under different colours of government, as well as by the Office of Fair Trading.
Secondly, in its Green Paper the European Union explained its thinking that a substantial lessening of competition test might be better from an economic point of view than the dominance test embodied in the 1989 regulation that governs mergers with a Community dimension. There have been consultation papers and government papers raising the possibility of that. Responses are available to government. The test that is now embodied in the Bill has not come out of thin air.
More than anything else I am concerned that we adopt the best test in economic terms. It is not clear to me whether a dominance test would deal with the possibility of a merger strengthening a non-collusive oligopolistic market. When a merger involving two companies in the same market comes before the Competition Commission, we want it to consider not just whether the merger may result in one dominant or monopoly company, but whether it will leave a number of companies in the market, but all refraining from any real competition. Markets that are characterised by the presence of only a small number of firms with significant market shares may operate just as uncompetitively—and therefore badly from the customer's point of view—as a market dominated by a single undertaking. It has not been clear how far European law, in relation to the European merger regulation, can prevent collective dominance in oligopolistic markets. If a merger merely strengthens an existing oligopoly, it is doubtful whether European law applies to prevent it.
The dominance test is more legalistic than the test proposed in the Bill. The test proposed in the Bill has more economic significance and a closer relationship to the way in which the Office of Fair Trading, the Department of Trade and Industry and the Competition Commission have been dealing with and considering the adverse effects or otherwise of a merger over the past 10 or 20 years. The test that has been tried out through consultation papers on relevant associations and companies in this country is more likely to achieve what we want, which is that mergers should not be allowed if they create a significant adverse consequence on competition, unless there are significant customer benefits that outweigh that.
6.15 p.m.
Lord Sainsbury of Turville: The noble Lord, Lord Kingsland, takes slightly too simple an approach to harmonising our mergers competition test with that in Brussels. The amendments would replace the mergers substantial lessening of competition test with a European-style dominance test.
I stress again that the Government's choice of test for the new regime has been the subject of careful and extensive consultation. The question was first raised in the Government's consultation document on the
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reform of the merger regime, published in August 1999. There was further consultation in October 2000 and again following the publication of the White Paper on competition last year. In addition, my officials have met with lawyers, economists and other experts about the new regime and about the most appropriate competition test to employ. A large majority of those who responded favoured a substantial lessening of competition test. They believe that it represents a better economic test than the dominance test currently used in the European Community merger regulation.
The response from the City of London Law Society, which is expert in the competition field, sums up the issues effectively. It said:
"The Group does not favour the adoption of a dominance test due to its inflexibility in dealing with a range of situations including oligopolistic dominance and highly leveraged acquisitions. It does not see any benefits from having the same substantive test at a national level as in the ECMR. Additionally, it should be noted that other established merger control regimes within the EC have not found it necessary to adopt the ECMR test".
The substantial lessening of competition test is, in effect, currently applied by the UK authorities in their competition analysis.
The noble Lord, Lord Kingsland, wants continuity. The substantial lessening of competition test provides a high degree of continuity between the new and old regimes in terms of substantive analysis. The so-called substantial lessening of competition test has the key advantage of allowing the authorities to concentrate on the overall effect of a merger on competition, rather than on structures. It will allow the authorities to act whenever there is an increase of sole, joint or collective market power resulting from a merger.
The key concern with a dominance test is uncertainty as to when the authorities can take action in circumstances in which a merger will not lead to one firm having a substantial market share but where the merger nevertheless increases the likelihood of the firms remaining in the market acting in an anticompetitive way. To use economic terms, there is considerable uncertainty about whether a dominance test is effective for dealing with the creation of non-collusive, oligopolistic markets. European law has developed a concept of "collective dominance" that partly bridges the gap but the concept's application in the context of mergers is not ideal.
The substantial lessening of competition test is preferable in alluding to the impact of a merger on the whole market rather than concentrating on the position of a particular market participant. Because of concerns that a dominance test did not satisfactorily cover collective dominance cases, Australia in 1993 and New Zealand last year switched from a dominance to a substantial lessening of competition test. Among our European Union colleagues, the Irish Government recently enacted a new competition law that adopts a substantial lessening of competition test in preference to dominance. Spain has a similar test of whether a transaction may prevent the maintenance of effective competition in the market.

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The Green Paper on reforms to EU merger regulations raises a substantial lessening of competition test as a possible option to replace dominance. Decisions about that have not been taken. In a recent speech, Commissioner Monti said that he personally had an open mind about the choice of test:
"We are not wedded to the current wording and have no prejudice in favour of one formulation or another. What matters is the effectiveness of the legal instrument".
Some people claim that a dominance test is a more certain test of business by providing a more predictable outcome. I do not agree. The concept of a substantial lessening of competition test is an economic one that is used and well understood in a number of other major jurisdictions—including the United States, Japan, Canada, Australia and New Zealand. It is best understood by reference to the question of whether a merger would increase or facilitate the exercise of power in a market—leading to reduced output, higher prices, less innovation and lower quality or choice. Any additional certainty will be provided by information and advice, which the authorities will be required to produce under Clause 103—explaining how they will consider references and how the relevant provisions will operate.
The US regime has operated successfully on the basis of a substantial lessening of competition test, backed by joint guidelines issued by the Department of Justice and the Federal Trade Commission. I have every confidence that the UK system can operate with the same degree of certainty and predictability. The arguments for harmonising our merger tests with that used in Brussels are not compelling. The one-stop-shop system for merger regulation within Europe means that cases—other than those concerned with security and other exceptions—fall either within the ECMR or UK regime but not both. Clear thresholds govern which jurisdiction will apply.
The Bill provides the freedom and opportunity to adopt the better test—that which will best preserve competitive intensity in our domestic market. We should take that opportunity rather than pursue harmonisation for its own sake. The substantial lessening of competition test is used in a number of other major international jurisdictions that are major trading partners of the UK. It is the strong preference of the Office of Fair Trading and the chairman of the Competition Commission. The majority of respondents to our consultation exercise agreed with that choice of test. I urge the noble Lord to withdraw the amendment.
Lord Kingsland: I am most grateful for the noble Lord's extremely full reply. He referred to consultation papers in 1999 but that was long before the Airtours decision—at a time when we believed that the European Commission's pursuit of the idea of collective dominance would not be halted, temporarily or otherwise, by the European Court. At the time, we had no reason to believe that the test which the Government are now seeking to adopt would be more effective than the collective dominance test as applied by the European Commission. It is only now that we have Airtours that a real distinction between the two tests has opened up.
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Airtours may or may not survive an appeal to the European Court of Justice—because as I understand it, that decision is by the court of first instance. If the case is appealed and the CFI decision is reversed, the collective dominance doctrine will be re-established in the EU. In my submission, that doctrine is at least as effective as that which the Government are seeking to adopt.
My second point is directed at the Minister but encompasses the distinguished intervention by the noble Lord, Lord Borrie. Part 3 ought to be read with Part 4. The noble Lord's concern about the Airtours CFI decision is that oligopolies will be incapable of proper control by the EU authorities. But that will not be true in the case of the UK because the Bill allows the Competition Commission to examine a range of market imperfections, including oligopolistic practices. The UK legislation will fill the gap that the noble Lord fears will open up in the European context.
One treats with enormous respect any intervention by the noble Lord, Lord Borrie, because he is far and away the most experienced member of the Committee in competition matters. However, I hope that the noble Lord accepts that the UK authorities will not be stuck with the mergers section of the Bill for dealing with oligopolistic situations but will have other arrows in their quiver.
Lord Borrie: The noble Lord has been unduly kind to me, so I hesitate to intervene. However, there is a world of difference between preventing a merger that is undesirable because it may have a seriously adverse effect on competition and undertaking an investigation after the event—when it is difficult to go back to square one.
Lord Kingsland: I entirely accept that distinction but it encapsulates an appropriate approach. If dominance is not identified before the merger, a priori the merger should be allowed to proceed. If the merged company's subsequent conduct in the market is unattractively oligopolistic, the competition authorities can draw on other parts of the Bill to redress the anti-competitive feature. The Bill has the answer without introducing the new test.
I can reasonably assume from the Minister's remarks about the undesirability of consistency for consistency's sake that the Government's philosophy in respect of this Bill is very different from their philosophy in respect of the Competition Act 1998—when the idea of a consistent regime providing more certainty for business was central to the Government's approach to competition matters. I have now concluded that that is no longer the case.
I shall reflect very carefully on what the Minister said. I hope that he will accept that this is a very important matter and that he will forgive me if I return to it on Report. Meanwhile, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
6.30 p.m.
The Deputy Chairman of Committees: Before moving on to the next group of amendments, it may be for the convenience of the Committee if I advise it that Amendment No. 118 in the name of the noble Baroness, Lady Turner of Camden, has been decoupled from that group and will be moved separately.
Lord Hunt of Wirralmoved Amendment No. 111:
Page 10, line 40, at end insert "for which the annual output exceeds £500 million"
The noble Lord said: I rise to move the amendment in the absence of my noble friend Lord Hodgson of Astley Abbots. The amendment would insert words at the end of Clause 21(1)(b) so that the paragraph would read:
"the creation of [the relevant merger situation] has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services for which the annual output exceeds £500 million".
It is linked to further amendments in the names of my noble friend Lord Kingsland, myself and my noble friend Lady Miller of Hendon. Those amendments recognise that the Government propose to remove the assets test in the Fair Trading Act 1973 and replace it with a turnover test; namely, as one can see from Clause 22(1)(b), that,
"the value of the turnover in the United Kingdom of the enterprise being [acquired] exceeds £45 million".
The purpose of this group of amendments is to allow the Committee to consider whether or not the system will become clogged up through the Office of Fair Trading having to review transactions which are comparatively unimportant in competition terms; hence the wish on the part of my noble friend Lord Hodgson to insert an annual output test and the wish in Amendment No. 113 to increase the turnover test from £45 million to £70 million.
Perhaps I may make it clear immediately to the Minister and to Members of the Committee that I believe it is right to remove the assets test from the scope of the UK's merger regime because assets are not the best measure of the market strength, or otherwise, of a company. As the Government acknowledged, I believe, in 1999, when the reforms were first floated, asset structures are changing. Consequently, it is now recognised that the assets test is outdated and no longer relevant to the modern world of mergers and acquisitions. However, if the Government are to replace the assets limb of the test with a turnover test, my contention is that a figure of £70 million would be a more appropriate level than £45 million.
I am not sure how the Government arrived at the figure of £45 million. The Minister may well be able to take us through the thought processes which resulted in that surprisingly exact figure. I hope that the Government will accept that, in order to avoid the imposition of excessive burdens on both business and the Office of Fair Trading, it is important that the system does not become clogged up in the way that I described. Therefore, while it is right that a de minimis
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threshold is vital to the process of the competition regime, I believe that most outside observers will consider the figure of £45 million to be too small.
Other countries where regimes similar to the one under discussion are in place have far higher figures than the equivalent of £45 million. I believe that it is the view of the Confederation of British Industry that the figure should, indeed, be raised to £70 million.
Amendment No. 114 also appears in this group. That amendment seeks to replace the share of supply test with a market share test. The amendment would at page 12, line 11 of the Bill leave out subsections (3) to (7) and insert:
"The condition mentioned in this subsection is that the merger would create or strengthen a share of 25 per cent or more in any relevant market in the United Kingdom or a substantial part of the United Kingdom".
As my noble friend has just been considering, the test for deciding whether to make a reference is now to be based on whether there is, or is likely to be, a substantial lessening of competition. We have agreed to consider carefully the points raised by the Minister in that respect.
However, if we were to accept that there should be a substantial lessening of competition, any such test would necessarily involve at least a preliminary assessment of markets and market share. The subsection, as drafted, would require the Office of Fair Trading to apply two tests: to look at markets for the substantive decision on a reference and the concept of the supply of goods or services of a similar description for establishing a jurisdiction.
We believe that the subsection drafted by the Government will be unnecessarily confusing as it combines a market definition, which is an economic test, with the subjectivity of the authorities under the old FTA regime in looking at aspects of the supply of goods or services. While the subjective approach may be acceptable in a regime where there is a wide discretion not to refer, surely it is unacceptable unless the changes which increase the discretion of the OFT in relation to Clauses 21 and 22 are incorporated.
In summary, I suppose that the core of the difficulty here is that the Government have bolted a new test on to the regime and the two do not marry well. If the share of supply test remains, there is a risk of the description being narrowly drawn. In the absence of a discretion on the part of the OFT, that would result in a larger number of references.
I turn to Amendment No. 115, which seeks to insert at the end of line 9 on page 13 of the Bill:
"Notwithstanding the above, a relevant merger situation shall not be deemed to have arisen for the purposes of this Part if the transaction in question has no effects (either actual or potential) in the United Kingdom or any part of it".
Perhaps I may explain to the Minister that this is very much a probing amendment. Even if a share of supply test were not brought to bear, the turnover test would remain at the fairly high level of £45 million. Therefore, to prevent an excessive regulatory burden on UK business, surely it is right to ensure that the OFT does not have the opportunity or, indeed, does

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not have placed upon it the obligation, to spend the time and valuable resources involved in reviewing mergers that have no impact in the United Kingdom.
The asset test of £70 million and the turnover test of £45 million apply to world-wide turnover. Therefore, in some cases there may be no impact whatever in the UK. Thus, the purpose of Amendment No. 115 is to ensure that the companies involved would not find themselves falling foul of an immediate and automatic OFT inquiry. Therefore surely such transactions need not be notified in the same way.
To summarise, a relevant merger situation will be deemed to have arisen if either the new turnover test or the share of supply test is satisfied. However, in order to prevent business from having excessive regulatory burdens and to remove the need for the OFT to expend time and resources by reviewing mergers with no impact on the UK such transactions should be excluded from the jurisdiction of the OFT. I beg to move.
Lord Sainsbury of Turville: I speak to Amendments Nos. 111, 113, 114, 115 and 119. Perhaps I may take together Amendments Nos. 111 and 119 as they seek to introduce what I would characterise as a "de minimis" provision. They would have the effect of preventing the OFT and the Competition Commission from taking any action against mergers in markets below a certain size.
Clause 21(2) of the Bill gives the OFT a discretion not to refer a merger where the market or markets concerned are not of sufficient importance to justify making a reference to the Competition Commission. The issue raised by the amendments is whether to introduce a formal and more absolute de minimis provision or to rely on the OFT and the commission to exercise their judgment sensibly having regard to the guidance that both will he required to publish under Clause 103 of the Bill.
De minimis thresholds are tricky because all markets are different and at different stages of economic development. Some may be declining, about to be superseded by new technology. The current size of such a market might not be a reliable indicator of its economic importance. Conversely, a small market in an emerging technology may have considerably greater longer term significance such that a reference would certainly be justified. We think, therefore, that it would be better to leave the authorities discretion to make their own judgments in this area, which is what the term "sufficient importance" is intended to allow for.
I turn now to the amendments concerned with the jurisdictional tests for the new merger regime. The jurisdictional tests are ones that determine whether a merger is subject to merger control regulations.
I deal first with Amendment No. 113. The amendment seeks to raise the UK turnover threshold of the target company from £45 million to £70 million. I understand that the concern is that the £45 million figure would overload the OFT with benign cases and
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would prejudice the system against, for example, new technology companies with small asset value but high turnover.
The £45 million figure was derived from data research we undertook in my department. Briefly, the figure is based on an analysis of the assets and turnover levels of 110,000 UK companies. Our intention was to find a figure that we believed would account for roughly the same number of companies as is currently the case under the assets test.
What we have is an informed estimate. One needs to be clear about that. I do not accept that there is anything to be gained from replacing one informed estimate with another less informed one. Further, I do not believe that a direct comparison can he made between the value of assets and the value of turnover, especially considering that £70 million assets is a world-wide figure and £45 million turnover is limited to the UK.
However, we acknowledge that some unease exists about the level of £45 million. We think that our evidence supports it but we are willing to look at it again to reconfirm what would he an appropriate figure for the turnover test. In particular, we would he grateful for any suggestions from interested bodies on how the figure should he derived. In the light of this commitment, I hope that the noble Lord will be prepared to withdraw the amendment.
Amendment No. 114 seeks to replace the current jurisdictional definition of' share of supply with a definition based on "market share". A similar amendment was put forward in another place. I echo again the reasons why we think that the share of supply test is the right test for our merger regime. It has the characteristics of being a simple, transparent and easy to apply test that is appropriate for a jurisdictional threshold. Calculating the more economically substantive market share test would be an extra burden on both business and the OFT. That is why we have not been pressed to make this change in any of the consultations we have run.
Amendment No. 115 seeks to make clear that a relevant merger situation does not include mergers that have no impact on the UK or part of it. Again, a similar amendment was put forward in another place. In those debates we sought to reassure honourable Members that the Government share the view that the activities of our competition authorities should be focused on mergers that have a direct impact on the UK markets.
The amendment was rejected because we consider that it is not necessary. That is because the new design of the jurisdictional tests ensures that they are concentrated on the UK markets. The share of supply test must be applied to the UK market or, as the case may be, a substantial part of it. The new turnover test will measure the turnover of the target company in the UK. It replaces an assets test which took account of world-wide assets.
We share, therefore, the sentiments behind the amendment but I hope that noble Lords are satisfied that the legislation as currently drafted does deliver the

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UK-focused regime that is intended. With those explanations, I hope that the amendment will not be pressed.
6.45 p.m.
Lord Hunt of Wirral: I shall want time to consider the Minister's response. I was interested to hear his remarks on Amendment No. 113. It is necessary to make a judgment as to the correct level. I have been unable to peruse the data research to which he referred. I am not sure whether it is publicly available. If the Minister were to consider sharing it with noble Lords, we could then judge whether £45 million is a better guesstimate than £70 million. I have not had access to detailed research. I do not know whether the Minister wishes to intervene. He seems of happy countenance at the suggestion that he might make the data research available.
Lord Sainsbury of Turville: I can see no reason why we would not make that available. However, I have described the nature of the information. The data suggests that we consider what test on turnover will equate to the assets test. The real question is whether that is the right way to proceed. We have a simple correlation. That is why we are happy to reconsider the point. But the matter for consideration is the principle rather than the data.
Lord Hunt of Wirral: I agree with the Minister that it is consideration of the principle. However, a figure is required in the Bill. Therefore, I am grateful to the Minister for agreeing to make the data research available. I also much appreciate his willingness to consider the matter further. My noble friends and I will ensure that outside organisations are made aware of the Minister's kind offer and that we respond accordingly.
I note what he said on Amendment No. 114. I should like time to reflect on it. He indicated that he was sympathetic to Amendment No. 115. I should like to consider several of the points he made. I shall consult with my noble friend on the Minister's comments on Amendment Nos. 111 and 119. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Kingslandmoved Amendment No. 112:
Page 11, line 7, at end insert—
"() the enterprise being the subject of the proposed merger and being unable to meet its financial obligations cannot otherwise reorganise or dispose of its assets with lesser anti-competitive risk."
The noble Lord said: Clause 21(2) sets out two instances where the OFT may not decide to make a reference to the Competition Commission, the first being where the market concerned is not of sufficient importance to justify a reference and the second being where customer benefits outweigh any adverse impact on competition. Both of those are welcome, although the Government or OFT should be required either to
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introduce thresholds or to produce written guidance before the Bill comes into force as to what will be deemed to be not of sufficient importance.
However, in our view, a further instance should be added: namely, the so-called "failing-firm" defence, which is applied in the United States and by the European Commission. In the United States the party wishing to rely on the defence must show, first, that the failing firm cannot meet its financial obligations; secondly, that the failing firm cannot reorganise in bankruptcy; thirdly, that the failing firm cannot find another buyer whose purchase of the firm would pose lesser anti-competitive risks; and, fourthly, that, in the absence of the merger, the failing firm's assets will exit the market.
As far as the European Community law is concerned, the failing-company defence has been applied since 1993. In a case called Kali-Salz/MDK/ Treuhand, of that year, although a dominant position was found to be created in the German market for potash, the case was cleared because it was considered that a prohibition would have led to the same outcome in the market as would have been the case if there had been a clearance.
In the Commission's decision the following three criteria were set out. First, the company will go bankrupt within the immediate future; secondly, the market shares of the company will in any case go to the merging party; and thirdly, there is no less anticompetitive way of selling the company. In other words, the main difference between the United States and the EU approach is that the latter imposes the additional requirement that the market shares of the failing firm will in any case go to the acquiring party.
We would be happy with either the EU test or the US test. I say that in the spirit of the Minister's new multinational approach to definitions in the Bill. I beg to move.
Lord Sainsbury of Turville: These amendments would make specific provision for the competition authorities to have regard to the matter of whether a merger involves a so-called "failing firm". Where the situation described in the amendments arises, that will naturally form part of the competition authorities' assessment against the substantial lessening of competition test. Therefore, we believe that the amendments are unnecessary. In fact, by particularising the "failing fines" case, the effect of the amendments could he to narrow the normal application of the substantial lessening of competition test.
Where the authority believes that a firm is to exit the market anyway because of insolvency or other financial difficulties, that will influence the assessment of whether the merger may be expected to result in a substantial lessening of competition. If competition would be diminished to the same degree regardless of whether the merger took place, it would not he possible to find that that merger would result in a substantial lessening of competition.
That is never an easy judgment to make. A number of factors come into play; for example, whether the failing firm's market share is likely to fall to the

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acquiring firm anyway, or be spread among the remaining players in the market. None the less, it is part of the competition assessment itself. We confirmed that in paragraph 126 of the Explanatory Notes which said,
"whether in the absence of the merger one of the firms would fail and, it' so, whether its failure would cause the assets of that firm to exit the market",
that was one of the matters that may be potentially relevant to the assessment of whether a merger will result in a substantial lessening of competition.
Its application will be addressed in more detail in the guidance to be published by the OFT and the Competition Commission. It is worth pointing out that other major merger jurisdictions do not mention the failing firms concept on the face of their respective legislations. In the United States, for example, the issue is addressed in the FTC and the Department of Justice guidance and the same is true of Australia. The European Commission merger regulations also do not deal expressly with the failing firm issue but case law shows that it is a matter that can be taken into account in the assessment of whether a merger results in the creation of a dominant position. We are far from being alone in dealing with these issues in guidance. This is a matter that can be satisfactorily and more flexibly dealt with in guidance and I urge the noble Lords and the noble Baroness to withdraw their amendments.
Lord Kingsland: I believe that I am most grateful to the Minister for his response. I believe he is saying that although he is not prepared to put the test on the face of the Bill, in practice he would expect the competition authorities to apply it. On that basis I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 21 agreed to.
Clause 22 [Relevant merger situations]:
[Amendments Nos. 113 to 115 not moved.]
Clause 22 agreed to.
Clause 23 agreed to.
Clause 24 [Extension of time-limits]:
[Amendment No. 116 not moved.]
Clause 24 agreed to.
Clauses 25 to 31 agreed to.
Clause 32 [Duty to make references in relation to anticipated mergers]:
[Amendment No. 117 not moved.]
Baroness Turner of Camdenmoved Amendment No. 118:
Page 19, line 37, at end insert—
"()Before making such a reference, the OFT shall consider submissions from appropriate organisations, including those representing consumer interest and the workforces in the relevant undertakings."
The noble Baroness said: Amendment No. 118 stands in my name and that of my noble friends. Unfortunately, the noble Lords, Lord Lea of Crondall and Lord Wedderburn, are unable to be present. At
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the outset I state my interest. I am a member and a former official of the trade union MSF (now Amicus), a union that on previous occasions has raised the whole issue of employee interests in merger and takeover situations.
I find it surprising that there is no reference at all in this part of the Bill to employees. I can understand that in a Bill about creating a fairer environment for competition, there should be some reference to consumers— although there is not much—but I am surprised that there is nothing about employees whose work and skills often lead to success and who are sometimes referred to as an enterprise's biggest asset.
There have been times during the past 20 or 30 years when the whole commercial and industrial scene appears to have been afflicted with "merger mania". One such episode took place shortly after I became a Member of your Lordships' House. In 1987, when I was still a working union official, I introduced a Private Member's Bill designed to protect staff in takeover and merger situations. At that time I was able to quote from British Business to the effect that, in 1986, industrial and commercial companies' expenditure on acquisitions and mergers within the UK reached a record £13.5 billion, almost double the 1985 total. The livelihoods of about 500,000 employees were bound up with those deals.
I said then that,
"the background to all this is a big rise in profits but stagnant investment in manufacturing industry. The City is finding it easy to provide finance for takeovers, but is still failing to provide investment capital in manufacturing industry".
At that time, I quoted from Sir Gordon Borrie, as the noble Lord, Lord Borrie, then was—he was Director-General of Fair Trading—to the effect that although he strongly held that competition should be the main consideration in merger policy, he did not take the view that everything could be left to market forces. He said,
"I do not have complete faith in the 'invisible hand' of Adam Smith as the regulator of our economic and social affairs".
In introducing my Bill, I said that I did not believe competition alone was an adequate yardstick. My Bill therefore provided for consideration of other factors. There should be a requirement to consider the interests of employees, to ensure that production and output in the UK are maintained for the benefit of the economy and to ensure some control of strategic industries where those are in the interests of national security. Of course, my Bill did not make any progress at that time, but when I look at the debate again, I am struck by how relevant are some of the statements made riot only by me, but also by some of the supporting speakers to the present situation. On 4th July 2002, an article appeared in the Guardian under the heading:
"Merger Mania Created Millionaires But Made Millions Poorer. How Take-over Frenzy Has Hit Shares Since 1998".
A number of major mergers are listed. In almost every case, the share price had shown a catastrophic drop. GlaxoWellcome Smithkline, Vodafone, Airtouch, CDU, Norwich Union, AOL Time Warner, Deutsche Telekom, One2One and others.

