Enterprise Bill

Public Bill Committee, 1 May 2002.

Standing Committee B

Clause 114 - Review of decisions under Part 3

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

When time was called at 1 pm, we had established only that the amendment could be dealt with in short compass—but for the fact I had mislaid my notes.

The Confederation of British Industry describes the clause as one of the most damaging in this part of the Bill. However, subject to what else is said in debate, I intend this as a probing amendment. The CBI's concern is, I believe, well founded. The provision will leave any person who is aggrieved by a merger decision, and not merely parties to the merger, with a right to appeal against that decision. Once the decision has been taken to merge, one would normally expect a line to be drawn under the matter—it would be a clear-cut point at which the parties could continue to plan—but there will now be up to three months of uncertainty while third parties exhaust their rights of appeal.

The CBI says that that will cause unnecessary uncertainty to business, and that it will risk undermining the competition focus of merger control by placing excessive reliance on the views of competitors. The fact that the provision could undermine the commission's work is particularly worthy of the Minister's consideration. He may suggest that the three-month time limit will provide some sort of protection, but given that those three months will come at the end of what could be a fairly lengthy procedure, the time limit for the lodging of an application is not so much a protection but the cause of potential further injury to the interests of the businesses involved.

Jonathan Djanogly (Conservative, Huntingdon)

There is an awful lot of sense in the amendment. Much damage could be done by allowing any person who was not a party to the merger to appeal against a decision of the Office of Fair Trading. It could become a charter for costs and expenses on the company, and for taking court cases and disrupting business. It could have significant ramifications. It is possible that the three months allowed for making an appeal could be tacked on to the conditions to the acquisition. Rather than acting as an appeal, it could slow down the process in every case.

Another significant problem could arise in insolvency cases, when it would be in the interests of customers and employees that the transaction should

be pushed through as fast as possible. The company could hold discussions with the OFT and come to an arrangement on how to move forward, but someone could disrupt all that by making an application under the clause. It could have significant consequences, and I would be interested to hear the Minister's response.

Andrew Lansley (Conservative, South Cambridgeshire)

I am sorry to delay the moment at which my hon. Friend will hear the Minister's reply, but I must confess that I do not agree with the hon. Member for Orkney and Shetland (Mr. Carmichael). I hope that the Minister will say this anyway, but I shall put it on the record: it is not right to treat the views of competitors as something that should not carry weight. Competitors' arguments in relation to mergers are often precisely those that have a locus in relation to the competitive situation that would be created as a result of the merger, and they should have force. If we were to exclude persons who were not parties to the merger, we would arbitrarily exclude some of the very people who should have a power to appeal against some of the processes involved in making the decision.

If the amendment is not agreed, that will not necessarily mean that there will be a great deal of uncertainty. The hon. Gentleman will have seen schedule 3, paragraph (11)(a) and (b), under which the tribunal can rule that a person making a complaint does not have sufficient interest or has not disclosed valid grounds for an appeal. On that basis, I do not see that the uncertainty is a problem, unless it is an uncertainty that is well grounded and that might give rise to a valid appeal against a decision. I do not support the amendment.

Douglas Alexander (Labour, Paisley South)

Given that this is my first appearance under your chairmanship, Mr. Conway, it would be remiss of me not to say what a privilege it is to serve on the Committee. My official briefing indicates that the amendment seeks to limit the parties that can apply to the Competition Appeal Tribunal for a review of decisions made in a merger case to the parties to that merger. That would prevent third parties from having such decisions reviewed. What my official briefing does not indicate is that I am dangerously close to consensus with the hon. Member for South Cambridgeshire (Mr. Lansley). Given the spirit of partnership between our parties north of the border, I hesitate before disagreeing profoundly with the comments of the hon. Member for Orkney and Shetland. However, I have three reasons for taking issue with the amendment.

First, let me deal with the allegation of the hon. Member for Huntingdon (Mr. Djanogly), that this is somehow a charter for costs. We have already, as the hon. Member for South Cambridgeshire has kindly noted, limited who can bring a case to the CAT. The clause refers only to aggrieved parties; schedule 3 provides that tribunal rules may be made that allow for the CAT to reject proceedings either if it considers the person instituting them not to have a sufficient interest in the decision with respect to which they are brought or if the document instituting them discloses no valid grounds for their being brought. The rules can

also provide for the CAT to reject proceedings that it considers vexatious—we touched on that this morning.

Secondly, the hon. Member for Huntingdon mentioned timing. Let me reiterate, for clarification, that the period set down is the same as it is at present for judicial review. I shall explain the significance of that. Limiting the scope of the appeal would mean that the rights of third parties to seek judicial review and decisions in the High Court would remain. That would create a two-tier system in which merger parties had access to the CAT, and third parties relied on the High Court. I am not convinced that that would be consistent with the approach that we have developed throughout the Bill.

The third and substantive point on which I find myself at issue with the hon. Member for Orkney and Shetland is that there is a case for third parties to be able to review the proceedings, because some have a very clear interest. As the hon. Member for South Cambridgeshire said, customers, suppliers and competitors could all have their business prospects directly affected by a range of decisions taken by the authorities, from the clearance of a merger to the imposition of particular remedies.

Limiting appeals in the way proposed would run counter to the changes that we are making to the Competition Act 1998 in this Bill. Under clause 15, which we shall discuss shortly, third parties will be able to appeal directly to the CAT against decisions of the OFT where they have a sufficient interest in a case. The system as set out in the clause offers the right level of involvement for third parties. Those that can demonstrate a sufficient interest in the case and valid grounds to bring proceedings should be allowed to apply for decisions to be reviewed.

I am grateful to the hon. Member for Orkney and Shetland for suggesting that the amendment was probing, and I ask him to withdraw it.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

It seems as though there is no dispute of substance. No one denies the right of third parties to be involved in the process, but the question is of striking the balance on where their involvement should be terminated. The view that I expressed in support of the hon. Member for Huntingdon was that termination should take place at the end of the decision procedure by the CAT.

There seems to be a great deal of sense in what the Minister says, and I appreciate that the subject has not been dismissed out of hand. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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

Nigel Waterson (Conservative, Eastbourne)

I want to deal briefly with the substance of the clause. The provision is for a review, not an appeal as such, and there is an important difference. It is another example of the split role of the Competition Appeal Tribunal, which in different guises is an appeal body and the equivalent of a court of first instance. We shall return to that issue.

I want to quiz the Minister a little about what the review will involve. There will apparently not be any re-hearing of the matter. The clause states that the CAT will use

''the same principles as would be applied . . . for judicial review'',

presumably in the High Court. I assume that only legal or procedural points could be taken up on such a review, and that the whole matter could not be re-heard ab initio. As the clause states, there is then the possibility of appeal

''on any point of law . . . to the Court of Appeal or''—

in Scotland—''the Court of Session''. Am I right to think that there would be no question of reconsidering evidence, and that the process would merely involve dealing with technical, legal or procedural points?

A slightly separate issue is the three-month limit. Subsection (3) is a little opaque. In any view, it states that there is a definite three-month limit, although subsection (4) states that the period can be modified. However, subsection (3) also mentions not bringing an application with ''unreasonable delay''. Even if someone brings an application within the clear three-month limit, can they still be held to be out of time—effectively struck out—for delay in bringing the application? There is confusion, so it would help if the Minister explained a little more clearly what was intended.

Andrew Lansley (Conservative, South Cambridgeshire)

I tried to help the Minister before only to lull him into a false sense of security. I shall now try to disagree with him on the clause.

When I first considered the proposal for an appeal process in relation to decisions on merger control, I thought that it might be remotely akin to the appeal process in the 1998 Act. However, it is not, which is misleading. I am worried about the nature of the proposal. All that will happen is that what was previously a right of appeal against a decision by way of judicial review, which would have proceeded through the courts, is now to be an appeal on exactly the same type of grounds through the CAT.

As my hon. Friend the Member for Eastbourne (Mr. Waterson) pointed out, the appeal will not be on merit. In the 1998 Act, appeals are quite a different matter. Schedule 8 to that Act makes it clear that the tribunal can

''determine the appeal on the merits by reference to the grounds of appeal set out in the notice of appeal''.

It also says that it can quash the decision and substitute its own decision on whatever legal basis the Director General of Fair Trading wants to use. Such decisions are on merit, but decisions under the clause are not on merit at all. Appeals under the clause are only on the grounds of judicial review.

Is it reasonable in all circumstances of merger control—we shall come to market investigations later, as there is a parallel provision in clause 169—for there to be no appeal against the decision? The Competition Commission exercises its judgment after an initial decision by the Office of Fair Trading, so one could argue that there was a decision and an appeal.

I know of no substantive evidence to suggest that, in the course of decision making on mergers in the past, the Competition Commission has been thought anything other than competent to decide the merits of a decision. People would prefer the consistency and predictability of the Competition Commission acting as the mechanism to decide the merits of merger decisions.

I will not dispute the clause in so far as it relates to decisions on the merits of mergers on competition grounds. However, I shall flag up my problem with the clause, as I have done with problems on several other provisions, so that the Minister can think about whether he can deal with it as work on the structure of the Bill proceeds. My problem is with decisions made on merger control that are not on competition grounds. It will not surprise the Minister that I am exercised by the fact that the Secretary of State can intervene to specify public interest grounds other than national security, to require a reference even though the OFT does not believe that there should be one, to consider the decisions made by the Competition Commission and in effect set them aside, and to make orders if necessary—subject to Parliament's approval—to remedy any adverse public interest effects.

So far as I can see, at no point in that process can one honestly say that the Secretary of State is subject to any appeal. The provision proposes that she would not be subject to such an appeal. If she chose to go down a certain path, she could decide a merger on some grounds. The Secretary of State does not seem to meet all the desirable requirements of a distinction between the initiation of a process and its subsequent determination by an independent and impartial body.

The Secretary of State has told us—it is written on the front of the Bill—that the provisions are consistent with the European convention on human rights. We enjoy considering how that convention impacts on our proceedings, and I wonder whether the clause is entirely compatible with it. On the Competition Act, we discovered that the institution of an appeal in relation to the chapter II prohibition was the subject of the Napp Pharmaceuticals case, with which I am sure the Minister is familiar.

The CAT heard an appeal against the determination by the Director General of Fair Trading in that case, and in the course of its judgment considered the relationship between proceedings before the tribunal and article 6 of the convention. As the Minister will remember, article 6.1 is on the right to a fair trial and states:

''In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.''

So far as the chapter II prohibition and the penalties that flowed from it were concerned, the tribunal held that, for those purposes, there was a criminal charge or offence, but the European convention on human rights does not define criminal charge, which is effectively defined by the nature of the penalties involved. It did not affect the burden of

proof that was applied by the tribunal because the convention does not say what burden of proof should be applied to its proceedings, so we need not worry too much about that. However, in relation to the public interest considerations that were applied to the case, the nature of the penalties, undertakings or orders that apply to parties to a merger may be sufficiently substantive to bring such cases under article 6.1.

My personal view is that the Competition Commission is an independent and impartial tribunal, but where public interest considerations come into play, and the Secretary of State is effectively overriding the decisions of an independent and impartial tribunal, it is arguable whether the Secretary of State constitutes an independent and impartial tribunal for the purposes of the convention, especially in the light of his having issued the intervention notice in the first place. We should have another process, so that the Competition Appeal Tribunal can consider not only the judicial review decisions but an appeal on its merits, when a decision has been taken by the Secretary of State contrary to the decisions or advice of the Competition Commission.

Several points were put to Ministers in the White Paper consultation process, and the Government document that summarises the responses says:

''A few respondents suggested that the new merger regime should incorporate a right of appeal. One suggested this would be necessary whenever a divestment remedy was recommended. