HL Deb 04 November 2002 vol 640 cc530-49

6.21 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, I beg to move that the Commons amendments and reasons be now considered.

Moved, That the Commons amendments and reasons be now considered.—(Lord Sainsbury of Turville.)

On Question, Motion agreed to.

COMMONS REASONS FOR DISAGREEING TO CERTAIN LORDS AMENDMENTS, COMMONS AMENDMENTS TO CERTAIN OTHER LORDS AMENDMENTS AND COMMONS AMENDMENTS IN LIEU OF LORDS AMENDMENTS AND MOTIONS TO BE MOVED ON CONSIDERATION OF COMMONS AMENDMENTS AND REASONS

[The page and line refer to HL Bill 92 as first printed for theLords.]

LORDS AMENDMENT

1 Clause 1, page 1, line 5, after "corporate" insert "with both a chairman and a chief executive"

The Commons disagreed to this amendment for the following reason—

1A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

1B Lord Sainsbury of Turville

My Lords, I beg to move that the House do not insist on their Amendments Nos. 1 and 176 to 186 to which the Commons have disagreed for the reason numbered 1A.

The amendments would provide for a statutory post of chief executive of the Office of Fair Trading. As originally drafted, the Bill provided for the OFT to consist of a chairman and no fewer than four other members, appointed by the Secretary of State, with the Secretary of State consulting the chairman before appointing any other member. That is a real depersonalisation of consumer and competition regulation. Instead of power being concentrated in the post of Director-General of Fair Trading, it will be vested in a statutory authority with at least five members, including the chairman. We expect the OFT to have a majority of non-executive members. That is an important change.

In our debates on whether the OFT should have a separate chief executive, noble Lords have referred to reports on corporate governance that advocate a separation of those roles. The combined code produced by the Hampel committee in 1998 is the most current of those reports. The code makes it clear from the outset that it is aimed at public listed companies. The OFT will not be a public listed company, nor will it be a commercial organisation. It will have no shareholders. There is no automatic read-across from the code to a public authority such as the OFT. We should not automatically assume that what is right for the private sector is right for all public authorities.

That said, the overriding principle of the code in relation to the roles of chairman and chief executive is to prevent a dominant individual from running a company unfettered by others. The code states: There should be a clear division of responsibilities at the head of the company which will ensure a balance of power and authority, such that no one individual has unfettered powers of decision". It goes on to say: Whether the posts of Chairman and Chief Executive are held by different people or the same person, there should be a strong and independent non-executive element on the Board, with a recognised senior member other than the chairman to whom concerns can be conveyed". By creating a statutory authority with a majority of non-executive members who will collectively be responsible for the OFT's performance, we are already ensuring that one person could not assume a dominant position at the OFT. Because members of the OFT will be appointed by the Secretary of State, following a fair and open competition, it will not be possible for the chairman to appoint a board in his own image that, he feels sure, will automatically support him at every turn. That is real de-personalisation. We envisage that one of the non-executive members of the OFT will be designated as a deputy chairman, to whom concerns can be conveyed and who will fulfil the role of a recognised senior member, as advocated by Hampel.

It is also important to remember that the chairman will be accountable for the OFT's performance to the Public Accounts Committee and the Trade and Industry Select Committee. There will be rigorous accountability and scrutiny of a kind through which public listed companies need not go. As a public body and government department, the OFT will be subject to public law considerations. For example, its decisions could be referred to the Parliamentary Commissioner for Administration—the ombudsman—and/or for judicial review. Companies are not subject to such restraints.

The OFT's particular circumstances have been critical to our decision not to separate the roles of chairman and chief executive at this time. The Secretary of State will appoint John Vickers as chairman of the OFT for the remainder of his term as Director-General of Fair Trading. That honours the commitment that the Government made to him when he was appointed to that post. John Vickers will work together with the other members of the OFT to lead the organisation.

Given John Vickers's position, and in order to provide for an important degree of continuity through this period of great change, the OFT should not separate the roles of chairman and chief executive at this time. However, I emphasise that that does not mean that the OFT will never be able to have a chief executive. If, at any time, the OFT wishes to create such a post, it can do so and select the appointee. The Bill leaves open that possibility. I shall repeat a commitment given by my honourable friend the Parliamentary Under-Secretary of State for Competition, Consumers and Markets in the other place on 30th October. My honourable friend said that she envisaged that the arrangements at the top of the OFT would be considered again when John Vickers retired in 2005, in order to establish whether they would still be appropriate after that time. So. we are making it clear that what is appropriate now for the OFT may not necessarily be appropriate in the future.

Your Lordships' amendments would create a post of chief executive appointed by the Secretary of State. In contrast, the approach that we propose would allow the OFT itself to appoint a separate chief executive in the future. That is consistent with the approach taken towards the OFT throughout the Bill and with the approach adopted for other regulators. The chief executive of Postcomm is appointed by the chairman. who is a Secretary of State appointment, and the chief executive of Ofcom will be appointed by the board. It would not be appropriate to create a statutory post of chief executive of the OFT in the Bill, for the reasons that I have given.

The House has now played its role of making the other place think again about the matter. On 30th October, it did just that and the elected Chamber did, of course, confirm its view. For all those reasons and in view of the reassurance given by my honourable friend the Minister for Competition, Consumers and Markets in the other place, which I am happy to repeat in this House this evening—she envisages that the arrangements at the top of the OFT will be considered upon John Vickers's retirement in 2005—I beg to move.

Moved, That the House do not insist on their Amendments Nos. 1 and 176 to 186 to which the Commons have disagreed for the reason numbered 1A.—(Lord Sainsbury of Turville.) MOTION MOVED ON CONSIDERATION OF COMMONS EASON NO.1A 1B Lord Hunt of Wirral rose to move, as an amendment to the Motion that the House do not insist on their Amendment No. 1 to which the Commons have disagreed for their reason Number. IA, leave out "not". The noble Lord said: My Lords, the Minister and his colleagues have underestimated the widespread concern that exists on the question of who regulates the regulators. I refer not just to the newly-created Office of Fair Trading, because I have received several representations from others affected by regulators, including David Green, the director of the Combined Heat and Power Association, in respect of Ofgem.