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This has not only badly hit individual shareholders, but also people who are members of pension schemes. And, in most cases, there have been job losses. Often, the employees know nothing about what is in store for them until they read it in newspapers or hear it on the radio in the morning, while getting ready for work. There was one notable case in which members of my union were involved. They did not know that merger talks had been proceeding. It had been a closely-guarded secret until they heard the announcement on early morning radio, accompanied by a statement that there would be 5,000 redundancies. At the time I introduced my Bill, the late Lord Denning supported me. He said:
"The employees, the servants, are the people who have built up the company and given it its goodwill. Certainly they should be consulted before any take-over of a company is effected".
I turn to a heading of The Times dated 9th March 1987 which states in bold black headlines:
"The employees are a company's biggest asset and they must always come first. In these days of mergers and take-overs, the employees do not come first or last—they do not come into the matter at all".
Our amendment does not go anywhere near as far as Lord Denning indicated. We simply ask that the OFT should receive submissions on behalf of employees. We have also included consumer interests, since these are not referred to in this part of the Bill either. Indeed, NACAB makes that point in its extensive briefing. Incidentally, it is sometimes forgotten that trade unionists are consumers too.
What we are suggesting is not uncommon. In the Netherlands, for example, a merger code gives unions more extensive rights than we seek. There, the unions' rights are consultative only, but they can give their views on the likely impact on employee interests before a merger agreement is finally signed. Works councils can appeal to the courts if companies act unreasonably.
I hope my noble friend the Minister will agree that it is right that a Bill concerned with enterprise—and ensuring that there is fair competition—should have some regard to the employees whose lives may be very adversely affected in a merger or take-over situation. Often they are likely to lose not only employment, but pension rights. These are very serious matters affecting sometimes thousands of people. Those who actually make the decisions, as the newspaper article points out, often become millionaires, but life is likely to become much more difficult for the employees who may have worked hard for the enterprises concerned. Our very modest amendment seeks to give such people a right to be heard. I beg to move.
7 p.m.
Lord Hoyle: I rise to support Amendment 118. 1 must declare an interest as member and past president of MSF, the section of Amicus.
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In some cases it is far too narrow to regard the position as merely one of competition. My noble friend was right to say that there is no mention in this part of the Bill of consumers. Often competition is just looked at in the short term, rather than the long term, ignoring what effect it might have on consumer choice.
I am surprised that, in a Bill on enterprise, there is no mention in this part of employees or their rights. Let us look at unemployment. The company concerned may be a major or even dominant employer in a region, so any job losses have an effect not only on directly employed workers but also on sub-contractors, who are mostly from the same locality. This has an effect on the business community, particularly small businesses dependent on this employer and on the spending power of those who are their employees. So it has a major effect on many people and their families.
The other aspect to mergers is that while shareholders may benefit from a merger in the short term, very often mergers are shown to be a failure. Many mergers collapse after 12 months. But the damage has been done to those people who lost their jobs and the damage left on the area.
I hope that the Minister will consider this point. Having looked at the Bill, it seems that only competition is mentioned. There is a reference later on in Clause 57 to national security—whatever that may mean. I would prefer the Minister to look very carefully at our amendment with a view to accepting it. The amendment has some teeth that will benefit consumers and particularly employees affected by a merger. When a merger takes place, it is not known that a plant is to be closed, but very often that occurs within a short period. I hope the Minister will look at this amendment from a social point of view and will accept what I believe to be a very reasonable amendment.
Lord Sainsbury of Turville: The amendment seeks to ensure that the OFT will consider the views of consumer groups, employee representatives and other organisations before referring an anticipated merger to the Competition Commission.
The Government's intention has been to create a regime that will operate transparently and one which will allow interested parties to feed their views into the process. Where the OFT is considering whether to make a reference, Clause 102(1) requires the OFT to take action to bring information about the investigation to the attention of those it considers might be affected by the merger. In practice, the OFT intends to continue its current practice of publishing an invitation to comment notice. That will give all interested groups—including employee representatives and consumer groups—an opportunity to submit views. Administrative law requirements will then ensure that the OFT takes account of representations that it receives.
However, we need to say that the OFT will, of course, assess all mergers against the tests set out in the legislation. This is primarily about whether the merger may be expected to result in a substantial lessening of competition. The views of employee representatives

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will be helpful where they relate to the specific criteria set out in the legislation. However, specific employment issues will not factor in the OFT's decision in whether to refer the merger. That is because we believe that safeguarding competition is vital to delivering increased productivity which will in turn improve employment prospects overall. In addition, it is worth pointing out that the OFT will be required by Clause 104 to give full reasons for its decision—both to refer and to clear mergers.
Finally, Clause 117 gives any person aggrieved by a decision of the OFT scope to appeal to the competition appeal tribunal, for example, if the appropriate procedures have not been followed. We believe that these arrangements, taken together, are sufficient to ensure that the OFT will obtain and consider the views of third parties where relevant.
The noble Baroness and the noble Lord who put forward the amendment are looking for something more. If it were what the amendment says, that is already covered by current practice of the OFT. My noble friends were looking for other criteria against which mergers could be measured. It is absolutely fundamental to this Bill that we are talking strictly about competition—a test. We are not seeking for politicians or others to impose their judgment as to whether or not the merger makes sense economically.
I hope, with that explanation, my noble friend will withdraw her amendment, though I realise that what I have said only partially meets the point being raised.
Baroness Turner of Camden: I thank my noble friend the Minister for that explanation. I am glad that it is expected that there will be opportunity for employees' organisations to make submissions. I note that.
But my noble friend is correct: we looked for rather more than he gave. We were looking to widen the criteria because, as my noble friend Lord Hoyle made clear, we did not feel that competitiveness was sufficient on its own. We felt that other considerations should be taken into account.
However, it is not our intention to take this matter further this evening. We shall think carefully about it during the recess and consider whether or not we should say anything further on Report. We believe it to be an important question which matters to a great many people. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 32 agreed to.
Clause 33 agreed to.
Clause 34 [Questions to be decided in relation to completed mergers]:
[Amendment No. 119 not moved.]
Clause 34 agreed to.
Clause 35 agreed to.
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Clause 36 [Cancellation and variation of references under section 21 or 32]:
Lord Sainsbury of Turvillemoved Amendment No. 120:
Page 22, line 41, at end insert—
"(2A) Where, by virtue of subsection 12), the Commission treats a reference made under section 21 or 32 as if it had been made under section 32 or (as the case may be) 21, sections 74 to 78 shall, in particular, apply as if the reference had been made under section 32 or (as the case may be) 21 instead of under section 21 or 32.
(2B) Subsection (2C) applies in relation to any undertaking accepted under section 77, or any order made under section 78, which is in force immediately before the Commission, by virtue of subsection (2), treats a reference made under section 21 or 32 as if it had been made under section 32 or (as the case may be) 21.
(2C) The undertaking or order shall, so far as applicable, continue in force as if—

(a) in the case of an undertaking or order which relates to a reference made under section 21, accepted or made in relation to a reference made under section 32; and

(b) in the case of an undertaking or order which relates to a reference made under section 32, accepted or made in relation to a reference made under section 21;

and the undertaking or order concerned may be varied, superseded, released or revoked accordingly."
The noble Lord said: This group comprises a number of minor and technical amendments which all relate to the enforcement provisions of the merger regime. I do not believe that they raise any issues of substance. Members of the Committee will have received a letter setting out briefly the purpose and nature of the amendments. However, if it is helpful to the Committee I shall provide further details of the amendments we are tabling.
Amendments Nos. 120, 126, 132, 142 to 144 and 150 clarify what happens where a merger referred to as an anticipated merger becomes a completed merger during the course of an investigation or vice versa. That will happen only rarely. Amendments to Clauses 36, 48, 63, 104 and 125 provide that undertakings or orders that were accepted on one basis continue to have effect where the nature of the merger reference changes. The automatic restrictions on certain dealings in Clauses 74 and 75 will also apply as if the merger reference had been made on the relevant basis at the outset.
Amendments Nos. 127 to 129 and 139 make clear that the normal enforcement provisions contained in Clauses 74 to 78 apply to public interest cases where the public interest claim is withdrawn and the case is passed back to the Competition Commission to be investigated purely on competition grounds.
Amendments Nos. 135 and 136 are minor technical corrections to Clause 75 which take out references to Clauses 68 and 69, orders and undertakings. These are concerned only with completed mergers and are therefore not relevant in the context of anticipated mergers.
Amendments Nos. 137 to 140 make clear that if a replacement order is made under Clause 80, it is only specified undertakings which fall away. An order under Clause 80 will be brought when undertakings

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are not being fulfilled. It would not be desirable to penalise all parties where only one is in breach of its undertaking.
Amendments Nos. 165 and 166 are technical amendments to improve internal drafting consistency by aligning references to airport operators with language used elsewhere in Schedule 9. I beg to move.
On Question, amendment agreed to.
Clause 36, as amended, agreed to.
Clause 37 agreed to.
Clause 38 [Time-limits for investigations and reports]:
[Amendments Nos. 121 and 122 not moved.]
Clause 38 agreed to.
Clause 39 agreed to.
Clause 40 [Duty to remedy effects of completed or anticipated mergers]:
[Amendment No. 123 not moved.]
Clause 40 agreed to.
7.15 p.m.
Clause 41 [Intervention by Secretary of State in certain public interest cases]:
Baroness Turner of Camdenmoved Amendment No. 124:
Page 26, line 39, at end insert—
"() "Public interest consideration" in subsection (2) shall include possible social consequences, including the effect on employment."
The noble Baroness said: Amendment No. 124 stands in my name and that of my noble friends. It is clear that the Government want to hand over responsibility in merger and takeover situations to the OFT and the commission, and the sole criterion, as we heard this evening, appears to be competitiveness.
There is a clause about public interest but it seems clear that government intervention is only envisaged in the most extreme circumstances. I believe that to be wrong. It is surely clear that many mergers and takeovers have considerable social consequences, and only governments can deal with those. Indeed, they may have to if the consequences involve high unemployment in a particular region.
The TUC is concerned about that. It says in briefing:
"The danger for the Government is that removing Ministers from competition decisions will not prevent politically damaging situations arising, but will curb their ability to act when they do".
If a company is a major employer, local communities and other local firms may be hit; regional development may be interrupted or brought to an end altogether. In other words, a large merger or takeover could affect adversely many thousands of people and not only those in the immediate environment.
We have recently been witnesses, as I said on the earlier amendment, to another round of mergers and takeovers—referred to as "merger mania". A recent newspaper article said that many of the deals were done when share prices were roaring. So the predators overpaid for their targets and are now having to write
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down huge amounts of money in their accounts to reflect the subsequent slump in value. That is the reason, perhaps, why Vodafone is nursing the biggest loss in Britain's corporate history.
Norwich Union and the CGU merged to become Aviva. But that lovely new name has not prevented a halving of the share price in 18 months. So it is not only employees in the relevant companies that suffer—often through job loss or demotion—shareholders suffer too, and of course pension funds. We have heard a great deal about a pensions crisis in recent weeks. The catastrophic drop in the stock market is cited as one of the reasons for the disappearance of defined benefit schemes. There may of course be other reasons as well, but a drop in share values clearly has made a major impact. So mergers and takeovers are not just about competitiveness.
Those are some of the reasons why the Trades Union Congress is saying that it does not agree that decisions as to whether mergers and takeovers should proceed should be made only on the basis of competition. The TUC believes that mergers and takeovers should be regulated in the public interest and that the impact on employment should be taken into account.
Our amendment is very simple; indeed it is modest. We are seeking to introduce it in the part of the Bill dealing with the public interest. We define that as possible social consequences, including the effect on employment. In those circumstances we believe the Government should be able to intervene. I urge my noble friend the Minister to accept the amendment. I beg to move.
Lord Hoyle: I support Amendment No. 124 in the name of my noble friend Lady Turner and myself. Again, I echo what my noble friend said. The Government are trying, in their words, to escape from political decisions; but what they cannot escape from are the consequences of those decisions. To remain on one side, or to pretend to do so, and simply rely on competition when social consequences are taking place is a decision they will regret in the longer term.
Perhaps I may give the media as one example. News International, owned by Rupert Murdoch, has newspapers read by 70 per cent of adults in this country. That is almost a monopolistic position yet the draft Communication Bill does not rule out a further take-over by that group. Of that 70 per cent, The Times is the best-selling "heavy". The Sun sells 4 million copies daily. Quite apart from The Sunday Times there is the News of the World which is the largest-selling Sunday paper.
I am not in favour or against or get too excited about the euro, but there is something to be said as regards Rupert Murdoch. He has already determined that before any referendum takes place his media interests will be opposed to the euro. That is a very dangerous position. Any further decision must have social consequences. I cannot see any Government, particularly one whom I support, backing away from taking that into account.

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There is also the question of employment. Not very long ago it appeared that Rover was in a difficult situation which would have had grave consequences for the whole of the West Midlands. Given that situation, the Minister put together a rescue package because of the consequences which would have affected not only the company but all the suppliers in the area. There would also have been a devastating effect on the whole of the region.
What would happen if there were another bid for Rover? Could any Government, Minister or Secretary of State escape from the social and employment consequences? Given some of the circumstances, it is totally unrealistic to rely on competition. I hope that the Minister will look a little further. He realised that he did not satisfy us on the previous occasion. We are speaking here about public interest which can have tremendous social and employment consequences for the whole of the region and, as regards the media, for the whole nation. I ask him to accept this modest amendment, particularly having regard to the social consequences of a merger.
Lord Sainsbury of Turville: The amendment seeks to indicate a further public interest consideration, that the Secretary of State could intervene on decisions about mergers. I say to my noble friend Lord Hoyle that when we consider newspapers a different set of considerations are taken into account. The plurality of the press is covered by the Fair Trading Act and will be updated by the Communication Bill. A different set of considerations apply in that case. I shall be talking about other companies.
As the Bill stands, the competition authorities will take decisions on mergers on the basis of a focused competition test. The Secretary of State has power to intervene in a case that raises a public interest issue, which she believes should be specified in legislation. At present we foresee a need for ministerial intervention on national security grounds only. That is the only consideration specified in the Bill.
The Government have considered the case for specifying further matters, but we do not anticipate that Ministers will need to intervene on any other issues. That is why the Bill does not mention social effects or the effects on employment.
Switching away from the current public interest test to a competition test for assessing mergers has involved hard thinking and tough choices. It is a focused policy. We believe that in the vast majority of cases the economy is best served if mergers are assessed solely on the basis of their effect on competition and that these decisions are best taken by the expert competition authorities operating independently of Ministers.
Merger regulation is best aimed at safeguarding the competitive intensity in the economy. Competition provides the spur for businesses to be more productive, innovative and efficient, better able to provide long-term, sustainable employment and better products and services for consumers.
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Adding social and employment factors to the test for mergers would create barriers to market restructuring. We believe that it is wrong to create such barriers unless there are significant anti-competitive effects. Restructuring must be possible if companies and markets are to remain dynamic and competitive.
I recognise, of course, that mergers can have adverse social and employment impacts in the short term, but I do not believe that the answer is to indicate that Ministers should step in on such grounds. That way lies uncertainty and unpredictability with political lobbying creeping back into the whole process.
The task for the Government is to make sure that the economy as a whole is strong and to help people who are affected to adapt, retrain and get new jobs. We have a good record for creating the conditions for a dynamic economy which can adjust to change. We have the lowest unemployment rate since the 1970s, the lowest rate of inflation and the lowest interest rates since the 1960s. We have record numbers of people in work because private sector employment has increased by 1.25 million over the past five years. We remain the number one destination for foreign, direct investment into Europe.
I should like to make a further important point. It is to set the reforms to the merger regime in the context of the existing fair trading legislation and how it has operated. In practice, competition has been the principal factor in the UK merger policy for many years. In 1984, the then Secretary of State for Trade and Industry, the noble Lord, Lord Tebbit, announced that references would be made primarily on competition grounds. That has been a pursued by every subsequent Secretary of State. When one looks at the reports of the Competition Commission on mergers one finds that the employment effects and other non-competition effects of mergers, other than national security issues, are not matters that have determined decisions in recent years. Legislating for a focused competition test is not something which will make a large difference in practice to the way in which mergers are currently regulated.
Finally, I mention the mechanism of the Bill which provides for factors other than competition and national security being considered, should this prove necessary in the future. I shall explore that in more detail in a moment as regards Amendment No 131. It is worth noting in relation to this amendment that the power in Clause 57(3), together with the power of intervention set out in Clause 41, represent a careful balance. This amendment would tip that balance. As we have said before, we have no current plans to specify new public interest considerations. We have built in appropriate checks on the use of this power, which we believe are essential to preserve the predictability of the new regime. However, we also believe that the mechanism provides an important safety valve which will ensure that the very exceptional case can be dealt with appropriately. In the light of this explanation, I invite the noble Baroness to withdraw the amendment.
Baroness Turner of Camden: I thank the Minister for that explanation. He will not be surprised to learn that I find it disappointing because it has always been the case that competitiveness has been the sole criterion since the Tebbit test. That does not necessarily mean that it has always been right or that people have not suffered as a result of it being applied. In fact, we know of cases where that has happened. The policy that my noble friend has enunciated will not prevent the Government being lobbied when people believe that they are being disadvantaged. Quite obviously, people will make a fuss if they feel that they are being harmed as a result of decisions made within the criteria laid down in this Bill.
However, I do not intend to press the matter further now. I should like to think about it and then decide what further action I might wish to take at Report stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Davies of Oldham: I beg to move that the House do now resume. In moving the Motion, I suggest that we return to this business not before 8.30.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Regulation of Investigatory Powers (Maintenance of Interception Capability) Order 2002
7.30 p.m.
The Parliamentary Under-Secretary of State, Home Office (Lord Filkin)rose to move, That the draft order laid before the House on 22nd May be approved [31st Report from the Joint Committee].
The noble Lord said: My Lords, this order has been made in exercise of the powers conferred on the Secretary of State by Section 12(1), (2) and (5) and Section 78(5) of the Regulation of Investigatory Powers Act 2000 (RIPA).
Part I of Chapter I of RIPA updates the previous law in the UK governing the interception of communications. It provides for and regulates powers to allow lawful interception of communications by law enforcement, security and intelligence agencies, consistent with the Human Rights Act 1998. It also creates a system of safeguards reflecting the requirements of Article 8 of the European Convention on Human Rights.
In the United Kingdom, interception is only conducted under warrants authorised personally by the Secretary of State and where it is deemed necessary in the interests of national security for the purpose of preventing or detecting serious crime, or for safeguarding the economic well-being of the UK.
In short, the order under the Act gives the Secretary of State the authority to require communications service providers, which could be a telephone company or a postal service, to put in place an infrastructure capable of intercepting communications when a warrant is issued
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with proper authority for them to do so. So the order is not about the actual interception, but the putting in place of an interception capability, as the title implies.
The schedule to the order lists those obligation which appear to the Secretary of State reasonable to impose on communications service providers for the purpose of securing the information required. The obligations under Part I provide for public postal services and public telecommunication services being required to respond.
There has been lengthy consultation on the order. Also RIPA established a Technical Advisory Board. As the House may well know, it is a non-departmental public body, with the right and the role to comment on draft orders or draft notices made under the Act and to give advice to the Secretary of State. If approved by the House, the order will take effect on 1st August 2002. The Secretary of State's power to impose the obligations in the order shall be exercised through a notice issued to specific communications service providers. So it is order, then notices and then—if the provision is in place—in future times, warrants to undertake interceptions.
The Government intend that a notice given to a CSP will, wherever possible, be the product of prior dialogue and agreement between the Government's representatives and the CSP in question. However, should a CSP consider that a notice given to it is unreasonable, it is able to make reference to the Technical Advisory Board, as I indicated.
Clearly, there are issues of financial burdens imposed on CSPs in setting up such an infrastructure or responding to specific warrants. Therefore, the Act imposed a requirement on the Secretary of State to make fair contribution to the costs incurred as a consequence of those obligations. For example, last year alone, CSPs received some £14 million from the Government. But there is under way a fuller consultation process with the industry about trying to develop the costing regime and the compensation framework to compensate for it.
Without more ado, I commend the order to the House. I beg to move.
Moved, That the draft order laid before the House on 22nd May be approved [31st Report front the Joint Committee].—(Lord Filkin.)
Baroness Seccombe: My Lords, I thank the Minister for his explanation of the order. Although some of the orders which follow on from the passage of the Regulation of Investigatory Powers Act are controversial, we accept that this is not one of them. As my honourable friend Dominic Grieve made clear in another place, we believe that the draft order's objective is eminently sensible.
RIPA contains a provision that places an obligation on service providers and the draft order defines it. It does not go to the issue of what should be intercepted, but it shows how the matter should be intercepted. We are satisfied that the draft order is acceptable to the public service providers themselves.

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My honourable friend pointed out that it would be desirable for Parliament to be kept informed about the continuing discussions about what will be defined as a fair contribution to costs incurred by public telecommunications services as a consequence of the order. There should be a contribution to their costs. After all, their job is not to intercept people's communications. That work is only done at the Government's specific request.
In his response, the Minister in another place stated that it was reasonable to ensure that during the discussions the Government are transparent with Parliament. He undertook to find mechanisms for so doing. Will the Minister give that same assurance tonight and therefore assure this House that noble lords will also he kept fully informed on these matters? With that one mild reservation, we recognise that this order should be welcomed as it is a good step to resolving satisfactorily the problem of how to undertake interception when it is needed.
Lord McNally: My Lords, it is funny how a tune, a smell or a taste can bring waves of nostalgia. When I picked up the Explanatory Note for this order and started to read it, suddenly I was wafted back two years to nights of pleasures that the noble Lord, Lord Bassam, and myself had on the RIP Bill, as it then was. Suddenly, the nature of some of those debates came back.
Although, as the noble Baroness says, this is not about the practical operation of RIPA, it touches on two issues I remember well that we discussed in some detail during the passage of the Bill. The first, as she has rightly said, was that we wanted assurances at the time—indeed, it was a concession won in this House—that the CSPs, the communications service providers, would not be unfairly burdened by cost in carrying out an operation which was in the national interests, in the fullest sense of that word. We welcomed the provision of £20 million over three years.
It is interesting, as the Minister said, that £14 million was spent last year. I wonder whether that was the impact of 11th September or whether operationally we have found that the cost is slightly more than was anticipated when the Bill was first passed. Some clarification would help.
The other item which was a direct result of pressure in this House was the setting up of the Technical Advisory Board. I remember there was some reluctance by the Government and their side of operations to have the board. It would be interesting to see how it is working in practice. It seems to have done a job in giving the order a clean bill of health. At the time there was doubt whether TAB would be robust or independently-minded enough to carry out its job as a kind of referee between the security services and the providers. There is a constant balance to be found between "want to know" and "need to know". At that time there was concern whether we would have unfair, onerous duties put on CSPs because of a voracious appetite by the security services for these facilities with the knock-on effect on costs and technology. So I hope that the TAB, which was
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established as a kind of referee, is working well. It would be interesting to know what is the assessment of that. Knowing the lobbying that I received during the passage of the Act, if it were not, I know that the Internet community would have been bombarding me with e-mails to tell me so. So I am taking silence as an indication that it is working well and that the balance of six government and six independent assessors is right. Has the Minister any comments about that?
That apart, like the noble Baroness, Lady Seccombe, we find the order entirely acceptable—the more so because it contains within it two of the concessions that the noble Lord, Lord Cope, and I won from the Government during those happy days spent two years ago with the noble Lord, Lord Bassam.
Lord Filkin: My Lords, I shall be pleased to pass those fond memories on to my noble friend, who will he delighted to receive them. I thank both Front Benches for their positive support and acknowledgement of the role played by this House in developing the Act. We are now experiencing some of the benefits of that. I agree that the issue of fair contributions to CSPs is important and am happy to repeat the undertaking given by my honourable friend in the other place.
With regard to costs, £14 million was indeed spent this year. I am scratching my head wondering why the sum spent appears to be so high in the current year. It certainly was not as the result of September 11th. Let me return to that in a moment. The £14 million was for on-going work with CPSs with existing capability. The £20 million is to establish a new capability, primarily for Internet interception. I hope that that makes it clear.
Lord McNally: My Lords, I am sure that it will be clear when I read Hansard.
But the core promise was that further negotiation with the CSPs continued. I think that £20 million was an amount plucked out of the air because none of us knew how it would work or what would be the pattern of demand. What both I and the noble Baroness want is an assurance that the House will be kept informed of the progress of negotiations with the CSPs and that the on-going pattern of expenditure is considered to be fair both by industry and by the Government.
Lord Filkin: My Lords, I agree. That was what I was confirming in short in my previous remark. I was touching in my introductory remarks on the fact that a working group was under way with the industry to try to identify a more sophisticated way to assess costs. In essence, that is to distinguish between the costs of establishing the infrastructure and the costs associated with responding to warrants. Those are essentially two drivers of costs: having in place the platforms or systems; and the frequency with which they are used. That work is on-going and, no doubt, at some stage, its results will be appropriately shared with any Members who are interested.

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My further advice on expenditure is that the £14 million paid last year is likely to be the typical level. The £20 million may be additional. There is at least the potential for increased compensation through what is seen to be a fuller and more transparent formula.
I was also asked about the TAB. Of course, it is early days to assess it, but we hope that the silence on the personal computer of the noble Lord, Lord McNally, is a sign of it progressing well. We also hope that the balance of membership, including six from the law enforcement and security services and six from the industry, is a good one that places the existing dialogue and tensions into a forum in which people must at least explore and clarify the issues and then produce advice for the Home Secretary—which is, essentially, its route forward. No doubt, how that is working will be the subject of further debate.
On Question, Motion agreed to.

