Enterprise Bill

Public Bill Committee, 25 April 2002.

Standing Committee B

Clause 20 - Duty to make references in relation to completed mergers

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 63, in page 10, line 30, leave out 'shall' and insert 'may at its discretion'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to discuss amendment No. 33, in page 10, line 30, after '(3)', insert 'have a discretion to' and amendment No. 64, in page 19, line 11, leave out 'shall' and insert 'may at its discretion'.

Nigel Waterson (Conservative, Eastbourne)

We now take a spectacular backwards leap to clause 20 and, as the excitement mounts, move to mergers. We have a fair bit to say on the groups of amendments, and the clause could be heavily amended. It is one of the most important clauses, and many of the points raised in the amendments are later repeated. Therefore, if progress appears to be slow, it is in a good cause, and will save time later in the clause. I should also like to put down a marker—subject to your total discretion, Mr. Beard—that the clause merits a substantial stand part debate, after its amendments, which raise narrow issues, have been debated. The clause is key.

We have three amendments in the group; amendment No. 64 is an amendment to clause 31, but it echoes issues that arise in clause 10. They would give the Office of Fair Trading the discretion, rather than the obligation, to make a reference to the Competition Commission in relation to both completed and anticipated mergers, the provisions for which mirror one another.

There is no politics in the clause. The proposals have been widely consulted on, trailed and discussed. It is fair to say that the principles involved in changes to the mergers and competition regime are broadly supported by the whole gamut of organisations, and by Opposition Members. Points of detail about how the changes will work in practice have been raised by people such as the CBI, and it is our duty to bring them to the attention of the Committee and the Government. There should be more light than heat—famous last words, perhaps—on this part of the Bill.

Under the Fair Trading Act 1973, the Secretary of State has a discretion, acting on the advice of the Director General of Fair Trading, over whether to refer mergers. There is a general acceptance that the tripartite structure has been creaking in recent years and that it needs re-examining. Clause 20 proposes the requirement that a reference is to be made in the cases of completed and proposed mergers, except in certain circumstances, which we will debate later.

The balance will shift from a discretion to an obligation on the OFT to consider mergers. We, and the business organisations, say that that will lead, in effect, to obligatory pre-clearance for mergers. At the moment, it is a useful and helpful procedure for mergers to be pre-cleared because it saves much cost and anguish later, but it is at the discretion of the parties. We are puzzled as to the reason for the shift. The amendment is probing because we are keen to hear why the Government want to shift the balance.

This provision is all the more strange when contrasted with market investigations under clause 123, where a discretion is conferred. We think that, if clause 20 goes through unamended, it will impose extra burdens on industry and that companies will be much less willing to take a chance on a merger. They will, from an abundance of caution—to use a lawyer's phrase—refer mergers for pre-clearance as a matter of routine. That will have two effects. One, as I have said, will be the burdens placed on industry and the other will be the extra burdens on the OFT.

Although the OFT will be geared up in terms of resources and staffing, it will suddenly get a great tranche of exciting new powers, duties and, as we debated at some length, ''functions''; that seems to be some kind of interim expression. If it suddenly finds that every single anticipated or actual merger is crossing its desk as a matter of practice, I wonder whether it will be able to cope.

The amendments are designed to probe the thinking behind a significant move from the current situation. We think that that move will bring extra burdens to business and to the OFT. We would like the Under-Secretary to explain the reasoning behind it, which, for all we know, might be eminently sensible and well thought through.

Vincent Cable (Liberal Democrat, Twickenham)

I would like to say a few words about the amendment, to which I attached my name. Like the hon. Member for Eastbourne (Mr. Waterson), I was simply curious about why that language had been used. The Government's intentions here may well be very sensible, but it is important to be clear about them. Given that the whole purpose of the legislation is to give the OFT and the competition authorities greater independence and discretion in making their judgments, it seemed odd to circumscribe them in that way.

I have intervened to pursue the Government a little further on their intentions on merger activity in general. A discussion on Second Reading puzzled me a little. I had spoken to compliment Ministers for having introduced legislation that seemed, on the face of it—certainly in the language of this clause and some others—to have the general effect of slowing down merger activity. That seemed basically right. Much business and economic literature suggests that mergers are often unproductive and damaging, are unhelpful to the shareholders of the firms making the takeover and often have widespread negative economic consequences.

It seemed to me that if the effect of legislation was to throw sand at merger activity, it might be desirable

and that the only people to be upset by it would be those in the City who earn fee income from merger and takeover activity and executives with stock options who can currently take advantage of big fluctuations in share prices. I felt that if the legislation were to slow down merger activity, or make companies think twice about it, that would be desirable.

The Under-Secretary, however, in her reply to me, specifically made a point of giving reassurance—not to me, but perhaps to others—that the legislation would not have any effect on the amount of mergers taking place. I was puzzled by that and by why the Under-Secretary felt it necessary to decline the compliment that I had paid her through her legislation.

The hon. Member for Eastbourne has done a useful service in teasing out from the outset the purpose of the language. Is it intended, as I hope, to introduce a more cautionary note before companies embark on merger activity, or is there some other reason? As the hon. Gentleman said, it is purely a probing amendment. We are interested in knowing from what direction the Government are coming at the problem.

Jonathan Djanogly (Conservative, Huntingdon)

I back up the comments made by my hon. Friend the Member for Eastbourne. It cannot be assumed that the only exclusions that will always be relevant to subsection (1) are those set out in subsection (2). Other situations may be relevant or may become relevant. Whichever way one looks at it, there is always going to be a subjective element in the way in which subsection (2) is interpreted, and therefore other issues could come up. The effect of a merger will always need to be reviewed on a case-by-case basis, looking at who may be affected and who may be helped by the proposals. That needs to be examined in the context of those issues' relevance to competition as a whole.

The OFT is, of course, going to be forced to make a reference unless subsection (2) comes into effect. As the hon. Member for Twickenham (Dr. Cable) rightly said, that could lead to a waste of taxpayers' money, let alone shareholders' money, through unnecessary advisers' costs. Wider discretion than is currently being suggested should be given. We should also keep in mind that, over the years, different Secretaries of State have interpreted the existing provisions in different ways. I fully support the idea of de-politicising the concept of merger activity. On the other hand, it is not always a political issue because priorities and the way in which things are looked at can change over time. To that extent, I support the amendment, which identifies that and attempts to make the situation more adaptable.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

I wish to make a short intervention on the question of whether the OFT ''shall make a reference''. The exclusions are very comprehensive, and narrow the opportunity for the OFT to make such a reference. There may be circumstances that, while falling foul of those exclusions, would, in the minds of the members or the director of the OFT, suggest that a reference ought to be made.

I agree with the hon. Member for Twickenham that often the only beneficiaries of what not too long ago we used to call merger madness were the fee takers from the City firms of accountants and solicitors. Others who know the west midlands will share my view that the beginning of the end for the Goodyear plant in Wolverhampton was the attempt by the Goldsmith empire to take over the Goodyear company. Ten or 15 years ago, it cost Goodyear £60 million to ward off that takeover bid.

There is a view, which I regard as perverse, in the City that takeover activity keeps managers on their toes, but the overall effect has been unhelpful to British industry, and particularly productive industry. Rather than widening the exclusions, the idea of using some force—the OFT ''shall make a reference''—is right. I should not like to see that narrowed in any way.

Mark Field (Conservative, Cities of London and Westminster)

I appreciate that we shall come back to some of the larger-scale issues relating to clause 20 in the stand part debate. However, I should be interested to receive some guidance from the Under-Secretary on my concern that much has been made of part 3 of the Bill in some way removing Ministers from the running of the merger regime. I am greatly concerned that potentially quite of lot of behind the scenes pressure will be brought to bear.

I do not share the view expressed by my hon. Friend the Member for Huntingdon (Mr. Djanogly), that politicians should necessarily be taken out of the merger arena. In part, those are political decisions and one has to accept that. Business and industry quite understandably look for clarity, consistency and some sort of predictability, but as political fortunes and ideas inevitably ebb and flow, the idea of there being predictability from decade to decade is a fallacious one.

However, my concern is that the OFT does not have a discretion because a statutory rule is in place. Each amendment makes reference to the fact that the OFT ''shall'' rather than may have a discretion to act in a certain way, which may result in even more political pressure behind the scenes. I am interested to know what the Under-Secretary has to say about that. Once the OFT is effectively no more than a rubber stamp, it will presumably be at the next stage when political pressure comes into play.

We shall discuss the whole issue in the broader surrounds of clause 20 and others, but with that concern in mind, I would be interested to hear what the Under-Secretary has to say.

Andrew Lansley (Conservative, South Cambridgeshire)

It is a pleasure to join the discussion of the Committee at this point. I do not want to detain the Committee for very long because, as my hon. Friends and other hon. Members have made clear, there is a connection between what we have to discuss now, and what is to come in relation to clause 20.

If we do not later consider amendments relating to the criteria that the OFT were to apply in

circumstances where it would have a requirement to make a reference, and no discretion whether or not to do so, the issue of the requirement on the OFT will be given a particular weight. At this stage, we have to consider whether it is right to say, as my hon. Friend the Member for Huntingdon was contemplating, that there are no circumstances under which it would be appropriate for the OFT not to make a reference, even though it were satisfied that the current criteria set out in subsequent subsections would be satisfied. That is connected with the issue of the use of a substantial lessening of competition test.

The Government, in amendment No. 176, are trying to make their expression of substantial lessening of competition even clearer. There is, as we know from amendments such as No. 214, an arguable proposition that we need to think about other ways in which the absence of competition may not necessarily lead, in the OFT's view, to a requirement to make a reference.

It is conceivable that in the changes that are yet to come to the European Community's merger regulation, we would want discretion to allow the OFT to take account of those criteria in future decisions over references and incorporate them into its guidance, even though they may not be wholly on all fours with the structure of the statute. We are not trying to draft the clause in the same terms as the EC legislation, following how the European Commission would apply mergers policy, and we cannot know precisely how the Commission will do so in the future. It therefore seems all the more appropriate to leave ourselves a bolthole.

If merger policy at a European level were to consist of something subtly different from the clause, which the Government may change over time, the OFT should have a competition test, in the absence of something as vague as has been applied by Ministers; a public interest test with a political emphasis. None the less, having accepted those basic principles, there are technical and economic features of certain merger applications that would lead the OFT to conclude that it should not be necessarily the subject of a reference. On that basis, it seems to me that my hon. Friend the Member for Eastbourne and the hon. Member for Twickenham have done a service by bringing the issue forward so that the Under-Secretary can explain why that should not be the case.

Melanie Johnson (Labour, Welwyn Hatfield)

The amendments relate to the obligations on the OFT when it becomes aware of a merger or plans for a merger. Although they relate to two different clauses in the Bill, they seek to achieve the same kind of effect. Therefore, I shall take them together, if I may, and answer hon. Members' points as I go along. There has been some misunderstanding and misinterpretation, so I will try to set the record straight.

Amendment No. 63 would give the OFT discretion over whether to refer anticipated mergers for investigation by the Competition Commission. Amendment No. 33 is a variation on the drafting but would also have the effect of removing the OFT's duty to refer in such cases. Amendment No. 64 would

remove the parallel duty to refer in completed merger cases. In the light of hon. Members' remarks, it may be helpful if I set out why we think it is important to require the OFT to refer certain cases.

We are creating a new merger regime with a tighter focus on competition. By focusing intervention on safeguarding competition, we will ensure that the new regime is predictable, transparent and streamlined. I was glad to hear in some of the remarks that hon. Members are also keen to achieve that outcome. We are handing over responsibility for decisions to those with competition expertise, and we want the OFT to apply a competition-based test. Such a regime will give parties greater certainty of the criteria against which mergers are assessed and will contribute to predictability and transparency.

Broad discretion on whether to refer is appropriate under the Fair Trading Act 1973, under which decisions are taken against a broad public-interest test and lie in the hands of Ministers, who are accountable to Parliament for their actions. However, if there is a more focused test, such as the one that we propose of the substantial lessening of competition, and the decision lies in the hands of an independent body, there should be less discretion. I shall deal more with discretion in a moment. Moreover, it is desirable to ensure that decisions taken under the new regime are more predictable. Thus, we think it is sensible to set out as much as possible the criteria for reference. In that way, we can be confident that any competition concerns that cannot be dealt with effectively at stage one will be referred to the Competition Commission for a thorough investigation.

Mark Field (Conservative, Cities of London and Westminster)

I should be interested to know why the Government believe that predictability is such a desirable goal.

Melanie Johnson (Labour, Welwyn Hatfield)

Predictability ensures that those who advise businesses and consider mergers are more likely to understand how the OFT and, ultimately, the Competition Commission may deal with matters. The aim is to provide predictability for business and not anyone else. I thought that that was understood in the remarks several hon. Members made about the proposal.

Ian Pearson (Labour, Dudley South)

Those are the rules of the game.

Melanie Johnson (Labour, Welwyn Hatfield)

As my hon. Friend says from a sedentary position, it is much easier if one understands the rules of the game. Predictability is a key element of doing so.

Clauses 20 and 31 set out clearly the circumstances under which the OFT should refer a completed or anticipated merger. The duty to refer is not unbending; specific provision has been made for instances in which it would be appropriate for the OFT to exercise some discretion. In particular, the OFT should be able to choose not to refer a merger if it believes that the market concerned is not of sufficient importance to merit a full stage two inquiry, or if it believes that customer benefits flowing from the merger outweigh the competition concerns.

We have also sought to ensure that the OFT will not refer if the case is being dealt with in another way. Examples include cases that fall under other regimes, such as mergers that qualify as concentrations under the European merger regulations. The OFT is also prevented from making a reference if it is seeking undertakings in lieu of reference from the parties, or if the case is the subject of an intervention notice because it raises public interest considerations that go beyond competition. Overall, we expect a similar number of mergers to be referred under the new regime as have been referred under the current regime. We do not anticipate that the targeted duty proposed will lead to an increase in references, and nor does the OFT.

I turn now to other points that hon. Members have made. First, on the question of the duty, we already expect a similar number of cases. That will provide greater security for business and the duty will ensure that the regime is applied even-handedly, which is another important element of predictability and understanding the rules. A merger is always a specific commercial decision, with a potential impact on the structure of the market. We need to look at the impact at that point, subject to sensible flexibility, of a decision not to refer.

Mention was made of the markets investigations. They are subject to a discretionary power of reference. They are not triggered by a specific transaction as in the case of a merger. I can tell the hon. Member for Twickenham that we will continue to pursue a neutral mergers policy. We believe that commercial decisions should be left up to business. The only check is to look at the competition impacts and part of the role of the duty is to reflect the switch from Ministers to the OFT, not to discourage mergers or to affect the numbers.

I was surprised by the remarks that the hon. Member for Cities of London and Westminster (Mr. Field) made about possible ministerial involvement or interference behind the scenes. The regime will operate transparently. There is no scope for political influence and none would be exercised. The duty and the specified exceptions ensure that. Leaving Ministers out simply reflects that the OFT is expert on this and it is important to deal with it in this way. The OFT does not have a rubber-stamping role. Its duty will involve economic assessment, as the Bill makes clear.

I turn now to the points made by the hon. Member for South Cambridgeshire (Mr. Lansley). The OFT will refer mergers. However—this point seems to have been missed—it will refer only where it believes that there has been a substantial lessening of competition. That is where the real discretion lies, and where the judgment must be exercised. We expect that that judgment will be exercised, largely as now, in line with the advice and information that has been published by the authorities. I hope that that clarifies hon. Members' concerns.

Nigel Waterson (Conservative, Eastbourne)

I am grateful to the Under-Secretary for explaining at least some of the thinking behind the clause and the regime that is set out. We have teased the philosophy out of her; a similar number of

references to the present number is envisaged. That will probably come as a surprise to the hon. Member for Twickenham, among others. She put it rather well when she suggested that there was some discretion, in a way, because it is quite difficult to see where the discretion lies. She set out the various headings, which are specific; the importance of the market, benefits to customers, separate regimes and undertakings in lieu of reference.

That is fine. We will look at those more closely and we can certainly see the logic of that. We can see the argument for certainty but once one has established the criteria for not referring on the face of the Bill, the discretion that we are talking about, although important, is only within a narrow compass. It is unlikely to undermine the certainty that she is right to suggest business would like to see. It seems slightly odd not to give more discretion than is currently given in the legislation.

I do not accept that there is a significant philosophical difference between this matter and clause 123 on market investigations. The fact that an individual event triggers it—in other words, a deal or a merger—does not make any difference. These are similar provisions and it seems odd, within the philosophy of the Bill, that there is limited discretion in one case and more extensive discretion in the other.

The Under-Secretary did not deal with pre-clearances. Does she accept the view held not just by us, but by such bodies as the CBI, that companies thinking of a merger will now routinely clear it in advance simply because they think that the merger will be almost inevitably referred? The Under-Secretary is looking at me in a puzzled way. I may not be able to express the point comprehensibly, but I do not think that I can improve on what I have just said or what I said in my original remarks. The proposal will give the OFT a significantly increased work load and place a significant extra burden on business trying to pre-clear mergers.

Melanie Johnson (Labour, Welwyn Hatfield)

Why does the hon. Gentleman think that there may be more pre-clearance activity? I understand the point that he made but I do not understand why he made it.

Nigel Waterson (Conservative, Eastbourne)

I hasten to say that it is not something that I thought of on my way into the Committee Room this morning; the point has been put to us by business, particularly the CBI. The CBI believes that if business realises that there is no real discretion for the OFT, apart from the areas that the Under-Secretary rightly touched on, mergers routinely will be investigated. A proportion of anticipated mergers are at present referred in advance, but that will now happen as a matter of routine; if it did not, companies might be caught out by what they will come to see as the automatic referral of mergers. The Under-Secretary should grapple with that concern.

Melanie Johnson (Labour, Welwyn Hatfield)

I would be delighted to grapple with it, but I am not sure that there is anything to grapple with. Guidance is given confidentially in advance in some circumstances; there will be scope for parties to seek such guidance in future. I do not anticipate any

change in the scale of initial guidance sought. I do not know why the hon. Gentleman thinks that that will change. The fact is that neither he nor anyone else can have his cake and eat it. If we are to have predictability, there must be rules within which certain things will normally apply. Business is keen to have predictability and we have had extensive discussions with business, throughout 1999 and 2000, on all the mergers material in front of us this morning. There has been considerable support for the general thrust of the proposals. Predictability is a key component of that support and it will be ensured by rules of the kind with which the hon. Gentleman seems to have difficulties.