One way to meet that widespread concern would be to ensure that corporate bodies such as the OFT, created by the Bill, had a separate chairman and chief executive. As Melanie Johnson said in the other place last week, there are two separate roles: they should be carried out by two separate people. I beg to move.

Moved, as an amendment to the Motion that the House do not insist on their Amendment No. 1 to which the Commons have disagreed for their reason numbered 1A, leave out "not".—(Lord Hunt of Wirral. )

6.30 p.m.

Lord Borrie

My Lords, this House is often and very rightly concerned when Ministers take powers to themselves in a Bill that are more appropriate for Parliament—for example, the wide legislative powers in so-called Henry VIII clauses.

Your Lordships will recall that only last week there was a major controversy on that score on Second Reading of the Nationality, Immigration and Asylum Bill. This amendment—passed by your Lordships on Third Reading and disagreed with by the other place—does the opposite. It seeks to give Parliament power that is more appropriate to the executive, in terms of either the Government or the government agency concerned. The amendment passed in this House on Third Reading sought to compel Ministers to appoint two persons to head the Office of Fair Trading—one as chairman and the other as chief executive.

The Bill as originally drafted and to which the Government amendment proposes a return was more flexible in setting up the new corporate body, the Office of Fair Trading, to replace the original Fair Trading Act position of the Director-General of Fair Trading. The Bill as it originally stood meant that there would be a chairman and at least four other persons appointed by the Secretary of State. The Government said openly and in the advertisement for non-executive directors, which has been referred to many times, that they wanted to appoint the present Director-General of Fair Trading, John Vickers, as both chairman and chief executive for the remainder of his five-year term.

Thereafter, it would be possible—my noble friend the Minister repeated this today—to separate the two roles or not as thought best at the time, in 2005 or whenever. The amendment passed by this House wants an inflexible rule that the roles be separated embodied in legislation. That, to my mind, is Parliament engaging in unduly detailed and prescriptive legislation.

The emphasis placed by spokesmen for Her Majesty's Loyal Opposition on corporate governance for public listed companies was rather beside the point. In any case, as they did not admit in the course of debate, the rules such as they are—recommendations as they really are in the combined code for plcs—are not embodied in legislation. It is only a code of practice. Nobody can deny that several public limited companies considering their own circumstances—rightly or wrongly you may think—have combined the offices of chairman and chief executive or, increasingly, have separated them.

It is important that the board of the Office of Fair Trading and for that matter of all regulators should be adequately accountable for its work. The question of who regulates the regulators has been put in relation to this debate in both Houses and it is a perfectly valid question.

Who will regulate the Office of Fair Trading under the Bill? There is a very long list and I will not try to make a comprehensive one. It will be accountable in various ways and in various circumstances to the courts, the parliamentary ombudsman, through its annual plan and report to the Public Accounts Committee, and to Select Committees. There are references to and appeals to the Competition Commission and Competition Appeals Tribunal. For its budget, it is accountable to the Treasury. In the graphic phrase of Melanie Johnson, my honourable friend the Minister in another place, there are also the mad and bad provisions whereby the Secretary of State can dismiss members of the board for incapacity or misbehaviour.

There are, very properly, numerous ways in which the Office of Fair Trading and its board will be accountable under the Bill. The inflexible approach of Her Majesty's Opposition in desiring to insist and compel by law that there be two people, as it were, at the top of the Office of Fair Trading is prescription by legislation too far.

Lord Hodgson of Astley Abbotts

My Lords, I rise briefly to support my noble friend. This issue has been widely discussed and forked over at least twice before in this House, so I do not wish to go through the corporate governance arguments. Nor do I wish to go through the question of the separate roles of the chairman and chief executive—about which the noble Lord, Lord Marsh, made a powerful speech the last time we discussed it.

The Government's argument seems twofold. First, the argument that the Minister puts forward is that the Bill does not prohibit a separation of the two roles. It merely does not make a separation mandatory. When one creates a body as powerful as this, permitting the two roles to be held by one person, there has to be the danger that it becomes established practice. Furthermore, it is very unlikely that a person having taken up this role will want to give up half his particular task. Listening to the Minister today, it seems to me that we are really doing this to get the Government off the hook over a commitment made to John Vickers.

The second argument advanced by the noble Lord, Lord Borrie, is that there is no read-across between the plc sector and these types of regulatory bodies. The noble Lord has a good point. Read-across does not necessarily occur but can occur. I draw the Minister's attention to a recent report, Private Action, Public Benefit—a review of charities and the wider not-for-profit sector produced by the Strategy Unit in September.

Chapter 7 suggests the establishment of a new, more powerful Charity Commission to oversee that huge slice of British public life. Chapter 7.64 talks about governance and the dangers of a small board. Some of the arguments made earlier about the size of the board are addressed in a very direct way: A small board…has the advantage of manageability and ease of decision-making, but is open to the accusation that it is narrowly focused and that the interests of some groups of stakeholders arc not fully represented in discussions".

The real point is at paragraph 7.66: The Chief Commissioner is currently both Chair and Chief Executive of the Commission…With the…higher public profile that the Commission is to adopt, there is a strong case for introducing separate Chair and Chief Executive posts. The Chair's particular role would be in ensuring good corporate governance and the smooth functioning of the enlarged board, and in representing the Commission in public and at high level within Government and the charitable sector". I could not have put the argument better myself.