Regulation of Investigatory Powers (Covert Human Intelligence Sources: Code of Practice) Order 2002
7.46 p.m.
Lord Filkinrose to move, That the draft order laid before the House on 10th June be approved [33rd Report from the Joint Committee].
The noble Lord said: My Lords, in moving the draft order, I shall speak also to the Regulation of Investigatory Powers (Covert Surveillance: Code of Practice) Order 2002, because the two codes of practice have many common features.
Both orders have been laid under the Regulation of Investigatory Powers Act 2000. They have been made in exercise of the powers conferred on the Secretary of State by Section 71 of the Act. Section 71(1) requires the Secretary of State to issue codes of practice relating to the exercise and performance of powers and duties under that Act.
The codes support the Act by providing clear and, we hope, unambiguous guidance on authorising the carrying out of covert surveillance and the use of covert human intelligence sources. Section 71(3) requires all draft codes of practice issued under RIPA to be published and the Secretary of State to consider any representations.
The provisions in Part 2 of the Act provide, for the first time, for a framework for the use of covert surveillance and covert human intelligence sources that is compliant with the European Convention on Human Rights. The codes of practice provide a framework within which public authorities should operate, require that records are kept on the decision-making process and that issues of necessity and proportionality must be taken into account before an authorisation can be granted, to ensure consistency with obligations under the ECHR and the Human
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Rights Act 1998. The orders do not add to the public authorities already covered by RIPA and listed in Part 1 of Schedule 1.
Both codes also provide additional safeguards and a higher level of authorisation in cases where confidential information is likely to be acquired. The draft codes do not provide those public authorities with any additional powers. They set out further safeguards and place added restrictions over and above those already contained in RIPA for cases involving confidential information. I labour that point slightly, because there was previous misunderstanding of it.
The orders provide public authorities already covered by RIPA for those purposes and the public with clear and unambiguous statutory guidelines on the proper procedures and requirements for authorising the use of the provisions. In my view, the orders are compatible with the rights set out in the European Convention on Human Rights. I beg to move.
Moved, That the draft order laid before the House on 10th June be approved [33rd Report from the Joint Committee].—(Lord Filkin.)
Viscount Colville of Culross: My Lords, not merely are the orders compatible with Part 2 of the Regulation of Investigatory Powers Act 2000, they are an essential ingredient of it. I do not know anything about Part I. I wish that I had joined the noble Lords, Lord McNally and Lord Bassam of Brighton, in discussing the legislation, because I am now extremely familiar with Part II, to which the orders relate. There is sister legislation in Scotland about which I shall also make some observations.
I must declare my interest. Under the Regulation of Investigatory Powers Act 2000, there is a job for the Office of Surveillance Commissioners. The office was set up under the Police Act 1997, and they now have an extended power to examine the way in which public bodies use their powers and carry out the functions under Part II of the 2000 Act mentioned by the Minister. It is an important role. Not only is it the sole way in which article 8 of the European Convention can be given effect for the benefit of the citizens of this country but it is a great protection to public authorities. If they use their powers correctly, they will be protected against complaints and other actions by those who feel that they have been dealt with improperly by the public authority and had their privacy infringed.
The procedures must be correct. Part II of the Act is not the most brilliantly transparent legislation that I have seen. That is why I would like to have taken part in the discussions. In the Office of Surveillance Commissioners, there are several ranks. I am one of the most junior, but, as a surveillance commissioner, I go round inspecting public authorities not involved in law enforcement all over the United Kingdom. Since the Act came into force in October 2000, we have lacked the codes of practice that the Minister is now introducing. There were some drafts, but they were not

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very good. Now, we have an order that brings into force codes of practice that will help us all. They will be an essential tool of my trade. During an inspection of a local authority earlier this week, I used them to point out the way in which things ought to be done in accordance with the codes.
There has been consultation. We were consulted, and all the things that we wanted—except, I think, one—are in the codes. They will be immensely useful for the purposes of ensuring that the procedure is properly carried out. It would be less than grateful of me if I did not say to the Home Office that we are pleased to have the codes of practice. We shall use them to good effect from now on. I know that, if the courts intervene, codes of practice can be changed, and we might have amendments in due time. For the moment, the codes will do extremely well, and they will underpin greater understanding of some difficult legislation.
I welcome the codes. I, for one, will use them a great deal.
Baroness Seccombe: My Lords, I am grateful to the Minister for his explanation of the orders. When they were debated in another place, my honourable friends voted against them. As a consequence, the Minister, Mr Bob Ainsworth wrote a letter to my honourable friend Mr Nick Hawkins that sought to explain further the matters on which my honourable friend had expressed opposition. The explanation in the letter has made it possible for us to refrain from opposing the order today.
We fully appreciate that the draft codes have been made in exercise of the powers conferred on the Secretary of State by Section 71 of the Regulation of Investigatory Powers Act 2000, which requires the Secretary of State to issue codes of practice relating to the exercise and performance of powers and duties under RIPA. The assurance given by Mr Ainsworth in his letter that the orders did not add to the public authorities already covered by RIPA and listed in Schedule 1 is important, as is his assurance that the draft codes do not provide those public authorities with any additional powers. We accept that Chapter 3—in particular, paragraph 3·2—of both draft codes of practice sets out further safeguards and places restrictions over and above those contained in RIPA on the public authorities listed in annex A of the codes.
Throughout the scrutiny of the orders, it has not been our intention to deprive public authorities already covered by RIPA for these purposes and the public of clear statutory guidelines on proper procedures. We endorse the safeguards in the code. Our purpose throughout has been to ensure proper scrutiny of the orders, and that has now been achieved.
Lord Phillips of Sudbury: My Lords, with my noble friend Lord McNally, I was deeply enmeshed in the debate on the original Regulation of Investigatory Powers Act. The noble Viscount, Lord Colville of Culross, is now deeply involved in the implementation of the Act as a commissioner. It is mildly reassuring to hear him say that it is complex legislation. The
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interweaving of the statutes set out at the start of both codes, other statutes not highlighted in the codes, the statutory instruments made under those statutes and the codes themselves has created a legal Bermuda Triangle into which few will venture with any confidence of emerging with the right answer.
One of the issues raised in the debate on the legislation was whether the codes would be duly, comprehensively and properly observed, however well they looked on the page. When we debated the Bill, there was a general lack of confidence that the resources would be made available to allow it to work properly. Now, there is serious doubt—in the mind of those on these Benches, at any rate—that there will be sufficient resources of the right sort to implement the codes. The overall legislative framework is difficult for us legislators, even though some of us are practising lawyers, so we must have huge sympathy for the public authorities and officials who will have to find their way round that jigsaw puzzle while doing highly pressurised jobs. They have many demands on their time and are unable to prioritise what they do because of the emergencies with which they must contend.
One of the issues that the Minister must address is the allocation of resources to the commissioners—the surveillance commissioners, the interception of communications commissioners and others. How many people will there be in how many offices? The House also deserves to know what extra budgetary allowance has been made for—to take the example of one of the principal public authorities—the police? It will require a significant increase in paperwork for them to observe properly the terms of the legislation and the codes. We need only think of reviews or cancellations of surveillance orders, intrusive or not. We need only consider the stages set out in the codes to realise that they represent a significant addition to the already heavy bureaucratic obligations on the police and other public authorities.
I should be grateful to learn whether the Government have thought about this and specific allowance has been made for it. In that way we will be assured that the impressive verbal reassurance on the face of the codes will be implemented, not only now and then but in all cases.
Unless the Minister suspects that I am being a little pedantic about this, when sitting in this gilded Chamber it is terribly easy to forget that the powers in the RIPA 2000 and under these codes are the most heavily intrusive and potentially dangerous to the liberty of the subject that we have in our entire law. For that reason, the need to be reassured on issues of resources, both with regard to those charged with overseeing the proper implementation of the Act and the codes and for those who will have to use the powers day by day is great. They are not marginal matters; rather they go to the heart of the concerns expressed both in this House and in the other place throughout the passage of the legislation about the wisdom of it. That is because, on whichever Bench noble Lords sit in this House, and whether noble Lords have been in government, we know only too well the terrible tendency of modern governments to legislate

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voluminously and generously without having sufficient regard for the practical, on-the-ground impact.
Great relief and gratitude is felt on these Benches—I am sure that I speak for other Benches as well—that the Home Secretary has withdrawn the other statutory instruments that initially he was minded to bring forward under the Act. I thank David Blunkett for the direct and unvarnished way he presented his decision to the public. It was most refreshing to find a Minister acting in that way.
I turn now to record keeping. Those bold enough to try to follow the legislation have expressed deep concerns about intrusion into the privacy of the subject, in particular in terms of what information on citizens is to be stored under this tangled web of legislation. Perhaps I may make a general apology to the Minister for not having given him notice of the various points that I shall raise, but I was brought into the lists, so to speak, only today.
I should like to be reassured on paragraph 2·14, covering the central record of all authorisations. I wish to draw particular attention to the fact that there does not appear to be a central, national record of authorisations or any information on what is done with them. The code refers to a "centrally retrievable record", but that is to be held by "each public authority". Surely it would be easier for those tasked with overseeing the process, with resources that will never be sufficient to cover everything, if there was in place a retrievable national record.
Under what circumstances would a member of the public either identified or referred to in the records have the right to search against the same in order to discover if he or she had been the subject of an authorisation, whether or not the authorisation was still live? I do not expect an answer tonight, but I recall that during the course of our debates this issue was keenly debated. We should not forget that the entire defence mechanism of the tribunal set up under the auspices of the Act will be an empty vessel if those who may have complaints to bring do not know that they have a complaint to make.
One of the most disturbing aspects of state warehousing of information on individual citizens is that those citizens never get to know that they are on the state records, whether the records are correct and whether or not they should be included in terms of legislative permit. How are authorisations cancelled; what is the process? Who oversees the cancellation process? By what means can the person charged with the task go about their business? In all, I was left more rather than less worried after reading paragraphs 2·14 to 2·18 of the code.
Paragraph 2·16 deals with the destruction of "the product"—an unhappy phrase. Who decides, and on what criteria, whether and how destruction is to take place? Who decides whether a further period of retention is to be sought? Under paragraph 2·18, I should like to know how the information referred to is
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accessed. Is there to be further resort to the authorising senior officer if and when a further retention of information is required?
I hope not to delay the House for too long, but these are important matters. I turn now to the question of "confidential personal information" dealt with at paragraph 6·30 onwards. I am sure that all noble Lords will appreciate the importance of this part of the code. It allows the powers of the Act to be used in circumstances covering personal information. That could be information subject to legal privilege; it could be journalistic information or it could be the information that passes between a priest and someone resorting to him. Again, I am left feeling unhappy about where the code takes us.
Perhaps I may refer to paragraph 3·10:
"Communications involving Confidential Personal Information and Confidential Journalistic Material".
That suggests the extent to which these powers will be used in the most sensitive of circumstances. I say only that the kind of fears expressed in the House—and at times thought to be exaggerated by government spokesmen—are here made flesh, so to speak.
I turn briefly to communications subject to legal privilege. It appears that legal privilege would be breached if,
"there are grounds to believe that the professional legal adviser is intending to hold or use the information concerned for a criminal purpose".
That will give someone using the powers the right to breach a legal privilege, which in our law is the one unique and special relationship of privilege, if the person concerned thinks that there are grounds for believing that the professional legal adviser is engaged in a criminal purpose. Again, special arrangements have been made under paragraph 6.30 to ensure that the prior approval of a special commissioner must be sought.
The central point I wish to make here is that that very real protection in an extremely sensitive class of circumstance is not a statutory protection. I do not think that paragraph 6·30, covering the requirement for the prior approval of a surveillance commissioner, is reflected in the Act itself. That means that the protection is unsafe and should have been included in the Act. Our feeling on these Benches is that this and many other aspects of the code should have been in primary legislation. It is no good saying that on the whole the police, NCIS, the military and so on are decent, honest fellows. The whole point of legislation giving the state power over citizens is for us to act as watchdogs against the few bad apples that can, and always will, disregard the proprieties.
Given that these aspects of the code are not in the primary legislation, Section 72 of the Regulation of Investigatory Powers Act does not give any solace. It states expressly that failure to comply with any provision of the code of practice shall not of itself render the person breaching the code liable to any criminal or civil proceedings. I am not even sure that any such breach has to be brought to the attention of the surveillance commissioner. Again, I should be

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grateful if the Minister would at some stage come back to me on that point. It is surely a massive lacuna in an already weak protection—that is, a non-statutory code, a breach of which does not automatically give rise to any civil or criminal proceedings—not to have such a breach specifically brought to the attention of the surveillance commissioner.
I am told that debate on the orders should end at 8.30 p.m. Therefore, I shall need to romp through the remainder of the points that I want to make. I turn first to consultation. I am not at all sure that consultation on these codes was adequate. I have been in touch with a number of organisations which one might have thought would take a great interest in the contents. I should be grateful to know how the Government consulted. Did they go out to various organisations, or did they simply post the draft code on the Internet? How long did they give for consultation and how many people made representations to them?
I have touched on the issue of complaints. It is a huge hole.
I turn finally to the use of vulnerable individuals and juveniles under the cover human intelligence sources code of practice. They are two classes of person to whom we have a particular obligation. The code states that vulnerable individuals can be used as sources of information under the powers given in RIPA, but goes on to state that they shall be used as a source only,
"in the most exceptional circumstances".
No idea is given as to what that might mean. I wonder whether that reference is sufficient, In an area of the highest possible sensitivity, to protect vulnerable individuals from being used in that way.
Annex A lists the officers who may authorise the use of a vulnerable individual or a juvenile. We find that a chief officer of a local authority or the head of paid service has the power to authorise the use of vulnerable individuals for the purpose of acting as a source of covert intrusive or other information. Is that right? Is it right that the immediate senior officer of the DEFRA prosecution division should have that right? It is an enormously important one. I query whether all matters of the utilisation of vulnerable individuals should either have been included in the statute, or whether even now they should be included in an amending statute, or have to have the clearance of the surveillance commissioner, as for other sensitive issues under the Act.
Finally, under the heading "Juvenile sources", the code of practice states:
"On no occasion should the use or conduct of a source under 16 years of age be authorised to give information against his parents or any person who has parental responsibility for him".
Again, that is not a statutory provision. It is, therefore, subject only to the very weak provisions in Section 72. If anyone breached this provision and used someone under the age of 16 as an informant against a parent, what check could be made? Who would be told? Who would have the right of complaint? All this is shrouded in something worse than mystery. As matters stand, we have no assurance whatever that a breach of such an important aspect of the code would ever see the light
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of day, or ever get to the parents whose juvenile son or daughter had been so used in order that they could make a complaint.
Subject to those few points, we are disinclined to divide the House.
Lord Filkin: My Lords, I thank the noble Lords who have spoken. I begin by thanking in particular the noble Viscount, Lord Colville of Culross, for bringing to our consideration of the orders some remarkable direct experience and expertise. I mark his point—which is sound—that the codes can develop in the light of circumstances and experience, as I am sure they will in time as circumstances change. That is, in part, why it is important that they are not on the face of the Act: they are much more flexible and can change with circumstances.
I thank the noble Baroness. Lady Seccombe, for her acknowledgement that the letter from my honourable friend Bob Ainsworth was helpful in clarifying a misunderstanding and for her endorsement of the safeguards contained in the code.
I shall do my best to minimise the length of the letter that will need to be sent to the noble Lord. Lord Phillips of Sudbury, by dealing with a number of points, but undoubtedly I shall not have time to deal with them all to his satisfaction.
The noble Lord raised questions about resources. The chief surveillance commissioner clearly had some concerns about ensuring that he was adequately resourced to do his job. We think that those issues have been addressed and that the office of the surveillance commissioner is properly resourced to undertake those responsibilities. No doubt in the light of experience he will be monitoring the situation in the future, as will the Home Office.
As to the police, no doubt—
Lord Phillips of Sudbury: My Lords, I asked how
many individuals would be involved—how many staff the commissioners will have in order to do the work. Will the Minister give that information in his letter?
Lord Filkin: My Lords, I shall be delighted to provide that information when I write to the noble Lord.
With regard to the police, no doubt there are additional burdens, but they have received what is probably one of the more generous financial settlements for a while. Therefore, one hopes that they are not collapsing under the burden. I have riot heard of any representations to that effect.
I was asked what would happen if the code was ignored. We do not believe that it will be. Public authorities are legally obliged by Section 71 of RIPA to follow the code, and the commissioner clearly has the responsibility to ensure that they do. Who checks that cancellations are carried out? The inspectors regularly inspect public authorities to ensure that these matters are complied with.

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As regards public action against the records, the Data Protection Act applies to records held by public authorities. Individuals can make a subject access request to any public authority. However, in some circumstances the information will not have to be given if it would prejudice national security or the prevention or detection of crime.
In relation to paragraph 6·30, the provisions in Chapter 6 are to be found in Part III of the Police Act 1997. These codes replace the intrusive surveillance code of practice issued under the Police Act 1997.
I do not agree with the argument that records should be stored centrally. It seems to me that the records should be stored where the body is that is undertaking an investigation and where the surveillance commissioners can interrogate both the people who put them there and the documents at the same time, rather than moving to some data warehouse somewhere else.
There is no special protection for privileged information on lawyers or journalists or for medical information. On the other hand, it is clear that such information should not be accessed except in exceptional and compelling circumstances, as set out in paragraph 3·6 of the code.
With regard to whether information on vulnerable individuals should be used, we envisage such use only in limited circumstances. The code sets out further safeguards on the use of such sources above the requirements of the Act. The draft codes of practice on covert surveillance were consulted on, as signalled on the Home Office website. The public consultation period lasted from September to November 2000. The charge was that breach of the code gives no rise to noticeable or criminal liability. Covert surveillance per se is not criminal; Part II of RIPA makes surveillance lawful for human rights purposes. In other words, RIPA authorisation protects the public authority from civil claims under the Human Rights Act, the point made by the noble Viscount, Lord Colville.
The noble Lord, Lord Phillips, referred to the use of juveniles under 16 under paragraph 3·14. Article 3 of Statutory Instrument Number 2793—the Regulation of Investigatory Powers (Juveniles) Order 2000—states that juveniles under 16 may not be used to give information against their parents. I am sure that I have not dealt with all the points, but I shall write with fuller details.
On Question, Motion agreed to.

Regulation of Investigatory Powers (Covert Surveillance: Code of Practice) Order 2002
Lord Filkin: My Lords, I beg to move.
Moved, That the draft order laid before the House on 10th June be approved [33rd Report from the Joint Committee].—(Lord Filkin.)
On Question, Motion agreed to.

Schedule 7 to the Terrorism Act 2000 (Information) Order 2002
8.22 p.m.
Lord Filkinrose to move, That the draft order laid before the House on 3rd July be approved [35th Report from the Joint Committee].
The noble Lord said: My Lords, the events of September 11th clarified for everyone the danger faced from terrorists and the importance of utilising all possible proportionate means to counter it. Information collected by the enforcement agencies on passengers and goods carried into and out of the United Kingdom is regarded by the police as crucially important in that respect. The powers complement and will, over time, incrementally build on the security measures already in place at ports, such as powers to stop, question, search and detain individuals as well as physical preventive security measures such as body scanners.
The powers will allow the police to build an intelligence map to target and track terrorists to disrupt and prevent their activities in the UK and elsewhere. In a meeting with representatives from the air and sea carrier industry on 11th July, my right honourable friend the Home Secretary stated his belief in this power as an essential counter-terrorism tool and his commitment to it and to making it work in an agreed and proportionate manner.
At the time he made clear that we are aware of the pressures faced by the industry and stressed the importance of further consultation. We will ensure that the powers are introduced in an incremental way reflecting local circumstances. We have agreed that it would be useful for Ministers to meet the carriers again to discuss progress on the process of consultation and implementation.
Paragraph 17 of Schedule 7 to the Terrorism Act 2000 as amended by Section 119 of the Anti-terrorism, Crime and Security Act 2001 gives the power to an examining officer to make a written request to an air or sea carrier for information. Information requested could relate to passengers, crew, their vehicles and goods on all journeys to, from and within the United Kingdom. The request may relate to a particular ship or aircraft, or to all ships or aircraft of the carrier. It may relate to a single journey or span a period of time.
The key to this is targeted requests, not blanket "all passengers on all flights" demands for information. It is in the interests of the police to target requests around current intelligence patterns for maximum effect. Therefore, use of the powers must be proportionate and local circumstances must always be taken into consideration by the police.
Initial consultation took place between March and June 2002 when officials met a wide range of industry bodies including representatives of the air and sea passenger and freight carriers, freight forwarders, and maritime container companies. Additionally, officials visited ports and individual companies to observe the industry in operation and to obtain advice on possible business impact.

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The range of meetings and visits coupled with the regular meetings with key representatives of the border agencies—containing a range of expertise in ports policing, immigration and Customs and Excise matters—resulted in better understanding on both sides of the needs and capacity of each side and ultimately led to a substantial revision of the original list of information requirements.
A number of concerns were raised during the consultation process and these were brought to our direct attention at an important and useful meeting on 11th July. We recognise and acknowledge that they are matters of genuine concern to the industry. We made clear then and I wish to make clear now that the order is an enabler; how, and the extent to which, the power is applied will have some flexibility. Putting the flexibility in the order itself was explored but counsel advised against it. Nevertheless, the department is committed to making the consultation process have meaning and life and to work closely with industry.
The national security need was to have the enabler in place before the recess and to allow for consultation to continue over the summer and subsequently until we have a workable outcome. What is important is that the principle behind the power is recognised by both sides who have undertaken to continue the consultation process on implementation.
Therefore, although the power will come into force 30 days after the order is made, I assure the House that the legislation will not be implemented until the most thorough consultation has been carried out and agreement so far as possible on the best way forward has been reached with the carriers. In the interim we hope that both sides are able to think creatively about how best to approach the issue. Additionally, the police have made it clear that there will be no requirement on domestic carriers to undertake routine collection of the information requirements specified in the order.
In all cases, even when the power is in place, there will be a need to take local circumstances into account. The powers fall under the Terrorism Act 2000 and, as such, will be scrutinised by the independent reviewer of the Act, the noble Lord, Lord Carlile of Berriew. Officials are grateful for the continued active involvement and contribution of all sides. We wish to make the implementation proportionate.
To summarise, the Home Secretary has heard the concerns raised and intends that the consultation and the incremental phasing should be carried out in an intelligent and sensitive fashion. I commend the order to the House.
Moved, That the draft order laid before the House on 3rd July be approved [35th Report from the Joint Committee].—(Lord Filkin.)
Baroness Seccombe: My Lords, I thank the Minister for his explanation of the order. When we agreed to take it along with other orders tonight in the dinner break we were not aware of the concerns of the aviation industry. We shall not oppose the making of the order and we would not wish to oppose something
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that the Government, on advice, believe may help to combat terrorism, but we would like to place on the record that the aviation and tourism industries have concerns about the operability of the order. In addition, I understand that my noble friend Lord Skelmersdale has carried out some detailed research and has some searching questions to put to the Minister.
The problem seems to be that the Government have handled the consultative process on the order badly. I have read the proceedings of 15th July in Standing Committee of another place. I accept that the order is only an enabling measure and that the Government have now given a commitment to continue consultation with the industry at a meeting in September. Will the Minister confirm that the meeting will definitely go ahead?
Will the Minister give a commitment that in addition to continuing to consult the airlines, the Government will consult with tourism: for example, the British Incoming Tour Operators Association, the Tourism Alliance and the British Tourist Authority? The BTA of course needs to be in a position to fulfil its statutory role as adviser to the Government on tourism. Will the Minister assure the House that no requirements will be imposed under Schedule 7 that will impact on the international competitiveness of the UK transport sector? Will he assure the House that requirements will not be imposed under the schedule without compelling evidence that the most proportionate means of implementation has been selected, following on from consultation?
As I said at the beginning, we shall not oppose the order, as we share the Government's desire to combat terrorism.
8.30 p.m.
Lord Skelmersdale: My Lords, the fact that we are discussing the serious threat of terrorism does not mean that we have to take everything that is put in front of us as carte blanche. The only thing blanche that I can find about the order is the large amount of salt that will be required for its digestion.
Every now and then, we find some information or proposed legislation that, in the words of my noble friend Lord Peyton, makes our nerve ends twitch. That happened to me when I first saw the order, which the noble Lord, Lord Filkin, has so thoroughly explained to us. When I received not one but two letters of complaint about the order, my twitching got considerably worse.
My original concern was the normal one for a Member of your Lordships' House: will the information on the schedule, to be demanded from the ports and airlines, actually work? I noted that the Minister was under a misapprehension. The police requests that may or may not follow from the order are not the problem. The problem is the need for the airlines and the port authorities to gather that information. The police requests, if they are made, will come after that.