Nigel Waterson (Conservative, Eastbourne)

I think that I shall give up because we are talking at cross-purposes. I do not disagree with the Under-Secretary about the need for certainty and predictability but we think that that small element of discretion should be returned to the authorities.

Jonathan Djanogly (Conservative, Huntingdon)

Are we not discussing adaptability just as much as, if not more than, predictability? Circumstances may change and the legislation that we are now setting in stone should recognise that.

Nigel Waterson (Conservative, Eastbourne)

My hon. Friend makes a good point. The law should not be set in concrete, although some predictability is obviously necessary. However, I was trying to get at a different issue; whether the rate of pre-clearances would go up significantly because of the provision. I have been unable to persuade the Minister that there is even a problem worthy of debate and, given that we have other issues on the clause and substantial points to make on the stand part debate, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 211, in page 10, line 33, leave out from 'result' to end of line 35 and insert—

'in the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

Nigel Beard (Labour, Bexleyheath and Crayford)

With this we may take the following amendments: No. 123, in page 10, line 35, at end insert 'or

No. 217, in clause 31, page 19, line 15, leave out from 'result' to end of line 17 and insert—

'in the creation or strengthening of a dominant position, as a result of which competition is likely to be significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 126, in clause 31, page 19, line 17, at end insert 'or

No. 128, in clause 33, page 20, line 20, at end insert 'or

No. 220, in clause 33, page 20, line 23, leave out from 'result' to end of line 25 and insert—

'in the creation or strengthening of a dominant position, as a result of which competition may be significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 221, in clause 33, page 20, line 28, leave out from 'result' to end of line 30 and insert—

'in the creation or strengthening of a dominant position, as a result of which competition may be significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 222, in clause 33, page 20, line 35, after 'preventing', insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 223, in clause 33, page 20, line 40, after 'preventing', insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 224, in clause 33, page 21, line 3, after 'practicable', insert—

'the creation or strengthening of the dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 225, in clause 34, page 21, line 25, leave out from 'in' to end of line 27 and insert—

No. 129, in clause 34, page 21, line 27, at end insert 'or

No. 226, in clause 34, page 21, line 32, after 'preventing', insert—

No. 227, in clause 34, page 21, line 36, after 'preventing', insert—

No. 228, in clause 34, page 21, line 43, after 'practicable', insert—

No. 231, in clause 39, page 25, line 11, leave out from 'prevent' to end of line 12 and insert—

No. 232, in clause 39, page 25, line 14, leave out from 'from' to end of line 15 and insert—

No. 233, in clause 39, page 25, line 23, leave out from 'to' to end of line 24 and insert—

No. 235, in clause 42, page 28, line 34, leave out from 'in' to end of line 35 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 239, in clause 42, page 28, line 34, leave out from 'in' to end of line 35 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 240, in clause 43, page 29, line 27, leave out from first 'of' to 'the' in line 28 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 241, in clause 43, page 29, line 35, leave out from 'result' to end of line 36 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 242, in clause 43, page 30, line 1, leave out from 'result' to end of line 3 and insert—

No. 243, in clause 43, page 30, line 7, leave out from first 'of' to end of line 10 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 244, in clause 43, page 30, line 15, leave out from 'in' to end of line 17 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 245, in clause 45, page 31, line 26, leave out from 'in' to end of line 27 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 246, in clause 45, page 31, line 28, leave out from 'any' to 'concerned' in line 30 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 247, in clause 45, page 31, line 43, leave out from 'in' to end of line 45 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 248, in clause 45, page 32, line 1, leave out from 'any' to end of line 4 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 249, in clause 45, page 32, line 26, leave out from 'be' to 'it' in line 27 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 250, in clause 45, page 32, line 31, leave out from 'preventing' to end of line 34 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 251, in clause 45, page 32, line 36, leave out from 'preventing' to end of line 39 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 252, in clause 45, page 32, line 46, leave out from 'be)' to end of line 47 and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 256, in clause 53, page 38, line 21, leave out

'substantial lessening of competition'

and insert—

No. 274, in clause 69, page 50, line 29, leave out

'the substantial lessening of competition'

and insert—

'creating or strengthening a dominant position, as a result of which competition may have been significantly reduced'.

No. 275, in clause 69, page 50, line 36, leave out

'substantial lessening of competition and any adverse effects resulting from it'

and insert—

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced'.

Nigel Waterson (Conservative, Eastbourne)

I am almost overwhelmed by the size of my task, but it is not as bad as it looks. I have no responsibility for amendments Nos. 123, 126 and 128, which were tabled by the hard left of the Labour party, and I distance myself from them. In the tradition of the Committee, half of the Liberal Democrats may support them, with the other half vigorously opposing them.

The proposal is about domination; that has perked up members on the Government Benches. The Government want to introduce a new test for determining whether a merger should be referred to the Competition Commission. The Fair Trading Act 1973 contained the public interest test, which has not stood the test of time. However, the changes in the Bill are more formal than real, in the sense that some parts of the public interest test have long since fallen into disuse. Lest I appear churlish—the last thing that I want to do—I should say that we welcome the change, as does almost everyone I have come across. It is time that the matter was formally put right and, as the CBI says, it should increase clarity, consistency and predictability in the mergers regime.

The competition test as such has, de facto, been applied for some time, based on the so-called Tebbit guidelines, with which my hon. Friend the Member for South Cambridgeshire is thoroughly familiar. He will probably speak about the matter at length in the stand part debate. It makes sense to enshrine the test in statute.

We are in more murky waters about the precise test to be applied. We have touched on the SLC test, which sounds a bit like a sandwich; it is, however, the substantial lessening of the competition standard, which is the test applied in the United States, Canada and Australia, and possibly in other places. We tabled these probing amendments to argue the case for the dominance test, which is more favoured by the CBI than the SLC test, because it is the standard for assessing mergers under the EC merger regulation. The SLC test would impose a more stringent standard for assessing the potential effects of mergers than exists at European Union level.

The question of principle is whether businesses operating in this country should face a stiffer test domestically than they would face under the European regime. We have discussed the matter in the context of cartels; that is another example of whether, by decision or simply by negligence, the Government are allowing the regime to drift apart from that in the EU. I have never been accused of being excessively communautaire in these matters, but if there is a regime in Europe that potentially applies to British companies and a regime in this country, where there is an overlap they should follow the same pattern.

Andrew Lansley (Conservative, South Cambridgeshire)

My hon. Friend may recall an issue that I raised on Second Reading. I do not know whether to dwell on my experiences in the mid–1980s, or on my experiences of serving on the Committee that considered the Competition Bill, which may be more immediately relevant. On many occasions in that Committee, Ministers not a million miles from the Department that the Under-Secretary represents here today said that we had to deliver the Bill precisely as it was drafted. They said that they could not even accept amendments intended to clarify the Bill, because the competition regime—in this case on the abuse of a dominant position, and anti-competitive practices—was expressed in the terms used by the Commission and in the European Community's competition regime.

Even where the Commission had not determined what its regime should look like—for example, in relation to vertical agreements—we were not allowed to take a view, because we would have to fall in line with the European Community's competition regime in due course. My hon. Friend may share my confusion as to why Ministers now seek a different solution from the one applied by the European Commission.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for my hon. Friend's comment, which is based on significant experience, not least of serving on the Committee that considered the Competition Bill. I am sure that my hon. Friend has taken the opportunity to read the Hansard reports for the Committee's previous debates. There is a philosophical leap from what the Government were saying with regard to the 1998 Act and what they are saying now, particularly on cartels. At that time, the belief was that whatever we did, we should not be able to slide even a sheet of paper between the position on procedures in this country and those in the European Union. I hope that as we wear the Under-Secretary

down, we will be able to tease out of her the philosophical background to the regime.

For whatever reason, the Government seem to be taking a more relaxed view. We missed my hon. Friend's contributions on the criminalisation of cartels. However, he will see from Hansard that the Government seem impervious to the fact that the regime in this country and the regime in the European Union were going to move sharply apart, so much so that even officials, unnamed, in Brussels are expressing concerns that there will be less co-operation and exchange of information on cartels between the regimes. They are doing so because of their concerns about the possibility of people being subject to criminal sanctions in this country.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

I am aware that there are other complications in that sector. However, I am sure that the hon. Gentleman will agree that the increasing tendency in farming to create mega-farms at the expense of small family farms is retrograde and reprehensible. I would not want a test of merger to be that we would not do anything until one farm was in a completely dominant position in, say, Hertfordshire. There is much to be said for having a stronger regime than the EU regime in these matters.

Nigel Waterson (Conservative, Eastbourne)

I am not sure that the clause is aimed at farming. The Government's other policies have laid waste to agriculture far more than the Bill is likely to do. [Interruption.] Labour Members may scoff.

Melanie Johnson (Labour, Welwyn Hatfield)

Would the hon. Gentleman like to add BSE to his consideration of the impact on farming?

Nigel Waterson (Conservative, Eastbourne)

I cannot see the point of the Under-Secretary's remark, unless she is suggesting that BSE was created and developed in 32 Smith Square. There are many clever people in central office, but their abilities do not extend that far.

Mark Field (Conservative, Cities of London and Westminster)

On the narrow point about BSE—

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. BSE has nothing to do with the clause.

Nigel Waterson (Conservative, Eastbourne)

I am relieved to hear your ruling, Mr. Beard. Thursdays seem to be more fractious than Tuesdays, perhaps because the weekend is beckoning.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

The hon. Gentleman has not addressed my point, which is that small businesses—I referred to farming business as only one example—might be much better protected by the SLC test than by the dominant market position test. Will the hon. Gentleman deal with that matter, as I feel that his party and mine should strongly agree on it?

Nigel Waterson (Conservative, Eastbourne)

I am sorry if the hon. Gentleman feels that I did not do justice to his earlier intervention. We accept that the test will be less burdensome and the amendments reflect that. That is a point on behalf of business and industry. One could perhaps flip it around and say that it might protect small business less, but I do not accept that. Indeed, I doubt whether the position that the hon. Gentleman described could be tackled under the clause, even with a more

restrictive wording. That is my honest opinion, but I shall reflect more on what he said. These are effectively probing amendments.

I return to the issue of aligning the regime with Europe. The problem is not as acute as when we debated cartels, when revealed a sharper difficulty. It is curious, given the supine attitude of the Government to most things European, that while other member states and even applicant states have been aligning their own merger control provisions to the current dominance test, we seem to have acted differently. It is highly likely that the Commission will retain the dominance test as the standard to be applied in its merger control regime. If the Under-Secretary knows better, she will doubtless say so.

Ever since these reforms were floated back in 1999, it has been disputed whether the same advantages for harmonisation that applied under the Competition Act 1998 arise here. Let me quote from the CBI:

''The demarcation line between domestic and EU mergers is sometimes not clear cut, particularly in more complex transactions. As a result it would be fairer and more sensible for companies operating across the European Union to have to comply with one standard as opposed to two differing ones.''

We accept that argument. Any well-run business, particularly at senior management levels, will not spend all its time worrying about the mergers regime. Good and bad reasons exist for mergers. The hon. Member for Twickenham spoke about that and doubtless will again. Mergers can be good for the companies, the marketplace and consumers, as another part of the Bill recognises.

Clearly, the Government do not want to discourage mergers and the Under-Secretary conceded that they do not envisage a different level of references from the current one. Whether that will be achieved is a different matter, but the proposals are neutral from the standpoint of the proportion of mergers that will be investigated through these procedures. Many mergers are desirable, so we cannot have business and industry put to so much extra expense and burden. The hon. Member for Wolverhampton, North-East (Mr. Purchase) referred to a specific case of a few years ago in which significant costs were involved. We should not expect business and industry to be up to speed and in parallel on two regimes that are diverging in similar ways to cartels regimes, so I return to the philosophical issue.

As my hon. Friend the Member for South Cambridgeshire pointed out, in responding to the amendments, the Under-Secretary must come clean about why the Government's philosophy has shifted since my hon. Friend was debating the then Competition Bill in Committee in 1998. Why are the Government apparently no longer concerned—indeed, they are very relaxed—about our regime differing from that in Europe? There must be a reason for that. At least, I hope that there is; it would be more worrying if there were not. We should like to know what that reason is.

Harry Barnes (Labour, North East Derbyshire)

Some of the amendments stand in my name and those of my

hon. Friends, whom some people might refer to as hon. comrades. The hon. Member for Eastbourne trailered these as hard-left amendments. In fact, as I said earlier, my position is neither hard nor soft left. My hon. Friend the Member for Wolverhampton, North-East described that as the ''Goldilocks'' tendency; neither too hard, nor too soft.

The amendments and others that we shall reach later are interconnected. Amendment No. 124 would delete one provision to make way for the expansion and definitions in amendments Nos. 125 and 165. They are part and parcel of the public interest argument that I shall advance now, so I may not need to go over that ground again when we reach that group of amendments.

For reasons that I shall make more clear later, I call my group the Biwater amendments. These arise from experiences in my constituency to do with the Biwater plant as it was at Clay Cross. My worries about part 3 can be seen in my reaction to the views that an extreme supporter of part 3 expressed in a document that came into my hands. The British Bankers Association circulated to its members a document that states:

''Following lobbying from a range of business and City institutions, the Enterprise Bill will introduce a number of major reforms to UK competition law, as well as changes to insolvency procedures.''

The document then deals in detail with part 3 and the matters that we are considering. It goes on to say:

''Obviously these proposals are extremely welcome and represent the culmination of what we have been seeking for some years with regard to UK merger policy, in terms of both financial services and other sectors of the economy. It is important, however, that members should take no premature action to jeopardise the proposals whilst they are still subject to Parliamentary scrutiny. In advance of Second Reading of the Bill, members are also urged to ensure that, in the event of being contacted by backbench MPs, no opinion is offered for the time being. Once Parliament has approved the proposals (largely a formality)''—

our business seems to be beside the point—

''which we are led to expect should be achieved by the summer, members may of course then comment freely!''

The document says that part 3 will

''remove Ministerial and Parliamentary control over mergers & acquisitions . . . leave decisions on M&A and other cases to the Regulatory authorities (principally the Office of Fair Trading) . . . replace the current 'public interest' test for assessing M&A and other cases solely with a 'competition-based' test . . . prevent trade unions (or MPs with trade union connections) from having any say in decisions on such matters.''

Those matters concern me, and people within the trade union movement. The Financial Times of 10 April, the day of Second Reading, printed a letter from Ed Sweeney, the general secretary of Unifi, the finance trade union, in which he expressed concerns. He said:

''the policy on mergers will be governed solely by the effect of a particular transaction on competition rather than, as at present, the effect on public interest (which, while emphasising effective competition, can also include the effects on employment, regional policy and so on). Ministers will have reserve powers to intervene only on those merger cases affecting national security/defence, plus other exceptional cases subject to parliamentary approval. Unifi's concern is that no consideration will be given to the 'social' implications of mergers. Unifi believes that the consequence of mergers do sometimes need to be considered beyond the 'economic' and that the proposed reforms do not allow a mechanism for that consideration.''

My amendments would provide that the OFT take on board consideration of the public interest. A later amendment to clause 56 attempts to restore the public interest consideration to the Secretary of State. Ed Sweeney goes on:

''Consideration should also be given as to whether the new 'super-complainant' procedure (that will enable certain consumer organisations to have the right to compel initial investigations by the Office of Fair Trading into specific markets) should be extended to other third parties.''

That is similar to one of my earlier amendments, which put forward producer and not just consumer considerations. Amendment No. 122, which provoked a great deal of discussion about G.D.H. Cole, was flawed because a crucial stage in the Bill had been passed by the time it was introduced and I could put forward only a measure on producer references to consumer matters rather than matters that affected producers. However, there will be an opportunity later, maybe on Report, to correct that and to table the type of amendment that Ed Sweeney seeks.

The document of the British Bankers Association was sent to me anonymously with a note saying that I might be interested in it. I have made efforts to check whether it is genuine. I asked a researcher in the Library for his response to it. He said:

''As I am sure you understand, it is difficult to comment without making direct enquiries. If it is a hoax, it seems an informed and fairly elaborate one. It uses the correct logo and details of the BBA; it provides a broadly accurate account of Part 3 of the Bill; and it has been precisely targeted in that this is an issue that concerns you.''

Nigel Waterson (Conservative, Eastbourne)

My affection for the hon. Gentleman is in no way diminished by the black and white way in which he views political issues. Does he accept as a corollary of his proposal that a wicked Tory Government should listen to the blandishments of big business, banks and others and make political decisions, in their turn, about merger issues? That seems a fair deduction to make from his argument.

Harry Barnes (Labour, North East Derbyshire)

Decisions made under section 84 the 1973 Act, if fully implemented, are not made by Governments and by Ministers. Such decisions can be to make references to the Competition Commission to examine a matter. The likelihood of pressures being put on Ministers to consider things seems part of the duties in which they should be engaged and for which they should be accountable to Parliament. To say that things should be taken out of the hands of politicians is to say that things should be taken out of the hands of democratic processes. Obviously, politicians can manipulate and fiddle behind closed doors, but we should open up those procedures as much as possible and make people fully accountable. The interests of workers should have access to and feed into the political process through the type of avenues that are available for the public interest.

Since the early 1980s, successive Secretaries of State have had a policy that references should be made to the Competition Commission only on competition grounds, not on public interest grounds. That seems to have been a wilful refusal to use the enabling measures contained in section 84 of the Fair Trading Act. It has had a disastrous effect in numerous cases, including

the Biwater case at Clay Cross in my constituency, which led to the entirely unnecessary loss of 700 jobs.

My amendments use the wording in section 84 of the 1973 Act, although at present it is a smaller measure that instigates the public interest provision, which is defined by later amendments. There is a need to go beyond the rather weak enabling measures in section 84 and to place a public interest duty upon Ministers and the OFT. We have to proceed one step at a time. The current step is to try to get us back at least to the possibilities that exist in the 1973 legislation.

