Enterprise Bill (Hansard, 18 July 2002)

§ Lord Hunt of Wirral
moved 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 1489 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 1490 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.

§ 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 1491 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?
1492 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 Turville
moved 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. 1493 (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 Turville
moved 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.

§ Lord Hunt of Wirral
moved 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 1494 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 1495 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.
1496 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 1497 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.

§ 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 Wirral
moved 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 1498 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.
1499 Clause 57 agreed to.
Clauses 58 to 62 agreed to.
Clause 63 [Cancellation or variation of references under section 61]:

§ Lord Sainsbury of Turville
moved 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 Borrie
moved 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.
1500 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 1501 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 1502 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.

§ 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 1503 "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 Turville
moved 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 Turville
moved 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 Turville
moved 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.
1504 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 Turville
moved 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 Sharman
moved 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 1505 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.

§ 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.
1506 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 Sharman
had 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 Kingsland
moved 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 1508 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 1509 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.

§ 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 1510 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 Turville
moved 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 Kingsland
moved 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 1511 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 1512 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.
1513 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 Kingsland
moved 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.

§ 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 1514 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 1515 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 Kingsland
moved 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.
1516 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 Kingsland
moved 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?

§ 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 1517 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". 1518 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". 1519 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.
1520 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?

§ 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 1521 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.
1522 Clause 129 [Questions to be decided on market investigation references]:

§ Lord Hunt of Wirral
moved 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 Wirral
moved 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" 1524 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 Wirral
moved 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 1526 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 Turville
moved 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 Kingsland
moved 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 Sharman
had 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 Kingsland
moved 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 1528 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.
1529 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.

§ 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 Wirral
moved 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 1531 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 Kingsland
moved 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.
1533 Clause 181 [Annual report of Commission]:
[Amendment No. 177A not moved]
Clause 181 agreed to.
Clause 182 [Commission rules of procedure]:

§ Lord Hunt of Wirral
moved 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.

§ Lord Kingsland
moved 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 1535 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 1536 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 Wirral
moved 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 1537 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 1538 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.

§ 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, 1539 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 1540 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 Sharman
moved 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 1541 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.

§ 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.
1543 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.
1544 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.