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In the words of the noble Lord, Lord McNally, on the first order that the House discussed a few moments ago: is it a case of wanting to know rather than needing to know? Clearly, the provision cannot stop terrorism dead in its tracks. It could be useful only after a terrorist event. I am not knocking the need for the police and security forces to gain background information on the carrying out of a suspected crime. For obvious reasons, that is a vital part of their work.
However, many is the time that I and members of my family have travelled under an assumed name. Were I a terrorist, that could not help the police one jot. Nor would the false address, car number and other details that I would give to the airline. If I would deceive on that, how much more likely would it be for me to invent a fictitious cargo, for example?
I understand that the police tried to collect similar information in July 1999. Within a month the operation was discontinued. Yet here it is again in an even more comprehensive guise. Whether it was dropped for the obvious reason that I have just given or because the airlines made a stink I do not know, but what I do know is that the airlines and ferry companies are making a fuss now, of which the Home Office is well aware and on which the Minister, in his inimitable fashion, has just remarked.
Home Office officials sent a letter to all the potentially affected firms, which were to be adjured to collect even more than the information currently on the schedule to this order, on 1st March this year. As the Minister has said, that resulted in a meeting, which was held on 12th April. I understand that it was attended by all the industry bodies. It is a curious example of the Government's much flaunted concept of joined-up government that the Department for Transport was not involved or, as far as can ascertain, even informed that the proposals were about to be, or had been, issued.
Home Office officials were certainly unaware that the subject was under discussion internationally and that a meeting with United States officials was due soon. I understand that it is fixed for tomorrow, when the Department for Transport will complain to the United States authorities about their much milder plans than are to be found in the schedule to this order.
Were the Foreign Office or the Department of Trade and Industry informed? I have tabled a couple of Questions for Written Answer, which the Minister can now answer verbally. To be fair, there has been no time for written responses.
All that is bad enough, but the plot thickens. At the 12th April meeting, the airlines naturally supported the Government's intentions to prevent terrorism. However, there was and remains a mega problem. The data expected of them are not currently available. Much of the information can be neither scanned electronically nor verified by the airline. Under these proposals, operators—presumably check-in staff—will have to input it manually. It does not take much imagination to realise what that will do to check-in times, eventually leading to a loss of capability at a
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time when airlines are fighting to remain competitive gateways in the air industry. At worst, I am told, check-in times may have to be extended to up to four hours.
It also does not take much imagination to realise that airlines' costs will increase significantly. Has any cost/benefit analysis been done? I was intrigued to see, rather late in the day, a Home Office memorandum in the Printed Paper Office accompanying the order, but I do not call that a regulatory impact assessment and I certainly do not call it a cost/benefit analysis.
I shall not weary the House by going through the airlines' concerns one by one. I am sure that other noble Lords have points of concern. Suffice it to say that the Minister's officials were more than a little surprised at what they had been told and that the industry representatives left with the strong impression—I am being kind to the officials; my airline correspondents called it a promise—that a further meeting would be held before the order was laid. There was no such meeting. It was not until later that Ministers took a grip on the situation and the Home Secretary and the junior Minister responsible held such a meeting. I do not know whether it was then or originally that the police representatives said that the information would hardly ever be used. However, what we all know is that the Minister handling the order in another place said that it would not be used on the first day permitted. The noble Lord has repeated that this evening. The order does not say so, but the Minister did, at col. 4 of the Official Report of the Third Standing Committee on Delegated Legislation on 15th July. She went on:
"further discussions will be held to consider whether or not collection of all items of data listed in the schedule was feasible or whether the data will be as useful as the police and other border agencies think that they might".—[Official Report, Commons Third Standing Committee on Delegated Legislation, 15/7/02; col. 5.]
Again, the noble Lord said much the same just now.
Putting the cart before the horse is not the way to legislate on any matter, let alone one as serious as this. The Minister should withdraw the order and come back to us with a properly thought-out proposal that is workable, has a cost/benefit analysis attached and will be useful and used.
Lord McNally: My Lords, one of the great values of this House is when a Member such as the noble Lord, Lord Skelmersdale, gets his teeth into a subject and will not let go. I pay tribute to the way in which he has championed the cause in the House. I shall not delay the House long with my comments.
When I was a lad and we used to play football and cricket in the street, if we broke a window we used to send the most innocent, mild-mannered and angelic of our number to get the ball back. I suspect that the noble Lord, Lord Filkin, fulfils that role among Home Office Ministers.
Not for the first time, the Home Office has overextended itself, rushed its fences, under-consulted and then found itself in a mess. It is interesting that these

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powers were first contained in a 1989 Act, but prudent government and experience showed that they were not to be used.
Airlines with experience of these matters such as Britannia and Virgin have expressed great concern at the consequences if the measures were rushed through and have expressed doubt as to whether the powers requested will have real effect in the war against terrorism. Virgin Atlantic provided an excellent brief containing 10 specific objections. The most striking was that the order is out of kilter with measures in the United States and elsewhere in Europe. It seems odd that international consultation has not taken place.
After Virgin, Britannia and the noble Lord, Lord Skelmersdale, started mobilising, all of a sudden the Home Office clanked into action, a meeting was held and various assurance were given. If anyone doubts that the department is in retreat, I can only quote The Guardian report on the Home Office briefing after the 11th July meeting, which quoted a Home Office spokesman:
"This is a victory for common sense".
We all recognise that comment as code for "We are fast in retreat and will try to sort this matter out". I welcome the Home Secretary's belated promises on 11th July of further consultations, of staging if the measure is introduced and acceptable trigger mechanisms.
There is a temptation for Ministers to say, "If only you knew what we knew" or, even worse, "So you are in favour of terrorism, are you?", whatever the nature of the measure. There is an onus on Ministers and on the rest of us to test the powers that the security services require. The security services have a voracious appetite for more information and power. Within a democratic and free society, Ministers must, as part of their responsibilities, serve as a check and balance on the security services when they go too far.
I am not sure even now that the powers being requested will be practicable in any meaningful war against terrorism. But because a fuss has been created and the absurdities of the original proposals have been revealed, there is time for the Home Office to consult properly and to examine the impracticalities that have been exposed.
We will not divide the House, but if the 11th July meeting had not taken place and the Home Secretary had failed to give assurances on that occasion, we would have done so and sought support. Not for the first time, the Home Office has not listened carefully enough but rushed its fences. The Minister has promised a period of further consultation. I can promise the Minister a further period of close monitoring of that consultation in making a judgment on whether the Government listened and got it right.
8.45 p.m.
Lord Filkin: My Lords, utility was one of the challenges mentioned by the noble Lord, Lord Skelmersdale. One must to some extent listen to the police and security services when they make a request. The processes or measures in question are not a result
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of civil servants saying, "We think this would be a jolly good idea", but are the consequence of requests from the police or security services.
The facilities sought will provide the police with accurate information that they will be able to check against a database of known or suspected terrorists and to build profiles of suspects—thus leading to effective intelligence-led policing operations. To some extent, we are talking about the development of new surveillance systems that do not currently exist fully developed anywhere but which are being incrementally developed by a number of countries. All countries who are concerned about the security of their subjects are gradually experimenting and feeling their way.
The implementation timetable could be two or three years—in some cases, even longer—because of the need to develop a proportionate and targeted approach. The Government could say, "We will not take any powers but let the discussion process move on. When we think things are right, we will put those powers in place". Or the Government can do as we have done—give the powers, recognise that there will be a complicated process of progressive implementation and development with the industries involved, reinforced by the authority that the order gives. We are right to have chosen the latter course because it signals to everyone that progress must be made, albeit in a proportionate way.
To answer the noble Baroness, the 13th September meeting will be going ahead. We will consult with the tourism industry and any others that think they are affected. Competitiveness between industry sectors is clearly an issue of which we are aware—BA raised that point with the Home Secretary at the 11th July meeting. I totally agree with the noble Baroness about listening to what the police and security services have to say and deciding the most important information for them to have early—and the most proportionate means of providing it. There must be a partnership between the Government, security services and industry. No one knows exactly the right answers. There must be a continuing dialogue to test which information is crucial, whether it can be obtained in a different way and whether it can be put in a different timeframe to make industry compliance much less expensive and difficult.
The situation is not that the Government are saying "Do that" and waiting for industry to complain. Instead, there will be constant dialogue between various sectors about utility, proportionality and best means.
To answer the noble Lord, Lord Skelmersdale, carriers will need the capacity to collect information but not to gather all the information until there is a request—albeit that requests can be made in respect of future journeys. For example, carriers might be requested to collect information on flights to destination X over the next three months.
Lord Skelmersdale: My Lords, could the noble Lord explain that more fully? As I understood it, the

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information has to be available to be collected. If it is available to be collected and is not collected, when the police ask for the information it will not be there. Therefore, surely everyone will be in contravention of the order.
Lord Filkin: My Lords, essentially, there will be a request to a carrier to provide information between certain points and certain flights over certain periods of time. If the carrier has not been asked about such information previously, he cannot be expected to have it in his possession.
If I have not engaged with the noble Lord, Lord Skelmersdale, perhaps we can enjoy one of our correspondences. I shall be pleased to do so if that will help. I shall consider what he said and see whether I can give a better answer in writing.
As I signaled, we hope that the information will assist in targeting and profiling terrorists. With regard to the impact on international commercial issues, the point is well made about the importance of trying to move progressively towards some harmonisation of such data systems across the world. However, again, one cannot do nothing while that process takes perhaps five or 10 years; we must move in parallel by starting our systems and pressing for some convergence internationally.
I am aware of the time and aware of the pressure from other business. I conclude by stressing what I said about the importance of taking forward the consultation with a variety of industries. The meeting on 11th July made clear that we were talking not only about airline industries but about airport, travel and other industries. One could not even talk about one industry as a homogeneous group. There were significant differences in impact between, for example, low-cost and higher-cost scheduled flights and between charters. Therefore, those issues must be understood and taken into account by government and by the police in terms of developing the systems. The industry itself must also recognise its responsibilities, as it did at the meeting, by working with government to ensure that we obtain relevant information to reduce our security threats.
Lord Skelmersdale: My Lords, before the Minister finally concludes this business, does he accept from me that he has answered with a very straight bat but that, unless the bat is held in the right place, the ball still hits the wicket?
Lord Filkin: My Lords, I agree with the noble Lord, Lord Skelmersdale, that the fundamental issue is about the utility to reduce terrorism. Clearly government will not be passive on these issues. They will need to hold discussions with the police and security services progressively to ensure that the utility being obtained is proportionate to the burdens and pressures that result from the processes.
To an extent, one has to start on that venture rather than assume that it is impossible. That is why we believe it is right to make this order and to begin the process of progressive, thoughtful implementation.
Lord McNally: My Lords, before the Minister sits down, does he agree that, in a proper and orderly fashion, we would not consider passing the order until we had seen the outcome of the meeting on 13th September? As I said, we shall not divide on the issue tonight, but I hope that the noble Lord, Lord Skelmersdale, will put on his pads again when we return on 7th October. If we are to approve the order tonight, the House is entitled to know the outcome of that 13th September meeting, either by a ministerial Statement or by the activities of the noble Lord.
Lord Filkin: My Lords, of course, in a proper and ordered world, we would not have experienced the events of 11th September and we would not have had the sense of pressure that faces all civilised governments in the world. That is the tension that we face at present. I commend the order to the House.
On Question, Motion agreed to.

Enterprise Bill
8.54 p.m.
House again in Committee on Clause 41.
Lord Hunt of Wirralmoved Amendment No. 125:
Page 26, line 42 leave out from "57" to end of line 43.
The noble Lord said: I want to draw to the Minister's attention subsection (3) of Clause 41. which states:
"For the purposes of this Part a public interest consideration is a consideration which, at the time of the giving of the intervention notice concerned, is specified in section 57".
Clause 57 is entitled "Specified considerations". Subsection (1) of the clause states:
"The interests of national security are specified in this section".
Subsection (2) states:
"In subsection (1) 'national security' includes public security; and in this subsection 'public security' has the same meaning as in article 21(3) of the European Merger Regulations".
I shall not comment on subsections (3) and (4) because they will be the subject of a subsequent debate. However, Clause 41(3) goes on to say,
"is specified in section 57 or is not so specified but, in the opinion of the Secretary of State, ought to be so specified".
In a previous debate, when dealing with amendments put forward by his noble friend Lady Turner of Camden, the noble Lord, Lord Hoyle, and a number of other noble Lords, the Minister made it clear that he did not wish to see political lobbying creeping back in. I shall now help him, as will this side of the Chamber, to ensure that that does not happen. I do not know whether he authorised the concluding words of Clause 41(3), but they are an open door. They are not restricted at all by the phrase "national security". I refer again to the words,
"is specified in Clause 57 or is not so specified but, in the opinion of the Secretary of State, ought to be so specified".
The Minister will recall that Clause 57 is merely entitled "Specified considerations". There we have it: all the arguments that the Minister deployed in dealing

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with his noble friends—"There are tough choices to be made"; "There are problems"; "I agree, there are adverse social employment consequences to be faced"; "We must avoid uncertainty"; and "We must decide on solely competition issues"—those are all very strong words but they are weakened enormously by this open door.
At present, unless the Minister accepts my amendment, it will he open to the Government to add a new ground of public interest when they feel like it. Surely that is most unsatisfactory. When it was pressed in the other place, the Minister argued that the power should remain. However, Miss Melanie Johnson was unable to say what possible category she might have in mind to add to the definition in the Bill. I believe that Miss Johnson has a long way to go before she acquires the expertise and experience of the Minister. Therefore, I very much hope that he will be able to tell us what categories the parliamentary draftsmen had in mind.
It is possible that he will want time to reflect on the matter. In that case, we may have to return to the subject at a later stage. But, unless he is able to make very strong arguments to the contrary, I believe that the Government have an opportunity here to move the goalposts when the game is in process. Why do I say that? Under this subsection a new public interest ground could be added if the Secretary of State decided to change the rules after the parties concerned had embarked on their merger. It is perfectly possible for those who were intent on merging suddenly to find that the rules were changed after the event. Therefore, that would introduce the very uncertainty that the Minister had in mind when he so persuasively argued with his noble friends that he did not want to return to the bad old days of political involvement in such matters.
Since my noble friend Lord Tebbit introduced his guidelines, there has been a self-denying ordinance among successive Secretaries of State of both main parties that they would look narrowly at competition issues when they reached their decisions. There is an element of cross-party consensus—it is wholly to he applauded—that political involvement brings the system into disrepute.
I welcome the Minister's assistance on one point. Members of the public probably find it difficult to distinguish between a politician making a decision on non-political and political grounds. What is the difference between the public and the political interest for a Minister? An analysis of that might be interesting.
Why am I so concerned about this subsection? There will be further debate on the newspaper industry and the figure of Mr Richard Desmond. The Minister may recall that the director-general had advised the Secretary of State that on competition issues he could see no reason to refer the bid. But the bid was referred. Although we are not discussing newspapers, the Minister might reflect on that situation and assure us that it will never occur again. If he is able to give that assurance, surely it is possible for him to agree to the amendment. It would remove the temptation to
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reintroduce party politics, political issues and matters as important as employment and social issues which so exercised his noble friends. That temptation is surely a diversion which the Minister will not wish to have on the face of this legislation.
We shall come to further debate on subsections (3) and (4) of Clause 57. They already allow the Secretary of State to,
"modify this section for the purpose of adding to, removing or amending any consideration which is for the time being specified in this section".
It cannot be a matter of national security. It must be a matter which comes under the overall heading of "specified considerations". The provision states that the Secretary of State may have an opinion that there is a specified consideration and that he can add the consideration to his list of allowable reasons even though the merger process may be under way. So he could come in through political lobbying which I recall can be very intense, with Members of Parliament coming to see you who are concerned about the effect of a merger or a competition situation in their constituencies. The Minister will not need me to give a list of examples of what would happen in those circumstances.
I am giving the Minister the opportunity to turn his previous words into action and to accept the amendment. I beg to move.
9 p.m.
Lord Sainsbury of Turville: It is necessary to see the amendment in the context of what: went previously. Although there was a self-denying ordinance, the Secretary of State always had the ability in circumstances which could not be envisaged at the time to take a public interest consideration into account.
We have here a residual power of the Secretary of State, in the light of circumstances which we cannot envisage at present. The only circumstance we can envisage clearly at present is national security. Noble Lords might wish for other examples. If we could envisage what those would be, we would put them in the legislation. However, I give a flavour and an example. Let us suppose that some new technology is essential to large parts of the British economy and the possibility exists that some company will be able to get control of it. It might be difficult to say that that relates to national security, but the economic security of the country might be involved.
Lord Hunt of Wirral: The Minister's example is interesting. Surely it would be possible for such modification of the interests of national security to be contained under the existing provisions in Clause 57(3) and (4) which enable the Secretary of State to modify the section by adding any consideration which is as important as he described, such as new technology—and he should know as Minister for Science and Technology.
Lord Sainsbury of Turville: Is the noble Lord saying that the only issue could be national security? I suggest

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that other considerations might be important. One cannot say that a situation where we do not know the specific circumstance will definitely come under national security.
I agree that it is cautious to say that circumstances may arise where we need to be able to take this action. The provision also has to be passed by affirmative resolution in the Houses. The Secretary of State cannot suddenly say, "In this merger case I shall take into account these purely political considerations", without that being clearly agreed to by both Houses of Parliament.
The newspaper issue is quite different. We shall deal with newspapers in a moment. I believe that they are covered by the Fair Trading Act which will be updated by the Communications Bill. In relation to Richard Desmond's acquisition of the Express, the acquisition of the Express newspaper business by Northern & Shell group fell under the general merger provisions of the Fair Trading Act. Therefore, it was treated in exactly the same way as any other merger considered under that Act and the OFT saw no reason to refer it to the Competition Commission on competition grounds.
Later we shall come to the matter of newspapers which raises a different issue. On the central issue, I shall argue strongly that we need a residual power that will be allowed to the Secretary of State only by affirmative resolution of the two Houses. We need that because one cannot be certain whether there will be circumstances in which that may be necessary.
Lord Hunt of Wirral: I am grateful that the Minister has been much more explicit than his ministerial colleagues in the other place, but I cannot immediately find the affirmative resolution procedure to which he refers as it applies to Clause 41(3) which states:
"For the purposes of this Part a public interest consideration is a consideration … specified in section 57",
and it continues:
"or is not so specified but, in the opinion of the Secretary of State, ought to be so specified".
There is certainly an affirmative resolution procedure if he were to follow the procedure in subsections (3) and (4) of Clause 57, but I cannot see that the opinion of the Secretary of State has to be affirmed by a resolution of both Houses under Clause 41(3).
Lord Borrie: It seems to me that if something is not specified, and in the opinion of the Secretary of State it ought to be specified, he or she then has to use the procedure in Clause 57 under which there has to be an order and an affirmative resolution.
Lord Sainsbury of Turville: That is also my reading of the Bill.
Lord Hunt of Wirral: How many times when I was a Minister did I affirm the opinion of the noble Lord, Lord Borrie, as we constantly re-appointed him as Director-General of Fair Trading?
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I shall respond to the Minister as positively as I can by saying that my concern remains. Companies would not know when they agreed to merge whether or not the Secretary of State would intervene on public interest grounds that were added to the list, hitherto unspecified, after the merger was agreed. I believe that new technology has been specified before in legislation to cover situations such as product liability in which there is a specific reason why, in development terms, legislation should not apply. Therefore, if he is right that there should be some way of protecting new technology—that sounds like a global view with research being carried on in all parts of the world, usually led by this country and its great scientific brains—I am not sure that that would be a good consideration.
Moving away from the specific example that he has given, I believe that it should be possible to specify matters in a way that enabled at least the terminology to be narrowed. At the moment it is completely wide open and there is no restriction at all, other than the affirmative resolution procedure—if the noble Lord, Lord Borrie, is right—which cannot be amended. Therefore, the Secretary of State could lay a resolution before both Houses that added a list of various considerations, which in the opinion of the Secretary of State should be added, and it would he possible for both Houses only to agree or to disagree and not to change the list. That is why I believe that it is necessary to be more specific. Public interest considerations should be specified and identified in primary legislation.
We shall come on to the plurality of the media and prudential rules, that are specifically mentioned in the ECMR. I believe that to leave in the discretion raises the risk of political involvement in a process that the Government say they want to leave to the competition authorities. I believe that this is a helpful opportunity for the Minister to introduce some further clarification. I want to ponder on the points that he has raised. In those circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 41 agreed to.
Clauses 42 to 47 agreed to.
Clause 48 [Variation of references under section 44]:
Lord Sainsbury of Turvillemoved Amendment No. 126:
Page 34, line 29, at end insert—
"(1A) Where, by virtue of subsection (1), the Commission treats a reference made under subsection (2) or (3) of section 44 as if it had been made under subsection (4) or (as the case may be) (5) of that section, paragraphs 1, 2, 7 and 8 of Schedule 7 shall, in particular, apply as if the reference had been made under subsection (4) or (as the case may be) (5) of that section instead of under subsection (2) or (3) of that section.
(1B) Where, by virtue of subsection (1), the Commission treats a reference made under subsection (4) or (5) of section 44 as if it had been made under subsection (2) or (as the case may be) (3) of that section, paragraphs 1, 2, 7 and 8 of Schedule 7 shall, in particular, apply as if the reference had been made under subsection (2) or (as the case may be) (3) of that section instead of under subsection (4) or (5) of that section.

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(1C) Subsection (1D) applies in relation to any undertaking accepted under paragraph 1 of Schedule 7, or any order made under paragraph 2 of that Schedule, which is in force immediately before the Commission, by virtue of subsection (1), treats a reference as mentioned in subsection (1).
(1D) The undertaking or order shall, so far as applicable, continue in force as if—

(a) in the case of an undertaking or order which relates to a reference under subsection (2) or (3) of section 44. accepted or made in relation to a reference made under subsection (4) or (as the case may be) (5) of that section; and

(b) in the case of an undertaking or order which relates to a reference made under subsection (4) or (5) of that section, accepted or made in relation to a reference made under subsection (2) or (as the case may be) (3) of that section;

and the undertaking or order concerned may be varied, superseded, released or revoked accordingly."
On Question, amendment agreed to.
Clause 48, as amended, agreed to.
Clauses 49 to 54 agreed to.
Clause 55 [Competition cases where intervention on public interest grounds ceases]:
Lord Sainsbury of Turvillemoved Amendments Nos. 127 to 129:
Page 40, line 5, after "or" insert "(as the case may be)".
Page 40, line 25, after "or" insert "(as the case may be)".
Page 40, line 32, at end insert—
"(8) Where the Commission becomes under a duty to proceed as mentioned in subsection (3) or (6), references in this Part to references under sections 21 and 32 shall, so far as may be necessary, he construed accordingly: and, in particular, sections 74 to 78 shall apply as if a reference has been made to the Commission by the OFT under section 21 or (as the case may be) 32."
On Question, amendments agreed to.
Clause 55, as amended, agreed to.
Clause 56 agreed to.
9.15 p.m.
Clause 57 [Specified considerations]:
Lord Hunt of Wirralmoved Amendment No. 130:
Page 40, line 46, at end insert—
"(2A) In subsection (1A) "newspaper" shall have the same meaning as in section 57(1)(a) of the 1973 Act, and in this section "plurality" means a diversity of ownership that is sufficient to ensure that the public have access to the accurate presentation of news and free expression of opinion.
(2B) In applying the interests specified in subsection (1A) no account should be taken of plurality in newspaper ownership if the relevant merger situation concerns the transfer of a newspaper or newspaper assets to a newspaper proprietor whose newspapers have an average circulation per day of publication amounting, together with that of the newspaper concerned in the transfer, of fewer than 500,000 copies.
(2C) In subsection (2B), "newspaper proprietor" shall have the same meaning as section 57(1)(b) of the 1973 Act, and the calculation of circulation per day shall be by such means as the OFT or (as the case may be) the Commission shall determine."
The noble Lord said: The purpose of this amendment is to introduce a new specified consideration. Such considerations are those which under Clause 42(3) of the Bill are the public interest considerations in respect of which a merger reference
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can be made. The additional consideration is that of plurality in newspaper ownership. As defined by this amendment, it would mean protecting accurate presentation of news and free expression of opinion—factors already in the 1973 Act—and exclude local newspapers by virtue of a 500,000 circulation threshold.
In the other place, the Government disclosed no intention to specify further considerations. I draw the Committee's attention to Command Paper 5508, published earlier on 11th May this year. In the policy narrative accompanying the draft Communications Bill, the Government clearly stated their intention at page 60, paragraph 9(7)(4):
"Newspaper transfers will be treated so far as possible in a manner consistent with other mergers considered by the competition authorities. However, the Enterprise Bill provides for such mergers to be scrutinised by reference to a competition test: will the transfer be expected to lead to a substantial lessening of competition?"
The Government then use the following words:
"Those newspaper transfers that potentially raise plurality concerns will require wider regulatory scrutiny in order to protect the additional public interest involved in such transfers. In relation to these transfers, therefore, the Secretary of Stale will retain the power to refer transfers for wider investigation by the Competition Commission by an extension of the provisions in the Enterprise Bill dealing with 'exceptional public interest'(EPI)cases. This will be directed to those cases that involve the public interest in accurate presentation of the news, free expression of opinion and plurality of views in the Press—'plurality' for short."
This amendment seeks to achieve what the Government wish to happen in terms consistent with experience of a special newspaper transfer regime under the 1973 Act while not carrying forward the prior consent or criminal provisions in the 1973 Act.
I hope the Minister will welcome this opportunity to turn the department's words into action and accept the amendment. I beg to move.
Lord Sainsbury of Turville: Amendment No. 130 appears to relate to a subsection—subsection (1A)—that does not appear in the Bill. On that basis alone I would ask the noble Lord to withdraw it. But in the light of the explanation given by the noble Lord, Lord Hunt, it may be helpful for me to set out why I do not believe that any amendments relating to the handling of newspaper mergers are needed.
This is an important issue and one that we are taking forward through the Communications Bill. Those provisions will replace the special newspaper regime of the Fair Trading Act with a streamlined and less burdensome regime that focuses regulatory action on those newspaper transfers that appear to raise competition or what can be generally termed "plurality concerns". By "plurality" we mean to encompass the public interest in the accurate presentation of the news, free expression of opinion and plurality of views in the UK press.
The effect of the new provisions will be that only those cases raising real plurality concerns will be subject to the additional newspaper merger provisions. Other transactions that do not raise such concerns will