I shall now deal with the relevance of the Biwater case to my amendments. On 4 September 2000 Saint-Gobain, acting through its British subsidiary Stanton plc, took over Biwater at Clay Cross works in my constituency. The acquisition was sanctioned by the OFT which, in its report to the Secretary of State, failed to mention that it knew that Saint-Gobain's intention in purchasing the plant and taking it over was to close down the works. That was revealed later. Within minutes of the takeover announcement it was announced that the closure would take place after a statutory minimum period of 90 days.

The works are now closed. Yet Biwater was an entirely viable operation. It had a thriving trade in pipe manufacturing and the sale of pipes for the distribution of water. It had growing orders with the increase in oil prices in the middle east. When it had full order books, 80 per cent. of its production went to export. If the Secretary of State or the OFT had acted on section 84 of the 1973 Act the Competition Commission would have had a clear case for preventing that closure. But all that happened was that the Secretary of State referred the matter back to the Office of Fair Trading for a second look. The OFT merely confirmed that it was acting on competition grounds, and that no reference would be made to the Competition Commission. After much dithering, that is still the Secretary of State's position. The first batch of redundancies had taken place on the Friday before he announced his decision to stay with the OFT recommendation on the Monday, supposedly after examining the details during the weekend.

It was clear to me from a conversation with John Vickers, the Director General of Fair Trading, that he believed that competition criteria were fulfilled as long as the consumer's ability to go the market and buy pipes could be reasonably guaranteed, whether they were produced in this country, or had to be imported from the rest of Saint-Gobain's pipe-manufacturing industry throughout the world. On 11 March, Saint-Gobain's advertisement stated that two thirds of European households, not to mention all of Brazil's, were supplied with water from Saint-Gobain pipes. It said that every year it made enough ductile iron piping to build a pipeline through the earth, and that their water systems equipped 80 world capitals.

Biwater was a competitor with the same sort of operation. Although Stanton plc and Stanton Works are in this country—Stanton Works is in my constituency—and they may have found easier avenues of production, production is directed towards the home, not the overseas, market. The

order book from the purchase of Biwater Clay Cross went overseas. That productive capacity is now exercised in Brazil and other countries.

The public interest provision provides for exports to be considered as a factor. Saint-Gobain has almost gone from the site, because Biwater still owns the land and buildings. There should be some serious consideration of an arrangement that exists throughout industry, where one company owns the land and buildings and another operates the firm. A firm in my constituency went into receivership. The major interest in the firm also had a major interest in the land and buildings under a separate company, which has made a fortune from houses built on that site.

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. The hon. Gentleman is moving away from the purpose of the amendment.

Harry Barnes (Labour, North East Derbyshire)

That was a little detour.

Adrian White will not tell anyone about his plans for the site. The 700 jobs, which were of great importance to the area, have gone. The great bulk of them—approximately 75 per cent.—were done by people living within a five-mile radius of the plant. I am by no means alone in pressing for public interest considerations. The amendments are not just the revenge of the ex-Biwater workers for the failure to consider their proposals properly. It is a genuine concern that applies over a wide area.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

I understand and empathise with the idea of revenge and I realise that my hon. Friend speaks to the amendments in the spirit of incorporating into the Bill both the public interest, however it is defined, and the interests of employees in an enterprise that may be taken over or merged without a reference. However, does my hon. Friend share my concern that if such a public interest power were given to the OFT, no control whatever over its exercise would be possible? Does he not agree that a strengthening of trade unions is ultimately a better way of protecting the interests of workers such as those at Biwater than we could ever expect from the OFT or any other institution concerned primarily with the accumulation of capital and preoccupied only with shareholder interests?

Harry Barnes (Labour, North East Derbyshire)

I am all for developing the influence of trade unionism so that people can fight their corner. One way for trade unions to achieve their ends is to secure procedural agreements that are favourable to their position and allow them to secure better substantive agreements in the future. The various procedures and arrangements are relevant to our consideration of the Bill. Will there be some feed-in to the trade union movement either through the producer super-committee that I have suggested, or by providing an avenue of access to present views to the OFT or, as appears in a later amendment, to the Secretary of State? The Biwater case was dealt with badly by the OFT, but the Secretary of State and the Government office for the east midlands had enough material to justify using their power to reject the OFT recommendation and make a reference possible.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

Does my hon. Friend accept that that is exactly my point?

Harry Barnes (Labour, North East Derbyshire)

Perhaps it takes me a while to achieve complete understanding, but now that I understand it, I appreciate my hon. Friend's point.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

My hon. Friend has presented a powerful case about what should have happened at Biwater, but does he accept that Ministers of a certain political disposition, or OFT officers who share it, might decide that it is in the public interest to shut down an old pipeline firm and introduce spanking new pipes manufactured in Brazil? Simply because the public interest is incorporated in the provisions, it does not follow that it will necessarily redound to the benefit of trade unionists and others.

Harry Barnes (Labour, North East Derbyshire)

I entirely accept that. Indeed, that is precisely what occurred in the Biwater case. It is not just that a Conservative Government interpreted the case in a restrictive way and failed to listen to representations. This was a new Labour response, which I was quite annoyed about. The type of arguments that I would have used with a Conservative Government were certainly used with my own, to the extent that calls were made for the resignation of the then Secretary of State for Trade and Industry, who is now the Secretary of State for Transport, Local Government and the Regions. I made the same claims in relation to the Biwater issue, but I would not make them in connection with the position that he has adopted on the railways, which is a much more sensible response.

I was saying that I am not alone in this matter. The amendments are not connected only with the workers who mobilised, organised, marched and demonstrated in Clay Cross. The community, including women's organisations and trade union organisations, went with them, and there was also a commitment by councils and others in the area. The provision needs to be in place so that it can be used in the right circumstances and when a particular response needs to be made. Other Biwater-type cases might emerge.

As a result of my feelings on this issue, I contacted the General Secretary of the TUC, John Monks, and a number of other union leaders. In return, I received correspondence from the TUC, which I am permitted to use here. It relates to an exchange of views between John Monks and the Secretary of State for Trade and Industry.

In a letter of 20 March, John Monks wrote to the Secretary of State:

''As you will be aware, the TUC has consistently argued that mergers and takeovers should be regulated to operate in the public interest, and that employment effects should be taken into account alongside the impact on competition when judging a bid . . . we believe that as it stands the legislation risks producing some perverse and politically damaging decisions.''

Mr. Monks suggests an avenue that might accommodate the provision, which might emerge under a later amendment.

The response from the Secretary of State, dated 9 April, states:

''The system will . . . contain a fallback option to consider other public interest matters before a case is referred, although in reality the Government does not envisage that new public interest gateways will be created except in extremely rare circumstances.''

That comment is a little disingenuous. Clause 56 specifically refers only to national security, although it opens up the possibility of Parliament adding something else on occasion. However, the battle to get the provision to be anything like what I am suggesting would be very difficult to win. The Secretary of State goes on to say:

''I understand that mergers do have a wide impact beyond competition concerns, but the focus of our merger regime is to achieve long term economic efficiency.''

I presented the amendments as probing, but I want to stress the seriousness of my point. I do not expect a favourable response from my hon. Friend the Under-Secretary now. I will hold on and hope that suitable measures can be introduced on Report or in the House of Lords. I certainly hope that the serious concern that I have expressed will be fully considered and that the principles in the Bill can accommodate it. If there is a good economic and social argument for a firm to continue operating, people should not have to face the type of situation that we faced locally. It should at least be possible to put in place measures to avoid the dramatic collapse of industries.

Vincent Cable (Liberal Democrat, Twickenham)

I welcome this discussion. The selection of amendments has created some problems for us. Two groups of amendments appear to come from exactly opposite points of view. The important public interest debate is couched in terms of a very general clause, whereas the amendments, which explained what public interest meant, have not been selected. Obviously we have to operate within that framework.

I do not want to disappoint the hon. Member for Eastbourne over the eclectic thinking of the Liberal Democrats. I see considerable merits in both sets of amendments. The hon. Gentleman has a somewhat chequered history in terms of his European credentials, but that does not make his arguments invalid. Indeed, they were very strong. The fact that the hon. Member for North-East Derbyshire (Mr. Barnes) felt it necessary to get the signatures of the hon. Members for Glasgow, Kelvin (Mr. Galloway) and for Bolsover (Mr. Skinner) does not invalidate his amendment either. It has a lot of common sense behind it.

Harry Barnes (Labour, North East Derbyshire)

My hon. Friend the Member for Bolsover lived in Clay Cross for a long time. He is a prominent figure in the area.

Vincent Cable (Liberal Democrat, Twickenham)

I was going to say that if he had asked for my signature I would have happily given it to him.

Melanie Johnson (Labour, Welwyn Hatfield)

May we clarify whether the hon. Gentleman would have put his name to the Conservative amendments?

Vincent Cable (Liberal Democrat, Twickenham)

I would have, because both sets of amendments seem sensible, although they come from different points of view. They are not incompatible. Let me take the dominance point first. The hon. Member for Eastbourne was right.

Nigel Waterson (Conservative, Eastbourne)

Having established the Liberal Democrats' position beyond peradventure, has the

hon. Gentleman perhaps been reading his own campaign document, leaked to the papers today, which advises Liberal Democrats to ''be wicked'' and to ''act shamelessly''?

Vincent Cable (Liberal Democrat, Twickenham)

This has nothing to do with lack of shame. It stems from our ability to try to understand other people's point of view and draw strength from different standpoints. I hope that members of the Committee are equally broad- minded.

Let me take each of the amendments in turn. The hon. Member for Eastbourne's amendment relates to the potential incompatibility between British merger legislation and that of the European Union. He made the argument well and I do not need to develop it in detail. It could be said, and this is probably the Government's view, that we must apply the principles of subsidiarity. There are contexts where the principles of subsidiarity apply, but I am almost certain that this is not one of them. We are talking about fundamentally incompatible approaches in terms of law for companies that in many cases will be on the borderline of European and British competition law. It could create serious problems.

On Tuesday, when we were debating consumer protection, the Under-Secretary intervened to remind us that the European Commission had produced a Green Paper on consumer protection. She reminded us of the dangers of British practice getting too far out of line with the EU, precisely because the European Commission was developing its own set of rules within the single market with which we had to be compatible.

Melanie Johnson (Labour, Welwyn Hatfield)

To a degree, the hon. Gentleman is right. I was making a wider point about the fact that there was a general duty to trade in a number of member states, but the interpretation of that could be different. We could end up with different views. It is not a parallel situation.

Vincent Cable (Liberal Democrat, Twickenham)

I thank the Under-Secretary for that clarification. We need to be careful that rules and principles do not diverge too greatly, whether they relate to consumer protection, cartel legislation or mergers.

Mark Field (Conservative, Cities of London and Westminster)

The hon. Gentleman rightly introduces the issue of subsidiarity. I should not like to agree with everything that the Under-Secretary says, but surely a stronger argument suggests that, at consumer level, there is more of a push towards, and a greater burden placed on, the idea of subsidiarity. However, at corporate level, particularly in relation to mergers, I agree with my hon. Friend the Member for Eastbourne. It makes sense in an increasingly interdependent world—in which we have strong trading links with the European Union—to move towards making certain decisions at an EU rather than a subsidiary level.

Vincent Cable (Liberal Democrat, Twickenham)

Yes, the hon. Gentleman is right, and he makes his point well. The constantly deepening trade and investment relations between European countries in the single market mean that the overlap between British and European corporate behaviour is becoming increasingly fuzzy. If we join the single currency—which may not happen soon, but could happen in the lifetime of the legislation—it will deepen

commercial relationships and make the overlap still less clear. We need to be careful about setting a wholly different test and set of principles for British, as opposed to European, legislation. I fully support the amendment.

I should like to say a few words in support of the hon. Member for North-East Derbyshire. What he said was essentially right, and he began from the correct position. He said that we must be careful not to throw out the baby of democratic accountability with the bathwater of political interference. I have said on several occasions that we do not want direct daily ministerial or political intervention in competition policy decisions, because Ministers will always be tempted to use that ability for party political reasons, or to favour special interests. The Government have accepted that, and we are heading in the direction of greater independence for competition authorities.

The hon. Member for North-East Derbyshire was absolutely right that many legitimate political considerations must be borne in mind when merger decisions are made, and they are not simply those relating to competition. A merger on the borderline of proof—on that only just passed the competition test, say—could have major implications concerning redundancies in a part of the country where there is high unemployment, so it would be legitimate to take a political angle on that decision. Currently, a Minister can intervene to take such a factor into account, but it is difficult to see how, if the Bill is enacted, the OFT would be entitled to do the same. We need a provision that makes that possible.

I shall offer a hypothetical example. Britain might produce a British Bill Gates, who creates a company with vast technological potential to benefit this country. As a result of expansion, it could run into trouble with the competition authorities and fail the competition test. However, the legislation makes no provision for the competition authorities to consider the long-term national interests that would arise from such a successful venture.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

The hon. Gentleman is considering the protection of employment, but perhaps the issue is not that of a foreign company coming in and undercutting us on shady grounds. What if we protected employment—say in a pipe company in Clay Cross that produced inferior pipes to a company in Wales—on the ground that lots of jobs would be lost in Derbyshire? All things being equal, is it not fair to permit the company that is doing well to prosper, and to let the one that cannot cope with the market to be driven out of business?

Vincent Cable (Liberal Democrat, Twickenham)

The hon. Gentleman is right, if I understood him. I think that he was talking about competition within the UK rather than making a case for protection through trade. He is right that the competitive process would be very important in that sense, but none the less it would be useful and important to have competition authorities that at least understood the employment implications and wider social costs of a decision.

Harry Barnes (Labour, North East Derbyshire)

The argument also applies to competition in the UK. There is not only the hypothetical case in which the plant in Wales is more productive than the plant in Derbyshire, but what actually happened: the plant in Derbyshire reached a higher level of production and used its technology better than its competitors.

Vincent Cable (Liberal Democrat, Twickenham)

I do not want to go too far into the matter of that particular plant in Derbyshire, which has had a reasonable airing; the principle is right.

I shall cite one or two examples of recent legislation to which the same arguments applied but the Government did not listen and landed themselves in difficulties as a result. In the previous Parliament, I was involved with three pieces of legislation in which that exact issue arose. The Utilities Bill was generally a good piece of legislation which, since it has been enacted, has increased competition in the utilities field. The Government insisted that it was essential that a competitive test replaced regulation for electricity, gas and the rest. No one questioned the general thrust of that policy, but during proceedings on the Bill we considered what would happen if a broader public interest, such as the environment, were involved. How could the regulator be required to take that into account? The Government said that they wanted to keep the simple, basic principle of a competitive test because there was no need to consider the public interest. Subsequently, as Members of all parties feared, that principle did not work. With the introduction of the new electricity trading arrangements, competition has ruled, but the combined heat and power industry—the renewables industry—has effectively been driven out of business.

Some of us have been along to the regulator and said, ''Surely you can make some allowance for long-term environmental sustainability.'' He has said, ''No. You people in Parliament have passed legislation that tells me, as a regulator, that my only responsibility is to take account of competition. I am sorry, but you are an MP, you have passed that legislation and I cannot have a conversation with you about it—end of problem.'' The Government have landed themselves with the sacrifice of a major public interest—environmental accountability—due to lack of thought during the legislative phase about how to capture the public interest.

Andrew Lansley (Conservative, South Cambridgeshire)

I am afraid that the hon. Gentleman has ventured into a subject for which I do not have my bits of paper. In the past few days, however, I recall seeing a piece of paper from the Director General of Ofgem—the Office of Gas and Electricity Markets—that expressed his view that in the course of implementing the new electricity trading arrangements and having achieved consumer benefits through substantial reductions in price, he was hoping to address the adverse consequences for combined heat and power by further revision of NETA. The matter is not quite as simple as the hon. Gentleman states.

Vincent Cable (Liberal Democrat, Twickenham)

The hon. Gentleman is right that there have been major consumer benefits, and to that extent the thrust of the legislation was right. However, my

understanding—perhaps the hon. Gentleman has more advanced information—is that the legislation prevents the Director General of Ofgem taking account of those wider factors. If I am wrong, I am happy to be corrected.

Another example, about which the Under-Secretary knows very well, was the Financial Services and Markets Bill. I tried to introduce a clause into that legislation to take account of the social aspects of financial services provision. The Government said that that was not necessary because the aim was too vague, and that we should stick to giving the Financial Services Authority a clear economic mandate. On Tuesday, the reports on social exclusion and the role of the banking sector in the provision of basic bank accounts revealed a complete failure by the banking sector voluntarily to come up with the kind of improvements that I and other hon. Members had sought to have written into the legislation. The same thing has happened with Post Office legislation and the Post Office regulator.

Melanie Johnson (Labour, Welwyn Hatfield)

I should like to comment on some of the hon. Gentleman's remarks about the Financial Services and Markets Act 2000. First, it is not right to characterise the objectives of the Financial Services Authority as economic. That is too broad a term. Secondly, the FSA's consumer panel is out there arguing the case on basic bank accounts and how the industry should be taking them up more. Is that not a vindication of the structures that were put in place around the FSA?

Vincent Cable (Liberal Democrat, Twickenham)

The consumer panel is indeed arguing vehemently, and I referred to its report. The consumer panel made it very clear that the banking sector had totally failed to meet any test of social responsibility. I do not want to go down any of those byways in great details, but I have cited them as examples of the danger of passing legislation that does not give extremely powerful regulators, who have very limited political accountability, any formal responsibility for public interest.

Although there is a temptation to characterise the amendments of the hon. Member for North-East Derbyshire as a wild fling from the far left, there is a sensible and important democratic principle behind them, with which all parties in the House, if they stretched their minds a little, should have some sympathy. Although the language might not be right and work needs to be done on them, the amendments would repay revisiting and sympathetic discussion.

Andrew Lansley (Conservative, South Cambridgeshire)

I do not want to add much on amendment No. 211, which was moved by my hon. Friend the Member for Eastbourne, because he spoke admirably on it. I want to comment a little on the amendments of the hon. Member for North-East Derbyshire and to ask something about them. Committee members clearly cannot know the Biwater case as well as the hon. Gentleman, but his argument did not leave me with the conclusion that it was therefore necessarily right to reintroduce the public interest test and that that would remedy the problems that he envisages.