The Government, by sticking obstinately to their position, are flying in the face of good practice in the private sector. It is also clear from the Strategy Unit report produced by the Government that, when governing a non-statutory body, they believe that the roles should he split as part of the way forward. In those circumstances, I do not see how the Government can object to my noble friend's amendment.

Lord Razzall

My Lords, as the Minister will understand, I rise to indicate the complete agreement of noble Lords on these Benches with the amendment moved by the noble Lord, Lord Hunt. I have two small points to make. First, on Third Reading I raised the analogy of the BBC. I was not then persuaded by the Minister's response. I am sure that noble Lords recognise the outrage that would be expressed at any suggestion that Mr Greg Dyke should be both chairman and chief executive of the BBC.

The Minister's argument—namely, that the BBC is a trading entity with large commercial interests—is not the point: the BBC is clearly a public body. We believe that public bodies appropriately have both a chairman and a chief executive. Secondly, unlike his predecessor, the noble Lord, Lord Borrie, it appears from an article in yesterday's Sunday Telegraph that Mr John Vickers agrees with us.

Lord Sainsbury of Turville

My Lords, before the noble Lord sits down, perhaps I may correct him on his latter point. I believe that John Vickers was wrongly reported in the Sunday Telegraph. His view is that what goes into this Bill is a matter for Parliament. He rightly, therefore, does not wish his own views to he brought into the debate. I can assure the House that the Government appointed John Vickers as head of the OFT as executive chairman for a period of five years. That is the post that John Vickers accepted, and that is the position that he hopes to continue to carry out. His views were not correctly reported.

Lord Hunt of Wirral

My Lords, this has been a useful debate, but it has taken place over well-trodden ground. I wish to press my amendment.

The Deputy Speaker

My Lords, the original Question was that this House do not insist on their Amendment No. 1 to which the Commons have disagreed for their reason numbered 1 A, since when an amendment has been moved to leave out "not". The question is that this amendment be agreed to.

6.41 p.m.

On Question, Whether the said amendment (No. 1 B) shall be agreed to?

Their Lordships divided: Contents, 148; Not-Contents, 136.

Division No. 5
CONTENTS
Addington, L. Chalker of Wallasey, B.
Alderdice, L. Chester, Bp.
Allenby of Megiddo, V. Colwyn, L.
Alton of Liverpool, L. Cope of Berkeley, L. [Teller]
Anelay of St Johns, B. Craig of Radley, L.
Arm, E. Craigavon, V.
Astor, V. Deedes, L.
Astor of Hever, L. Denham, L.
Attlee, E. Dholakia, L.
Avebury, L. Dixon-Smith, L.
Barker, B. Elles, B.
Beaumont of Whitley, L. Elliott of Morpeth, L.
Biffen, L. Elton, L.
Blatch, B. Feam, L.
Boardman, L. Ferrers, E.
Bowness, L. Fookes, B.
Brabazon of Tara, L. Freeman, L.
Bradshaw, L. Gardner of Parkes, B.
Bridgeman, V. Glentoran, L.
Brittan of Spennithome, L. Goodhart, L.
Brooke of Sutton Mandeville, L. Goschen, V.
Brougham and Vaux, L. Greaves, L.
Burnham, L. Greenway, L.
Buscombe, B. Hamwee, B.
Byford, B. Harris of Richmond, B.
Carnegy of Lour, B. Henley, L.
Chalfont, L. Higgins, L.
Hodgson of Astley Abbotts, L. Perry of Southwark, B.
Hooson, L. Perry of Walton, L.
Howe, E. Phillips of Sudbury, L.
Howe of Aberavon, L. Pilkington of Oxenford, L.
Howe of Idlicote, B. Plumb, L.
Hunt of Wirral, L. Prior, L.
Jacobs, L. Rawlings, B.
Jenkin of Roding, L. Rawlinson of Ewell, L.
Jopling, L. Razzall, L.
Kimball, L. Reay, L.
Kingsland, L. Redesdale, L.
Laing of Dunphail, L. Rennard, L.
Lang of Monkton, L. Renton, L.
Lester of Herne Hill, L. Roberts of Conwy, L.
Lindsay, E. Rodgers of Quarry Bank, L.
Liverpool, E. Roper, L.
Livsey of Talgarth, L. Rotherwick, L.
Luke, L. Russell, E.
Lyell, L. Russell-Johnston, L.
MacGregor of Pulham Market, L. Saatchi, L.
St John of Fawsley, L.
Mackie of Benshie, L. Scott of Needham Market, B.
McNally, L. Seccombe, B. [Teller]
Maddock, B. Selborne, E.
Mancroft, L. Selsdon, L.
Mar, C. Sharman, L.
Mar and Kellie, E. Sharp of Guildford, B.
Marlesford, L. Sharples, B.
Mayhew of Twysden, L. Shaw of Northstead, L.
Michie of Gallanach, B. Shutt of Greetland, L.
Monro of Langholm, L. Smith of Clifton, L.
Monson, L. Stewartby, L.
Montagu of Beaulieu, L. Swinfen, L.
Mowbray and Stourton, L. Thatcher, B.
Moynihan, L. Thomas of Gresford, L.
Murton of Lindisfame, L. Thomas of Walliswood, B.
Naseby, L. Thomson of Monifieth, L.
Newby, L. Trefgame, L.
Newton of Braintree, L. Trumpington, B.
Noakes, B. Vinson, L.
Northbrook, L. Waddington, L.
Northover, B. Wakeham, L.
O'Cathain, B. Wallace of Saltaire, L.
Oakeshott of Seagrove Bay, L. Walmsley, B.
Onslow, E. Watson of Richmond, L.
Park of Monmouth, B. Wilcox, B.
Peel, E. Williams of Crosby, B.
Willoughby de Broke, L.
NOT-CONTENTS
Acton, L. Clark of Windermere, L.
Ahmed, L. Clarke of Hampstead, L.
Alli, L. Clinton-Davis, L.
Amos, B. Cohen of Pimlico, B.
Andrews, B. Corbett of Castle Vale, L.
Archer of Sandwell, L. Crawley, B.
Ashton of Upholland, B. Darcy de Knayth, B.
Bach, L. David, B.
Bassam of Brighton, L. Davies of Coity, L.
Berkeley, L. Davies of Oldham, L.
Bernstein of Craigweil, L. Desai, L.
Billingham, B. Dixon, L.
Boothroyd, B. Donoughue, L.
Borrie, L. Dormand of Easington, L.
Bragg, L. Dubs, L.
Brennan, L. Eatwell, L.
Brett, L. Elder, L.
Brooke of Alverthorpe, L. Evans of Parkside, L.
Brookman, L. Evans of Temple Guiting, L.
Burlison, L. Evans of Watford, L.
Burns, L. Farrington of Ribbleton, B.
Campbell-Savours, L. Faulkner of Worcester, L.
Carter, L. Filkin, L.
Chandos, V. Gale, B.
Christopher, L. Gavron, L.
Gibson of Market Rasen, B. Milner of Leeds, L.
Goldsmith, L. Mitchell, L.
Gordon of Strathblane, L. Morgan, L.
Goudie, B. Morgan of Huyton, B.
Gould of Potternewton, B. Morris of Aberavon, L.
Graham of Edmonton, L. Moser, L.
Grenfell, L. O'Neill of Bengarve, B.
Grocott, L. [Teller] Orme, L.
Hannay of Chiswick, L. Patel of Blackburn, L.
Hardy of Wath, L. Pendry, L.
Harris of Haringey, L. Pitkeathley, B.
Harrison, L. Prys-Davies, L.
Haskel, L. Puttnam, L.
Hayman, B. Ramsay of Cartvale, B.
Hilton of Eggardon, B. Rendell of Babergh, B.
Hogg of Cumbemauld, L. Richard, L.
Hollis of Heigham, B. Sainsbury of Turville, L.
Howells of St. Davids, B. St. John of Bletso, L.
Howie of Troon, L. Sawyer, L.
Hoyle, L. Scotland of Asthal, B.
Hughes of Woodside, L. Sheldon, L.
Hunt of Kings Heath, L. Simon, V.
Irvine of Lairg, L. (Lord Chancellor) Smith of Leigh, L.
Stoddart of Swindon, L.
Islwyn, L. Stone of Blackheath, L.
Janner of Braunstone, L. Symons of Vernham Dean, B.
Jay of Paddington, B. Taylor of Blackburn, L.
Jones, L. Temple-Morris, L.
Jordan, L. Thornton, B.
Judd, L. Tomlinson, L.
King of West Bromwich, L. Turnberg, L.
Kirkhill, L. Turner of Camden, B.
Layard, L. Varley, L.
Lea of Crondall, L. Walker of Doncaster, L.
Lofthouse of Pontefract, L. Warner, L.
Macdonald of Tradeston, L. Warwick of Undercliffe, B.
McIntosh of Haringey, L. [Teller] Weatherill, L.
Wedderburn of Charlton, L.
MacKenzie of Culkein, L. Whitaker, B.
Mackenzie of Framwellgate, L. Whitty, L.
Mallalieu, B. Wilkins, B.
Masham of Ilton, B. Williams of Elvel, L.
Massey of Darwen, B. Williams of Mostyn, L. (Lord Privy Seal)
Merlyn-Rees, L. Woolmer of Leeds, L.