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be examined—if at all—only under the normal merger provisions in the Enterprise Bill. There will no longer be a bar to parties completing a newspaper transfer before the Secretary of State has given her consent. Rather, the competition authorities will consider any competition issues raised by a newspaper transfer in the same way as they do in the case of any other merger which qualifies for consideration. And the Secretary of State will intervene in merger cases only where she considers issues of plurality should also be considered.
I believe that to be the intention behind Amendment No. 130. However, the Government also want the new regime to apply regardless of the identity or existing business interests of the person acquiring the newspaper, if the merger would involve a newspaper that has a 25 per cent share of supply in a substantial part of the United Kingdom. The provisions to be brought forward in the Communications Bill will ensure that that is the case.
The reason we have not put the reform in the Enterprise Bill is that the Government wanted interested parties to be able to consider their proposals on media ownership in the round. That is why we consulted on proposals for reform of the special newspaper regime in the White Paper, A New Future for Communications, and in the November 2001, Consultation on Media Ownership Rules, and will be bringing forward provisions in the Communications Bill to deliver a regulatory framework for the communications industry as a whole.
The plurality of views and opinions in the press continues to be of vital public interest and the Government remain committed to protecting those in relation to the transfer of newspaper titles. In the light of that explanation of the provisions we will bring forward in the Communications Bill, I invite the noble Lord to withdraw the amendment.
Lord Hunt of Wirral: I am interested in what the Minister said. I do not believe that he or his ministerial colleagues alerted me to the fact that they had decided not to do what they said on 11th May they would do. I recall the noble Lord, Lord McIntosh of Haringey, saying that he would let us know what the decision was when we debated the Bill at Second Reading. But no one has alerted me since that time to the fact that the decision had been taken not to include it in the Enterprise Bill, even though the draft Communications Bill makes it clear that it would be contained in the Enterprise Bill.
I am not sure why the Government reached that decision other than the Minister's statement that he wanted the provisions to be seen in the round. But if the Communications Bill is proceeding, as is the Enterprise Bill, and we are now approaching the Recess, presumably it is possible for us to be told what the provisions are to be. Though the Government may have decided to put them in the Communications Bill, they have not yet detailed what they are to be. I may be incorrect and perhaps the Minister will put me right on that.
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I have not seen any detail of the provisions which were to be included in the Enterprise Bill dealing with exceptional public interest. That relates to newspapers generally and indeed to any other EPI cases. It would be helpful if the Minister could correct me if I am wrong.
Lord Sainsbury of Turville: I believe that we wrote to the noble Lord, but I shall check on that and confirm what the position is.
Lord Hunt of Wirral: I shall check. I have not seen the letter, but it may well have been sent in my direction. Will it contain the provisions which are so clearly flagged up on page 60 of the document, which is only two months old? It would be very helpful if the Minister can give some indication.
Lord Sainsbury of Turville: I do not believe that there was any intention to include newspapers in the Enterprise Bill. Indeed, a memorandum has been provided to the Joint Committee on the Communications Bill which sets out some of the fundamental issues.
Lord Hunt of Wirral: I was aware that there was a memorandum. The Minister may wish to write to me in more detail. When the Government issued this paper in May, presumably they had some idea of the provisions they were planning to table in the Enterprise Bill detailing the exceptional public interest—the EPI—cases. Perhaps the easiest thing is for the Minister to let me know what the provisions are, whether there will be a read-across and, if so, to what extent, between the Communications Bill and the Enterprise Bill.
I hope that the Minister will recognise that the reason why this matter is of such considerable interest is the need to safeguard the free press we have in this country and to have some assurance that what happened in the case of Mr Richard Desmond will never happen again. I notice that when this issue was debated in the other place on this Bill, one Back-Bencher on the Labour side said how disgraceful he thought the episode had been.
It may be of assistance to the Minister if I set out briefly what it is that causes so much concern and why we need his reassurance on these matters. On 26th October 2000, the then Secretary of State, Mr Byers, announced that, following the Tebbit doctrine, he would accept the advice of the Director-General of Fair Trading on take-over matters, save in exceptional circumstances.
On 22nd November, Mr Desmond announced that he and his Northern & Shell media group had decided to pay £125 million for Express Newspapers. I am not going to repeat all the accusations because they have been aired elsewhere. But Mr Desmond's record gave rise to some serious concern. The Minister may recall that on 7th February the then Secretary of State announced that he was not going to refer the take-over of the Daily Express to the Competition Commission. I believe that there was serious concern about that, not

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only because of Mr Desmond's record in other titles and alleged pornographic involvement. I would not besmirch the ears of Members of the Committee by reading out even the titles of some of the magazines like Horny Housewives or Mega-Boobs except to give an idea to the Committee of the kind of titles we are referring to, which are quite disgusting.
I mentioned that the director-general had advised the Secretary of State that on competition issues he could see no reason to refer the bid. I shall give way in a moment. The suspicion has arisen that this could well happen again. I believe that the Minister is about to intervene. If he will assure me that the circumstances which arose with Mr Desmond will never be allowed to happen again, and that the Secretary of State will consider the circumstances to be exceptional, we shall all be greatly reassured.
9.30 p.m.
Lord Sainsbury of Turville: I merely intervene to say that if the noble Lord wishes to talk about pornographic titles arid Mr Desmond that is perfectly reasonable. I have made it clear that the matter is currently covered under the Fair Trading Act. We also made clear that the revision of this legislation will take place as part of a communications Bill. Therefore, this is not an appropriate place to discuss that. The appropriate place is when the Communications Bill conies back and revises and reforms what is currently in the Fair Trading Act.
Lord Hunt of Wirral: I hope the Minister will accept that my direction was put towards the Enterprise Bill by the Government saying that that would be the vehicle. It may well be that the Government will change their mind over the summer Recess and return to the Enterprise Bill, given the two-month gap since they had a complete change of mind.
It is critical to the provisions in the Enterprise Bill that we are given assurances. It is sad that the Minister did not take the opportunity to give the assurance that the circumstances of Mr Richard Desmond and the Secretary of State failing to accept the advice of the director-general could never happen again. It would have been of great reassurance to the Committee, whether in the Enterprise Bill or the Communications Bill, to be told that it could never happen again. I do not know whether the Minister will have the opportunity later in the Bill to do that again as we continue to discuss exceptional considerations.
I shall of course reflect on what the Minister has said. I look forward to receiving the material he has kindly agreed to send me. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hunt of Wirralmoved Amendment No. 131:
Page 41, line 1, leave out subsections (3) and (4).
The noble Lord said: In the absence of my noble friend, I rise to move Amendment No. 131. It seeks to remove from Clause 57 subsections (3) and (4) to which I referred in an earlier debate. Clause 57
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specifies the interests of national security and includes the definition of public security. As the noble Lord, Lord Borrie, pointed out, it is perfectly in order for the Secretary of State to add, remove or amend any consideration under subsections (3) and (4).
I can well understand that my noble friend Lord Hodgson of Astley Abbots wished to remove that opportunity from the Secretary of State. It refers back to the debate we had earlier where the Minister said that there might be considerations such as the cutting edge of science and technology where the Secretary of State might want to intervene. I merely repeat that this, just as in the previous situation in relation to Amendment No. 125, provides a temptation to the Secretary of State to introduce other considerations which could include social employment. There is no reason why subsection (3) in any way fetters the Secretary of State's unbridled discretion to add whatever consideration he thinks fit on the grounds that he believes that it should be added. Amendment No. 131 would remove that temptation. I beg to move.
Lord Sainsbury of Turville: We covered the arguments when we debated Amendment No. 125. I do not think that there is anything to add. The issue is whether one has a residual power which could be used in unpredicted and extreme circumstances for the Secretary of State to say that there is a public interest involved in this case.
We believe there is a need for that provision, even though it is difficult to specify what that is for in advance. If we knew what it was in advance we would put it into the Bill. One must make a judgment as to whether it is right to give that latitude to the Secretary of State. We believe that it is in matters of this importance.
Lord Hunt of Wirral: I accept that the Minister is repeating his previous assurances. I ask him to reflect further—not now, but perhaps he could write to me to explain why it is necessary to have both subsection (3) and (4) to Clause 57 and the additional words at the end of Clause 41(3). If the latter were to remain without the words that I sought to delete earlier, it would still presumably be perfectly open to the Secretary of State to add any specific consideration under Clause 57(3) and (4). I am not sure why both belt and braces are necessary. I may well have missed something fundamental, but perhaps the Minister will let me have a response on that. My view remains that the Secretary of State should not be able to add anything.
Lord Sainsbury of Turville: Perhaps I can be helpful. Clause 41(3) provides for the intervention itself; Clause 41(7) means that the Secretary of State must lay the order; Clause 57(3) provides the order-making power. But if it would help the noble Lord, I am happy to write to him to set that out in detail.
Lord Hunt of Wirral: I am grateful to the Minister for his usual courtesy. I shall reflect and look forward to receiving that further information. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

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Clause 57 agreed to.
Clauses 58 to 62 agreed to.
Clause 63 [Cancellation or variation of references under section 61]:
Lord Sainsbury of Turvillemoved Amendment No. 132:
Page 46, line 2, at end insert—
"(2A) Where, by virtue of subsection (2), the Commission treats a reference made under subsection (2) or (3) of section 61 as if it had been made under subsection (3) or (as the case may be) (2) of that section, paragraphs 1, 2, 7 and 8 of Schedule 7 shall, in particular, apply as if the reference had been made under subsection (3) or (as the case may be) (2) of that section instead of under subsection (2) or (3) of that section.
(2B) Subsection (2C) applies in relation to any undertaking accepted under paragraph 1 of Schedule 7, or any order made under paragraph 2 of that Schedule, which is in force immediately before the Commission, by virtue of subsection (2), treats a reference made under subsection (2) or (3) of section 61 as if it had been made under subsection (3) or (as the case may be) (2) of that section.
(2C) The undertaking or order shall, so far as applicable, continue in force as if—

(a) in the case of an undertaking or order which relates to a reference under subsection (2) of section 61, accepted or made in relation to a reference made under subsection (3) of that section; and

(b) in the case of an undertaking or order which relates to a reference made under subsection (3) of that section, accepted or made in relation to a reference made under subsection (2) of that section;

and the undertaking or order concerned may be varied, superseded, released or revoked accordingly."
On Question, amendment agreed to.
Clause 63, as amended, agreed to.
Clauses 64 to 67 agreed to.
Schedule 6 [Schedule to be inserted in the Water Industry Act 1991]:
Lord Borriemoved Amendment No. 133:
Page 208, line 31, leave out "substantially"
The noble Lord said: This amendment and Amendment No. 134, which is grouped with it, stand in my name and in that of the noble Lord, Lord Hodgson of Astley Abbots. That demonstrates that they are non-party political. Clause 67, which we have just agreed, and Schedule 6, deal with the special features of mergers between water companies. As has been the case during the 11 years since privatisation, most such mergers must be referred to the Competition Commission—they are mandatory references. The key test that the commission must apply is whether the particular merger referred to it will adversely affect the water regulator's ability to make comparisons between water companies when he undertakes his five-yearly task of setting price limits for water companies. Of course, the regulator is the Office of Water Services (Ofwat).
The amendment is inspired by WaterVoice, which comprises the 10 regional statutory Ofwat customer services committees. I mention that because I should also declare an interest as a non-executive director of Vivendi Water UK.
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As we know, each water company in the UK is a monopoly supplier in its area. The so-called yardstick competition—that is, the regulator's ability to compare the performance of different water companies in order to set robust price and customer service standards—is the vital regulatory tool used by Ofwat in setting its price limits. Few would doubt that, over those 11 years, it has produced significant advantages for the consumer.
The Bill sets a new threshold, based on the combined turnover of the companies, at 10 million. The Office of Fair Trading, rather than the Minister, will make the reference. Otherwise, the Competition Commission is, under the Bill, to continue to give particular weight to the regulator's ability to make comparisons between water companies. When the matter is before the Competition Commission, the only qualification is that the commission should continue to be able to take account of customer benefits that the merger may provide. However—this is an important point—the customer benefits must be "substantially" more important than the prejudice to the regulator's ability to make comparisons between water companies, which would normally be reduced when a merger takes place and reduces the number of companies.
The amendment would delete the word "substantially" from the remit of the Competition Commission and give the commission more flexibility in determining whether, in the public interest, the merger should be allowed. Water Voice, the body representing water consumers that inspired the amendments, is of the view that, 11 years on from privatisation, the remit of the Competition Commission acts as an unduly powerful block on mergers of water companies in England and Wales. Foreign companies that have little or no experience of the water industry in this country are free to come into the sector and are not affected by the provisions of the Bill. Water customers may he denied the benefits of lower prices and better services that a merger of existing water companies might bring. Why not give the Competition Commission free rein to assess the issue, instead of obliging it to establish that the benefits to consumers would be substantially greater than any loss to the water regulators caused by the reduction in the number of comparators?
It is well known that the structure of the industry is becoming ossified. The Director-General of Water Services has told me that he does not favour the amendments. Yet, he said publicly—he repeated the point in a letter to me—that he did not seek to freeze the water industry in its present structure. The amendments would help to unfreeze the water industry. I beg to move.
Lord Sainsbury of Turville: I had a feeling that my noble friend Lord Borrie and I would be the only people who would feel a burning urge to talk about water mergers.
The Bill makes several reforms to the special regime for assessing mergers between water enterprises to align procedures with the general merger regime. For

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example, in line with the removal of Ministers from most merger decisions, it gives the Competition Commission responsibility for deciding final remedies in the event of an adverse finding. The changes also build in references to the new concept of customer benefits, in place of references to the broader public interest. The Bill, however, seeks to preserve, as far as possible, the substantive effect of the current regime. Accordingly, mergers between water enterprises above a certain de minimis threshold will continue to be subject to a mandatory reference. Once they are referred, special weight will continue to be attached to the water regulator's ability to make comparisons between different water enterprises.
The current substantive test applied by the Competition Commission is set out in Section 32(3) of the Water Industry Act 1991. In deciding whether a merger will operate against the public interest, the commission must have regard to the principle that the regulator's ability to make comparisons between different water enterprises should not be prejudiced. The commission can have regard to other factors only if, inter alit, the achievement of those other purposes is of substantially greater significance in relation to the public interest.
I should like to stress the term "substantially greater significance". It is that phrase that we have sought to replicate in the new context in Schedule 6 to the Bill where it provides that customer benefits arising from a merger should be substantially more important than the prejudice to the regulator's ability to make comparisons before they can be taken into account in determining remedies. To remove the reference to "substantially" would be to downgrade the importance of comparators from where it is now.
Given the current and anticipated levels of competition in the water industry, we and the water regulator do not think it is appropriate to make substantive changes to the water regime. In the absence of a competitive market, the water regulator's ability to make comparisons between different enterprises remains a key regulatory tool. An assessment of comparative efficiency is taken into account by Ofwat in the five-yearly periodic review of water charges. It has allowed the regulator to set tough price controls to the benefit of consumers. Inefficient companies are forced to improve their performance if they are to secure reasonable returns, while their customers do not have to pay for inefficient business practices. Furthermore, as overall efficiency improves, the industry benchmark advances. Comparative competition has made a major contribution to the water sector achieving efficiency savings on a scale similar to those achieved in other regulated utilities. It is not a mechanism to be interfered with lightly.
I wish to respond to the point made by my noble friend Lord Borrie on the water industry becoming ossified. I do not think that that is totally correct. In fact, there has been considerable consolidation in the industry since 1991. I understand that there are now 23 separately licensed companies where there were 39. The regime does not prevent all mergers and will not
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do so in the future. Mergers with other non-water companies are subject to the same regime as any other merger.
For mergers of water enterprises themselves, it is up to the proponents to set out a convincing case for the scale of the customer benefits. It is for the commission to establish their robustness and to make the crucial judgment about whether the benefits to the group of water customers directly affected by the merger are of sufficient materiality to outweigh the loss of a comparator which affects all water customers. Given the importance of comparators to the regulatory framework, we believe it is right that the benefits should be clear and unambiguous—in short, substantially more important than the effect of the loss of the comparators. Having heard this explanation, I hope that my noble friend will be prepared to withdraw the amendment.
9.45 p.m.
Lord Hunt of Wirral: I am sorry to disappoint the Minister. He said that he had been looking forward to a duologue. However, I wanted to intervene because, while I understand why he wishes not to interfere with the existing wording, the word "substantially" is important. He is saying, in effect, that the relevant customer benefits could well be more important than the prejudice concerned. On that I think he used the phrase, "of sufficient materiality". But in fact the word "substantially" is far stronger than the phrase, "of sufficient materiality". He is depriving customers of potential benefits unless not only are they are of sufficient materiality, but are substantially more important than the prejudice concerned.
As well as wishing to keep to the existing wording, has the department undertaken any analysis of the circumstances in which "substantially" is to be preferred? Have tests been carried out or examples foreseen where such a protection is still necessary? I ask that because I found myself persuaded b} the noble Lord, Lord Borrie, in his wish to free up the situation in the water industry. I realise that there are several key vested interests, but I believe that it would help the Committee if the Minister felt able to explain a little of the background as to why he and his colleagues have felt it necessary to keep strictly to the existing wording.
Lord Sainsbury of Turville: I do not think it is a question of analysis; it is a question of to what extent you value the comparators that the regulator has. If you are prepared to see those comparators disappear—which has an effect on all consumer of water, because there is no longer the pressure on particular water companies—you can set any benefits against that. We believe that this has sufficient importance in driving up the performance that the benefits have to be more than just marginally greater; they have to be substantially greater.
Lord Borrie: I am grateful to the noble Lord, Lord Hunt, for his intervention. It may encourage the Government to rethink these matters. I have no doubt that over the decade since privatisation the word

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"substantially" has been right. No one is suggesting at the present time that the comparator competition regime should disappear. But the regulator, Ofwat, has a curious reluctance to indicate how many water companies he needs in order to make these comparisons. It is well known that there are only 10 sewerage companies; there have never been any more since privatisation. Yet comparisons are made between them in order to provide price limits and so on. A larger number—19, as the Minister indicated—are water supply companies. It may be that at the present time it is difficult for the Competition Commission to justify a merger on the basis of having to find substantial benefits to the consumer which would outweigh the loss of a particular comparator.
It would be better if the Government would reconsider the matter and allow the Competition Commission rather more leeway, as with other mergers. However, in the light of what has been said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 134 not moved.]
Schedule 6 agreed to.
Clauses 68 to 74 agreed to.
Clause 75 [Restrictions on certain share dealings: anticipated mergers]:
Lord Sainsbury of Turvillemoved Amendments Nos. 135 and 136:
Page 55, line 6, leave out "68 or".
Page 55, line 7, leave out "69 or".
On Question, amendments agreed to.
Clause 75, as amended, agreed to.
Clauses 76 to 78 agreed to.
Clause 79 [Final undertakings]:
Lord Sainsbury of Turvillemoved Amendments Nos. 137 and 138:
Page 59, line 12, leave out "that reference" and insert "the subject-matter of the undertaking".
Page 59, line 14, leave out ", 80 or" and insert "or 80 in relation to the subject-matter of the undertaking; or
(b) section"
On Question, amendments agreed to.
Clause 79, as amended, agreed to.
Clauses 80 to 82 agreed to.
Schedule 7 [Enforcement regime for public interest and special public interest cases]:
Lord Sainsbury of Turvillemoved Amendments Nos. 139 to 141:
Page 219, line 11, leave out ", 10 or 11" and insert "or 10"
Page 219, line 11, leave out "that reference" and insert "the subject-matter of the undertaking"
Page 219, line 14, leave out", 10 or" and insert "or 10 in relation to the subject-matter of the undertaking: or
(b) paragraph"
On Question, amendments agreed to.
Schedule 7, as amended, agreed to.
Clause 83 agreed to.
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Schedule 8 agreed to.
Clauses 84 to 87 agreed to.
Schedule 10 agreed to.
Clauses 88 to 103 agreed to.
Clause 104 [Further publicity requirements]:
Lord Sainsbury of Turvillemoved Amendments Nos. 142 to 144:
Page 74, line 26, at end insert—
"(aa) any decision made by it under section 36(2) to treat a reference made under section 21 or 32 as if it had been made under section 32 or (as the case may be) 21;"
Page 74, line 38, at end insert—
"(fa) any decision made by it under section 48(1) to treat—

(i) a reference made under subsection (2) or (3) of section 44 as if it had been made under subsection (4) or (as the case may be) (5) of that section; or

(ii) a reference made under subsection (4) or (5) of section 44 as if it had been made under subsection (2) or (as the case may be) (3) of that section;"

Page 74, line 47, at end insert—
"(ja) any decision made by it under section 63(2) to treat a reference made under subsection (2) or (3) of section 61 as if it had been made under subsection (3) or (as the case may be) (2) of that section;"
On Question, amendments agreed to.
Clause 104, as amended, agreed to.
Clauses 105 to 116 agreed to.
Clause 117 [Review of decisions under Part 3]:
Lord Sharmanmoved Amendment No. 145:
Page 83, line 25, at end insert—
"() For the purposes of subsection (1) "any person aggrieved" means any person who is a party to the relevant merger situation or special merger situation."
The noble Lord said: In moving the amendment I shall speak also to Amendments Nos. 146 and 147. Clause 117 deals with the basis on which an aggrieved party may apply for a review or a reference in regard to a decision under the Bill. The amendments seek, in general parlance, to tighten the grounds on which such an application may be made. Amendment No. 145 defines any person aggrieved by adding the words,
"any person who is a party to the relevant merger situation or special merger situation".
Amendment No. 146 deletes subsection (2). Amendment No. 147 replaces the time limit of three months with one month.
The clause is drawn widely in terms of allowing any person aggrieved by a merger decision to appeal against it. In future, parties whose mergers are approved will not have a definitive ruling but instead face a further period of three months of uncertainty to establish whether any aggrieved party might appeal. That will cause huge, unnecessary uncertainty to business and risks undermining the competition focus of merger control by potentially placing excessive reliance on the views of competitors.
Given that competition law should protect competition rather than competitors, that is not appropriate. Parties will either have to delay closing

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until expiry of the appeal period, adding unnecessary delay to what is already potentially a long drawn-out review and approval process, or run the risk of later needing to unwind and divest. The proposed three-month limit is excessive; one month should be sufficient.
The issue is not resolved by the wording in Part 2 of Schedule 4 on tribunal rules. The rules are permissive in nature and not adequately restrictive of the persons who may apply for a review. I beg to move.
10 p.m.
Lord Sainsbury of Turville: The amendments make changes to who can apply to review a decision, what decisions can be reviewed and how long parties have to bring an action. Amendment No. 145 merits the longest response. It seeks to limit the parties that can apply to the competition appeal tribunal to review decisions made in a merger case to the parties to the merger. That would prevent third parties having such decisions reviewed.
As we set out in the other place, there are three good reasons to oppose the amendment. First, we have already limited who can bring a case to the competition appeal tribunal. The clause refers only to aggrieved parties, but in Schedule 3 we provide that tribunal rules may be made that allow for the competition appeal tribunal to reject proceedings if it considers that the person instituting them does not have a sufficient interest in a decision with respect to which the proceedings are brought or the documents instituting the proceedings disclose no valid grounds for bringing them. The rules can also provide for the competition appeal tribunal to reject proceedings that it considers vexatious.
Secondly, limiting the scope of appeals in the Act will not affect the right of third parties to seek judicial review of decisions in the High Court. We would therefore create a two-tier system, with merger parties having access to the competition appeal tribunal and third parties relying on the High Court.
Thirdly, there is a case for third parties to be able to review the proceedings, because some have a clear interest. The business prospects of customers, suppliers and competitors could all be directly affected by a range of decisions taken by the authority from the clearance of a merger to the imposition of particular remedies.
Finally, limiting appeals in the way proposed would run counter to the changes that we are making to the Competition Act 1998. Under Clause 16, third parties will now be able to appeal directly to the competition appeal tribunal against decisions of the OFT if they have a sufficient interest in a case.
In conclusion, the system as set out in Clause 117 offers the right level of involvement for third parties. Those that can demonstrate a sufficient interest in the case and valid grounds for bringing the proceedings should be allowed to apply for decisions to be reviewed.
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Amendment No. 146 would remove subsection (2). This is based on a misunderstanding of the role of that subsection. It is not the intention to prevent appeals against penalties. We have made separate provision for such appeals in Clause 111, which allows for a full appeal on the merits against penalties imposed by the authorities.
We are more open on Amendment No. 147. We are keen to get the period right and to strike the right balance between certainty to business and legitimate access to justice. Three months was chosen because it mirrors the period available to parties to apply for judicial review in the courts.
However, we are aware that the CBI in particular would like the period shortened. We intend to consult on the time period in the context of the consultation on the tribunals rules in the autumn. The rules can make different provision from the three months in the Bill if necessary, as set out in subsection (4). The consultation will allow us to take soundings from all users of the system, practitioners and representative bodies before coming to a final view on what the period should be. We see no need to change the legislation at this stage.
In the light of those arguments, I should be grateful if the noble Lord would not press the amendments.
Lord Sharman: I am very grateful to the Minister for his full and detailed reply. I want to think a little about what he said about Amendment No. 145, but I am very much encouraged by his remarks about time limits. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 146 and 147 not moved]
Lord Sharmanhad given notice of his intention to move Amendment No. 148:
Page 83, line 41, leave out subsection (6) and insert—
"(6) The Tribunal may confirm or set aside the decision which is the subject of the appeal and may—

(a) remit the matter to the OFT, the Secretary of State or the Commission as the case may be (the "original decision maker");

(b) cancel or vary any conditions or obligations imposed by the original decision maker;

(c) give any directions or take such steps as the original decision maker could have made; or

(d) make any other decision which the original decision maker could have made."

The noble Lord said: The amendment was conditional and follows on from Amendments Nos. 145, 146 and 147. The amendment would be relevant only if the conditions in Clause 117 were narrowed. On that basis, it would not be sensible to move the amendment.
[Amendment No. 148 not moved.]
Lord Kingslandmoved Amendment No. 149:
Page 83, line 41, leave out subsections (6) and (7) and insert—
"() The Competition Appeal Tribunal may confirm or set aside the decision which is the subject of the appeal and may—

(a) remit the matter to the OFT, the Secretary of State or the Competition Commission as the case might be (the original decision maker),

(b) cancel or vary any conditions or obligations imposed by the original decision maker,

(c) give such directions or take such steps as the original decision maker could have made, or

(d) make any other decision which the original decision maker could have made."