If it is the hon. Gentleman's contention that, regardless of the effects on competition and, by extension, on consumers, the jobs of the workers at the Biwater plant should have been protected and retained, he should say so. He did not quite say that. If it is his contention that UK production should in such circumstances be protected against the possibility of sourcing from imported, overseas sources rather than UK sources, he should say so. He did not quite say that either.

Essentially, what I understood the hon. Gentleman to suggest—he may be right for all I know—was that the competition test had not been properly applied in that case and that the benefits of competition were not flowing through. He suggested that a large, perhaps even dominant, supplier—we shall come to dominance in a moment—was able, by virtue of the merger and in ways not disclosed in the original decision, to reduce the sources of supply in the United Kingdom and that, hence, there was a substantial lessening of competition. On the face of it, he might as well have argued that the substantial lessening of competition test would have been perfectly appropriate in that case, had it been applied accurately.

Harry Barnes (Labour, North East Derbyshire)

There might need to be a combination of factors. A firm could simply fail to meet the competition criteria. However, there are other public interest factors such as employment, the distribution of industry in an area and export markets, which switch the matter in the other direction so that there are grounds for the matter to be referred to the Competition Commission. I grant that I was arguing that competition grounds alone were enough for a reference to the Competition Commission, but the addition of the other considerations could have tipped the decision over.

Andrew Lansley (Conservative, South Cambridgeshire)

I am grateful to the hon. Gentleman. His argument that those further factors should be taken into account is what I imagined. His case does not illustrate the argument well. I would contend that if a substantial lessening of competition test is properly applied, and proper account of consumer benefits over a reasonable period is taken, the test will have substantial regard to the location of sources of supply, and their number and efficiency. The way in which a large supply can create a position of dominance may well outweigh that.

If the competition test in a particular instance of the sort described by the hon. Gentleman is properly applied, and if competition is sustained and there is no substantial reduction of competition as a consequence, is it the responsibility of the legislation to protect employment and allocate industry around the country, protecting United Kingdom production against overseas production at the expense of competition? That is what we would be doing, because if the merger does not reduce competition, it will have the effect of promoting it. The competitive intensity of industry means that management is not able to rest behind protective barriers. Under such circumstances, should we allow it to? My contention is that we should not.

All the evidence is that if we try to protect jobs through legislative measures, we protect them in the short run, but destroy them—and probably more—in

the long run. To protect British industry by setting up barriers to mergers would be contrary not only to the single market, but to our long-term economic interests. If we go down the path of distributing business throughout the country in recognition of a regional development policy that is borne not of spatial incentives and infrastructure, but of efforts to try to preserve jobs in a particular location rather than promote competition and see where jobs go as a result, we will destroy those jobs in the long run. Unfortunately, that is the lesson that experience of industrial policy and protectionist policy has always taught us.

As the hon. Member for Twickenham suggested, we have to look to both planks of the argument. If we go down the road of a public interest test in the terms proposed by the hon. Member for North-East Derbyshire, we would explicitly bring back into the equation tests that are anti-competitive, which in the long run are likely to lead to substantial consumer detriment because they will undermine the long-term competitiveness of British industry and competitive intensity in our marketplace.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I am not without sympathy for what the hon. Gentleman is saying, particularly in relation to manufacturing, but he must surely accept that an awful lot more falls under the clause than merely manufacturing. In particular, the provision of services might be involved.

The issue that springs to my mind is the provision of regional air services, which is of great importance to people in my neck of the woods. British Airways, for example, may try to merge with small, individual carriers that are in competition with it regionally. If merely left to competition, that would leave people living in communities such as those that I represent substantially disadvantaged, as they would be left without any competition on the service. Without the introduction of a public interest element, there would be no means by which that could be considered by the Competition Commission.

Andrew Lansley (Conservative, South Cambridgeshire)

I am slightly surprised by the hon. Gentleman's argument, because he seems to be interpreting the competition test as a market test. The test is not what unrestrained markets would deliver. Unrestrained markets may deliver concentration of industry, or oligopoly or monopoly. Our purpose is to deliver competition, which is not the automatic outcome of unrestrained markets.

Markets must operate within a highly pro-competitive legal framework. I am not qualified to debate the case of regional air services. However, on the basis of the case that the hon. Gentleman puts, a reduction in competition to the disadvantage of his constituents as a result of that hypothetical merger activity would be a perfectly valid reason to present it as a substantial lessening of competition without any compensating consumer benefits.

If we go down the path of reintroducing a public interest test, we create unpredictability. It is not just a

question of exports, spatial allocation of industry or employment prospects. As my hon. Friend the Member for Eastbourne suggested, if we were to discuss clause stand part later, we might get on to a whole range of issues that have previously bedevilled the application of competition policy, even where the primacy of competition has been asserted. All those things have been available and have often been cited as reasons to subvert what would actually be a pro-competitive decision.

I entirely take my hon. Friend's point, and that was why I offered my ha'p'orth on the Competition Act 1998. I found it interesting. It was true in relation to the cartel offence, and it is true in this instance. In 1998, the Government took the view that for reasons of predictability—again—and consistency, it was entirely desirable that the structure of UK law should wholly reflect the structure of European Community law. That has a range of benefits, not least that even though one might be reasonably confident that one's activity is regulated by UK competition authorities, UK competition authorities in making decisions must have regard to EC decisions. In the case against NAPP Pharmaceuticals, it is clear that the competition appeal tribunal carefully considered precedent and case law from the European Court of Justice in order to arrive at its decision on a UK case under the chapter II prohibition and the Competition Act.

The issue then becomes whether the dominance test is better because it is the same as the European Community's test and whether we should again pursue consistency. There are good arguments to say that we should. It is not simply that some mergers may not necessarily be UK or European Community mergers, but that there may be a degree of uncertainty about precisely where mergers are to be handled. If we have a different regime in this country from that which applies at EC level, there may be perverse incentives for companies to create merger situations that are dealt with by the Commission rather than by UK competition authorities, and that would not necessarily be in the UK interest.

If I recollect correctly—the Under-Secretary will, no doubt, correct me if I am wrong—the acquisition of London Electricity by Electricité de France was handled by the European Commission, under its competition and merger regime, and was not patriated to the United Kingdom, although such patriation was sought. There are reasons to suppose that we might have looked at that merger and, if not necessarily come to a different conclusion, applied tests that were not precisely the same.

There is a certain undesirability in a distinct regime that draws businesses to seek to be considered by the Commission even in mainly or substantially UK merger cases. It would be far better for us to go down the path of having a greater number of substantially UK merger cases considered by UK competition authorities. That is much more likely to happen if we operate directly under a regime that reflects the EC merger regime.

The Under-Secretary might tell us that the European Community's merger regime may change,

but I imagine that she does not know precisely how that will happen. There is a small argument for going for the stronger, more pro-competitive regime in the UK and hoping to draw the European Community with us so that, over time, the regimes might become consistent. Unfortunately, I do not think that the Under-Secretary is in a position to offer that at the moment, although I shall be delighted if she can.

My final argument is this: leaving aside the problems, the discontinuity and the fact that European Community decisions and interpretations that might be applied here might not directly mesh with UK law and so lead to some conflict, and leaving aside the fact that companies might be led to go to the European competition authorities more often than would otherwise be the case, should we go down the path of a substantial lessening of competition test here anyway, for the simple reason that it is a stronger test? Even though we are in a single market, if we, the UK, can find ways, compatible with our treaty obligations, of creating greater competitive intensity in the United Kingdom than that in other European jurisdictions, should we not do so?

The Under-Secretary might reach into the Department's collective memory and say that, although the Government have been inconsistent, I too argued from time to time in 1998 for a regime that was a little tougher, a little clearer and a little more suited to our circumstances. I did do that. On balance, I would probably say the same again, but before I conclude, I shall give way to my hon. Friend the Member for Cities of London and Westminster, who is manoeuvring in front of me.

Mark Field (Conservative, Cities of London and Westminster)

I assure my hon. Friend that I was just turning round to listen to him and all that he had to say.

I am slightly intrigued by my hon. Friend's feeling that the substantial lessening of competition test is by

necessity more competition-friendly than the dominant position test, and would be interested in him exploring that a little. Does he not agree that there might be instances in which the dominant position test is stronger for competition, especially in markets where there is one very large player and some smaller players? If any such strong player made a merger in the European arena, although, given that player's dominance, that merger might not necessarily fall foul of a substantial lessening of competition test, it would immediately become subject to a dominant position test.

Andrew Lansley (Conservative, South Cambridgeshire)

I am grateful to my hon. Friend. It is sometimes difficult to think such things through theoretically in the absence of particular cases, and I cannot immediately think of a particular case to illustrate his point. However, if he was referring to circumstances in which a dominant participant in the market were seeking to take over any of a number of smaller companies operating in the same market, although the dominance test would clearly apply directly, I think that substantial lessening of competition would also be relevant. Substantial does not necessarily mean large in scale in relation to the market. If it is perfectly clear that a market has less than good competitive features already, the further reduction of what competition there is in that marketplace would reasonably be interpreted as a substantial lessening of competition. It would be very difficult for a dominant company seeking to extend its dominance to argue that that was not the case. However, I am glad that my hon. Friend has prompted me to pursue that matter—

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.

Standing Committee B

Enterprise Bill

Nigel Beard (Labour, Bexleyheath and Crayford)

Let me alert the Committee to the fact that as we are meeting on Wednesday next week this Room will not be available, so from Tuesday, we will meet in Room 12.

Nigel Waterson (Conservative, Eastbourne)

On a point of order, Mr. Beard. It might be convenient if I raise one other matter before we resume our discussions. Although the hon. Member for North-East Derbyshire (Mr. Barnes) reminded us that the entire procedure is a mere formality, I would like to ask the Minister whether we will have sight of draft regulations or guidance on this technical and important part of the legislation.

Melanie Johnson (Labour, Welwyn Hatfield)

It may be helpful if I check out the detail of what will be necessary and what is available and communicate that to the Committee shortly, either orally or in writing.Clause 20 Duty to make references in relation to completed mergers

Clause 20 - Duty to make references in relation to completed mergers

Nigel Beard (Labour, Bexleyheath and Crayford)

I remind the Committee that with this we are taking the following amendments: No. 123, in page 10, line 35, at end insert–

'or

No. 217, in clause 31, page 19, line 15, leave out from 'result' to end of line 17 and insert–

No. 126, page 19, line 17, at end insert–

'or

No. 128, in clause 33, page 20, line 20, at end insert–

'or

No. 220, page 20, line 23, leave out from 'result' to end of line 25 and insert–

'in the creation or strengthening of a dominant position, as a result of which competition may be significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 221, page 20, line 28, leave out from 'result' to end of line 30 and insert–

'in the creation or strengthening of a dominant position, as a result of which competition may be significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 222, page 20, line 35, after 'preventing', insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 223, page 20, line 40, after 'preventing', insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 224, page 21, line 3, after 'practicable', insert–

No. 225, in clause 34, page 21, line 25, leave out from 'in' to end of line 27 and insert–

No. 129, page 21, line 27, at end insert–

'or

No. 226, page 21, line 32, after 'preventing', insert–

No. 227, page 21, line 36, after 'preventing', insert–

No. 228, page 21, line 43, after 'practicable', insert–

No. 231, in clause 39, page 25, line 11, leave out from 'prevent' to end of line 12 and insert–

No. 232, page 25, line 14, leave out from 'from' to end of line 15 and insert–

No. 233, page 25, line 23, leave out from 'to' to end of line 24 and insert–

No. 235, in clause 42, page 28, line 34, leave out from 'in' to end of line 35 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 239, page 28, line 34, leave out from 'in' to end of line 35 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 240, in clause 43, page 29, line 27, leave out from first 'of' to 'the' in line 28 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 241, page 29, line 35, leave out from 'result' to end of line 36 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 242, page 30, line 1, leave out from 'result' to end of line 3 and insert–

No. 243, page 30, line 7, leave out from first 'of' to end of line 10 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services.'.

No. 244, page 30, line 15, leave out from 'in' to end of line 17 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 245, in clause 45, page 31, line 26, leave out from 'in' to end of line 27 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 246, page 31, line 28, leave out from 'any' to 'concerned' in line 30 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 247, page 31, line 43, leave out from 'in' to end of line 45 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 248, page 32, line 1, leave out from 'any' to end of line 4 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 249, page 32, line 26, leave out from 'be' to 'it' in line 27 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 250, page 32, line 31, leave out from 'preventing' to end of line 34 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 251, page 32, line 36, leave out from 'preventing' to end of line 39 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 252, page 32, line 46, leave out from 'be)' to end of line 47 and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced within any market or markets in the United Kingdom for goods or services'.

No. 256, in clause 53, page 38, line 21, leave out

'substantial lessening of competition'

and insert–

No. 274, in clause 69, page 50, line 29, leave out

'the substantial lessening of competition'

and insert–

'creating or strengthening a dominant position, as a result of which competition may have been significantly reduced'.

No. 275, page 50, line 36, leave out

'substantial lessening of competition and any adverse effects resulting from it'

and insert–

'the creation or strengthening of a dominant position, as a result of which competition may have been significantly reduced'.

Andrew Lansley (Conservative, South Cambridgeshire)

I had been speaking for too long and had only a limited amount left to say, but I want to complete my remarks because I was approaching my denouement.

I had disagreed with the hon. Member for North-East Derbyshire, although I understood why he tabled the amendment. The Minister could give us further explanations about why the Government do not think that there will be continuing difficulties in relation to merger cases that do not easily fall into the jurisdiction of either the United Kingdom or the European Community. Likewise, there are issues concerning the interpretation of competition law under the EC merger regime, which will not necessarily apply to the UK because we apply a different test. That may lead to difficulties, for example if a merger is approved in the United Kingdom but is then felt to be in some way anti-competitive or to abuse a dominant position as a result of the application of EC regime through the Competition Act 1998.

All those questions give rise to a perfectly reasonable presumption, which motivated the Government, not least in the Competition Act 1998, to seek complementarity between the UK competition regime and that which applies in the European Community. I recall that, in section 60, that Act even went to the point of ensuring that any issue that was not otherwise expressly provided for in statute would be interpreted in line with the EC competition regime. I presume that courts in this country continue to believe that that is the case, even in relation to

merger cases, unless there are specific statutory differences.

Therefore, there are good reasons to wonder about the desirability of a dominance test rather than a substantial lessening of competition test. The essence of my argument is to question whether we have the opportunity to employ a different regime in this country from that which necessarily applies under the Community mergers regime. We do; we are not required to have the same regime. If we have that opportunity, and if the Government think that we can get away with it, or perhaps draw the European Commission, under its review of the mergers control regime, further in the direction of a tough regime for a substantial lessening of the competition tests, we should do so. Relative competitiveness–competitive intensity–in the United Kingdom is the essential test.

I was interested to listen to listen to Professor Nicholas Crafts last week talking about Britain's relative economic performance. He said that in previous decades–he referred particularly to the 1960s and 1970s, the tendency in the United Kingdom was to believe that the application of industrial policy would lead to relative gains in productivity. That was found not to be the case. One of the principal reasons for that was that where businesses were not profit-maximising, there was a degree of excessive management control and a lack of accountability to shareholders, making it difficult to achieve competitive intensity through that route, competition policy was far more likely to have an impact upon productivity performance than industrial policy.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

I am sorry not to have heard the very beginning of what the hon. Gentleman said, but on the narrow point of productivity and planning versus competition, is it not true that during the 1980s, when there was relatively free and unfettered competition, the underlying trend for growth was almost precisely the same as it had been throughout the post-war period? There may be merits to either system, but one cannot make absolute claims on behalf of either of them.

Andrew Lansley (Conservative, South Cambridgeshire)

I commend Professor Crafts's monograph from the Institute of Economic Affairs to the hon. Gentleman. He will read that the trend gains in productivity in the United Kingdom during the 1980s were higher relative to others than during the preceding period. When France and Germany were making substantial gains in productivity after the second world war, the United Kingdom's appropriate response should have been to move towards a more competitive regime through the application of industrial policy.

Before I let the hon. Gentleman intervene again, he might like to consider an important point. The Budget Red Book made specific reference to the productivity issue and referred to the fact–it was about the only glimmer of hope that the Government could grab hold of–that in the past 10 years there had been some narrowing of the gap in productivity with France. Except that, on examining the table in the Red Book, it was plain that that narrowing had occurred during

the first six years of the past 10 years and had widened slightly during the past four.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

I am interested in what the hon. Gentleman has to say. It does not require a great leap of imagination to recognise that one of the main purposes of improving productivity, although it is good in itself, is to increase prosperity. That is usually measured by increased growth in the economy as a whole. That was my point–during the 1980s, in any analysis, the growth and the improvements in productivity were overwhelmingly based on taking the labour fraction out of the equation. That resulted in huge losses to the public purse and did not improve growth in this country one iota.

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. This denouement is turning into a major deviation. I should be grateful if the hon. Gentleman would return to the amendment.

Andrew Lansley (Conservative, South Cambridgeshire)

You are very kind, Mr. Beard. The hon. Member for Wolverhampton, North-East (Mr. Purchase) tempted me and we indulged ourselves. We should not have done so–you are quite right.

However, the original point was relevant. Other things being equal, if we, in the course of consideration of the Bill, have a chance of ensuring a merger control regime that is likely to provide pressures and incentives conducive to competition in general and to a greater intensity of competition in the United Kingdom than in other parts of the EU, because of industry's interpretation of other regimes as more lax, we should take it. We should do so notwithstanding some of the difficulties that might ensue in losing control of one of two of the larger mergers to the European Commission, which might want to take control. I think that we should go down that path.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

I find myself in the slightly difficult position of having some of what I wanted to say on amendment No. 211 taken away from me by the hon. Member for South Cambridgeshire (Mr. Lansley). However, I express my gratitude to him. He points out that there is more scope for acting on measures that undermine competition with the Bill as currently drafted than would be the case if amendment No. 211 were to be accepted.

Amendment No. 125, proposed by my hon. Friend the Member for North-East Derbyshire, raises interesting questions, and I hope that the Minister will respond to them positively. I was amused to hear it said that an amendment that, in paragraph (c), speaks of

''promoting, through competition, the reduction of costs and the development and use of new techniques and new products, and of facilitating the entry of new competitors into existing markets''

is rabidly left wing. If it is, then rabid left wing-ness has undergone a Damascene conversion.