Resolved in the affirmative, and amendment agreed to accordingly.

6.52 p.m.

LORDS AMENDMENT

2 Page 1, line 8, at end insert— (4) In managing its affairs the OFT must have regard to the generally accepted principles of good corporate governance.

The Commons agreed to this amendment with the following amendment—

2A Line 2, leave out from "OFT" to end of line 3 and insert "shall have regard—

to such general guidance concerning the management of the affairs of public bodies as the OFT considers appropriate;

subject to any such guidance and only to the extent that they may reasonably be regarded as applicable in relation to a statutory corporation, to generally accepted principles of good corporate governance."

Lord Sainsbury of Turville

My Lords, I beg to move that the House do not insist on their Amendment No. 2, but do instead agree with the Commons in their Amendment No. 2A.

Amendment No. 2A accepts the principle of the Lords amendment, that the OFT should have regard to the generally accepted principles of good corporate governance in its affairs. However, the Commons amendment makes two important changes. First, it ensures that the OFT should have an overriding regard for general guidance concerning the management of the affairs of public bodies. Secondly, it ensures that the OFT will have regard only to the principles of good corporate governance which may be reasonably regarded as being applicable to it. Perhaps I may deal with each of these.

Your Lordships' amendment would not allow the OFT to take prior account of guidance specifically aimed at public bodies. I am not surprised that the Conservatives are unable to understand this distinction, but I find it amazing that the Liberal Democrats should be unable to understand that a public body should take account of public concerns. The OFT will not be a company, and it cannot be right that principles aimed at such companies should take precedence for the OFT over guidance, rules and procedures for public bodies; for example, Treasury rules on public accounting. Additionally, the management of the government department of the OFT will be subject to public law considerations; for example, its decisions could be referred to the Parliamentary Commissioner for Administration—the Ombudsman—and/or for judicial review. Companies are not subject to those restraints.

Secondly, many of the principles of good corporate governance are aimed at business practices which do not have obvious equivalents in government. The OFT will he a non-ministerial government department—a public body—not a company or commercial organisation. Perhaps I may give some examples to illustrate how corporate governance principles do not necessarily relate to public bodies.

The code contains a section devoted to relations with shareholders covering the dialogue between the company and institutional shareholders, the use of annual general meetings and the counting of votes at such meetings. The OFT has no shareholders and so the section is irrelevant to it.