The noble Lord said: I shall be brief. In contrast with appeals under the Competition Act, the Bill provides only for a form of judicial review for decisions on mergers. Given that the Competition Commission is to take decisions about mergers and, where it thinks necessary, impose conditions, those decisions ought to be capable of substantive review. I beg to move.
Lord Sainsbury of Turville: The amendment seeks to give parties a right to a full appeal on the merits of any decision taken by the competition authorities in a merger investigation. The subject of what should constitute the appropriate grounds for review of decisions following a merger or market investigation was debated at length in another place. The Government explained that the Bill provides for parties aggrieved by decisions to have them reviewed by the competition appeal tribunal on the same grounds as would be applied by the courts on an application for judicial review. That mirrors the current situation with the Fair Trading Act 1973, where decisions are open to challenge on judicial review grounds.
With merger investigations, we continue to believe that a review based on judicial review is the right means for challenging decisions. That type of review by the CAT will ensure that the procedures followed by the authorities were fair and that the parties were given the opportunity to put their case. Such a review will allow the tribunal to re-examine any decision taken by the authorities to assess whether it was reasonable.
Mergers are not prohibited by law from the outset. The authorities must decide on a case-by-case basis whether a particular merger will lead to a substantial lessening of competition and the steps that should be taken to remedy any such effects in each case. Decisions will be based on analysis of individual cases, their specific facts and the economic analysis of those facts by the authorities acting in accordance with their statutory duties. They will not be evaluated against a defined prohibition by reference to an existing body of substantive competition law and jurisprudence—as would be the case with decisions under the Competition Act 1998.
Considerable discretion must be exercised, so it would be difficult for the CAT to assess whether the decision made was right or wrong in objective terms. In that context, we clearly need to ensure that the process followed by the authorities was fair and that
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the parties were given the opportunity to put their case. A judicial review-type appeal is appropriate. If, on applying the principles of a judicial review, the CAT considers that the challenge to the decision is justified, the original decision-maker can be asked to look at the decision again. That is the most appropriate way to deal with the type of decision that will be made under this part of the Bill. I ask the noble Lord to withdraw the amendment.
Lord Kingsland: I thank the Minister for his reply. Under the Competition Act 1998, there is a substantive appeal from the decisions of the Office of Fair Trading. Why should the situation be different in relation to mergers? The Competition Commission makes a decision resulting from the kind of sophisticated analysis that one has come to expect from that institution, involving a great deal of technical analysis—just as do the investigations of the OFT. There is little difference in the substance of the two decisions, yet there is no substantive appeal from the decisions of the Competition Commission. What is the justification for that distinction?
The noble Lord mentioned the Fair Trading Act 1973, but no CAT existed then, so it is not surprising that judicial review was the only route. Since then, the appeals tribunal system has become established and offers great expertise, which the tribunal intends to bring to bear on the quality of decisions about competitive markets in the United Kingdom.
Why deny the proposed body the chance to review merger decisions in exactly the same way as it reviews competition decisions? I fail to see the logic and, in my submission, it means that the Competition Commission will have a discretion vastly greater than that of the OFT. I can see no justification either on constitutional grounds or on competition grounds for allowing that on the face of the Bill.
Lord Sainsbury of Turville: In this sense, there are two distinct differences between the Competition Act 1998 and the Enterprise Bill. One concerns prohibition; the second relates to the number of bodies involved. Under the Competition Act 1998, there is a very clear situation where a company is in breach of either prohibition or dominance of restrictive agreements, thereby breaking the law.
The second point is that, under the Competition Act 1998, the OFT acts on its own authority and is the only body involved in the decision. It is therefore important that decisions can be fully reviewed. Under the Enterprise Bill, there is already a two-stage process in which both the OFT and the Competition Commission are involved. That very much lessens the need for a third body to have a full right of review on the merits.
Lord Kingsland: The Minister raises the distinction in procedures. Of course, there is a distinction in the procedures, although not as substantial as the Minister suggests. As I understand it, he is saying that there is a two-stage procedure under the Competition Act—the OFT and the substantive appeal—and a two-stage

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procedure under the Enterprise Bill—the initial examination by the OFT and its reference on grounds of suspicion to the Competition Commission. Therefore, allowing a further appeal to the CAT would bring about, as it were, a third tier and, therefore, judicial review would be justified. That, as I understand it, is the Minister's argument.
However, in reality, the Competition Commission procedure is not a two-stage procedure. The OFT looks at the matter not fundamentally but in order to take a view as to whether or not there is a prima facie case. The OFT does not conduct a substantial analysis in the way that it does under the Competition Act. It decides whether or not there is a prima facie case to answer. If it finds that there is, it then refers the case to the Competition Commission. Only the Competition Commission undertakes a fundamental analysis. Although it has the appearance of being the second stage, in reality it is the first stage.
The correct conclusion to draw from that is that, just as the CAT stage under the Competition Act is the second stage, so judicial review is the second stage under the Enterprise Bill. In my submission, there is an imbalance there in the approach of the Government to those two situations. In reality, the next stage from the competition analysis is a second and not a third stage. Therefore, it should attract the CAT.
I am bound to say that the impression that I have from the Minister's reply is that he does not want the Competition Commission to be examined in the intimate way in which he is prepared to allow the OFT to be examined. If I am right about that, why should that be? The nature of the analysis of the Competition Commission is no more or less significant in relation to mergers or other matters than is the nature of the analysis of the OFT. They seem to be conducting an equally important exercise, dealing with a technical approach and raw materials that are similar. Therefore, surely both deserve the same approach on appeal.
10.15 p.m.
Lord Sainsbury of Turville: There has been much talk today about the need for certainty and speed. We have had proposals to cut the period from three months to one month. For the substantive decision to be taken at three different levels seems unduly protracted. To replace one person's decision, on a matter which cannot be established in a simple way and ultimately has an element of judgment, on three occasions seems an unduly lengthy process for those subjected to it. People are constantly returning to the same decision. In a judicial review a more limited aspect of the case is considered.
Lord Kingsland: The Minister now emphasises a factor to which he referred earlier but only in minor key. I shall not press him further. I thank him for engaging in the debate. I shall reflect on what he said but I am sure he will not be surprised if I return to the matter on Report. I think it extremely important that the decisions of the Competition Commission are properly accountable. As the Bill is drafted, I am not
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satisfied that they are. Although not during every minute of the summer break, on those occasions when officials allow him the noble Lord to apply his mind to the Bill I hope that the Minister will reflect on this matter. I regard it as of high importance. Nevertheless, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 117 agreed to.
Clauses 118 to 124 agreed to.
Clause 125 [Index of defined expressions]:
Lord Sainsbury of Turvillemoved Amendment No. 150:
Page 92, line 3, at end insert—
"References under section 21, Sections 36(2), 48(1), 55(8) and 32, 44 or 61 63(2)"
On Question, amendment agreed to.
Clause 125, as amended, agreed to.
Clause 126 [Power of OFT to make references]:
Lord Kingslandmoved Amendment No. 51:
Page 92, line 28, leave out "suspecting" and insert "believing"
The noble Lord said: The reason that the noble Lord, Lord Borrie, returns after a very brief departure from the Chamber is because I am about to move Amendment No. 151. The noble Lord will not be unfamiliar with the text of the amendment. I think that he forecast it in his Second Reading speech. It is the continuation of a debate which began in 1978.
Lord Borrie: It was 1998.
Lord Kingsland: It seemed as though it began in 1978! It is the distinction between "suspecting" and "believing". I feel as strongly today about the matter as I did four years ago. I believe that "suspecting" is inappropriate statutory language in these circumstances. A more felicitous way of expressing what I think the Minister intends is to use the expression "believing". In the expectation that the noble Lord, Lord Borrie, will be intervening before the Minister, I beg to move.
Lord Borrie: I cannot resist the offer to intervene. In my Second Reading speech I did indeed predict that there would be such an amendment from the noble Lord. I just managed to return to the Chamber while the noble Lord was on his feet three or four minutes ago. He said that prior to making a reference to the Competition Commission for an investigation of a particular market, the role of the Office of Fair Trading was to establish a prima facie case and put it to the Competition Commission. He is absolutely right.
The Office of Fair Trading cannot be expected to know the answers to the questions that it puts to the Competition Commission. It seems to me that it is appropriate that it should have suspicions and if they are based on the research work that it has carried out, and therefore can justify the matter going to the Competition Commission, that is fine. But if one wants the clause to say that the OFT must have reasonable grounds for believing, a Catch 22 situation comes into effect and it has to be sure of the answers to the questions. Therefore, the Competition

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Commission is practically redundant. It will merely repeat the work that the OFT has carried out. It seems to me that, as the noble Lord knows, those intelligently drafted clauses in the Bill are designed to replace the somewhat technically old-fashioned clauses about complex monopolies and suchlike that not so many people would understand as would understand the clauses in the Bill.
The amendment tabled by the noble Lord would damage the distinction between the role of the OFT and the Competition Commission, and it is just as bad as those that he produced for the Competition Bill all those years ago.
Lord Sainsbury of Turville: It is always more encouraging to have the noble Lord, Lord Borrie, behind one than on the opposite side of the Chamber. This amendment would require the OFT to satisfy a higher burden of proof before making a market investigation reference. Requiring the OFT to have reasonable grounds for believing rather than suspecting that there are adverse effects on competition before it can make a reference could mean that in some cases the OFT would have to gather considerably more evidence before it could make a reference. That could prolong many of the OFT's preliminary inquiries and make them more burdensome for business.
One particular concern in relation to this amendment is that where more evidence is required to justify a belief rather than a suspicion that there are competition problems, it may sometimes be possible for businesses effectively to frustrate the reference process by holding out against the OFT's requests for the extra information needed to convert its suspicion into belief because the OFT cannot use its formal investigative powers under Clause 169 until it believes that it already has the power to make a reference.
It is worth noting by way of comparison that the threshold of reasonable grounds for suspicion which we are proposing here is the same threshold that the OFT must satisfy in order to progress from a preliminary investigation of an alleged breach of the Competition Act prohibitions on anti-competitive agreements and abuse of dominance to a full investigation in which it can use its formal investigative powers to require the production of documents, enter premises and so on. The analogy between the two stages of an OFT inquiry under the Competition Act and the OFT and Competition Commission stages of a market investigation is not perfect in all respects, but it is quite strong, as it is clearly the case that we must expect a much more detailed investigation from the Competition Commission, or from the OFT once it has started to use its formal investigative powers in a Competition Act case, than we would expect from the OFT before it uses such powers, or when making a market investigation reference.
In any event, the OFT's record in applying the reasonable suspicion threshold in that context should give noble Lords some comfort, as on the basis of that
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threshold the OFT currently rejects some 95 per cent of the Competition Act complaints that it receives. In other words, only in 5 per cent of cases does the OFT find that the requirement to have reasonable grounds for suspecting that one of the Competition Act prohibitions has been infringed is met.
Finally, we should remember that the OFT's decision as to whether or not to make a reference will not depend exclusively on whether it has reasonable grounds to believe or to suspect that there is an adverse effect on competition. We shall debate the point more fully in connection with other amendments proposed by noble Lords. Suffice it to say for now that the OFT's draft guidance on making market investigation references sets out a number of other important matters, such as the extent of any detrimental effects on customers arising from the competition problems concerned, to which the OFT will have regard before it decides, on the evidence before it, to make a reference.
In summary, we believe that in most cases, the amendment will make no difference, and in those cases where much more evidence is required to justify a belief than a suspicion, it will actually have the opposite of its intended effect, making life harder rather than easier for business involved in investigations. On that basis, I would ask the noble Lord to withdraw this amendment.
Lord Kingsland: I am going to withdraw this amendment. I hope the Minister will not regard my motives for doing so as Machiavellian when I explain what they are.
The debate on the previous amendment was about the extent to which there is a two-tier system of decision-making between the OFT and the Competition Commission. The Minister said that the degree of knowledge that the OFT should have ought not to be such as to make it capable of triggering its investigative powers under Clause 169.
If that is so, that reinforces my contention during the previous debate that the role of the OFT in relation to these investigations is not a genuine first-tier role. It simply has to suspect. That is enough for it to refer to the Competition Commission. It does not have to carry out a full investigation. It only has to do so on suspicion. A fortiori therefore, the decisions of the Competition Commission ought to be subject to a substantive appeal to the CAT.
Lord Sainsbury of Turville: The logic works the other way round. If you say that the OFT has to have belief and you say that the competition appeal tribunal should take a substantive decision, you are saying that this decision will be taken three times.
Lord Kingsland: The noble Lord cannot have it both ways. If the Minister is not prepared to accept belief under this amendment, that it renders it even more difficult than it was 10 minutes ago for him to argue that the initial participation of the OFT constituted a substantive first-tier decision.

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If the Minister wishes to stick to suspicion, it makes it much more difficult for him to say that there are three stages under the matters that we considered in Amendment No. 149. If he were prepared to accept my amendment which requires belief, it would be much more difficult for me to make my case out under Amendment No. 149. That is the reason why I am prepared to withdraw this amendment, which I beg leave to do.
Amendment, by leave, withdrawn.
[Amendment No. 152 not moved.]
Lord Kingslandmoved Amendment No.153:
Page 92, line 30, after "competition" insert "to a significant extent"
The noble Lord said: A number of amendments which are likely to be in front of your Lordships over the next 10 minutes deal with expressions like "a significant extent", "an appreciable extent" and so on.
The purpose behind the amendment for "a significant extent" is this. Since market investigations impose substantial costs on businesses, it is important that they are initiated only if there are sound reasons to believe that there is a significant adverse effect on competition. That is the principle which is commonly found in UK and EC competition law. Indeed, in EC competition law such an effect is an important preliminary requirement before the commission would be prepared to launch an investigation. Therefore the text of the Enterprise Bill ought to be qualified in the same way. I beg to move.
10.30 p.m.
Lord Sainsbury of Turville: Amendment No. 153 would ensure that the OFT and sectoral regulators may make a market investigation reference only where they have a reasonable ground to suspect the existence of substantial or significant adverse effects on competition.
It may he helpful if I begin with some brief remarks about the nature and purpose of market investigations. Most UK markets are broadly competitive and where competition problems exist they can more often than not be addressed by means of the Competition Act 1998. But from time to time the competition authorities become aware of markets in which competition does not appear to be working properly, even though there appears to be no breach of the Competition Act prohibitions.
For example, there are some oligopolistic markets in which, while there may be no anti-competitive agreements and no abuse of dominance, a few established firms account for most of the markets, are cushioned against competition from new entrants and settle for a quiet life rather than competing vigorously among themselves. It is to deal with such markets, characterised not so much by a virtually anticompetitive behaviour as by general uncompetitiveness, that the Government decided to retain the monopoly provisions of the Fair Trading Act when they introduced the Competition Act, so as to preserve the ability to inquire into and take measures to remedy
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market-wide competition problems which cannot he addressed using tools at the competition authority's disposal.
The purpose of Part 4 is to ensure continuing effectiveness of this part of UK competition policy by reforming the monopolies regime in line with the principles which have guided the Part 3 reform of our domestic merger control regime. Clause 126 sets out the test the OFT and certain sectoral regulators must satisfy before making a market investigation reference. They must have a reasonable suspicion that a feature or features of a market are preventing, restricting or distorting competition in the supply or acquisition of specified goods or services. For those purposes a market's features are its structure and the conduct, including both acts and omissions, of participants in it.
The power to make market investigations is riot one which we expect the OFT to use, or even to consider using, every day. On average about two references a year are made under the monopolies regime which we are replacing here, and we have every reason to suspect that the number of occasions on which such investigations will be considered appropriate will continue to be fairly small. While we recognise that the new reference test, like its predecessor, could be characterised as setting a fairly low hurdle for the making of a reference, we see no reason why business should be alarmed about being burdened with a significant increase in the number of Competition Commission inquiries as a result of this clause.
There are a number of reasons for this. We are proposing to give the OFT a power and not a duty to make references. Rather than referring or even investigating for itself every market where it considers that the reference test is satisfied, we expect the OFT to exercise its discretion to focus the use of its new powers and resources on those cases where it considers that there are serious competition problems.
Perhaps the best guide to the OFT's exercise of its discretionary power is to be found in its track record under the monopolies regime. Faced with reference criteria which are probably technically satisfied in a great many industrial sectors, the OFT has made an average of about two monopoly references a year, and among its last 12 completed references there has only been one case in which the Competition Commission found no adverse effects.
We have given careful consideration to the suggestions which have been made to us both before and since the introduction of this Bill in another place for an explicit reference to the "significance" or "appreciability" of adverse effects on competition to be included in the reference test. I hope that we have made clear that the only point which divides us from the proponents of such amendments is a question of drafting style and not one of principle. References should be made only where the apparent seriousness of competition problems in a market justifies the cost and other burdens of a reference. The OFT for its part has made clear in its draft guidance how, when deciding whether or not to make a reference, it will take account

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of factors such as the magnitude of customer detriment which appears to arise from the potential problems and the proportion of a market affected by them.
In that context we remain unpersuaded that there is anything to be gained by adding words such as "substantially" or "to a significant extent" to Clause 126. We are concerned here with the exercise of discretionary power in relation to complex economic issues. We believe that the best way to explain such matters is not in the language of statutory drafting, but in guidance. We believe that the guidance which the OFT has produced will give business and others a very clear picture of how it will operate its discretion. For these reasons I ask the noble Lord to withdraw the amendment.
Lord Kingsland: Is the Minister saying that in practice it is going to be unnecessary to include an expression like "to a significant extent" because the competition authorities would never undertake a costly investigation unless they had reasonable grounds for believing that the effect would be significant? Is that what the Minister says is the reality and therefore there is no need to have this expression on the face of the Bill?
Lord Sainsbury of Turville: I believe that that is it. Guidance given by the OFT will make it clear that is what it intends to do as regards business.
Lord Kingsland: I am very grateful. In those circumstances I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 154 not moved.]
Lord Kingslandmoved Amendment No. 155:
Page 92, line 32, at end insert—
"() In making its decision the OFT shall take into account countervailing benefits to customers or to innovation."
The noble Lord said: I can be very brief on this amendment. The Competition Commission is required to take countervailing benefits to customers into account during its investigation after a reference. The OFT should have a similar duty to prevent unnecessary references being made. In industries characterised by a global market, there can be superficial and/or short-term impacts on market structure or conduct which need to be considered in the context of countervailing benefits. I beg to move.
Lord Sainsbury of Turville: This amendment would require the OFT in all cases to take into account countervailing benefits to customers or to innovation, before making a market investigation reference. We have given the OFT a discretionary power to make market investigation references where it has reasonable grounds to suspect the existence of adverse effects on competition in a particular market or markets.
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It is inherent in the nature of that discretion that in deciding whether or not to make a reference in a given case, the OFT may take account of any matter which it is reasonable for it to take into account. Unlike in the merger provisions where the OFT is under a duty to make a reference in certain circumstances, there is no need for the clause to specify that the OFT must have regard to this or that matter.
The OFT has indicated in its draft guidance on making market investigation references how it will approach customer benefits by saying,
"In some cases the market features which adversely affect competition may also produce offsetting customer benefits. Such benefits might arise, for example, where customers gain when more of them use the same goods or service (network effects), or where there are substantial economies of scale. Where it is clear that offsetting customer benefits exceed the likely detriment from the adverse effect on competition, the OFT will not make a reference. However, where there is uncertainty the OFT will normally wish to leave the weighing of benefits and detriments to the Competition Commission".
That seems to us to be an eminently sensible approach to take and on that basis it would be sensible for the noble Lord to withdraw this amendment.
Lord Kingsland: I wholly concur with the concluding remarks of the Minister. I shall indeed beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Kingslandmoved Amendment No. 156:
Page 93, line 2, leave out "whether or not"
The noble Lord said: Amendment No. 156 is a probing amendment to try to tease out what is intended under Clause 126(2)(b). Without this change, conduct outside the market concerned could be grounds for making a reference. Is that what the Government intend?
10.45 p.m.
Lord Sainsbury of Turville: This is quite a complicated issue, so let me go into the matter. We need the words "whether or not" in subsection (2)(b) because it is sometimes the case that one or more firms operating in a particular market can have an adverse effect on competition in that market by virtue of their conduct in another market.
I shall give some examples. Competition problems of this kind may be found in industries where there is much vertical integration, so that the same firms are active both in the manufacture and distribution or wholesaling and retailing of products, either because they own many of the retail outlets or because they have contractual or other means of influencing the behaviour of retailers.
When the Monopolies and Mergers Commission, as it then was, looked at the supply of beer some years ago, it found that brewers' ownership of pubs and their agreements with pub landlords were distorting competition in upstream—for example, wholesale beer—markets, because they were taking steps to ensure that their pubs sold their own brands of beer, cider and soft drinks. In such circumstances, the

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conduct of firms on upstream markets may easily influence what happens on the downstream markets, or vice versa.
A second category of cases that is relevant in this context is where two groups of products are complementary to each other, such as computer printers and the ink cartridges which go inside them. Printers and cartridges are clearly not part of the same economic market, but equally clearly neither is much use without the other. But suppose that a firm which manufacturers both printers and cartridges prices its printers very competitively but designs them in such a way that they will only work with its own brand of cartridges. In such circumstances, it is clearly possible that the conduct of one or more of the manufacturers in the printer market could have a significant effect on competition in the cartridge market.
There is thus a range of circumstances in which the conduct of firms in one market can lead to competition problems in another. There would be a serious gap in the market investigations regime if either the OFT were not able to use evidence of such conduct when making a reference, or the Competition Commission were unable to reach a finding of adverse effects in respect of such conduct. I mention the Competition Commission because the definition of "conduct" in subsection (2)(b) applies both for the purposes of the Competition Commission's analysis under Clause 129 and for the purposes of the OFT's decision to make a market investigation reference. The words "whether or not" play an equally important part in both contexts.
In short, the amendment would in some cases increase the burdens on business to no useful purpose and it would reduce the flexibility with which the OFT and the Competition Commission could perform their statutory functions. I would therefore ask the noble Lord to withdraw the amendment.
Lord Kingsland: I am grateful to the Minister for his most helpful explanation of that expression. I shall reflect on what he has said and return to the point if necessary in the autumn. It was a particularly helpful explanation. I really am most grateful. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 126 agreed to.
Clause 127 [Ministerial power to make references]:
On Question, Whether Clause 127 shall stand part of the Bill?
Lord Hunt of Wirral: I was genuinely astonished when I read Clause 127. Perhaps I had paid too much attention to the many press releases emanating from the Minister's department which spoke eloquently of removing politicians from the process and enabling the Office of Fair Trading and the Competition Commission to make key decisions without political interference. So the clause may well be an aberration. Perhaps it has been retained from some previous draft assembled before the press releases were issued. It is headed:
"Ministerial power to make references".
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Subsection (1) refers to the circumstances in which the ministerial power will be exercised, which is where:
"the appropriate minister is not satisfied with a decision of the OFT not to make a reference under section 126".
The Minister can hardly expect to get away with this one without a detailed explanation. What a comfort it is to see a rather detailed brief in front of him, because he is undoubtedly now about to give a succinct explanation.
My questions are simple. Why is that power in the Bill? Why it is it not described as a reserve power? Will that power be subject to parliamentary accountability? Will the Minister be held to account in some way? There is no provision in the clause for Parliament by resolution to approve the reference that the Minister decides to make. The Minister cart by appropriate ministerial fiat make such a reference if he is dissatisfied with the Office of Fair Trading. So the old regime lingers on.
Will the Minister be subject to the same reference criteria as the Office of Fair Trading? Will the Minister's reference be subject to review by the competition appeal tribunal? If the reference follows a market investigation that has already been authorised by the Office of Fair Trading, but which then concludes, will the Minister be able to say that he requires further investigation?
As I read the Bill, the only control on the Minister is that he cannot make the reference where undertakings have been made and accepted by the Office of Fair Trading. That is provided by subsection (4), which states:
"No reference shall be made under this section if the making of the reference is prevented by section 151(1)".
The only inhibition in Section 151(1) is that,
"No market investigation reference shall be made by the OFT or the appropriate Minister … if … the OFT has accepted an undertaking"—
some further provisions relating to such undertakings follow. So there is no fetter on the Minister, apart from in that limited circumstance.
We then subject Clause 127 to closer scrutiny. Subsection (2) provides the condition that,
"the appropriate Minister … is not satisfied that the OFT will decide within such period as the appropriate Minister considers to be reasonable, whether to make such a reference".
So the provision does not only apply where the OFT has decided not to make a reference: the Minister can suddenly intervene if he feels that the OFT are taking too much time. Why? Why, in that new regime of no ministerial interference, is that power being retained?
From the wording of subsection (3), that power appears to be wide. It states:
"The appropriate Minister may … make a reference to the Commission if he has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom".