The interesting thing about the amendment is how it connects to the remarks of the hon. Member for Eastbourne (Mr. Waterson). At the beginning of his speech–it seems a long time ago–he asked what was the justification for such a Bill so soon after the Competition Act 1998, particularly as it seems that, under the Bill, our rules on competition and competitiveness will be rather more stringent than

those that apply in the European Union. That is a good question. The answer is that we are seeking to promote an enterprise economy–something that our rules fail to deliver. On that point, I disagree with my hon. Friend the Member for North-East Derbyshire, because I believe that an effective competition regime is a vital component of an enterprise economy.

I was introduced to competition when my father, who was a painter and decorator, tendered for the job of painting some houses in Hemel Hempstead. Some of the other tenders were significantly lower, so he did not get the contract. That, he thought, was business–until he found out that the competitiveness of those other companies did not stem from having a more efficient or effective method of delivery. Those other companies invited my father in on a scheme whereby stolen paint would be made available. That was the basis on which some people were able to make highly competitive bids.

Britain has historically suffered from a variety of damaging business practices. They have often been allowed to persist, but the question is how, under statute, should they be resisted? In my father's case, the obvious thing to do was not to use the provisions of a trade and industry Bill but to prosecute those who stole the paint–not to say that it was against the public interest that people should steal a competitive advantage, but to ensure that the criminal law and other forms of law could be used to provide a competitive framework.

The thinking behind amendment No. 125 is that all of that should be included in the Bill. That is an error. If a company seeks to steal competitive advantage–other hon. Members may have encountered this in their constituencies–by dumping its waste at midnight in places where it has to pay no kind of dues and it is not fussy about the pollution and other damage that it causes, the criminal law should become involved. I am pleased that the stop now regulations in the Bill will make it possible for the authorities to prevent those who practise in a dubious way from continuing to do so. Not only will they be prosecuted but their capacity to continue trading will be undermined.

To pick up the point made by my hon. Friend the Member for North-East Derbyshire about trade unions, another way of seeking to steal competitive advantage is to pay workers less than the minimum wage, to give them no holiday pay and to fail to do any of the things that a reasonable company, seeking to honour its obligations to the public and its employees and to trade fairly, would do–such as to conform to environmental and industrial relations regulations and to keep laws governing the ways in which it advertises its services.

Competitive advantage can be stolen. However, in a fair trading Bill, we are seeking to establish the principles of fair competition and to ensure that those who aim to trade fairly really are given a competitive advantage, so that they do not have to keep looking over their shoulders, trying to fight off

the latest set of inquiries into their status; they can get on with the business of being an effective business.

In considering the series of amendments tabled by my hon. Friend, we must ask ourselves to what extent the Bill should reflect his concerns and to what extent the Government are providing a framework outside of their industry policy that makes the conditions for business fairer. The Committee will agree that there is still a long way to go. There are many highly dubious practices. An interesting aspect of Tuesday's debate was when we discussed clause 202 and the probing amendment to it that, oddly, went to a vote. That highlighted a series of dubious trading practices that, if they are not rebutted, might lead to businesses stealing an unfair advantage. I noted that, in her response to that debate, the Minister said that there was a lot of value in the amendment and that she would try to find ways of incorporating some of its ideas in the Bill.

Harry Barnes (Labour, North East Derbyshire)

I am following my hon. Friend very carefully. His reservation about the amendments seems to be that in some way they undermine considerations that are important to the Bill. However, as he pointed out, there are in amendment No. 125(c) various items that do not reflect worker-dominated positions and (a) is worded in terms of competitive provisions. We can have add-ons to the provisions so far as competition is concerned without that necessarily detracting from the principle. It could be that different wording is required, but his concerns can still be met.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

I certainly did not want to give the impression that my hon. Friend was undermining the Bill. However, that could be the effect of widening the brief of the OFT. As we all know, many clauses deal with the public interest, although we have not yet arrived at them and do not know how well established the public interest is. My hon. Friend's proposals push a good principle a bit further, but the trouble is that he may make it inoperative.

My hon. Friend mentioned the Biwater case and asked us to refer to his proposals as the Biwater clauses. The case was very interesting, and the Bill would have acted as a real support to the Biwater workers had it existed at the time. I do not know the details of the case, but my hon. Friend described the enterprise as a hive of industry, with effective management and splendid products. It is crazy for us to try to foster such enterprises only to let them go to the wall, and the Bill provides us with some new instruments to protect them.

The debate is about whether the people who run the OFT will deliver on the promises in the Bill. My hon. Friend said that the OFT and a Labour Minister were not much help when he was faced with his problem. Had some of my other hon. Friends been at the OFT, they might have given the complaints of my hon. Friend and his constituents a better hearing. We may need to keep a closer weather eye on those who take such decisions, because there is clearly scope for people at the OFT to take a narrow, or a more generous, wider view of competition. If they take the more generous view, they will examine trading practices, advertising techniques and the foot-in-the-

door ways of operating that some more dubious companies would like to use.

When it comes to stealing competitive advantage, the Bill may have it basically right. We want to ensure, however–I hope that the Minister can give us an assurance on this–that when the OFT conducts its deliberations, it has in mind not a very narrow definition of competition, but one that extends to the practices outlined in an Opposition amendment to clause 202. The question is what the OFT will consider. That does not have to be set out in the Bill, but the Minister's response to the amendment tabled by my hon. Friend the Member for North-East Derbyshire will provide those who study this legislation in the courts in the future with an understanding of how the Committee and Parliament understood the OFT's responsibilities and obligations.

My hon. Friend has done a great service by noting that there has historically been a narrow conception of what counts as an inquiry into competition and that that needs to change. I think that there is such an outlook in the Bill and that it could be incorporated in the guidance that is provided with the Bill, some of which could conform to the amendments to clause 202.

The overall result of all that is that the Bill is clearly about enterprise. We want to be more enterprising and more competitive than the rest of Europe, and I welcome the fact that the Bill looks like it might make a contribution to that end.

Melanie Johnson (Labour, Welwyn Hatfield)

I am delighted to be able to respond to such a long and wide-ranging debate on a subject that is clearly of interest to all members of the Committee.

The issue of competition test may be the best starting point. The set of amendments is large and the amendments cover different areas, so I shall discuss other points in order. Before I do so, I should say that I have written to the hon. Member for Eastbourne (Mr. Waterson), and the hon. Member for Orkney and Shetland (Mr. Carmichael), who is not present, on matters related to Tuesday's debate. Copies of those letters will be available on the Table.

Nigel Waterson (Conservative, Eastbourne)

I will put it on the Table myself.

Melanie Johnson (Labour, Welwyn Hatfield)

I am deeply grateful to the hon. Gentleman for his co-operation.

We discussed the choice of competition test in the Government's consultation document on the reform of the merger regime that was initially published in August 1999. A further consultation was carried out through 1999 and 2000. In addition, my officials have had a series of face-to-face meetings with lawyers, economists and other experts about the new regime and about the most appropriate competition test to employ. A large majority of those who responded to the consultation favoured a substantial lessening of competition test in preference to the dominance test currently used under the European Community mergers regime.

The substantial lessening of competition test comes closest to the competition analysis that is applied by United Kingdom authorities. It has the key advantage of being more flexible, allowing the authorities to

concentrate on the overall effect of a merger on competition, rather than on structures. It permits some of the sophistication and flexibility to which my hon. Friend the Member for Hemel Hempstead (Mr. McWalter) referred.

Mark Field (Conservative, Cities of London and Westminster)

It may be that the Under-Secretary will develop this argument, which is simply on a narrow point. The advantage of using a substantial lessening of contribution is its flexibility, yet, earlier in the debate and in the previous debate, we discussed the fact that one of the main tenets of Government policy on competition was to ensure predictability. Surely predictability and flexibility are in conflict?

Melanie Johnson (Labour, Welwyn Hatfield)

I shall come on to say in which regards the test is flexible. For example, it will allow the authorities to act when there is an increase of sole, joint or collective market power resulting from a merger, which may be difficult otherwise. The dominance test, on the other hand, might create an uncertainty about whether it allowed the authorities to take action when a merger would not lead to a firm having a dominant position but would increase the likelihood of firms remaining in the market and acting in an anti-competitive way. That is the sort of point that my hon. Friend the Member for Hemel Hempstead made.

We are not alone in having those concerns about the dominance test, which might not satisfactorily cover oligopolistic cases and markets, for example. Australia and New Zealand both switched from a dominance test to a substantial lessening of competition test–Australia in 1993 and New Zealand last year. It is noteworthy that the Green Paper on reforms to the European Community merger regulation, on the issue of the relationship with European Union provisions, raises the possibility of a substantial lessening of competition test as an option to replace dominance in the EC context. In economic terms, there is uncertainty about the ability of a dominance test to deal with the creation of non-collusive oligopolistic markets. The Commission and the courts developed the concept of ''collective dominance'' to bridge the gap, but the application of that concept remains uncertain in some situations. That is another powerful reason for changing to the substantial lessening of competition test.

Some claim that the dominance test provides a more predictable outcome, but we do not agree. I am confident that the substantial lessening of competition test will provide the necessary certainty for business.

The concept of a substantial lessening of competition is used and well understood in a number of other major jurisdictions, including the United States, Canada, Australia and New Zealand. It is best understood by reference to the question of whether a merger will increase or facilitate the exercise of market power leading to reduced output, higher prices, less innovation or lower quality or choice. Thus, it is concerned with whether there will be a significant reduction of competitive pressure in a market as a

result of a merger, not a simple numerical assessment of the numbers of participants in a market.

We expect that additional certainty as to the application of the test will be provided in the information and advice that the authorities will be required to produce under clause 102, which explains how they will consider references and how the relevant provisions will operate. Therefore, although there may not be flexibility from day to day, there is flexibility over time. If we had defined in more detail our understanding of how the test would work, the Bill would not stand the test of time, because economic preoccupations and issues change over time. Through the Bill, however, an interpretation is provided of how the provisions will operate that can be given in guidance and references.

The US regime has operated successfully on the basis of a substantial lessening of competition test, backed up by joint guidelines issued by the Department of Justice, and the Federal Trade Commission. I have every confidence that the United Kingdom system can operate with the same degree of certainty and predictability.

Before I pass off the questions about the European Union, I refer to the fact that the Government have contributed to the discussion under the ECMR and the Green Paper that the Commission produced. We wrote back to welcome the discussion of the substantive test and advocated the substantial lessening of competition test in response to the Green Paper.

Amendments Nos. 123, 126, and 129, tabled by my hon. Friend the Member for North-East Derbyshire, cover the issue of public interest. The amendments would restore a public interest test to the new merger regime. The amendments would require the OFT to refer a merger when it believed that a merger would operate against the public interest.

I am very grateful to my hon. Friend for tabling amendments that provide an opportunity to discuss these important points. The issues raised go to the heart of the rationale for the reforms to the merger regime, which merits a full explanation.

There are two core changes to the merger regime. The first is to depoliticise the merger regime by removing Ministers from the vast majority of decisions. The second is to replace the broad public interest test with a competition test. Focusing the legislation on competition will produce better merger regulation and improve the clarity of the framework for decisions and the predictability of decisions made under it. The wider the range of factors that can be taken into account, the less certain and predictable the outcome. The change will also update the statute and bring it into line with the major international jurisdictions–the US, the European Commission, France, Germany, Canada and Australia–all of whom apply a competition-based test.

We are introducing a competition test not only to increase the predictability of decisions or to align our regime with others, but because, in the vast majority of

cases, the economy is best served if mergers are assessed solely on the basis of their effect on competition. Competition provides a spur for businesses to be more productive, innovative and efficient, and better able to provide long-term sustainable employment and better products and services for consumers.

The amendments, taken with the definition of the public interest, which we shall discuss later, would allow the authorities to take some account of the employment and regional effects of mergers. As my hon. Friend the Member for North-East Derbyshire noted, those matters are excluded from the new competition test, but we believe that that is right. Adding new factors into the test will create barriers to restructuring. It is wrong to do that unless there are significant anti-competitive effects, and restructuring must be possible if companies and markets are to remain dynamic and competitive.

I recognise, of course, that mergers can have short-term adverse regional and employment impacts. My hon. Friend has first-hand knowledge of the problems that can arise. The Stanton-Biwater merger and the resultant closure of the Clay Cross plant in his constituency was a case in point, and I know that he fought hard and energetically on behalf of his constituents. Indeed, we have evidence that he continues to fight. Those are hard cases, but we should not base our policy on them. The answer is not to block mergers.

The Government's task is to make sure that the economy as a whole is strong, to help people to adapt and to get new jobs, and to make sure that for every job and every business that disappears, new companies spring up, and small companies growing bigger. Indeed, I know from the visits that I paid a year or so ago to the constituency of my hon. Friend the Member for North-East Derbyshire and to a number of neighbouring constituencies, that many businesses are growing there, of many new kinds with all sorts of potential. Those changes have grown out of the support that has been given as a result of the difficulties caused not only by Biwater but by other difficulties that arose under the Conservative Government.

We have created those conditions across the country in order to achieve a vibrant, dynamic economy that can adjust to change. Those conditions are among the most important. We have the lowest unemployment rate since the 1970s, the lowest inflation and the lowest interest rates since the 1960s. We have a record number of people in work as a result of private sector employment increasing by 1.25 million during the past five years. We remain the number one destination for foreign direct investment into Europe.

Although I sympathise with what my hon. Friend says, and with the needs and difficulties that he rightly identifies, they are best served by the overall economic policies being pursued by my right hon. Friend the Chancellor of the Exchequer and other members of the Government.

Harry Barnes (Labour, North East Derbyshire)

My hon. Friend said that there were two legs to the argument; one was about removing the Minister from his role in competition policy. The amendments do nothing about reinstating the role of the Minister–later amendments would do that. These amendments relate to the role of the OFT. I am still not convinced that the competition test is destroyed by the factors that I am trying to put forward. They may be ameliorated somewhat, but in my area, following the pit closures, others such as Biwater, Demaglass, Stirling Steel and Bryan Donkins have all gone, with massive problems–

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. This seems to be a long intervention.

Melanie Johnson (Labour, Welwyn Hatfield)

I have to disagree with my hon. Friend. I understand the points that he makes, but to introduce other considerations would be to widen the Bill beyond strict competition issues; it would draw in other issues that would be subject to a considerable degree of interpretation. My hon. Friends have made a number of useful remarks, including pointing out that the existing provision, under which the Biwater decision was made, was based on a public interest test. None the less, it did not help my hon. Friend in his concerns about its outcome.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

Does my hon. Friend agree that it is not unreasonable for people to be worried about an emphasis on competitiveness if they think that those who are seeking to make our economy more competitive are willing to increase unemployment, as happened in an earlier decade? If competitiveness and improved productivity go hand in hand with a commitment to full employment, nobody should be shy in welcoming that.

Melanie Johnson (Labour, Welwyn Hatfield)

Indeed. My hon. Friend is quite right. Opposition Members discussed Professor Crafts's contributions to this area of debate earlier. I was present at a seminar with Professor Michael Porter recently at which he advocated not only the sort of policies that we are pursuing but the idea that existing manufacturing and service sector industries could develop new opportunities and new strands to their activities, as a result of change that would better secure jobs and the future of those organisations. He claimed that that could be achieved by working in clusters, in line with his theories about the best economic and productivity structures.

The Government have also taken steps to help communities that are dealing with the closure of plants. A number of such steps were taken with the Clay Cross community. A response group was created to co-ordinate the work of local and regional partners in support of those affected. On-site job vacancies, benefits and training advice were provided and a range of redevelopment work was funded under the single regeneration budget. All those measures reflect the Government's serious commitment to full employment. Where there are local employment difficulties, steps are taken to deal with that and to ensure that local people again have jobs with a long-term future.

I shall set the reforms to the merger regime in the context of the operation of the existing Fair Trading

Act 1973 regime. In practice, competition has been the principal factor in UK merger policy for many years. If one examines the reports of the Competition Commission on mergers, the employment effects of mergers have not determined decisions in recent years, as my hon. Friend the Member for North-East Derbyshire remarked. Legislating for a focused competition test is not likely to make a large difference to the way in which mergers are regulated.

That is not to suggest that the change is not worth making. As I mentioned on Second Reading, there is always the possibility that a new Secretary of State will arrive and invent a new doctrine. We could all sit around and imagine the doctrines that we would most like to have invented, but it would be very contingent on who the Secretary of State was and to which political party he or she belonged. The substantial test for mergers that is currently being considered is broad in principle and confers some discretion. With that discretion comes inherent uncertainty about how the regime will apply, and our reforms are designed to address that problem.

Andrew Lansley (Conservative, South Cambridgeshire)

One aspect of the use of the public interest test under existing legislation that was not really covered in the discussion on the amendments is the question of the characteristics of a person seeking to acquire a company. I take the Under-Secretary's point that hard cases make bad law, and one should not extrapolate from any individual case, but has she thought about, for example, the case of Andrew Regan and the Co-op in 1997? What view does she take of the admissibility or otherwise under the competition test of the fitness of a person to acquire a company?

Melanie Johnson (Labour, Welwyn Hatfield)

That has been much discussed. I will not be drawn by the hon. Gentleman's invitation to speculate on the hoof, much as he might want me to do so. I return to the point made by my hon. Friend the Member for North-East Derbyshire about the third party comment on access for unions. As now, the OFT will publish an invitation to comment. Because I receive and respond to all the letters that MPs write on these matters, I know that many different views have been expressed on issues of considerable concern in the field of competition. For example, there has been a great deal of correspondence about the distribution of newspapers, which is currently the subject of an OFT investigation. All views that are germane to the competition test are carefully considered.

Before I return to the scope of the Bill, I should like to address some of the questions about transparency and certainty and where accountability lies. Concern has been expressed about Ministers removing some of the existing avenues through which people are able to make representations.

There will be a greater requirement on the OFT and the Competition Commission to publish guidance on the competition tests. They will need to consult publicly and will, where practicable, have to consult all parties about decisions that are likely to be contrary to their interests. The OFT will always consult the parties to a merger about the direction of their thinking on reference before the reference occurs and

about the matters on which they intend to rely. More generally, the OFT will, as now, publish an invitation to comment when it is considering a qualifying merger and it will, as I have said, consider written comments carefully.