The code also recommends that all directors should be subject to election by shareholders at the first opportunity after their appointment and to re-election thereafter at intervals of no more than three years. Again, I make the point that OFT has no shareholders. Non-executive appointments to the OFT will be for specified terms of no more than five years under the Bill and will be made following Nolan procedures. Under these procedures, reappointment is a matter for Ministers following an assessment of the performance of the non-executive and second reappointments are not normally permitted.

So a quite different system of checks is in place for appointments to the OFT than would apply for a listed company. Another section of the code is concerned with directors' remuneration; both the policy of performance-related pay and the mechanics of remuneration committees. Again, the practice in public bodies is subject to different checks. The salaries of non-executive members of the OFT will be determined by the Secretary of State, while any civil servants serving as executive members of the OFT will have the salary determined in the usual way for OFT civil servants.

I believe that Commons Amendment No. 2A reflects the will of this House that the OFT should have regard to the principles of good corporate governance, but achieves this in a way which is fully appropriate to the OFT as a public body. To revert to your Lordships' amendment would be to impose a set of principles on the OFT which are not entirely relevant to a public body and which do not recognise the existence of other guidance and procedures directed at public authorities. I do not think that would be right. I beg to move.

Moved, That the House do not insist on their Amendment No. 2, but do instead agree with the Commons in their Amendment No. 2A.—(Lord Sainsbury of Turville.)

LORDS AMENDMENT 2 Page 1, line 8, at end insert— (4) In managing its affairs the OFT must have regard to the generally accepted principles of good corporate governance. 2B Lord Hunt of Wirral rose to move, as an amendment to the Motion that the House do agree with the Commons in their Amendment 2A, leave out from "House" to the end and insert "do disagree with the Commons in their Amendment 2A, and do insist on Lords Amendment 2". The noble Lord said: My Lords, in moving Amendment No. 2B I point out to the Minister that the amendment originally agreed to in this House was taken directly from the Government's own words in the Financial Services and Markets Act. The Government's amendment asked the Financial Services Authority to have, regard to the generally accepted principles of good corporate governance". That is a direct read-across to this position. I beg to move.

Moved, as an amendment to the Motion that the House do agree with the Commons in their Amendment No. 2A, leave out from "House" to the end and insert "do disagree with the Commons in their Amendment No. 2A, and do insist on Lords Amendment No. 2".—(Lord Hunt of Wirral.)

Lord Sharman

My Lords, I strongly support the amendment moved by the noble Lord, Lord Hunt. I was present for the majority of the debate on this issue at the time the Financial Services and Markets Bill was before your Lordships' House. The amendment previously accepted here says "have regard to". That is not the same as "must adhere to". To have regard to is to take into account. It was evident to me from the time I looked at audit and accountability in central government that elements of generally accepted corporate governance do indeed read across.

6.59 p.m

On Question, Whether the said amendment (No. 2B) shall be agreed to?

Their Lordships divided: Contents, 147; Not-Contents, 129.