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The Minister owes us an explanation. That is why, at the moment, my noble friends and I intend to oppose the Question that Clause 127 stand part of the Bill.
Lord Sainsbury of Turville: The noble Lord may regret the remark that he made about the fat brief in front of me, when he was talking about the succinct answer that he would get.
Clause 127 provides the appropriate Minister with a reserve power to make market investigation references in certain circumstances. Subsection (5) defines the appropriate Minister for those purposes as,
"the Secretary of State; or
(b) the Secretary of State and one or more than one other Minister of the Crown acting jointly".
The noble Lord asked whether the clause was not outwith the general spirit of the Bill. The prime aim of the Bill is to take Ministers out of the final decision-making process in competition cases. With the exception of public interest intervention cases, we have done that for merger and market investigations. Here, we are concerned not with final decisions but with the decision whether the Competition Commission should investigate particular markets. Ministers are being given the power to ask—not determine—questions.
I shall first describe how we envisage the clause working in practice and then say why it will make a positive contribution to the overall effectiveness of the market investigations regime. In order for a reference to be made, two conditions must be satisfied. The first condition is set out in subsection (3) and is identical in substance to the reference test that the OFT must satisfy when making a reference under Clause 126. The appropriate Minister must have reasonable grounds for suspecting that one or more structural or behavioural features of a market are preventing, restricting or distorting competition in the supply or acquisition of specified goods or services. The second condition is that, exceptionally, the OFT disagrees with the Minister's view that, in the circumstances of the case, a reference should be made.
We must consider first what Ministers should do when they find themselves in possession of evidence that there may be significant competition problems in a market. There are all sorts of ways in which Ministers may acquire information that would lead them to suspect that a reference would be justified, thus fulfilling the first condition for making a ministerial reference. Ministers may sometimes acquire such information before the OFT does, or they may have information that is unavailable to the OFT. However, we do not want Ministers making market investigation references as soon as they reach a view that the reference criteria are satisfied. In many cases, Ministers may not want to consider the evidence in enough detail to reach a firm view as to whether or not the criteria are satisfied, rather than considering that the matter is worth some further investigation.
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We take the view that, as under the monopoly provisions of the Fair Trading Act 1973, the primary responsibility for making market investigation references should rest with the OFT. The first reaction of Ministers should always be to bring the OFT's attention to information that they consider to be relevant to the making of a possible reference under subsection (2)(a). Further investigation by the OFT may result in the OFT making a market investigation reference. It may result in the OFT taking some other form of competition enforcement action—for example, action under the Competition Act 1998—that Ministers cannot take. It may result in the OFT carrying out a market study under its general functions. It may result in the OFT deciding that no action should be taken and, in particular, that no market investigation reference should be made.
The clause is designed primarily to deal with a subset of that last outcome, the situation in which the OFT has decided not to make a market investigation reference and the Minister is not satisfied with its decision. We are talking about a very small number of cases, as we are confident that it will nearly always be the case that Ministers will be satisfied with the OFT's decision not to make a reference. If that is not the case, it is right that Ministers should be able to go on to make a reference.
Lord Hunt of Wirral: The Minister has told us what would happen if a Minister was not satisfied with a decision of the OFT not to make a reference. What happens when the Minister is not satisfied with a decision of the OFT to make a reference?
11 p.m.
Lord Sainsbury of Turville: The point I should make clear is that the Minister has the right to make a reference, not to stop a reference. He would have the power, where he is not satisfied with a situation, to make a reference. That is very different from saying that he has a power to stop a reference, which would be wide of what we are discussing here.
I turn now to the second condition which must be fulfilled for a ministerial reference to be made. In addition to the Minister being satisfied that the reference criteria are met, he or she must he dissatisfied with the decision of the OFT not to make a reference. Alternatively, a Minister may make a reference where, having brought information about a possible reference to the attention of the OFT, he or she is not satisfied that the OFT is going to reach a decision on that possible reference within a reasonable period of time. This provision, contained in subsection (2)(b), exists simply to prevent the exercise of the ministerial power of reference being frustrated by administrative delay and to ensure that a reasonable degree of priority is given to the investigation of possible references brought to the attention of the OFT by Ministers.
The clause provides sensible back-stop arrangements for dealing with what we expect will be very rare cases. I think that we can be quite confident that such cases will be rare, because the ministerial power of reference in the Bill is drawn more narrowly

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than the corresponding provisions in the Fair Trading Act 1973 monopolies regime. Yet even under that Act, which allows Ministers complete freedom to make references where it appears to them that a monopoly situation exists and which prevents the Director-General of Fair Trading from being able to make references in certain sectors, so that in those sectors references can be made only by Ministers, there have been two ministerial references over the past 50 cases.
Finally, in making these arrangements, we have been mindful of the need to guard against any possible abuse of the ministerial power of reference. Like the OFT, Ministers must consult with those on whom they consider that a reference would be likely to have a substantial impact, explaining their reasons before making a reference decision. Once a reference decision has been made Ministers will, like the OFT, have to publish their reasons for it. Ministerial reference decisions, like those of the OFT, will be subject to challenge before the competition appeal tribunal. If they are inadequately justified, they are liable to be quashed. Thus there is clear control over Ministers making references which cannot adequately be justified.
Lord Hunt of Wirral:. Much of what the Minister has told us is reassuring, but he has not yet had an opportunity to respond to the point I made about parliamentary accountability. As the Minister is envisaging only rare cases for what he has described as a reserve power, then presumably the Minister would do both Houses of Parliament the courtesy of making a Statement explaining them, thus ensuring that he or she is held accountable for having exercised this reserve power in the very limited circumstances described by the noble Lord.
Lord Sainsbury of Turville: I have described what we believe is the appropriate way for the Minister to be held accountable; namely, that he will have to publish his reasons for making a reference. Those reasons can then be challenged in the competition appeal tribunal, so a review is available. It is clear that the Minister would he held accountable for his decisions. We believe that that is the appropriate way to proceed.
Lord Hunt of Wirral: I made particular reference to parliamentary accountability. On reflection, perhaps the Minister will consider before we return to the matter on Report, that in the very limited circumstances he has described, it should not be only the competition appeal tribunal that is allowed to hold the Minister to account. Parliament should be able to do so as well. In any event, it will be a matter for Parliament.
I should like to take time to reflect carefully on the points made by the Minister. I thank him for his response.
Clause 127 agreed to.
Clause 128 agreed to.
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Clause 129 [Questions to be decided on market investigation references]:
Lord Hunt of Wirralmoved Amendment No. 157:
Page 94, line 30, after "market" insert "significantly"
The noble Lord said: If this amendment were accepted, Clause 29(1) would read:
"The Commission shall, on a market investigation reference, decide whether any feature, or combination of features, of each relevant market significantly prevents, restricts or distorts competition".
Without this qualification, the commissioner would have to decide, no matter how minimal the effect on competition—which would be an unreasonably wide test. I hope that the Minister might consider accepting the amendment. I beg to move.
Lord Sainsbury of Turville: I shall deal first with Amendments Nos. 157 and 159, and then with Amendment No. 162.
Like Amendments Nos. 158 and 160, these amendments seek to introduce materiality into the Competition Commission's assessment of adverse effects on competition and detrimental effects on customers.
As I have said, there is no material difference in our minds between "significant" effects and "appreciable" effects. It should therefore come as no surprise to the Committee that I see no more merit in these amendments than in Amendments Nos. 158 and 160.
There are two main reasons why I believe it would not be wise to accept the amendments. The first has to do with the finding of adverse effects in itself: the second relates to the nature of the Competition Commission's duty to take remedial action, which, as we shall see, is very far from being unqualified. I shall deal first with the amendments in so far as they relate to adverse effects, and then consider the amendments proposed to subsection (5), on detrimental effects.
The clause does not impose any materiality threshold on the adverse effects on which the Competition Commission is required to report, and this is surely right. The Competition Commission will have carried out an extremely thorough investigation of the relevant markets, and its report should be as complete a picture of competition in those markets as it can provide. The publication of such information has a value in itself, independent of its relationship to the remedies process. But when it comes to deciding on remedies, we certainly do expect the Competition Commission to take account of the seriousness of the problems it is addressing. That is why the requirement of subsection (6) is to decide what remedies are "reasonable and practicable" to address each adverse effect on competition.
So if an individual adverse effect is not very significant—perhaps because the Competition Commission does not think it likely that it will ever have much of a detrimental effect on customers: or because it actually brings relevant customer benefits; or because the Competition Commission believes that, even in the absence of remedies, it will only be very short-lived—then it is unlikely to be reasonable and

1523
practicable to remedy it, unless the remedy concerned imposes only minimal burdens on the businesses concerned.
There is no reason not to remedy a small adverse effect on competition if the remedy concerned imposes only minimal burdens. On the other hand, a number of different adverse effects, although they are not individually very significant, may nevertheless, if taken together, constitute a serious prevention, restriction or distortion of competition, so that it would be reasonable and practicable to introduce a more intrusive remedy to address them all at once than it would have been reasonable and practicable to introduce or address them individually if they had occurred in isolation from the rest.
Moreover, where a remedy interferes with existing property rights—as will often be the case, for example, where parties' existing contractual rights are affected by a remedy—human rights law imposes the additional requirement on the Competition Commission that that remedy must be no more than is necessary and proportionate to address the competition problem identified.
Turning now to Amendment No. 162 and to detrimental effects on customers in the form of higher prices, lower quality, and less innovation or choice arising from an adverse effect on competition, much the same argument applies. It is right that the Competition Commission should document whatever detrimental effects on customers it finds, since that is an important part of the appreciation of the adverse effects. It is right in principle that it should try to remedy them in so far as they result from the adverse effects.
Again, we would prefer to leave it to the Competition Commission's assessment of what remedies are reasonable and practicable to determine whether particular detrimental effects are worth remedying. I hope that on the basis of that explanation the noble Lord will withdraw his amendment.
Lord Hunt of Wirral: I am grateful to the Minister for responding not only to Amendment No. 157 but also to Amendments Nos. 159 and 162 with which it is grouped. I would like time to reflect on the points he raised. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 158 to 160 not moved.]
Lord Hunt of Wirralmoved Amendment No. 161:
Page 95, line 21, at end insert "including public interest cases,"
The noble Lord said: Subsection (5) as amended would read,
"For the purposes of this Part, in relation to a market investigation reference, including public interest cases, there is a detrimental effect on customers",
which is then described. The clause's definition should be applied throughout Part 4. I look forward to the Minister's response. I beg to move.
Lord Sainsbury of Turville: The amendment would ensure that the term "detrimental effect on customers"
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would have the meaning given it under Clause 129 in competition and public interest cases alike. The amendment is not necessary as the Bill currently produces that outcome. In response to helpful suggestions from the Opposition in another place, the Bill was amended to ensure that the definition set out in Clause 129 would apply in all cases, including public interest cases. That is the effect of Clause 146(1). On the basis of that explanation I invite the noble Lord to withdraw the amendment.
Lord Hunt of Wirral: That is very interesting. I am grateful to the Minister. I apologise; I had not spotted that change. I will reflect on his wise words. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 162 not moved.]
Lord Hunt of Wirralmoved Amendment No. 163:
Page 95, line 42, at end insert—
"(iii) improvements to production or distribution; or
(iv) promoting technical or economic progress;"
The noble Lord said: The list in subsection (8)(a) currently reads:
"it is a benefit to customers in the form of—
(i) lower prices, higher quality or greater choice of goods or services in any market in the United Kingdom … or
(ii) greater innovation in relation to such goods or services".
The amendment would add:
(iii) improvements to production or distribution; or
(iv) promoting technical or economic progress".
If the Minister were to accept the amendment it would align the Enterprise Bill with the Competition Act 1998 and Article 81 of the European Community's competition law, which specifically require such benefits to be taken into account. Without that change there is a probability that the benefits to customers will be interpreted as only the benefits to the immediate consumer and the potential benefits to customers or consumers at large will not be taken into account. I beg to move.
Lord Sainsbury of Turville: Our definition of "a relevant customer benefit", covering lower prices, higher quality or greater innovation or choice, follows the definition used in the mergers clauses of the Bill rather than the criteria set out in Article 81(3) of the EC treaty, also to be found in Section 9 of the Competition Act 1998, for exempting anti-competitive agreements where they bring wider economic benefits.
The two sets of criteria look different on paper. This is a difference primarily in perspective rather than substance. We are satisfied that in practice they will lead to the consideration of much the same issues in much the same way.
The Bill's criteria are slightly more exacting, but we do not think that that is a problem, partly because a greater emphasis on competition is not inappropriate and partly because Article 81 and Chapter 1 of the Competition Act are concerned with individual agreements whereas market investigations will

1525
generally be concerned with other forms of conduct. If the Competition Commission were to be routinely concerned with individual agreements between firms, which may often promote technical or economic progress at the expense of competition, I might have some sympathy with the amendment. However, that will not he the case. Where it is, we expect that it will deal with such agreements by inviting the OFT to consider them under the appropriate provisions of the Competition Act.
The Competition Commission will generally be concerned with other matters such as uncompetitive unilateral conduct or structural matters such as barriers to entry. These are not noted for the frequency with which they produce any benefits to customers, let alone serving the aims of innovation and economic progress.
I should also mention two specific categories of case in which the anti-competitive effects of market features may be weighed in the balance against a wider range of customer benefits than is described in our definition or in Article 81(3). First. there are those cases in which the Competition Commission recommends repeal or amendment of an existing law or regulation. In such cases it will be for the Government or other relevant public authority to weigh the Competition Commission's analysis of competition problems resulting from that law or regulation against its own assessment of whatever public policy considerations led to it being made originally.
Secondly, if the Competition Commission has conducted a market investigation in one of a number of regulated sectors and considers that the appropriate remedy involves any of the categories of relevant action set out in Clause 163, such as modifying an electricity licence, it will be obliged to take account of the relevant regulator's statutory functions—effectively the set of objectives that govern the regulation of the sector concerned.—which are likely to include competition and customer benefits, as defined in subsection (8), but also other wider and more sector-specific objectives, such as the provision of a universal postal service.
I am conscious of a further concern that has been raised as to whether our definition is wide enough to protect the interests of future or potential customers. Innovative behaviour today, which will bring benefits to customers tomorrow, can be taken into account by the Competition Commission as a relevant benefit to customers, provided it is expected to accrue within a reasonable period and would be unlikely to accrue but for a feature of the market that is adversely affecting competition. Clearly, much will depend on the circumstances of individual markets, but that is as it should be.
Finally, from a technical point of view, we seriously doubt that it would be possible exactly to replicate the Article 81(3) criteria without importing EC jurisprudence wholesale into Part 4, which would be inappropriate, given that market investigations are a free-standing regime designed to complement rather
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than duplicate the provisions of Community competition law. I therefore ask the noble Lord to withdraw the amendment.
Lord Hunt of Wirral: I am grateful to the Minister for that detailed explanation, which I would like to study over a longer time than I have to hand. I hope that he accepts that our concern is to avoid the short-term approach and take the more strategic one. Obviously he has spent some time considering his response, for which I am very grateful. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 129 agreed to.
Clauses 130 to 163 agreed to.
Schedule 9 [Certain amendments of sectoral enactments]:
Lord Sainsbury of Turvillemoved Amendments Nos. 165 and 166:
Page 226, line 8, after "was" insert "carried on by".
Page 232, line 9, after "was" insert "carried on by".
On Question, amendments agreed to.
Schedule 9, as amended, agreed to.
Clauses 164 to 168 agreed to.
Clause 169 [Investigation powers of OFT]:
Lord Kingslandmoved Amendment No. 167:
Page 124, line 35, leave out subsection (7).
The noble Lord said: This amendment relates to a new power but the Explanatory Notes do not explain why it is thought necessary or desirable to give the OFT such a power—which is both repressive and inappropriate. Under the Restrictive Trade Practices Act 1976, the OFT could apply to court for the examination of an individual under oath. Such an arrangement would ensure that the rights oft he person examined were fully respected and that such a power will be used only in extreme circumstances. I beg to move.
Lord Sainsbury of Turville: The amendment seeks to remove the OFT's power to take evidence on oath and to administer oaths. Our intention is to replace the powers currently available under Section 44 of the Fair Trading Act 1973 with a set of powers tailored to the new regime. The Section 44 powers provide a right of entry, which we have removed. Instead, we have modelled the updated provisions in Clause 169 on the powers that will be available to the Competition Commission during a market investigation. The OFT will have those powers only when it believes that it has the power to make a reference, so it seems sensible to align them with those of the Competition Commission.
However, there might be concerns about extending the powers to take evidence on oath. In light of the concerns expressed by the noble Lord. I am happy to accept the proposed amendment.
Lord Kingsland: I had carefully formulated a reply appropriately expressing regret at the Minister's reply. I am delighted at the Minister's response.
On Question, amendment agreed to.
Clause 169, as amended, agreed to.
Clauses 170 to 173 agreed to.
Clause 174 [Review of decisions under Part 4]:
Lord Sharmanhad given notice of his intention to move Amendments Nos. 168 to 170:
Page 126, line 31, at end insert—
"() For the purposes of subsection (1) "any person aggrieved" means any person who is a party to the relevant merger situation or special merger situation."
Page 126, line 32, leave out subsection (2).
Page 126, line 39. leave out "three months" and insert "one month"
The noble Lord said: These amendments seek to do exactly the same in relation to market investigations as the amendments moved in relation to Clause 148. Given the Minister's explanation, I do not propose to move the amendments.
[Amendment Nos. 168 to 170 not moved.]
Lord Kingslandmoved Amendment No. 171:
Page 127, line 7, leave out subsections (6) and (7) and insert—
"() The Competition Appeal Tribunal may confirm or set aside the decision which is the subject of the appeal and may—

(a) remit the matter to the OFT, the Secretary of State or the Competition Commission as the case might be (the "original decision maker"),

(b) cancel or vary any conditions or obligations imposed by the original decision maker,

(c) give such directions or take such steps as the original decision maker could have made, or

(d) make any other decision which the original decision maker could have made."

The noble Lord said: In contrast with appeals under the Competition Act 1998, the Bill provides only for a form of judicial review of decisions taken under the new market investigation powers. That is particularly important given the overlap between investigations under Chapter 2 of the 1998 Act and the new market investigation powers. In a letter dated 7th May to my honourable friend Mr. Nigel Waterson, the Minister in another place accepted that in some cases the OFT would have a discretion to proceed either to a full investigation under the 1998 Act or to refer the matter to the commission under the new powers. The choice would be significant for those investigated because, under the former, there would be a full right of appeal from the OFT's decision to the CAT whereas, under the latter, there would be no full appeal of the Competition Commission's investigation.
There is a parallel in the Competition Act which may or may not be of interest to the Minister—I am sure that he knows about it. It arose because of certain powers of the sector regulators. In certain circumstances, those powers allowed the regulator to opt to investigate either within the framework of the regulatory legislation or within the framework of the Competition Act. He could opt for whichever he preferred. In some circumstances, the protection for
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the individual was better under one regime than under others. The Minister wrestled with that issue with some difficulty at many stages of the Bill. It seems to me that it is a useful parallel to draw with the situation with which we are now confronted under this Bill. I beg to move.
The Deputy Chairman of Committees (Viscount Simon): I advise Members of the Committee that, if Amendment No. 171 is agreed to, I cannot call Amendments Nos. 172 to 174 due to pre-emption.
Lord Sainsbury of Turville: In their different ways, these amendments seek to give parties a right to review the substance of any decision taken by the competition authorities in a market investigation as well as the right to review the procedure by which the decision was reached.
As I mentioned in the context of Clause 117 concerning mergers, the subject of what should constitute appropriate grounds for review of a decision following a merger or market investigation was discussed at length in the other place. In market investigation, as for mergers, we continue to believe that a review based on judicial review is the right means for challenging decisions taken.
Market investigations do not focus on conduct or structures that are prohibited by law from the outset. The authorities have to decide on a case-by-case basis whether any features of a market are having an adverse effect on competition and what steps should be taken to remedy such adverse effects in each case.
Again, as for mergers, considerable discretion will have to be exercised by the authorities. And, again, decisions will be based on analysis of individual cases according to their specific facts. Recent case law, in particular, in the Alconhury case, suggests that. to a limited extent, material errors of fact could be a ground for intervention in judicial review cases.
The taking into account of mistaken fact can, in some cases, be regarded as taking into account irrelevant consideration or failure to provide reasons that are adequate or failure to base a decision on any evidence. This is an evolving area and it is one reason that we have chosen for these grounds.
Again, these arguments are very similar to those that we advanced previously. For the same reasons, I ask the noble Lord to withdraw his amendment.
Lord Kingsland: There are similarities between this situation and the previous one in relation to mergers. But there are also important differences. In this situation, there is a clear option for the OFT to go down one route or the other. The route that the OFT chooses to go down will have significant implications for the degree of protection afforded to the individual. If it is a Part 2 investigation, the individual knows that the decision of the OFT is capable of being substantively reviewed by the CAT. But if it is an investigation under the new powers, the OFT knows that the decision by the Competition Commission is subject only to judicial review.

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Therefore, in circumstances where the OFT has an option, one might he forgiven for thinking that the temptation will be to choose the Competition Commission route rather than the route of full investigation by the OFT. The extent of the review of the competition capable of being mounted in courts is much lighter than that in the CAT. In my submission, it is important to eliminate that bias so that the OFT is not tempted to choose a route for reasons which have nothing to do with the inherent merits of that route. Perhaps the Minister would care to react to that further development of the argument.
Lord Sainsbury of Turville: It is true that the OFT will have some discretion in what we expect to be a small number of cases as to whether to investigate under the Competition Act or the Enterprise Bill. But beyond that initial choice the two types of investigation are not directly comparable. Under the Competition Act the OFT will consider whether behaviour is unlawful against a body of established jurisprudence whereas a market investigation under the Enterprise Bill considers whether behaviour is having an adverse effect on competition. That is an important distinction. Under the Enterprise Bill the authorities have considerable discretion. Hence it is possible only to review whether they have behaved reasonably not whether they have the answer right or wrong in legal terms. We continue to believe, therefore, that judicial review is the right basis on which decisions are reviewed in market investigations.
Lord Kingsland: One way of improving the objectivity of the OFT would be to establish clearly and publicly guidelines for its approach to decisions in circumstances where it has an option to go down one route or another. I seek to avoid the OFT making a choice of route on grounds which have nothing to do with the inherent merits of that route. I do not suggest that it will normally behave like that. But there will be circumstances in which it will be perceived to have behaved like that.
One way to avoid that situation would be to devise some guidelines for the OFT to ensure that its decision about the route was made clearly on an objective basis. Even if the Minister thought that it was good idea, I suspect that he would not be able to react positively now on the Floor of the House. Perhaps he will reflect on the matter. To a large measure, that would get round the solution I propose in the amendment but at the same time would go a long way to reassuring the market about the probity of the OFT's approach.
Lord Sainsbury of Turville: The noble Lord's concern is that the OFT would choose one route or the other because the review process is different. However, the review process is appropriate to the decisions being made under the two routes. To say that one is an easier review process is to miss the point. These are two different kinds of decisions being made which are reviewed appropriately in different ways.
11.30 p.m.
Lord Kingsland: I take that point. In a sense that is what suggested to me that a set of objective guidelines, setting out precisely the philosophy that the Minister has just outlined to your Lordships, would solve any problems of perception that the marketplace may have about the OFT's motives. Will the Minister reflect on that matter over the Summer Recess without, of course, giving any commitment to the course of action that I suggest? I hope that he will accept that I am prepared to move away from my amendment towards a solution that I believe that he would accept as more attractive than the amendment itself.
Lord Sainsbury of Turville: I shall certainly look at it when I return from my summer holiday.
Lord McIntosh of Haringey: The noble Lord, Lord Kingsland, did not ask how long the Minister's summer holiday would be!
Lord Kingsland: Sadly for the Minister, I am sure that it will be a very crisp experience! In all the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 172 not moved.]
The Deputy Chairman of Committees: In calling Amendment No. 173, I have to advise the Committee that if it is agreed to, I cannot call Amendment No. 174 due to pre-emption.
[Amendments Nos. 173 and 174 not moved.
Clause 174 agreed to.
Clause 175 [Offences]:
[Amendment No. 175 not moved.]
Clause 175 agreed to.
Clauses 176 and 177 agreed to.
Clause 178 [Interpretation: Part 4]:
Lord Hunt of Wirralmoved Amendment No. 176:
Page 128, line 33, at end insert "and includes a local authority or a public body"
The noble Lord said: Amendment No. 176 would mean that the clause would read:
"'business' includes a professional practice and includes any other undertaking which is carried on for gain or reward or which is an undertaking in the course of which goods or services are supplied otherwise than free of charge and includes a local authority or a public body".
I hope that the Minister will accept this amendment. I beg to move.
Lord Sainsbury of Turville: I begin by reminding noble Lords that the term "business", as defined in Clause 178, appears in Clause 126, subsections (2)(b) and (c), where the conduct of persons supplying goods or services in the course of business and the conduct of the customers of persons supplying goods or services in the course of business are part of the definition of "features" of a market which applies both in Part 4 and in relation to the making of super-complaints under

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Clause 11. The definition of "business" in Clause 178 includes, but is not limited to, any undertaking which is carried on for gain or reward or which supplies goods or services otherwise than free of charge. That means that supply or acquisition of goods or services by local authorities or other public bodies on a commercial basis will be covered.
To the extent that the amendment seeks to clarify that the conduct of local authorities or public bodies can provide grounds for a market investigation where they are operating commercially, I have no quarrel with it. However, as drafted, the amendment does not fulfil that purpose: the point of the definition of "business" in Clause 178 is to clarify that certain types of activity count as business activity for the purposes of Clause 126; whereas the amendment refers to a particular kind of organisation, which may or may not be engaged in such activity. However, I am happy to take this away and to consider whether an amendment should be made.
Lord Hunt of Wirral: Obviously my feeling of inspiration was fully justified. I am grateful to the Minister for his response and beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 178 agreed to.
Clauses 179 and 180 agreed to.
Schedule 11 [The Competition Commission]:
Lord Kingslandmoved Amendment No. 177:
Page 245, line 37, leave out "may" and insert "shall"
The noble Lord said: This is a probing amendment about the publication of information by the commission. Paragraph 7 of Schedule 11 states:
"The Commission may publish advice and information in relation to any matter connected with the exercise of its functions".
That could be described as a fairly broad remit. Is the Minister prepared to indicate what kind of information is envisaged under this paragraph? Amendment No. 177 includes the expression, "shall". Clearly that would be too demanding and quite unnecessarily broad. But, equally, the discretion the commission has to publish is so wide under this paragraph that it gives no indication as to the type of information that the commission might have in mind. I am therefore probing to find out what we are likely to receive in our post boxes or our e-mails. I beg to move.
Lord Sainsbury of Turville: Amendment No. 177 provides that the Competition Commission "shall" publish advice and information on any matter connected with the exercise of its function. It is important to understand how the Bill understands the issue of publishing advice and information.
There are two clauses in the main body which deal with this. Clause 103 provides that the Competition Commission should prepare and publish general advice and information about the consideration by it of merger references and the way in which relevant
1532
customer benefits may affect the taking of enforcement action in relation to such references. Clause 166 requires the Competition Commission to prepare and publish similar advice and information in respect of market investigation.
The intention of paragraph 7 of Schedule 11 is not to add a further requirement on the Competition Commission to publish advice and information. It is intended to allow the advice and information required by Clauses 103 and 166 to be published by the Council of the Competition Commission acting for the rest of the commission. The council is the board of the Competition Commission and is made up of the chairman, deputy chairman and secretary of the commission.
Although the new paragraph 7A refers to "Commission", the location of this provision within the text of Schedule 7 to the Competition Act 1998 means that this would be a council function. That is the primary purpose of new paragraph 7A, although it will also allow the Competition Commission to publish advice and information on other matters where it sees the need. It is not intended to create a wider obligation on the Competition Commission to publish advice and information in respect of everything the Competition Commission does.
We believe we have identified the most important areas for publishing advice and information in the clauses I mentioned. We are also confident that the Competition Commission will publish further advice and information on other areas but want the decision on what advice to publish and when to be a matter for the commission itself. We see no value in requiring the commission to publish advice on everything it does. Such a requirement would be unnecessary and unrealistic and I therefore ask the noble Lord to withdraw his amendment.
Lord Kingsland: I shall willingly withdraw the amendment because I accept that it would he wholly unrealistic. However, it has achieved a purpose this evening because it has elicited from the Minister a great deal of useful information about the expected approach of the commission to publication.
It would be helpful if it took an early opportunity to indicate, within the framework that the Minister has outlined, what specific areas of public communication it intends to engage in. As its experience develops, no doubt the pattern will change somewhat. It would be extremely helpful for the market to know what the commission has in mind initially. Apart from anything else, suggestions may be made to it about matters it might not have thought about which it would find acceptable and helpful both to its work and that of its customers, if I may refer to them in that very general way. The Minister very kindly nodded so I believe that I can leave it at that. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 11 agreed to.