There will be more certainty about the timetables for the work of the Competition Commission. In addition, there is the statutory right of appeal–so there are many aspects to the process.

We discussed earlier the relationship between the House and the work of the OFT. It is of particular interest to hon. Members, who might have a concern about forward plans and annual reports and would want to know about their availability for examination, should they choose to make them the subject of debate through any of the usual channels.

I should like to mention the scope that the Bill provides for the Secretary of State to make an order to define public interest issues to be taken into account in the consideration of a merger. Ministers would take decisions about a merger where such issues arose. We have no intention to define such criteria other than for national and public security concerns, as my hon. Friend the Member for North-East Derbyshire hinted. I mention that power because it provides a safety valve for the new regime, ensuring that any exceptional case can be dealt with appropriately.

We have had a long and very useful debate. I hope that I have responded to hon. Members' points and that the amendment will be withdrawn.

Nigel Waterson (Conservative, Eastbourne)

It does indeed seem like a long time since I was on my feet. I could have gone to the cinema or had a very extended lunch while the interesting debate within the Labour party played itself out. I owe half an apology to the Liberal Democrats, who I had thought were the past masters at holding two impossibly irreconcilable views at once. However, there has been quite a split in the Government ranks on this Committee–they seem to have two very different agendas. I can only assume that it was irony when the Minister thanked the hon. Member for North-East Derbyshire for having tabled the amendments. It has been a fascinating debate, and some of the nuances of Government policy that have come out have been most interesting.

I do not want to detain the Committee, because some of these themes will come up again in the stand part debate. There are some key issues that we want to raise about the way in which the whole new regime will work, and that is best done in the stand part debate. However, I want to mention the European relationship. With all due respect, the Minister has not really given us any inkling of why the Government seem to have changed their view on the problems or otherwise of there being a disparity between what happens here and in Europe. My hon. Friend the Member for South Cambridgeshire described his experience considering the Competition Bill, as it then was, and said how different the Government's attitude was then.

Melanie Johnson (Labour, Welwyn Hatfield)

I shall try to help the hon. Gentleman and his hon. Friend by pointing out that articles 81 and 82 apply as prohibitions on company activity. We believe that there is a clear benefit in having one set of rules for all business activities. Mergers are separate transactions, and companies will know which regime applies in the majority of cases. If there is a question about which regime applies, in a sense, that question already exists, because there is a question–which has arisen in several cases over the years–about whether the issue should be dealt with at European level or by the national competition authority. That issue has always arisen in a few cases, but in the majority of cases, it is totally clear which regime will apply.

We believe that it is important to have the right test, and I have said why I think that this is the right test. Indeed, Ireland is also considering revising the basis of the test that applies there to make it a substantial lessening of competition test, and draft proposals to that effect have recently been introduced. Several countries are moving in that direction because they see it as the right answer for business and consumers. That is why we, too, want to make that move.

Nigel Waterson (Conservative, Eastbourne)

It is very reassuring to hear that Ireland may be moving towards the same test–and I am not necessarily saying that it is not the right test, because there are strong arguments for both tests. However, I am slightly surprised that the Minister is so unfazed by the potential difficulties of having different tests here and in Europe. I appreciate that the difference is not as stark as it is in the case of cartels, because in most cases it should be clear which regime companies are dealing with. However, there will be uncertainty in some cases, and companies do not really want to have to keep abreast of decisions and case law and practice relating to two different tests. That is still a concern, but given that we will return to some of those themes in the stand part debate, I do not intend to press the matter.

Harry Barnes (Labour, North East Derbyshire)

One final word on Biwater. When the Minister said that the Secretary of State and the OFT doubted the public interest consideration, bundles of material about the public interest were sent to the Secretary of State and to the OFT, and the Minister referred the matter back–but whether those matters were given any detailed consideration or merely put to one side on the basis that the competition test was the overriding factor is another point. Certainly, from the responses of the director of the OFT, it seemed clear to me that the bundles of evidence and all the argument that we had about the public interest were not given much consideration. If they had been, it is much more likely that the matter would have been referred to the Competition Commission.

I am not against an arrangement in which one set of competition rules operates throughout the whole European Union. I hope that in establishing that, we would act as we would in Britain for our own competition rules–in as democratic a way as possible. The great problem with the European Union is the democratic deficit that does not allow that. Democratic systems will try to ensure that democratic arrangements are continued through their

decisions. We are missing out on that so far, but perhaps the debate on public interest has only just begun.

Mark Field (Conservative, Cities of London and Westminster)

I have some sympathy with the hon. Gentleman's view regarding the European Union's democratic deficit. Is not one of the concerns in the constituency case to which he has referred at great length really that many of his constituents dislike the outcome rather than the process? Realistically, however much of a process was gone through, involving central Government and the consideration of a public interest test, had the outcome remained the same his constituents would have objected just as strongly.

Harry Barnes (Labour, North East Derbyshire)

A process under which a report was issued to the Secretary of State from the OFT stating that everything was okay and failing to indicate that the closure of the plant was afoot, the news of which was suddenly dropped on people, would be very disturbing. There was concern in my constituency about the result and the consequences, and people were trying to mitigate that. However, they also objected to the procedure under which the decision was made, the inadequacy of any consultation with the work force and the misleading behaviour of the Biwater management. Those factors were also important. We cannot divide decisions from the procedures under which they are made. That is an important element of democracy.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

I take my hon. Friend's point. However, the European regulations would be no more helpful in the terms in which he wishes them to be than the rules that would apply in the UK. During the consultation, the question arose of dual jurisdiction of UK and EC regimes. The Library research paper states:

''The Government noted that since mergers fall to be handled under either the UK regime or the EC regime but not both, arguments for using the same test were less strong than in other parts of competition control where dual jurisdiction could arise.''

Does that overcome the problem of the democratic deficit, given that UK procedures can be judged here, where democracy is fully developed?

Harry Barnes (Labour, North East Derbyshire)

I still think that the matter presents problems. The initial reason for setting up the Common Market was that markets were no longer national. A wider framework was needed for the operations of markets and competition within them, because national markets were coming to be dominated by multinational companies.

Having a wider framework in which to act does not seem objectionable to me. However, such frameworks should be subject to democratic input and decision making. My position on Europe is that I fear a federal, social Europe whose democratic credentials have yet to be established. We had better hold on to some of our authority until the two areas in which decisions are to be made are clearly established and defined. I spent eight interesting years on what was then called the European Legislation Committee trying to resolve where the boundaries were and what the increases in competences were.

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. I should be grateful if the hon. Gentleman would return to the amendments.

Harry Barnes (Labour, North East Derbyshire)

Competition is affected, as is the operation of the public interest, because the involvement of politicians, under proper control and regulation, is democratic involvement. That is important at national and EU level, and it is a question of working out the right frameworks for competition.

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

In his summing up, will my hon. Friend address the point that, if the Bill is enacted, there may be more support for workers like those at Biwater than there would have been in the old days? In addition, if those workers had been aware of clear guidelines, they would have made the case not that there would be a loss of 700 jobs but that there would be a substantial lessening of competition in the pipe industry. That would have been a basis for the OFT's consideration.

Harry Barnes (Labour, North East Derbyshire)

That was the consideration, the brief and the duty of the OFT and the Secretary of State under the previous arrangements. The hope is that the Bill will provide greater accountability and greater access to a newly established OFT and that openings that did not exist–[Interruption.]

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. Will the person with the mobile phone please turn it off or leave the Room?

Harry Barnes (Labour, North East Derbyshire)

My final point–

Tony McWalter (Labour/Co-operative, Hemel Hempstead)

I was asking whether, if there were clear guidelines–[Interruption.] I apologise, Mr. Beard. I think that my mobile has turned itself on.

First, will my hon. Friend consider the point that the clarity of the Bill will make it easier for workers to address this issue than was the case before? Secondly, as the OFT was previously more concerned about market dominance than about a ''substantial lessening of competition'', the inclusion of that phrase will also help workers in future.

Harry Barnes (Labour, North East Derbyshire)

I hope that that is the impact of the development that my hon. Friend describes, but it is doubtful whether that extra avenue will be sufficient to overcome the problems that I have suggested. I believe that other considerations should be taken into account.

What if I over-egged the pudding in connection with a firm like Biwater and it was nearer to the break point? If that were the case, the public interest factors, such as the distribution of employment in a deprived area, the distribution of industry and the important considerations of the export market, could tip it over the edge, and the case could be sent to the Competition Commission. That is another body that will have a further and wider look at the matter. The add-on is important, even if it is easier for the future equivalent of the Biwater workers to access the new OFT.

I now want to consider the position that the Government adopt when closures take place, and particular problems exist, in an area such as Clay Cross. Special measures can be taken and provisions used, but many of these take a considerably long time

to bite in terms of helping to create alternative forms of employment with something like the wage levels that existed previously. We therefore need something that allows us to ease ourselves into situations more dramatically than the extremes of pure market considerations allow. That is why making the competitive considerations the sole ones is important. Although it tempers the measure, it does not destroy it. I took the message from the British Bankers Association that it was all a foregone conclusion and that I would not be able to change what has taken place, although I live to fight another day. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

On a point of order, Mr. Beard. As you know, we feel considerably constrained by the short time that the Government want to devote to this matter in Committee and the speed with which they want to put it through the House generally. It might have been helpful to you and the Committee if they had vaguely tried to establish some common ground among their Members before starting the Committee stage. We have had a long series of not uninteresting speeches from rebel Labour Members who do not seem to share the Minister's aspirations for the Bill. If that carries on, the scrutiny by the rest of the Committee will become even less effective because of the limited time available.

Nigel Beard (Labour, Bexleyheath and Crayford)

That is not a point of order. It is a matter not for the Chair but for the usual channels.

Harry Barnes (Labour, North East Derbyshire)

I beg to move amendment No. 124, in page 10, line 36, leave out subsection (2).

Nigel Beard (Labour, Bexleyheath and Crayford)

With this it will be convenient to take the following: amendments: No. 213, in page 11, line 2, after 'customer', insert 'and supplier'.

Government amendment No. 176

No. 214, in page 11, line 3, at end insert–

'(c) the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to the acquiring party; and there is no less anti-competitive way of selling the company.'.

No. 212, in page 11, line 40, at end add–

'(8) The Secretary of State shall make regulations to define ''sufficient importance'' within the meaning of subsection (2)(a).'.

No. 127, in clause 31, page 19, line 18, leave out subsection (2).

No. 219, in clause 31, page 19, line 26, after 'customer', insert 'and supplier'.

Government amendment No. 177

No. 218, in clause 31, page 19, line 28, at end insert–

'(d) the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to the acquiring party; and there is no less anti-competitive way of selling the company.'.

No. 234, in clause 39, page 25, line 27, at end add–

'(6) In making a decision under subsection (2), the Commission may also have regard to whether the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to

the acquiring party; and there is no less anti-competitive way of selling the company.'.

No. 237, in clause 42, page 28, line 42, after 'customer', insert 'and supplier'.

Government amendment No. 178

No. 238, in clause 42, page 28, line 47, at end insert–

'(g) the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to the acquiring party; and there is no less anti-competitive way of selling the company.'

No. 254, in clause 45, page 33, line 2, at end insert–

'(10A) The Commission may also have regard to whether the enterprise which is the subject of the proposed merger will become insolvent within the immediate future; the market shares of the enterprise would in any event go to the acquiring party; and there is no less anti-competitive way of selling the company.'.

No. 253, in clause 45, page 33, line 1, after 'customer', insert 'and/or supplier'.

Harry Barnes (Labour, North East Derbyshire)

In order to help the Government and the Opposition, and as we have had a full debate on the public interest, I do not intend to speak to my amendment.

Nigel Waterson (Conservative, Eastbourne)

I am thoroughly ashamed of myself if my point of order has silenced the hon. Gentleman. I was not making a point about the content of his speech, merely the abysmal failure of the Government Whips Office to establish that the people on the Committee were vaguely supportive of the aims of the legislation.

Harry Barnes (Labour, North East Derbyshire)

I feel that the points that I wanted to make have been made and dealt with. Having moved my amendment I do not intend to speak to it. There are later amendments on this clause and it may help the Committee to know that amendments Nos. 125 and 126 will not be moved.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for that clarification. Our amendments in this group comprise two sub-groups dealing with two different issues. Amendments Nos. 213, 219, 237 and 253 are on the same issue and would insert the words ''and supplier'' into the clause. The clause as it stands provides that the OFT may decide not to make a reference if it believes that any relevant customer benefits involved in the merger outweigh any anti-competitive effects. That can broadly be welcomed as it gives an element of flexibility, albeit one that exists only in the Bill at present, which I am sure most people would welcome. We take the view, with the CBI, that inserting the words ''and/or supplier'' would reflect the benefits to suppliers of dealing with a single buyer in a market and the fact that customers are not the only party–although they should be at the forefront of our concerns–to be affected by a merger. I hope that those amendments are fairly clear.

Amendments Nos. 214, 218, 234, 238 and 254 are more complicated. They add another ground on which the OFT may decide not to make a reference. There are already two such grounds in the Bill: where the market is not of sufficient importance to justify a reference, an issue to which we shall return in the stand part debate, and where customer benefits outweigh any adverse impact on competition. I stress that those

are both welcome. With the support of the CBI, we propose a third possibility: the so-called failing firm defence, which applies differently from previous considerations, in that it is applied by the United States and the European Commission.

In the US, a party wishing to rely on that defence must show four things: first, that the failing firm cannot meet its financial obligations; secondly, that it cannot reorganise itself in bankruptcy; thirdly–an important consideration–that it cannot find another buyer whose purchase would pose lesser anti-competitive risks; and fourthly, that in the absence of the merger, its assets will exit the market. In the EU, the failing company defence was first applied in 1993 in a decision in Kali-Salz/MdK/Treuhand, a case about potash.

Nigel Beard (Labour, Bexleyheath and Crayford)

I remember it well.

Nigel Waterson (Conservative, Eastbourne)

I am sure you do, Mr. Beard; you probably received much constituency correspondence about it.

A dominant position was created in the German market for potash but the case was cleared from a reference under mergers legislation in the EU because it was considered that a prohibition would have led to the same outcome in the market as if there had been a clearance. In the Commission's decision, the following three criteria were set out: first, the company would in any event go bankrupt in the immediate future; secondly, the market shares of the company would in any case go to the merging party; and thirdly, there was no less anti-competitive way of selling the company. It is immediately apparent that the main difference between the US and the EU approach is that the latter imposes the additional requirement that the market shares of the failing firm would in any case go to the acquiring party.

The amendments are probing, and we are genuinely interested to hear the Government's comments. I suspect that they considered the failing firm defence but discarded the idea, possibly for good reasons–if so, we would be interested to hear what they are. We propose a test based on the US lines, but as the CBI said in its comments:

''adoption of either approach would be acceptable''.

That is probably right and also raises an important issue.

John Pugh (Liberal Democrat, Southport)

I speak partly in the stead of my hon. Friend the Member for Orkney and Shetland (Mr. Carmichael) who, in such a non-competitive situation, has unfortunately had no choice about what airline to take home today. I am sure that if he were present he would make the points that I shall make, to greater effect but with perhaps less brevity.

Amendment No. 212 would insert a provision that the OFT would consider only mergers that it deems ''of sufficient importance''. I am not sure of the reason for that proposed addition; the OFT should consider any good prima facie case. Many of us think that the Bill has a metropolitan bias, and that under its provisions any merger in the south-east or London is necessarily large-scale because of the nature of the

market. All prima facie cases in the metropolitan area will therefore look good. Equally, all prima facie cases in Orkney will not look so good, and might not be considered.

I want to find out from the Minister whether the Bill's aim is to discourage non-competitive mergers, or just big non-competitive mergers. I suspect that the latter is the real objective. I can genuinely understand why the OFT would not wish to involve itself in the affairs of every corner shop or locality. Indeed, clear guidelines are given elsewhere in the Bill, for example in clause 21(5), on what might come up for consideration, and on the criteria that might have to be met before anything becomes a matter for the OFT's consideration.

However, a clearly anti-competitive small-scale merger could occur, and not in the usual way, in which potential players take up the small-scale market, as would generally happen in a metropolitan area. A market judgment might be formed between, say, two regional airlines, where no players enter the market. Alternatively, the market might be of such small scale that it would not justify the capital investment needed for another player to come in. I accept that in those circumstances we could argue under another clause that the consumer might feel a proportionate benefit from no competition.

The failure of a competitive market in a small locality in the corner of the United Kingdom is surely as crucial to the thrust of the Bill as the failure of competition in a metropolitan area or where markets are necessarily large. I wonder what mechanism the Under-Secretary has for ensuring that such cases come up before the OFT, and are not dismissed simply because they are not ''of sufficient importance''. My feeling is that in certain areas, nearly every issue will be deemed not to be of sufficient importance.

Jonathan Djanogly (Conservative, Huntingdon)

I should like to tell the hon. Member for Southport (Dr. Pugh) that, as there is a de minimis provision of £45 million, I am not sure how many businesses in Orkney are likely to be affected.

Amendment No. 124 would adopt a relatively tried and tested concept that has been used in the United States for a fairly long time. I support my hon. Friend the Member for Eastbourne in asking why we are not adopting the failing company exclusion. The concept is not entirely alien to the United Kingdom. Indeed, for companies listed on the stock exchange there are, under the stock exchange rules, various circumstances in which failing companies can be excluded from those regulations if they are in difficulties.

We must also appreciate that if a company is insolvent or on the brink of insolvency, onerous restrictions on the directors come into play under the Insolvency Act 1986, to name but one piece of legislation. The restrictions deal with whether the company is to continue trading, and if it is, where it will get its finance from–equity or loans. If it cannot do either, the company is wound up. Not taking on that failing company test could lead to companies going towards insolvency faster because a sale could

not go through. If the money runs out, the business has to be sold or wound up. That could mean that without the test jobs could be lost.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

The hon. Gentleman might be correct in thinking that a company that finds itself insolvent must cease trading or quickly make arrangements to cover its liabilities. Is there a danger in the provision that holding out the hope of a merger with another company might prevent the directors of a failing company from making one of two choices: to cover the liabilities quickly by overdraft facilities and personal guarantees, or to put the company into administration? Is there a danger that the proposal would encourage a no man's land where shareholders and creditors would get the worst of all worlds?

Jonathan Djanogly (Conservative, Huntingdon)

I do not think that there is a danger, because we are not talking about small businesses where personal guarantees could be relevant. If a company has a £45 million turnover, it is unlikely that refinancing would involve the directors putting up personal guarantees. They would have to have a massive sum of money from a bank. Most companies would probably be stock exchange listed, and would have to go to the market quickly to get money. Interestingly, in that circumstance the stock exchange waives the requirement for them to issue some of the paperwork that they would usually have to complete. However, having to go through the merger regime could lead to insolvency and a much higher risk of jobs being lost.

Andrew Lansley (Conservative, South Cambridgeshire)

The amendments relate to suppliers and customers. I want to discuss two amendments that were tabled by my hon. Friend the Member for Eastbourne. He did not elaborate at any great length.

If one were to observe a situation in which a merger gave rise to sufficient concentration to remove competition in purchasing, it is debatable whether one could distinguish any benefit to the supplier that would not also lead automatically to customer benefits. If a company has sufficient market power–in this case, proxy–to control purchasing to that extent, presumably it would also have the necessary market power to be able to impose price increases or quality changes in the product that would be to the detriment of the customer but to the company's advantage. It is therefore likely that benefits to the supplier and to the customer go hand in hand. I am sure that my hon. Friend the Member for Eastbourne has recognised that there is a danger under the amendments that supplier benefits could be construed without any customer benefits flowing from them. It may be in the interests of some suppliers to have some concentration among their customers that does not necessarily benefit customers further down the line.

I am grateful to my hon. Friend for raising another interesting issue. One may lose sight of the nature of the competitive market in which one is working if one only looks downstream from the companies concerned, albeit at every stage downstream to end-use customers. One may see some concentration at one point in the market, but competition occurring above

that in the customer supply chain would make entry to that marketplace easy. Whether it would be right to restrain a merger between companies operating at that level is an issue for further scrutiny.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

In referring to earlier dissonance between a Labour Member and the Government, the hon. Gentleman was in danger of causing the hon. Member for Eastbourne to swallow his own words. Are we now hearing exactly the same?

Andrew Lansley (Conservative, South Cambridgeshire)

I am debating the amendment in accordance with my hon. Friend's intention. He rightly raised a point of order because he wanted to ensure an opportunity for sufficient scrutiny of the Government's proposals. He was not intending to affirm that, save the presence of minority parties, only two arguments must be presented in Committee–the Government argument and an Opposition argument–as opposed to those on a series of Opposition probing amendments. The purpose of such amendments, and of having sufficient time to debate them, is to explore the issues.

The hon. Gentleman will no doubt test me again on the amendments. We should certainly reflect carefully on amendment No. 214 and consequential amendments. We are trying to introduce a merger-control regime that is closer to that in the United States than in the EC. My hon. Friend the Member for Eastbourne spoke about the European Community's case, but he was simply pointing out that several merger-control regimes explicitly acknowledge a failing firm defence. The amendments propose something akin to the EC structure, but if we were going to adopt the US merger regime–or something like it–it would be more logical to construct something closer to the US failing firm defence rather than the EU defence. The issue in the US failing firm defence that really matters is the point mentioned by my hon. Friend: in the absence of the merger, the assets of the firm will exit the marketplace. That is the key.

The other issues are not so significant. The fact that firms succeed and fail is a perfectly normal part of a market mechanism. One should not normally allow dominance to occur because if there are sufficient opportunities for entry to the marketplace, one firm will disappear, another will arrive and assets will go out of one company's control and into another's. If those assets were to exit the marketplace, however, a risk of reducing competition arises.

The real test is whether, in the absence of a particular merger, competition will be reduced because the assets of the firm that would have been taken over–the enterprise that will cease to be distinct–will not be retained and not continue to supply the marketplace. They may be lost. The lack of capacity to supply the marketplace may be a detriment to consumers. That will obviously have to be balanced against the position in the marketplace and, particularly, any increase in dominance on the part of the company that buys out the other. Whether another company could take over those assets is relevant, but a second-order rather than a first-order question.

My hon. Friend has done the Committee a service by raising this matter. We must think carefully about the US regime and whether anything has been identified that is lacking from the existing criteria that should be applied to making reference. We must be satisfied theoretically–we often think issues through theoretically rather than practically–that in the absence of an additional criterion of the sort that I mentioned, the Office of Fair Trading could assess whether assets would exit the marketplace or whether, in the absence of a merger, they would be taken over by someone else who would occupy a less dominant position, thereby keeping the competition going by the application of the substantial lessening of competition test. The key is whether that test is sufficiently flexible, as the Minister said, to be able to deliver the possibility of a non-reference or some sort of undertaking without the explicit identification of the failing firm defence in the criteria set out in the measure.

One other point should be borne in mind. We are modelling our merger regime more closely upon those that apply in the United States, which rests more on its merger regime than we do. We depend slightly more on our complex monopoly provisions and on the chapters I and II prohibitions under the Competition Act. We have to be careful that we do not try to do everything through the merger control regime rather than taking other routes. For example, in the absence of a failing firm defence, and if a dominant position were to result from a company going out of business and the assets leaving the marketplace, any abuse that might arise from it might be more effectively handled through the chapter II prohibition than might be the case in the US regime. It is probably done more effectively here and in the European Union than it is in the United States.

Melanie Johnson (Labour, Welwyn Hatfield)

It might help if I first speak to Government amendments Nos. 176, 177 and 178 and then come to the points made by hon. Members in the debate on the other amendments in the group.

The amendments affect clauses 20, 31 and 42. They make it clear that a substantial lessening of competition arising from a merger, as well as any adverse effects which result from the substantial lessening of competition, may be outweighed by customer benefits in the Office of Fair Trading's consideration of a reference decision. The amendment to clause 42 makes the same change in relation to any report that the OFT makes to the Secretary of State in a merger case in which she has intervened. These are minor changes made for clarity and to harmonise the language of these clauses with that of clause 33, which concerns the decisions of the Competition Commission on a merger reference.

Amendments No. 213, 219, 237 and 253 refer to the customer benefits issue, and the benefits to suppliers. The amendments expand the definition of customer benefits where the term appears in the Bill to include benefits to upstream suppliers of a merging entity. The definition of customer benefits is important; in certain circumstances they can affect the decisions taken by the competition authorities. At stage 1, the OFT can have regard to defined customer benefits in deciding

whether to refer a merger. At stage 2, the Competition Commission can have regard to defining customer benefits in deciding what action to take to remedy a competition problem. The aim of a customer benefits limb is to allow the authorities to have regard, where appropriate, to certain types of customer benefit that can arise from the merger notwithstanding a substantial lessening of competition. If these potential benefits only flow upstream to suppliers, but not downstream to customers of the merging entity, it is immediately obvious that the substantial lessening of competition is providing a significant bottleneck preventing any benefits being passed through the supply chain. This would suggest that the substantial lessening of competition is sufficiently strong to prevent any customer benefits being obtained.

A merger that results in a substantial lessening of competition is almost invariably harmful to customer and consumer interests. It should be possible to allow such a merger to proceed only where the authorities are confident that there are offsetting customer benefits. We do not think that the regime should be structured to take account of benefits that benefit only upstream suppliers and their shareholders, but have no wider benefits for customers.

Where benefits to upstream suppliers manifest themselves in benefits to customers further down the chain, it would be possible to take account of them under the definition of customer benefits set out in clause 28 of the Bill provided they take the form of lower prices or higher quality choice or innovation. Indeed, it is difficult to identify examples of benefits that would only flow upstream without also having an impact on customers downstream. There is therefore no need to make special provisions for supplier benefits.

In developing the new merger regime we have sought to retain a tight definition of customer benefits to maintain the primary focus on competition while providing flexibility to deal appropriately with the rare circumstances where a merger may produce customer benefits notwithstanding a substantial lessening of competition. Expanding the definition, and expanding the factors that can in certain circumstances be weighed against a loss of competition, risks undermining the competition focus of the regime, undermining its certainty, and complicating the assessment task of the competition authorities.

Amendment No. 212 would require the Secretary of State to make regulations to define the meaning of markets of ''sufficient importance'', which exercised the hon. Member for Southport in his consideration of this on behalf of his hon. Friend the Member for Orkney and Shetland. It would thereby restrict the discretion that the clause gives the OFT to assess against all the relevant facts and circumstances of a particular case whether a market or markets associated with a merger were of sufficient importance to justify further investigation by the Competition Commission. I was not entirely clear whether the hon. Member for Southport realised that this was not about the initial investigation but about looking further into markets associated with the merger, the further investigation by

the Competition Commission, and whether a reference should be made. In giving the OFT discretion to make this assessment we wish in particular to give it discretion to avoid references being made where the costs involved in the reference would be disproportionate to the size or significance of the markets concerned.

The Government believe that judgments of that type are best made on a case-by-case basis by the experts in the competition authorities. We believe that the OFT will be able to reach sensible decisions under the formula we propose, and do not think that it would be sensible further to define the concept or to impose a rigid legal framework for such a judgment. The variety of markets and situations that can arise could well lead to any more precise definition having unintended consequences as new facts appeared, with inappropriate references being made.

Depending on the circumstances of the case in relation to the question of what sufficient importance is, which exercised the hon. Gentleman, the OFT could take the view that a small, but fast growing market would meet the importance test, whereas another market of a similar size in long-term decline would not. However that very example shows the need for care in seeking to prescribe what is to be treated as important, and to argue for leaving the OFT scope to exercise its discretion sensibly. I hope that I have reassured the hon. Gentleman about the importance of some small markets in the definition of sufficient importance.

The OFT will be publishing general advice and information about the making of references by it, which will enable it to give guidance from time to time on matters it considers likely to be relevant to the assessment of importance. As part of that process, the OFT will consult businesses and others on their views. We note that the decisions that the OFT makes may be the subject of appeal to the CAT, such that the OFT will need to consider those matters carefully.

On the failing firms defence, the amendments seek to ensure that the special circumstances of a merger involving a failing firm can be taken into account. I agree that this is desirable. However, no special provision is required. In applying the substantial lessening of competition test, the competition authorities will already be able to take account of those issues where they arise. When considering whether a merger would result in a substantial lessening of competition, the competition authorities will have to analyse a number of scenarios. Two key scenarios will be, first, the situation that would result from the merger taking place, and, secondly, the situation that would develop if there were no merger.

Clearly, if an enterprise is about to go out of business, it will affect the analysis because the authorities will be comparing the post-merger situation against a market without the failing firm. In that event, they may conclude that the merger will not result in a substantial lessening of competition. That is another attraction of the substantial lessening of competition test. It ensures that the authorities have

the flexibility to consider how the merger will affect the competitive forces in a market. However, many different issues can arise and it is not attractive to pick out a few in the legislation. In fact, that would call into question the normal economic application of the test.

Mark Field (Conservative, Cities of London and Westminster)

I might support that application in theory. In practice, however–I refer to one of our main concerns with the failing firm ideal–a failing firm is likely to lose staff and customers rapidly in the run-up, probably, to bankruptcy. It is therefore crucial to take decisions quickly. Will the Minister provide more guidance about the process that will be brought into play by the competition authorities? The test must be flexible to avoid the real risk of putting an overly complex procedure in place. A failing firm might in practice go under, with the resultant loss of jobs and opportunities.

Melanie Johnson (Labour, Welwyn Hatfield)

I have already undertaken to write to the hon. Member for Eastbourne about the areas in which guidance might be called for. We intend to share initial drafts with the Committee to help clarify what will remain for the OFT or Competition Commission to tackle. I acknowledge the hon. Gentleman's point, but I add another that relates to a later part of the Bill. We hope that the new administration procedures will encourage firms to come forward before they reach the brink of failure. Fewer firms will get to the brink.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend the Member for Cities of London and Westminster (Mr. Field) made a good point and I shall raise a further one about timing. An exclusion poses no timing issue, but the Minister's proposal would lead to a time delay between a company going to the OFT to request quick clearance to stop it from going under and the requisite action taking place. The Under-Secretary has not told us how long that period might be in those extreme circumstances. Many companies would feel more comfortable if they knew that such appeals would be dealt with quickly. Can the Minister provide any comfort?

Melanie Johnson (Labour, Welwyn Hatfield)

I can certainly provide the comfort that the OFT could clear a merger quickly if it were convinced that no substantial lessening of competition would follow. If it is not convinced, the same parameters of timing apply to failing companies as now. If I can secure more helpful information, I shall set it out in my letter to the hon. Member for Eastbourne.

Jonathan Djanogly (Conservative, Huntingdon)

Is the Under-Secretary saying that if there were a substantial lessening of competition, it would be irrelevant that the company was going to the wall?

Melanie Johnson (Labour, Welwyn Hatfield)

No, I did not say that. I said that the OFT would have further issues to consider if it thought that competition might be reduced. As I said, I shall provide more information in my response to the hon. Member for Eastbourne.

I conclude with a couple of brief points. We believe that the provisions will ensure clarity for business. That is why clause 102 requires the OFT and the Competition Commission to produce guidance, to which I referred earlier.

The hon. Member for South Cambridgeshire made a point about assets. The substantial lessening of competition tests is sufficiently flexible to take account of the assets from the market in a merger consideration. I commend the Government amendments to the Committee, and trust that the other amendments will be withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for the Under-Secretary's explanations. We agree with her comments about the Government amendments, which seem minor and make things clearer, if they have any effect at all.

We will reconsider the failing firm defence. The Under-Secretary assured us that it was not necessary to include it in the Bill, as it will be open to the authorities to take it into account. However, the Opposition, especially my hon. Friend the Member for Huntingdon (Mr. Djanogly), exposed some practical difficulties that may need further thought. It is an open question whether it is a matter for the pre-guidance or the Bill. We will read carefully what the Under-Secretary has said. Any further comments that she would like to make in correspondence would be welcome. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 176, in page 11, line 2, after 'outweigh' insert:

'the substantial lessening of competition concerned and'.–[Miss Melanie Johnson.]

Question proposed, That the clause, as amended, stand part of the Bill.

Nigel Beard (Labour, Bexleyheath and Crayford)

Before we begin the debate, the public interest argument for a reference to the Competition Commission and the compatibility of the legislation with European legislation have been fully covered in the debate. It would be mere repetition to cover those points, and I ask hon. Members to restrict their comments to matters of principle that have not already been adequately covered.

Nigel Waterson (Conservative, Eastbourne)

I am grateful for that guidance, Mr. Beard. I am in your hands, but it might make more sense to have a full-blown debate on the principles behind the clause, thereby saving a lot of time later in dealing with specific issues, although it may not appear so at the time. This is a set piece debate on the Government's proposals, and it might be more sensible for the Under-Secretary to speak first and set everything in context by explaining what we are trying to achieve, as that there is little political controversy. I do not know whether the Under-Secretary agrees with me.

Nigel Beard (Labour, Bexleyheath and Crayford)

The hon. Gentleman has been called, so I suggest that he continues.

Nigel Waterson (Conservative, Eastbourne)

I gave the Under-Secretary that opportunity, but we will do as you suggest, Mr. Beard.

The changes have been long expected and widely discussed, although that is not true of all parts of the Bill. There has been wide consultation on the proposals with industry and anyone else who takes

an interest in these matters. As we discussed, the current three-legged system is widely perceived as less effective than it should be and probably not designed for the needs of a modern merger regime. It is cumbrous and unnecessarily slow: I think that an average procedure typically takes at least six months.

In theory, but not necessarily in practice, as we heard, the system gives the Secretary of State a central role in the decision making. Again, in theory, that has left the procedure open to political pressure, which some people regard as not a good idea, but which is an obvious attraction for the hon. Member for North-East Derbyshire. He seems to have had something of a brush-off in his attempts to spark ministerial interest in his problem under the current regime–c'est la vie, I suppose.

The hon. Gentleman argued, with some passion and conviction, for a return to what he regards as the good old days. The trouble is that most people who have to operate in the system regard them as the bad old days. Indeed, the whole concept of political involvement in mergers has come to be accepted–except in some remote vastnesses of the Labour party–as not the way to proceed in the 21st century. However, that system is present in other respects: the college of Commissioners makes important EC merger decisions, and there are states that do not have a competition authority that is independent of their economics ministry or equivalent. The practice that has grown up is that Secretaries of State take a view on the basis of the advice that they are given, although there are some dramatic exceptions, which I shall address in a moment.

While I am giving an overview, another issue is the test. We discussed that in some depth, and I do not want to trespass on your patience too much, Mr. Beard, but in many ways it is a recognition of the practice that has existed since the time of the Tebbit doctrine. I am sure that my hon. Friend the Member for South Cambridgeshire had a great deal to do with that before he left being a gamekeeper and turned poacher by joining us politicians. Although one can understand the salesmanship involved in the Government's trumpeting of the change, it is fair to say that the change to a pure competition test is less dramatic than it appears. I do not intend to go back over the different tests or the dominance test versus the competition test; there are good arguments on both sides of the equation. We also discussed the European dimension, so I need not cover that.

We shall have a more focused debate on consumer benefits. Most people would say that that introduces a welcome amount of flexibility into investigations. The concept is adopted from article 81, which allows the Commission to exempt anti-competitive agreements if they confer special efficiency benefits. I believe that that is called the efficiency defence. We welcome the provision, although we shall have comments to make on it later.

To put all that in context, it is worth considering some of the very good points in the Library brief. The first important point is that, whatever mechanism is made, merger decisions, and certainly references of potential mergers, can have widespread effects

commercially. They can affect share prices and the business of particular companies in a dramatic way.

Interestingly, a Mr. Wilks has carried out an analysis of the way in which the existing powers have been applied in recent years. Curiously–this will interest the hon. Member for North-East Derbyshire–political differences do not appear to have had a major impact on the number of references that have been made, although there has been quite a significant variation depending on the individual Secretary of State.

Until 1997, the Secretary of State rejected the advice of the director general in 23 cases, refused to refer cases in 14 instances and in nine referred to them in spite of advice not to do so. What was called the Heseltine doctrine grew up around that time, to be replaced by the Lilley doctrine–or, for purists, the Lilley-Redwood doctrine–which was announced in January 1990 and which resulted in a spate of five references, three made against the advice of the Director General of Fair Trading. The commission cleared four of them and the fifth was found to be against the public interest on conventional analysis. That spelt the end of that policy and is trumpeted, according to Mr. Wilks, as an example of the independence of the Monopolies and Mergers Commission.