Division No.6
CONTENTS
Addington, L. Kingsland, L.
Alderdice, L. Laing of Dunphail, L.
Allenby of Megiddo, V. Lindsay, E.
Alton of Liverpool, L. Liverpool, E.
Anelay of St Johns, B. Livsey of Talgarth, L.
Arran, E. Luke, L.
Astor, V. Lyell, L.
Astor of Hever, L. MacGregor of Pulham Market, L.
Attlee, E.
Avebury, L. Mackie of Benshie, L.
Barker, B. McNally, L.
Beaumont of Whitley, L. Maddock, B.
Blatch, B. Mancroft, L.
Boardman, L. Mar, C.
Bowness, L. Mar and Kellie, E.
Brabazon of Tara, L. Marlesford, L.
Bradshaw, L. Mayhew of Twysden, L.
Bridgeman, V. Michie of Gallanach, B.
Brittan of Spennithome, L. Monro of Langholm, L.
Brooke of Sutton Mandeville, L. Monson, L.
Brougham and Vaux, L. Montagu of Beaulieu, L.
Burnham, L. Mowbray and Stourton, L.
Burns, L. Moynihan, L.
Buscombe, B. Murton of Lindisfarne, L.
Byford, B. Naseby, L.
Carnegy of Lour, B. Newby, L.
Chalfont, L. Newton of Braintree, L.
Chalker of Wallasey, B. Noakes, B.
Colwyn, L. Northbrook, L.
Cope of Berkeley, L. [Teller] Northover, B.
Courtown, E. O'Cathain, B.
Craig of Radley, L. Oakeshott of Seagrove Bay, L.
Craigavon, V. Onslow, E.
Deedes, L. Park of Monmouth, B.
Dholakia, L. Peel, E.
Dixon-Smith, L. Perry of Southwark, B.
Elles, B. Perry of Walton, L.
Elliott of Morpeth, L. Phillips of Sudbury, L.
Elton, L. Pilkington of Oxenford, L.
Feam, L. Plumb, L.
Ferrers, E. Prior, L.
Fookes, B. Rawlings, B.
Freeman, L. Rawlinson of Ewell, L.
Gardner of Parkes, B. Razzall, L.
Glentoran, L. Reay, L.
Goodhart, L. Redesdale, L.
Goschen, V. Rennard, L.
Greaves, L. Renton, L.
Greenway, L. Roberts of Convey, L.
Hamwee, B. Rodgers of Quarry Bank, L.
Harris of Richmond, B. Roper, L.
Henley, L. Rotherwick, L.
Higgins, L. Russell, E.
Hodgson of Astley Abbotts, L. Russell-Johnston, L.
Hooson, L. Saatchi, L.
Howe, E. St John of Fawsley, L.
Howe of Aberavon, L. Scott of Needham Market, B.
Howe of Idlicote, B. Seccombe, B. [Teller]
Hunt of Wirral, L. Selborne, E.
Jacobs, L. Selsdon, L.
Jenkin of Roding L. Sharman, L.
Jopling, L. Sharp of Guildford, B.
Kimball, L. Sharples, B.
Shaw of Northstead, L. Trumpington, B.
Shutt of Greetland, L. Vinson, L.
Smith of Clifton, L. Waddington, L.
Stewartby, L. Wakeham, L.
Swinfen, L. Wallace of Saltaire, L.
Taylor of Warwick, L. Walmsley, B.
Thomas of Gresford, L. Watson of Richmond, L.
Thomas of Swynnerton, L. Wilcox, B.
Thomas of Walliswood, B. Williams of Crosby, B.
Thomson of Monifieth, L. Williamson of Horton, L.
Trefgarne, L. Willoughby de Broke, L.
NOT-CONTENTS
Acton, L. Haskel, L.
Ahmed, L. Hayman, B.
Alli, L. Hilton of Eggardon, B.
Amos, B. Hogg of Cumbemauld, L.
Andrews, B. Hollis of Heigham, B.
Archer of Sandwell, L. Howells of St. Davids, B.
Ashton of Upholland, B. Howie of Troon, L.
Bach, L. Hoyle, L.
Bassam of Brighton, L. Hughes of Woodside, L.
Berkeley, L. Hunt of Kings Heath, L.
Bernstein of Craigweil, L. Irvine of Lairg, L. (Lord Chancellor)
Billingham, B.
Boothroyd, B. Islwyn, L.
Borrie, L. Janner of Braunstone, L.
Bragg, L. Jay of Paddington, B.
Brennan, L. Jones, L.
Brett, L. Jordan, L.
Brooke of Alverthorpe, L. Judd, L.
Brookman, L. King of West Bromwich, L.
Brooks of Tremorfa, L. Kirkhill, L.
Burlison, L. Layard, L.
Campbell-Savours, L. Lea of Crondall, L.
Carter, L. Lofthouse of Pontefract, L.
Chandos, V. Macdonald of Tradeston, L.
Chester, Bp. McIntosh of Haringey, L.[Teller]
Christopher, L.
Clark of Windermere, L. MacKenzie of Culkein, L.
Clarke of Hampstead, L. Mackenzie of Framwellgate, L.
Clinton-Davis, L. Mallalieu, B.
Cohen of Pimlico, B. Masham of Eton, B.
Corbett of Castle Vale, L. Massey of Darwen, B.
Crawley, B. Milner of Leeds, L.
Darcy de Knayth, B. Mitchell, L.
David, B. Morgan, L.
Davies of Coity, L. Morgan of Huyton, B.
Davies of Oldham, L. Morris of Aberavon, L.
Desai, L. Moser, L.
Dixon, L. O'Neill of Bengarve, B.
Donoughue, L. Orme, L.
Dormand of Easington, L. Patel of Blackburn, L.
Dubs, L. Pendry, L.
Eatwell, L. Pitkeathley, B.
Elder, L. Prys-Davies, L.
Evans of Parkside, L. Ramsay of Cartvale, B.
Evans of Watford, L. Rendell of Babergh, B.
Farrington of Ribbleton, B. Richard, L.
Faulkner of Worcester, L. Sainsbury of Turville, L.
Filkin, L. Sawyer, L.
Gale, B. Scotland of Asthal, B.
Gavron, L. Simon, V.
Gibson of Market Rasen, B. Smith of Leigh, L.
Goldsmith, L. Stoddart of Swindon, L.
Gordon of Strathblane, L. Stone of Blackheath, L.
Goudie, B. Strange, B.
Gould of Potternewton, B. Symons of Vemham Dean, B.
Graham of Edmonton, L. Taylor of Blackburn, L.
Grenfell, L. Temple-Morris, L.
Grocott, L. [Teller] Thornton, B.
Hannay of Chiswick, L. Tomlinson, L.
Hardy of Wath, L. Turnberg, L.
Harris of Haringey, L. Turner of Camden, B.
Harrison, L. Varley, L.
Walker of Doncaster, L. Williams of Elvel, L.
Warwick of Undercliffe, B. Williams of Mostyn, L. (Lord Privy Seal)
Whitaker, B.
Whitty, L. Woolmer of Leeds, L.

Resolved in the affirmative, and amendment agreed to accordingly.

7.9 p.m.

LORDS AMENDMENT

After Clause 16, insert the following new clause—

7 "Tribunal: regulations

(1) The Lord Chancellor and the Secretary of State may together make regulations—

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

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

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

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

enabling courts that have made, or have in contemplation the making of, such transfers and the Tribunal to cooperate together in any way that they deem to be appropriate to enable issues arising in the proceedings before then to be determined as efficiently as possible.

(2) The Lord Chancellor may appoint as president and as chairman of the Tribunal judges of any of the courts provided that, before appointing a judge of the Court of Session or sheriff courts under this subsection, the Lord Chancellor shall first consult the Lord President of the Court of Session.

(3) In this section references to "the courts" are to the High Court of Justice and the county courts in England and Wales and Northern Ireland and the Court of Session and the sheriff courts in Scotland.

(4) The power to make regulations under this section is exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament."

The Commons disagreed to this amendment but proposed the following amendment in lieu thereof—

7A "After Clause 15

Transfers of certain proceedings to Tribunal

The Lord Chancellor may by regulations—

make provision enabling the court—

to transfer to the Tribunal for its determination so much of any proceedings before the court as relates to an infringement issue; and

to give effect to the determination of that issue by the Tribunal; and

make such incidental, supplementary, consequential, transitional or saving provision as the Lord Chancellor may consider appropriate.

(2) The power to make regulations under subsection (1) is exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.

(3) Rules of court may prescribe the procedure to be followed in connection with a transfer mentioned in subsection (1).

(4) The court may transfer to the Tribunal, in accordance with rules of court, so much of any proceedings before it as relates to a claim to which section 47A of the 1998 Act applies.

(5) Rules of court may make provision in connection with the transfer from the Tribunal to the High Court or the Court of Session of a claim made in proceedings under section 47A of the 1998 Act.

(6) In this section—"the court" means—

  1. (a) the High Court or a county court; or
  2. (b) the Court of Session or a sheriff court; and"infringement issue" means any question relating to whether or not an infringement of—
  1. (a) the Chapter I prohibition or the Chapter II prohibition; or
  2. (b) Article 81 or 82 of the Treaty,has been or is being committed;but otherwise any terms used in this section and Part 1 of the 1998 Act have the same meaning as they have in that Part."

Lord Sainsbury of Turville

My Lords, I beg to move that the House do not insist on their Amendments Nos. 7 and 209 to which the Commons have disagreed but do agree with the Commons in their Amendments Nos. 7A and 209A.

Amendment No. 7 would give the Secretary of State and the Lord Chancellor a power to make regulations allowing the courts to transfer to the Competition Appeal Tribunal issues arising in civil proceedings that require a determination of whether there has been an infringement of competition law. This House debated the merits of providing a specific power in the Bill in Committee, on Report and again at Third Reading. My noble friend Lord McIntosh and I expressed the view that such a power was unnecessary and that the courts should and would be capable of building up the necessary expertise to determine competition law matters arising in civil proceedings.

However, we recognised the strong views expressed on the matter by noble Lords and by others in the competition law community that an explicit power should be provided in the Bill to allow regulations to be made allowing the courts to transfer competition law matters to the CAT.

On reflection, we now agree that an amendment along the lines of Amendment No. 7 would represent prudent future proofing and should be made. If the proponents of the amendment are right and the courts are now not able to handle competition issues efficiently and effectively, then specific powers will be there to allow matters to be transferred. If the Government are right, the powers need never be used.

There are, however, some technical shortcomings with Amendment No. 7 as currently drafted. That is why we propose to replace it with Amendments Nos. 7A and 209A in lieu of Lords amendments. Perhaps I may highlight the main changes.

First, the redraft provides that the Lord Chancellor alone would exercise the power to make regulations rather than jointly with the Secretary of State. There is no particular significance to this change. It is simply more appropriate for the Lord Chancellor to have sole responsibility for this kind of matter in what is a reserved area. Secondly, the amendment in lieu refers not only to the regulation-making power, but also makes it clear that rules of court may be made in connection with a transfer. Thirdly, the amendment removes the power for the Lord Chancellor to appoint judges directly to the key positions on the CAT. I believe that it was widely accepted that this power was not needed. The power exists already in other legislation and is therefore unnecessary. To reinstate it here would cut across the policy of the Lord Chancellor's Department—a policy which is widely supported—that all appointments to tribunals should be by way of open competition.

Finally, the second amendment in lieu, Amendment No. 209A, makes a corresponding adjustment to the scope of the tribunal rules so that it may make provisions in connection with the transfer of proceedings from a court. Amendment No. 209, which was a government amendment, is superseded by the amendments in lieu. I believe that these amendments in lieu improve on the original amendment. That was certainly the view when they were debated in another place. I commend them to the House.

Moved, That the House do not insist on their Amendment No. 7 to which the Commons have disagreed and do agree with the Commons in their Amendment No. 7A in lieu thereof.—(Lord Sainsbury of Turville.)

Lord Kingsland

My Lords, I am most grateful to the Minister for explaining the amendment in lieu. I accept entirely that, in some respects, it is an improvement on our own. In any case, it appears to me to reflect the intention of Lords Amendment No. 7. In those circumstances, for our part we are extremely happy to accept the noble Lord's proposal.

Lord Borrie

My Lords, I congratulate the Government on proposing in the other place an amendment to replace the one passed at Third Reading in this House on the initiative of the Opposition parties.

At Third Reading, I expressed the belief that there was merit in the Opposition amendment enabling High Court judges to transfer cases to the Competition Appeal Tribunal when the greater expertise of that body in competition law suggested that such transfer would be sensible.

No one expressed a desire at Third Reading, nor has anyone done so now, to compel such transfer, or even to compel the Government to introduce regulations to make such transfer possible. However, the Government clearly recognise that such power could be valuable, especially when—as the Liberal Democrats pointed out—following implementation of the so-called modernisation project that is likely in 2004, more civil cases will come from the European jurisdiction to the UK jurisdiction.

Government Amendment No. 7A is an improvement on the one passed by this House, in part because it leaves out the unnecessary power regarding the appointment of judges.

Lord Bradshaw

My Lords, we on these Benches are content with the amendment in lieu. We are grateful to the Minister for explaining the differences between the two. We support the government amendment.

On Question, Motion agreed to.

LORDS AMENDMENT

20 Clause 22, page 12, line 4, leave out "£45 million" and insert "£100 million"

The Commons agreed to this amendment with the following amendment—

20A Line 1, leave out "£100 million" and insert "£70 million"

Lord Sainsbury of Turville

My Lords, I beg to move that the House do not insist on their Amendment No. 20 but do agree with the Commons in their Amendment No. 20A.

Amendment No. 20A replaces the £100 million turnover threshold for mergers with a figure of £70 million. This amends the change made in this House which replaced the Bill's original threshold of £45 million with a figure of £100 million.

The turnover threshold is one of two jurisdictional tests which make a merger eligible for investigation by the Office of Fair Trading. The other is where a merger would create or enhance the 25 per cent share of supply.

It is important to emphasise at the outset that these are eligibility thresholds only. If a merger involves the acquisition of a business with a UK turnover above the relevant threshold, the OFT is entitled to inquire into it. It does not mean that the merger will be referred or blocked. It simply means that the OFT can consider whether the merger raises sufficient competition concerns to justify a reference.