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Clause 181 [Annual report of Commission]:
[Amendment No. 177A not moved]
Clause 181 agreed to.
Clause 182 [Commission rules of procedure]:
Lord Hunt of Wirralmoved Amendment No. 178:
Page 133. line 2, leave out "such other persons as he considers appropriate" and insert "other interested parties or their representatives"
The noble Lord said: This amendment seeks to restrict what appears to be a completely unfettered power for the chairman to consult anyone he considers appropriate. At the moment Clause 182(4) provides that:
"The chairman must consult the members of the Commission … before making rules under this paragraph".
It adds the words,
"such other persons as he considers appropriate".
This amendment deletes those words and inserts,
"other interested parties or their representatives"
thus at least giving some credibility to the power to consult by making sure that it is only to other interested parties or their representatives. I very much hope that the Minister will accept this amendment. I beg to move.
Lord Sainsbury of Turville: This amendment is concerned with Clause 182 of the Bill, which requires the chairman of the Competition Commission to make rules of procedure to regulate the conduct of merger and market reference groups. Before making rules the Bill requires the chairman to consult the other members of the commission and other persons as he considers appropriate.
The amendment would reduce the chairman's discretion about who he chooses to consult. I do not believe that there can be any disagreement with the proposition that there should be open consultation on the rules of procedure. The issue is how this is best expressed in statutory terms. We have a choice between what I would characterise as a flexible consultation provision which relies on the chairman's common sense and a more prescriptive requirement which will not carry us any further forward in practice and which may have an unintended constraining effect.
For example, I am not clear who we mean by "interested parties" in this context. Is it all companies which have been involved in merger or monopoly references in the past? Does it extend to those who might be involved in mergers or market investigations in the future? If it refers to just business parties it is rather limiting. What about consumer groups and others?
The consultation provision which we have in the Bill avoids these definition difficulties. I do not believe that there is any need to be more prescriptive. We can leave it to the common sense of the chairman. On that basis I ask the noble Lord to withdraw his amendment.
Lord Hunt of Wirral: I am very grateful to the Minister for his response. I believe that he has very
1534
adequately answered the point I raised. He has also understood that we were trying to find some way of restricting what otherwise has to rely on the common sense of the chairman. There is a general understanding that when Parliament gives powers to an individual one should not have to rely on his common sense, but one has to lay down his boundaries. There are no boundaries here. But I should like to reflect on what the Minister said. In those circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
11.45 p.m.
Clause 182 agreed to.
Schedule 12 [Competition Commission; certain procedural rules]:
Lord Kingslandmoved Amendment No. 179:
Page 248, line 38, leave out "may" and insert "shall"
The noble Lord said: Amendment No. 179 is a probing amendment. As the Minister is aware, the text to which the amendment relates is in Schedule 12 which incorporates Schedule 7A. Paragraph 2 states:
"Rules may make provision —
(a) for particular stages of a merger investigation, a market investigation or a special investigation to be dealt with in accordance with a timetable and for the revision of that timetable".
What I seek to probe—and I shall take mergers as an illustration—is the relationship between that paragraph and Clauses 23 and 24 of the Bill. Clause 23 is headed "Time-limits and prior notice" and Clause 24 is headed "Extension of time-limits". Those two clauses set out in some detail the timetable for an investigation and include a certain number of specific constraints.
Is the intention that paragraph 2 of Schedule 7A should vary Clauses 23 and 24? In other words is the tail capable of wagging the dog, or does paragraph 2 operate within all the constraints contained in Clauses 23 and 24? I beg to move.
Lord Sainsbury of Turville: In addressing the amendment it may be helpful if I explain the purpose of Schedule 12 and how it fits into the rest of the Bill. It is closely related to Clause 182, which places a new requirement on the chairman of the Competition Commission to produce rules of procedure for the commission's reporting group.
As the term suggests—and this is a point I wish to stress—the rules of procedure will be binding on reporting groups. This is a significant step forward on the current procedural arrangements set out in Schedule 7 to the Competition Act 1998. There the chairman merely has a power to publish guidance for reporting groups to which they have regard.
Schedule 12 provides a non-exhaustive list of matters that the chairman might want to include in the rules. Its purpose is twofold. First, it gives an indication of the kind of ground that the rules might be expected to cover. Secondly, it puts beyond doubt that

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certain types of procedure are clearly within the scope of the chairman's power to set rules. It is intended, however, to be illustrative and not prescriptive.
Schedule 12 and the related clause reflect our view that, as the final decision-taker in the new regime, the commission should have responsibility for determining its own detailed procedures within the overarching framework set by the legislation. Certain key aspects of procedure, we agree, should be set out in the legislation. That is why the Bill sets out a maximum statutory timetable for inquiries, and statutory obligations to consult, to draw up rules of procedure and to provide full reasons for decisions.
Within these core legislative parameters, we think it is preferable that the Competition Commission should have the flexibility to determine its own procedures. This places responsibility where it should properly lie. It has the added advantage of ensuring that there is flexibility for procedures to evolve in the light of experience, and administrative law trends without the need for further primary legislation.
The sort of detailed procedural matters that would be prescribed by the amendment are matters that can and should be left for the chairman to determine. However, I can assure the Committee that those issues are covered in the draft rules of procedure, which have been placed on the commission's website and in the Library of the House. For example, draft rule 5.2 states:
"After the group has been appointed, it shall, as soon as practicable, make arrangements for an administrative timetable to be drawn up which shall make provision for the major stages of the reference".
I hope that that is reassuring. I think that we all agreed that reporting groups should draw up detailed timetables for inquiries and have rules about the documents that need to be made available by and to parties to an inquiry. Those matters do not need to be prescribed. In the light of those arguments, I urge the noble Lord to withdraw the amendment.
Lord Kingsland: Once again, I am most grateful to the Minister for his reply. My concern was that the timetable rules might breach some of the stipulations set out in Clauses 23 and 24. I shall of course read carefully what the Minister said, but I think that he said that it was important for the internal discipline and conduct of inquiries by the commission that it set timetables—I am sure that that is right—and that their timetables would be set within the framework of Clauses 23 and 24. In other words, they will not require more demanding schedules than those in the Bill.
If that is not true, the tail will indeed be wagging the dog, because internal, discretionary decisions of the Competition Commission will be varying stipulations placed in an Act of Parliament.
Lord Sainsbury of Turville: If it is helpful, Clauses 23 and 24 concern the time limits for the OFT's reference
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of mergers. Schedule 12 concerns the timetable for Competition Commission inquiries. So the two are unrelated.
Lord Kingsland: That is helpful. So nothing either in Clauses 23 and 24 or elsewhere in the Bill in any way constrains the Competition Commission's timetable. Is its internal timing entirely discretionary? I am most grateful to the Minister. In those circumstances, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Schedule 12 agreed to.
Clause 183 [Cartel offence]:
Lord Hunt of Wirralmoved Amendment No. 179A:
Page 134, line 10, leave out "dishonestly" and insert "knowingly or recklessly"
The noble Lord said: We now come to Part 6, which contains some important provisions. In moving the amendment, I seek to ensure that there can be some objective assessment of an individual's intention to enter into an undertaking under the clause.
The word "dishonestly" should be omitted and substituted by the phrase "knowingly or recklessly". As the Minister will be aware, the definition of the criminal offence is absolutely central to the proposed criminalisation of cartels and must therefore be entirely clear in its terms. At present, the requirement is one of dishonesty, which certainly signals that the offence is serious—and rightly so. Would the application of a dishonesty test be effective in practice? Many of the legal brains that have considered Clause 183 find it unclear how proof of dishonest intent would be established to the requisite standard. That is why I have been advised that a more appropriate definition of the mental element of the offence might use the phrase,
"knowingly or recklessly enters into an agreement"
of a specified kind.
We will shortly hear from the noble Lord, Lord Sharman, about another amendment in the group. His amendment is another attempt to clarify the way in which the cartel offence is defined. The Minister may also wish to consider the other amendments in the group—Amendments Nos. 181, 182 and 183. I invite him to consider the various suggestions and await his response with great interest. I beg to move.
Lord Sharman: As the noble Lord, Lord Hunt of Wirral, said, my amendment, Amendment No. 180, is in this group. I can do little better than echo the noble Lord's concerns about the definition of "dishonestly".
It is right that those who engage in hardcore cartel activity should be punished severely. Criminalisation would help to deter. However, some amendment to clarify the scope and effect of the proposed offence is needed. In particular, it is essential to include the concept of intent in the definition. The concept of dishonestly agreeing will be difficult to explain to the court in the context of competition law. The offence

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should be linked to infringements of the Competition Act 1998 to make it clear that normal business activities will not be caught.
It is essential that we get it right, if the crirninalisation of such activities can be effected. I support the amendment.
Lord Hunt of Wirral: That was an interesting analysis. It may be helpful to the Minister if I give some further details on Amendment No. 181.
The purpose of the amendment is similar to that of the others. It would link the offence to a substantive infringement of competition law, as set out in the 1998 Act. The amendment proposes to insert the following formula:
"An individual is only guilty of an offence under subsection (1) if he dishonestly"—
or "knowingly", "recklessly" or whatever word is determined—
"agrees with one or more persons to make, implement or cause to be made or implemented agreements which fall within section 2 of the 1998 Act and do not meet the criteria in section 9".
That would tie the offence for individuals to the substantive infringement of competition law in the 1998 Act.
If the Minister were minded to accept the amendment, he would avoid the problem with the present wording of the Bill, which means that an individual could be convicted where the agreement qualifies for exemption under Section 9 of the Competition Act 1998. Under subsection (2) the offence would appear to cover exclusive distribution agreements. For example, A would agree only to supply B as its distributor in the UK and would not sell directly to end-users. B would agree not to distribute competing products. Such cases are fairly common, as the Minister will know, and are generally regarded as being efficient and pro-competitive. In fact, the European Commission has issued a block exemption approving such arrangements.
So I believe that it would not be sufficient to rely on the discretion of the prosecution not to bring proceedings in such a case. That would depend in turn on whether the prosecutor thought there was any dishonesty, or behaviour that was knowing or reckless—whichever the test should be. The offence carries a substantial period of imprisonment. Certainly we would contend that the liberty of the individual should not be at risk save where Parliament clearly intends that that particular conduct should be criminal.
In its present form the clause leaves a large element in the hands of the enforcement agency and thus goes against the concept of maximum certainty in the definition of an offence. That, after all, is a concept which underpins human rights principles. Objectivity would be retained as a test of dishonesty, as laid down in the case of Ghosh, by requiring the jury to investigate not only the state of mind of the defendant, but also to interpret it in the light of what the reasonable man would envisage to be dishonest. Moreover, unlike the clause as drafted, if the amendment were to be
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adopted, it would prevent prosecutions from being brought in cases where the economic impact was insignificant. That is because in order to fall within Section 2, the anti-competitive agreement would have to have an "appreciable effect on competition".
I understand that the Government argued in another place that linking the offence to the substantive competition infringement would result in economic arguments being adduced which juries would find extremely difficult to determine. I believe that economic arguments will often be adduced by an individual in his defence in order to demonstrate that he was not acting dishonestly. Similar conduct has been approved by the OFT or the European Commission in other cases.
That is the reasoning behind Amendment No. 181. Perhaps at this stage it might be best to pause and allow the Minister to respond.
Midnight
Lord McIntosh of Haringey: Here we start on Part 6 of the Bill concerning cartels. I should like to say first that I welcome the recognition on the part of both Front Benches that it is right that, given the qualification of "under certain circumstances", we should create a criminal offence of creating a cartel. Now, as the noble Lord, Lord Hunt, has said, we have to get it right.
I turn first to Amendments Nos. 180 and 181 which seek to provide a definition of dishonesty. I shall then go back to respond to Amendment No. 179A which would reject the word "dishonestly" and replace it with "knowingly or recklessly". I wish to defend the concept of dishonesty.
Lord Hunt of Wirral: The noble Lord might wish to rephrase that.
Lord McIntosh of Haringey: I want to defend the use of the word "dishonesty" to describe the offence of creating a cartel. I thank the noble Lord.
As it stands, the offence is focused on "dishonest" agreements precisely in order to avoid catching bona fide activity or activity which might be exempted under existing competition law, such as under Article 81 of the EC Treaty or the equivalent provisions in Chapter 1 of the Competition Act 1998. The dishonesty approach creates quite deliberately a high hurdle to prosecution.
As the noble Lord, Lord Hunt, made clear, "dishonesty" will be assessed against standards already established in case law. He referred to the Ghosh case. I want to rely on that case here. The "Ghosh" test, a judgment of the House of Lords in 1982 and still going after 20 years, requires the jury to consider both whether what was done was dishonest according to the standards of reasonable people—the objective element of the test—and whether the defendant realised that this was the view of such people—the subjective element of the test. Evidence pointing to dishonesty is likely to include the failure to seek legal advice where it would normally be sought,

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combined with attempts to disguise or hide activity—for example, secret meetings and the absence of records. Those are not features of bona fide business agreements.
"Dishonesty" is a much better definition because it exists in case law and has done so for 20 years. Juries ask themselves whether what was done was dishonest by the standards of reasonable people and whether the defendant understood that that was the case.
The Ghosh test has never been defined anywhere else in legislation because it has not been found necessary for it to be defined. That fundamentally is my answer to Amendments Nos. 180 and 181, which seek to add a further test by requiring that the underlying agreement between the undertakings should be proved to be anticompetitive under the Competition Act 1998.
Amendment No. 183 covers the same ground but seeks to establish as a statutory defence to the offence proof of the conditions for exemption in UK competition law. In response, the first thing I would say is that the Serious Fraud Office would certainly not prosecute where the agreement would not be anticompetitive under existing civil competition law.
We did consider the approach of a definition based on a direct link to Article 81 of the EC treaty, which for these purposes would amount in practice to the same thing as a direct link to Chapter 1 of the Competition Act. We set out this alternative in the White Paper last year, alongside the dishonesty option. This approach has its superficial attractions, but it would present real problems in practice. The prosecution would need to prove beyond reasonable doubt in every case that the intended agreement would constitute a breach of EC or UK competition law. This would draw in complex legal and economic argument which is beside the point when what we are doing is defining the offence tightly by focusing completely on the wrongdoing which is at the heart of the "dishonesty" offence.
If I repeat myself slightly about the "dishonesty" offence, it may deal with some of the issues that will arise later as we consider this part of the Bill. We are doing this in order to ensure that bona fide activity or activity exemptible under Article 81 is not caught in practice. We are avoiding the need for the prosecution to prove up front that the agreement would reach Article 81 of the treaty. We are focusing courts and juries on the wrongful nature of cartels—on wrongdoing. We are focusing on horizontal cartels. We are not including the vertical cartel referred to by the noble Lord, Lord Hunt, when he spoke of bona fide exclusive distribution agreements. He used the term "hardcore cartel". It is a very good phrase. Juries will recognise dishonesty of hardcore cartel members and only expect to prosecute serious and clear-cut cases.
For those reasons, I defend the use of the word "dishonestly" in Clause 183. I suggest that it is better to do that using the Ghosh definition, which has been tried and tested in case law rather than attempt to
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define it elsewhere and not to seek to define it by reference to Chapter 1 of the Competition Act or Article 81 of the EC treaty.
Lord Hunt of Wirral: I am grateful to the Minister for a comprehensive response on which I should like to reflect before making further decisions on how to proceed. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 180 to 183 not moved.]
Clause 183 agreed to.
Clause 184 agreed to.
Clause 185 [Cartel offence: penalty and prosecution]:
[Amendment No. 184 not moved.]
Lord Sharmanmoved Amendment No. 185:
Page 136, line 3, leave out paragraphs (a) and (b) and insert "by the Director of the Serious Fraud Office with the consent of the OFT"
The noble Lord said: The amendment deals with who is the most appropriate body to carry out the criminal investigations of cartel offences. It is our contention that it is best that they be carried out exclusively by the Serious Fraud Office. To my knowledge, at present the OFT has neither the responsibility nor the resources to carry out criminal investigations; nor does it have experience of complying with the standards of evidence required for criminal prosecutions.
Therefore, rather than going through a resourcing exercise of equipping the OFT with the necessary skills already present in the Serious Fraud Office, it would be better for responsibility for the criminal aspects of the cartel offence to be investigated exclusively by the Serious Fraud Office. That would leave the OFT with the responsibility solely for the enforcement of civil remedies. I beg to move.
Lord Kingsland: I rise to speak to our Amendments Nos. 186 and 187 in this group and to support the noble Lord, Lord Sharman. The Government's December 2001 response to consultation stated that they had decided that the SFO should be the lead prosecutor. We agree, yet the Bill does not reflect the Government's statement, as it gives equal power to the OFT and the SFO. It also gives the OFT extensive criminal investigation powers.
The OFT's powers to investigate civil infringements committed by companies under the Competition Act 1998 are different to the criminal powers under the Bill and to criminal law generally. The rights to defence differ, as well as the procedures. Giving the OFT both sets of powers will lead to confusion, particularly as most criminal investigations are likely to stem from an initial investigation under the Competition Act.
We question whether the checks and balances within, and the experience of, the OFT are sufficient to prevent confusion of the two roles. We can think of no parallel of an authority having dual tracking powers. We do not accept the Minister's view that an individual's trial would not be prejudiced by an

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adverse finding in respect of substantially the same matter against his employer company by, say, the Commission in Brussels under Article 81.
Moreover, we do not think it appropriate that the chairman of the OFT, who has no experience of criminal investigations or prosecutions, should authorise surveillance on application by one of his officials under the RIP Act 2000.
Instead, if the OFT is to have surveillance powers, application should be made to an independent judicial authority, such as the Attorney-General or a high court judge. That is consistent with the provisions for investigation under warrant, since an application in that case has to be made to a judge.
There are also a number of specific points on the OFT's powers of investigation. First, Clause 187(1) authorises the conduct of an investigation if there are,
"reasonable grounds for suspecting that an offence … has been committed".
Clause 187(2) provides that the powers necessary for the conducting of an investigation—that is, the answering of questions, the provision of information and the power to obtain a warrant—are exercisable only,
"in any case where it appears to the OFT that there is good reason to exercise them".
The test in Clause 187(1) is objective, but the test in Clause 187(2) is subjective. We believe that the powers in Clause 185(2) should be exercisable only against an objective test.
Secondly, under Clause 189(2), a warrant can authorise only a named officer of the OFT to enter premises, although that named officer may be accompanied by other officers of the OFT. It is not clear how that interacts with Clause 190, which gives the OFT powers to authorise any competent person who is not an officer of the OFT to exercise its powers under Clause 189. Clause 190 should be made subject to Clause 189(2), or the power to issue the warrant should refer expressly to competent persons who have been authorised by the OFT in Clause 189(2).
Thirdly, the Bill fails to implement a satisfactory separation of investigatory powers and duties from the prosecution function and fails to comply with the recommendations of the report of his honour Judge Gower and Sir Anthony Hammond in relation to the prosecution of offences by Her Majesty's Customs and Excise.
Fourthly, Clause 191(2) fails to provide protection to those carrying on banking businesses, as the OFT could authorise the making of the requirement in Clause I91(2)(b) in every case.
Finally, we believe that Clause 192(1)(b) conflicts with the decisions of the European Court of Human Rights. That is inconsistent with the decisions of Funke and Saunders. I know that the Minister is familiar with both cases.
12.15 a.m.
Lord McIntosh of Haringey: I look over them every night.
Lord Kingsland: I know that the Minister will recall those cases from our exchanges on the Financial Services and Markets Bill.
Lord McIntosh of Haringey: Indeed.
I am grateful to both noble Lords, particularly to the noble Lord, Lord Kingsland, for the wide-ranging way in which he has argued the case. He has gone forward quite a way into Part 6. I hope the Committee will forgive me if I answer not only the specific issues raised by the amendments, but also some of the more general points. I cannot deal with all the points that will arise when we consider later amendments, but perhaps if I deal with some of them I can remove the need for extensive stand-part debates on many of the clauses in Part 6.
It will be agreed that Amendment No. 185 is one alternative, and Amendments Nos. 186 and 187 would achieve the same effect with different wording. We are talking about the same thing. I shall explain the working arrangements between the Office of Fair Trading and the Serious Fraud Office in relation to investigation and prosecution. The SFO and the OFT will work together on the investigation and decision to prosecute and the SFO will undertake the prosecution in England., Wales and Northern Ireland—I will qualify that later—while the Lord Advocate will prosecute in Scotland. That links SFO's expertise in criminal prosecution with the OFT's expertise in competition investigations. It has extensive experience, although admittedly in the civil rather than criminal sphere. We do not expect a large number of prosecutions and it will be more effective to locate them in an organisation undertaking similar work.
The OFT will undertake the initial investigation using powers broadly modelled on the SFO powers in the Criminal Justice Act 1987. The OFT will inform the SFO as soon as a case appears likely to lead to a criminal prosecution. At that point, the decision may be taken to hand over the case to the SFO to prosecute or the OFT may remain involved for a period—called extended vetting—before a decision is taken. Once the SFO has taken over a case, a SFO controller will oversee a joint team to move it forward.
The SFO has the necessary resources and experience for such criminal prosecutions and has prosecuted other white collar crimes such as insider dealing for many years. The SFO has a successful conviction rate of 87 per cent in the past five years.
The OFT is included in the Bill as an additional named prosecutor but it is neither expected nor resourced to prosecute initially. It has only been included so that if circumstances justify it in future, the OFT will be able to perform a prosecution role. That might arise if the number of cartel prosecutions created a conflict with other SFO priorities. If that is a point of concern for the noble Lord., Lord Kingsland, I will be happy to discuss the matter with him before Report stage.

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The OFT will investigate using an analogy with existing SFO investigatory powers under the 1987 Act but—except in unusual circumstances—the OFT will not prosecute into the future.
The noble Lord mentioned the civil and criminal interface, which cannot be avoided because it is a critical part of cartels. We are moving on from existing civil law under the Competition Act 1998, which targets the undertaking—whereas the criminal offence in the Bill targets the individual. The OFT is being granted separate powers for conducting criminal and civil proceedings. The civil powers under the 1998 Act focus on infringements by undertakings. The Bill's cartel provisions deal with criminal actions by individuals. A single cartel could involve actions in both civil and criminal courts. Protections are needed to ensure that information gathered under one regime is not used wrongly for another regime.
The OFT will collect evidence for a new offence to much more demanding standards, to ensure that it is admissible in a criminal trial. OFT investigators will abide by the code of conduct for the investigation of criminal offences specified in PACE. Suspects will be cautioned before being interviewed by OFT officers investigating the criminal offence.
Clause 193, which we have not yet reached, ensures that statements compelled under the Competition Act 1998 powers—it is important for me to say this to the noble Lord, Lord Kingsland, because I know that it is a matter about which he is concerned—may not be used in criminal proceedings except in limited circumstances. We can debate those circumstances.
Therefore, in conducting civil and criminal investigations, the OFT will be in a similar position to that of Customs and Excise and the Inland Revenue, to which the noble Lord referred, each of which also successfully carries out parallel civil and criminal investigations.
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I have gone beyond the scope of the amendments, as did the noble Lord, because I believe it is important that we set the tone for our debate. I am sorry that we are doing so in circumstances where we cannot complete debate on Part 6 tonight. But I hope that this debate will be printed and that it will be possible for us to have a rational discussion on Monday, taking into account what is being said here.
Implicitly, the noble Lord, Lord Kingsland, is talking about the Saunders judgment on privilege and self-incrimination. He has tabled later amendments to that effect. The OFT based its approach to privilege against self-incrimination on the Saunders judgment. The OFT can require production of any document if it existed prior to the start of the investigation. But it cannot use the answer to any questions that are indirectly or directly incriminating as evidence against the persons questioned.
I am sorry to have spoken for longer than one would normally do, but it is important that we set these amendments in context. I hope that the noble Lord, Lord Sharman, will not press his amendment.
Lord Sharman: I am extremely grateful for the very full response given by the Minister. I particularly appreciate his explanation as to how the OFT and the SFO will work together on prosecutions. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 186 to 187 not moved.]
Lord Grocott: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.
House adjourned at twenty-eight minutes past midnight.