As I have said, there is no real evidence of party political patterns in the way in which the references are dealt with. For anyone who is that interested, there is a helpful schedule on how the various major decisions have been approached since 1979. I asked the Under-Secretary on how many occasions since 1997 the Secretary of State or her predecessors had overruled the advice of the Director General of Fair Trading. The answer that I received, on 12 December last year, was eight occasions on mergers and three occasions on monopoly reports.

It is interesting to look at the history of the occasions on which the Secretary of State overruled advice; the mergers between the National Express Group, ScotRail and Central Trains are major examples. In 1997 the then Secretary of State referred a bid by PacifiCorp for electricity supplier Energy Group. The OFT had recommended that the merger be cleared if certain assurances could be secured from the bidder but the Secretary of State based her decision to refer on the implications for what was the first large merger in an economically important sector. What she said in her press release was interesting:

''My general policy continues to be that I will refer mergers primarily on competition grounds''

–I imagine that that was a reference to the Tebbit guidelines. She continued:

''However, I shall continue to examine mergers on a case by case basis and where, as here, I believe that as part of a wider public interest scrutiny, important regulatory issues are raised, I may decide that a reference is warranted.''

All that led to the then Secretary of State being given the unfortunate nickname of Mrs. Blockit,

something she clearly bridled at because she said in a statement in June 1998:

''You may be wondering whether this is a second case of Dr. Jekyll and Mr. Hyde: that while Mrs. Beckett may have an encouraging message for companies, her alter-ego Mrs. Blockit will still put a stop to all their plans.''

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. I asked hon. Members to limit their remarks to matters other than those that had already been covered. The history is most interesting but it returns to similar themes and I ask the hon. Gentleman to deal with principles that have not already been well rehearsed.

Nigel Waterson (Conservative, Eastbourne)

I shall follow your guidance, Mr. Beard, although I am not sure whether the issue has been developed. I was trying, probably clumsily, to put in context the lack of political involvement in the process. It is worth in passing referring to the fact that there is to be a debate on the issue of national security that will allow us to look back at the way in which different Secretaries of State have taken different approaches to those decisions.

The main thrust of the provision has been widely welcomed. It is difficult to think of anyone who has not welcomed it. The Consumers Association described it as a welcome step and the Institute of Chartered Accountants believes that it will

''assist in the consistent application of competition law in all circumstances.''

Allen & Overy, a major solicitors involved in this kind of work, said that it will eliminate a layer of political risk from the investigations process.

Andrew Lansley (Conservative, South Cambridgeshire)

My hon. Friend referred to the welcome that various people have given to parts of the Bill. Does he recall that on Second Reading the Secretary of State for Trade and Industry referred to several people who had welcomed the Bill? She referred twice to the Director General of the Association of British Chambers of Commerce, Mr. David Lennan. It was the mark of Cain on Mr. Lennan, as he lasted only eight days after the Secretary of State had commended him so highly.

Nigel Waterson (Conservative, Eastbourne)

Mr. Lennan does seem to have fallen through a metaphorical trap door. I cannot comment on whether that was connected with the Secretary of State's remarks.

Organisations such as the National Consumer Council have also expressed support. Public perception is an important dimension, too. Whatever we may say, and whatever the briefing may tell us, there is unease among the public that politicians might be involved in such decisions. If a system can evolve in which the matter is seen to be independent of political influence, which is the reality already, the public and the business community will have more confidence in it.

We have already dealt with some of the principal concerns of business organisations such as the Confederation of British Industry and the test to be applied–the substantial lessening of competition or the failing company defence–to which we shall probably return. Some of the remaining issues will

be dealt with in the guidance. It is a pity that draft guidance is not available because it would enable us to consider more closely how the system will work in practice.

Another point that was not covered in the debate about the test to be applied was raised in response to the White Paper by the Institute of Chartered Accountants in England and Wales. In a nutshell, the institute's point was that the Bill should not require the authorities to focus exclusively on domestic economic concerns. It said:

''Competition issues should be considered in the context of the market in which the particular product is traded. UK firms acting in an international arena should not be prejudiced by competition authorities whose remit is inappropriately limited to consideration of the UK market. Retention of a national champion can be in the interests of the maintenance of competition on a global basis even where this may not be apparent if considered on a UK basis alone.''

That is an important point, which is not covered in the Bill as drafted.

One problem of speaking in this debate before the Under-Secretary is that I do not know her thinking on the matter. I shall be interested to hear the Government's position when she replies to the debate and to know where we stand on wanting a national champion. There could be a conflict between the laudable aim of ensuring that mergers or proposed mergers are not detrimental to consumers, other companies and competitors generally, and being sidelined to the second or third division in international competition. A national champion, almost by definition, must have the muscle, size and power to compete on at least equal terms with the big companies from other countries in the international market. Those are some of the major issues. The matter of the public interest exception and other more specific issues that arise can wait until we deal with the later provisions.

I stress that the Opposition welcome the clarification of the non-political nature of the mergers regime, the reform of the 1973 Act and the aim of absolute transparency in all that will happen to mergers in the future. We have a few small quibbles here and there, to which we have yet to come, but broadly we welcome the measure.

Mark Field (Conservative, Cities of London and Westminster)

I shall speak briefly as the proposals have been discussed in great detail in previous debates. Without associating myself with the hard left of the Labour party, I have sympathy with the view expressed by my hon. Friend the Member for Eastbourne that merger control should have a political element. It is arguable that a political doctrine should play its part. Although I appreciate that it has certain advantages, I do not entirely agree with the way in which things have developed in the past decade or so towards the ideal paradigm of politicians being kept out of mergers.

I am concerned not least that there is likely to be plenty of opportunity under not just clause 20 but many of the succeeding clauses for political interference, albeit slightly beneath the surface, as I said in respect of the role of the Office of Fair Trading. If the OFT has little discretion, there is an opportunity

for politicians to play their part in discreet, or less than discreet, lobbying.

I want to make a few comments on the consistency, certainty and predictability issues concerning merger control that have been highlighted by the Government in proposing this Bill. In later clauses, such as clause 40–we will perhaps canter through them at a greater speed than we have clause 20–there seems to be an open-ended power in the hands of the Secretary of State and other Ministers to intervene in public interest cases. They do not quite address the public interest matters that the hon. Member for North-East Derbyshire envisaged, but there is clearly a public interest test. We will consider, too, the issue of relevant customer benefits under clause 28. They may also be able to outweigh the SLC–substantial lessening of competition–test.

There is a disadvantage for business in a more straightforward competition test in considering consistency, certainty and predictability at the forefront of the proposed changes. There is not least the risk of a more long-winded and costly OFT examination, which may be to the good of professional advisers but will not enhance business in the way that has been heralded in the Bill. I also fear the creeping introduction of non-competition issues which will undermine the twin goals of consistency and certainty.

The Government have set out some clear goals in the Bill and are heralding the day that politicians move away from merger control, which will be in the hands of the OFT. My fear–it is why we have spoken at such length on the matter–is that the Bill must be seen as workable. I am worried that it will fail in its goal.

Andrew Lansley (Conservative, South Cambridgeshire)

My hon. Friend the Member for Eastbourne has referred to my half interest in the matter on several occasions. I suspect that, as he has covered some of the history of the merger-control process during the past 20 years, there is little benefit in my doing the same.

Nigel Beard (Labour, Bexleyheath and Crayford)

That is correct.

Andrew Lansley (Conservative, South Cambridgeshire)

But I will, Mr. Beard, if I may, pick up two issues that were not covered in our earlier discussions on the amendments.

I endorse the view that the purpose of the legislation should be to introduce a competition test as the basis of our merger-control regime. I entirely support the view that it should be conducted independently from Ministers, and should, therefore, be reasonably predictable. The Under-Secretary was right to refer in our previous debate to the desirability of a regime that is both predictable and flexible. However, that is a difficult thing to come by, which is why it is important to have the guidance to which my hon. Friend the Member for Eastbourne referred, as well as our proceedings, which will inform the process in due course. Perhaps most important are the Under-Secretary's replies, on which to some extent the authorities, and the appeal tribunal if necessary, would rest. I do not envy her job of getting the information absolutely right.

There are two aspects of the history of merger control that we have not entirely dealt with. I gave the

Minister due warning of one–the question of whether a fit and proper person is seeking to acquire control of an entity. I cited one particular instance–that of the Co-op and Andrew Regan–although I do not know enough about it to talk about it great length. I was surprised that it had not featured in discussions among Labour Members.

Mark Field (Conservative, Cities of London and Westminster)

Might I also point out that aspects of that case are still sub judice, so it is probably wise not to go into any great detail?

Andrew Lansley (Conservative, South Cambridgeshire)

My hon. Friend helps me in my determination not to go down that path.

Another case, with which I am more familiar, is much older and cannot possibly still be sub judice. It concerns the House of Fraser, and illustrates the difficulties that ensue when one goes down the path of a competition regime. In order to have such a regime and to support predictability, one must be prepared to face the considerable political difficulties that might ensue. I will not dwell on the subject at length, suffice it to say that hon. Members will recall the competing proposals in late 1984 or early 1985 from the Lonrho group and Mr. Al Fayed for the acquisition of the House of Fraser, which still included Harrods at that time. The question was whether the takeover of the House of Fraser by Mr. Al Fayed should be blocked by Secretary of State Tebbit, as he then was. Various arguments were put forward. Essentially, the Lonrho group argued that Mr. Al Fayed was not a fit and proper person–he was not who he claimed to be, was not using his own money and would not be able to fulfil all the commitments that he was seeking to take on in relation to House of Fraser.

For my sins, I sat and took notes on the various occasions when the principal parties met and took evidence and so forth. Although the matter occurred before Norman Tebbit had enunciated his competition doctrine, it steeled him in the necessity of doing so. Had he used the public interest test in the flexible way in which it was pressed on him at the time, he would effectively have stopped the merger. He would have said, ''There are too many public interest criteria. We must examine this in detail and find out what is going on, which will take some time. All of it will come out at a later stage.'' He determined not to do that, because as far as he was aware, most of the things that he was asked to consider may have been interesting to the public, but had no impact on competition in that marketplace. Mr. Al Fayed had the money; whether it was his to own was secondary. He was determined to exploit the Harrods brand in the way that he had planned, and to make the divestments.

Mr. Al Fayed did what he said he was going to do. Competition in that marketplace was not constrained. There is a separate question of whether Ministers are prepared for the fact that the fitness of someone to become the acquirer of a company in a merger is an issue of competition. That was highlighted by the way in which the Department went about subsequent inquiries into the fitness of directors. It is an issue of

competition only if someone is so inappropriate to take over a company that they would not be able to sustain that company's position in the marketplace and keep competition going. We cannot know what circumstances will arise. They could be invited to get involved, hand the matter back to the competition authorities and be asked to go to court.

My hon. Friend the Member for Eastbourne referred to the consequence of the Lilley doctrine, and to national champions. I do not want to go down the route of national champions, as in an ideal world we would not be using the process just to try to find another route for industrial policy through competition policy. If we want industrial policy, we have to justify it on its own terms. Competition policy should be used for competition, not for a spurious restructuring of industry. However, there is a real issue here.

I referred earlier to the takeover of London Electricity by Electricité de France. Even though we are in a single market, not all the markets of the European Union have complementary competition regimes. France does not have the same competition regime in energy and electricity as the United Kingdom. That will remain true for some time. At the time of the takeover, Electricité de France would arguably have been in a contrary position according to the Lilley doctrine. The doctrine said in essence that, having secured benefits from privatising British industry, we should not allow those companies to be taken over by state-owned enterprises that would not take fully commercial, profit-maximising approaches.

More importantly, we should not allow foreign companies to acquire ownership in the UK in circumstances in which they could exercise market power to the extent that they can undermine the relative competitiveness of British companies in that and other markets. Is the Under-Secretary prepared for the fact that when the next Al-Fayed case comes along, Ministers will say that it is not their job and will not interfere? It is vital that we achieve more on competition in the European Union, especially in markets that currently are not fully open to competition. It difficult for us to open up our markets to full competition, as there is a risk that market power in the single market can be exercised in a way that damages the United Kingdom. The energy market and the power that state-owned enterprises enjoy in the domestic electricity market are examples of that.

Nigel Waterson (Conservative, Eastbourne)

Will my hon. Friend develop one of his earlier themes? If a foreign-owned European airline was seeking to take over or merge with British Airways in one of those situations that are all too common in the European Union, in which the national airline in question was in receipt of substantial state aid and there were continuing arguments between our Government and the other Government about whether the merger was proper under EU rules, should our Government have some ability to intervene, given that there is that unfairness for a different reason?

Andrew Lansley (Conservative, South Cambridgeshire)

In the example to which my hon. Friend refers, as with London Electricity and

Electricité de France, there was held to be a Community dimension, and as such it was considered under the EC merger control regime. As it fell not under the substantial lessening of competition test but under the dominance test, I do not think that we can consider it in relation to the test in the legislation. I did not cite the case of London Electricity and Electricité de France in order to examine what should have been done in such circumstances. Although it was not patriated in the UK, it should have been, because it essentially dealt with the UK domestic market.

None the less, we can conceive of the range of circumstances in which there have been overseas acquisitions of UK companies. I would not want to intrude a further lack of predictability by inserting another criterion according to which Ministers can intervene in such cases. I am looking for some ministerial comfort that, even though we may be dealing with mergers that take place in the UK, that affect the UK and that must be considered within the context of the UK market–but in the same way as my hon. Friend the Member for Eastbourne referred to the chartered accountant's view about not confining ourselves to domestic economic concerns–without necessarily thinking of a relevant market elsewhere, we should think about the circumstances of the parties to the merger and consider not only the immediate plans but their characteristics and how the participants, if they are state owned or if they enjoy disproportionate market power in related markets, might undermine competition in the UK to the detriment of UK companies. The essence is whether there will be the flexibility in the competition test to think positively about the characteristics of international acquisitions that occur inside the UK domestic market.

Jonathan Djanogly (Conservative, Huntingdon)

I do not want to go over old ground, but I generally support what my hon. Friend just said. The provisions are going in the right direction. We have been heading in that direction for several years anyway, with a few blips along the way. Mergers should not be a political issue but should be decided on the basis of their effect on competition, so I welcome the removal of the political process from the decisions.

However, one thing that has come out in the debate is that much of the practical application of the provisions will be down to whatever appears in the Government's guidance. I appreciate that there is a requirement in clause 102 for the OFT to publish the advice by the time the Bill is enacted. However, that will be much too late. When considering clauses such as clause 20, it would have been helpful to have had as early as possible an understanding of what will be included in the guidance. It would have been more than helpful if we had had that information before the debate today. A lot of the to-ing and fro-ing that we had this morning might not have had to happen. The Under-Secretary has said that issues such as those in subsection (2)(a) and (b) will rely on what is in guidance. They are subjective issues. On several occasions during our discussions on the clause–when discussing subsection (1), where we wanted more discretion inserted, and elsewhere–we have

raised the fact that there is such subjectivity. It is fair to say that that gives me and my hon. Friends cause for concern about how the provisions will be adapted.

I have one further point. Please will you give me a little leeway, Mr. Beard? I did not speak earlier on the implications of the clause because I was intending to speak on clause stand part. I shall take the point from a slightly different angle from that which we heard this morning from Government Members, and I shall be brief.

There is another aspect to the clause, further to the way in which it was discussed this morning. We heard the Government's approach. We heard the approach of the hon. Member for North-East Derbyshire, who looked at it from the point of view of the public interest, although that was the public interest not of the Government but of civil servants, a point that has not yet been mentioned, and that I found–

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. The hon. Gentleman is repeating the arguments that we have already had this morning. I should be grateful if he would concentrate on issues that have not already been covered rather than repeating arguments that have.

Jonathan Djanogly (Conservative, Huntingdon)

I shall indeed, Mr. Beard, and shall come straight to the point.

Whichever of this morning's arguments from the Government Benches we take, it missed the point. It is all very well to say that we are going to improve competition by changing the type of competition law that we have, but I do not think that that is necessarily the case. It may improve the way of regulating competition, and I shall not argue against regulation. However I do not think that the type of competition regime has anything to do with the reasons for the closure of the factory in the constituency of the hon. Member for North-East Derbyshire, although hon. Members were arguing that this morning. I think that the reason for that is something that we would better spend our time looking at–the wage costs and regulatory regime in that factory.

Nigel Beard (Labour, Bexleyheath and Crayford)

Order. The hon. Gentleman is returning to the themes that we considered this morning, and the wage costs in the particular factory that was cited as an example have nothing to do with the principles of the clause. If he has no further point to make, he should resume his seat.

Jonathan Djanogly (Conservative, Huntingdon)

With respect, Mr. Beard, it was not the Opposition that called this Bill the Enterprise Bill. I think that it would more properly be called the Insolvency, Consumer and Competition Bill. The Government decided to call it the Enterprise Bill, so it is most appropriate that, at each stage, we have the opportunity to assess to what extent it encourages enterprise. On Second Reading, the Under-Secretary made great play of how the Government believed that the Bill would support enterprise. I therefore think it valid to argue that in many respects it will not do so, and will actually work against enterprise.

Nigel Beard (Labour, Bexleyheath and Crayford)

This clause stand part debate is not to do with that general principle. I have already ruled twice that we should not return to the issues discussed

this morning, but the hon. Gentleman is doing just that. I hope that he will now remain in his seat.

Melanie Johnson (Labour, Welwyn Hatfield)

Reluctantly, I shall make some brief remarks. I believe that the last part of this debate has been a sad and very long rehearsal and that very few new points have been made.

Nigel Waterson (Conservative, Eastbourne)

On a point of order, Mr. Beard. I am very happy to accept your guidance but certainly will not accept lectures from a Minister on how the debate is conducted.

Melanie Johnson (Labour, Welwyn Hatfield)

I believe that I am free to express my views on how the debate has been conducted. Brevity

is a virtue, and it is often a sign of intelligence to be able to put things quickly and smartly.

On the question of the nature and role of national champions, firms that face strong domestic competition perform best in international markets. That is the evidence–

It being Five o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Order of the Committee [16 April].

Adjourned till Tuesday 30 April at half-past Four o'clock.