The great majority of qualifying mergers are not subject to any further action by the competition authorities, but it is important that they can be assessed. The purpose of the threshold is to strike a balance between excessive and necessary regulation. It should ensure that mergers of real concern are capable of examination while avoiding interference with cases of no material competition concern. Getting the levels right is necessarily a matter of judgment. The turnover threshold replaces the existing assets threshold. There is wide support for that. Turnover is generally a more reliable indicator of the economic significance of a merger.

We have said all along that our goal in setting the level of the new threshold is to bring within the scope of the merger regime broadly the same number of companies as would currently qualify under the assets test were they to be involved in a merger. Our research indicated that a level of £45 million would have a neutral effect in this regard. However, we acknowledge that this is not an exact science and that the CBI has come up with different figures.

It is very difficult to achieve a direct comparison between a world-wide assets threshold and a UK turnover threshold. We are not comparing like with like. We also do not know whether companies that will be brought within the scope of the merger regime on the basis of turnover have a greater or lesser propensity to engage in merger activity than those caught by the assets threshold. This could affect the number of mergers that the OFT will be able to look at. We are conscious, too, that the assets threshold of £70 million has not been adjusted since 1994. Although we had no plans to do so, a review of that figure might have been appropriate before long.

We recognise that it would be unfortunate if the new regime unintentionally caught too many cases. In the light of these considerations and the arguments that have been made for a higher figure in this House and elsewhere, we now believe that it would be appropriate to set the turnover figure at £70 million. We believe that this would have a tangible deregulatory effect.

On the basis of the same database, moving to a £70 million threshold would result in a 31.5 per cent reduction in the number of companies that would meet the turnover test. We believe, none the less, that this is unlikely to undermine the pro-competition nature of the Bill to a significant degree.

The Bill, of course, provides powers for the Government to adjust the figure up or down if we have got it wrong. Clause 27(5) requires the OFT to keep the sum under review and to advise the Secretary of State from time to time whether the sum is still appropriate. If experience shows that a significant number of harmful anti-competitive mergers are escaping scrutiny altogether, the Government will have to reduce the threshold to an appropriate level. Conversely, the threshold could be raised if too many harmless mergers were brought within the scope of the regime. We shall need to keep the matter under review and to learn from experience.

I hope that the amendment to the Lords amendment will be acceptable. I commend it to the House.

Moved, That the House do not insist on their Amendment No. 20 but do agree with the Commons in their Amendment No. 20A.—(Lord Sainsbury of Turville.)

On Question, Motion agreed to.

LORDS AMENDMENTS

176 Clause 22, page 191, line 5, after "chairman," insert "a chief executive,"

The Commons disagreed to this amendment for the following reason—

176A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

177 page 191, line 7, after "chairman" insert "and the chief executive"

The Commons disagreed to this amendment for the following reason—

177A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

178 Page 191, line 10, after "chairman" insert ", the chief executive,"

The Commons disagreed to this amendment for the following reason—

178A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

179 Page 191, line 12, after "chairman" insert ", the chief executive"

The Commons disagreed to this amendment for the following reason—

179A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

180 Page 191, line 14, after "chairman" insert ", chief executive,"

The Commons disagreed to this amendment for the following reason—

180A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

181 Page 191, line 16, after "chairman" insert ", chief executive"

The Commons disagreed to this amendment for the following reason—

181A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

182 Page 191, line 21, after "chairman" insert ". chief executive"

The Commons disagreed to this amendment for the following reason—

182A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading

183 Page 191, line 22, leave out "either" and insert "any"

The Commons disagreed to this amendment for the following reason—

183A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

184 Page 191, line 23, after "chairman" insert ", chief executive"

The Commons disagreed to this amendment for the following reason—

184A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

185 Page 191, line 29, after "chairman" insert ", chief executive,"

The Commons disagreed to this amendment for the following reason—

185A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

186 Page 191, line 33, after "chairman" insert ", chief executive"

The Commons disagreed to this amendment for the following reason—

186A Because it is inappropriate to make express provision about the chief executive of the Office of Fair Trading.

Lord Sainsbury of Turville

My Lords, I beg to move that the House do not insist on their Amendments Nos. 176 to 186 to which the Commons have disagreed for their reasons numbered 176A to 186A.

Moved, That the House do not insist on their Amendments Nos. 176 to 186 to which the Commons have disagreed for their reasons numbered 176A to 186A.—(Lord Sainsbury of Turville.)

Lord Hunt of Wirral

rose to move, as an amendment to the Motion that the House do not insist on their Amendments Nos. 176 to 186 to which the Commons have disagreed for their reasons numbered 176A to 186A, leave out "not".

Moved, That the House do not insist on their Amendments Nos. 176 to 186 to which the Commons have disagreed for their reasons numbered 176A to 186A, leave out "not".—(Lord Hunt of Wirral.)

On Question, amendment agreed to.

Motion, as amended, agreed to.

LORDS AMENDMENT

209 Schedule 4, page 205, line 1, leave out from "provision" to ", in" in line 2 and insert "in connection with the transfer of a claim to which section 47A of the 1998 Act applies"

The Commons disagreed to this amendment, but propose the following amendment in lieu thereof—

209A Page 205, line I. leave out paragraph 25 and inser—

"25 Tribunal rules may make provision in connection with the transfer of any proceedings from a court mentioned in paragraph 24 to the Tribunal under section (Transfers of certain proceedings to Tribunal)."
Lord Sainsbury of Turville

My Lords, I beg to move that the House do not insist on their Amendment No. 209 to which the Commons in their Amendment No. 209A in lieu thereof.

Moved, That the House do not insist on their Amendment No. 209 to which the Commons have disagreed but do agree with the Commons in their Amendment No. 209A in lieu thereof.—(Lord Sainsbury of Turville.)

On Question, Motion agreed to.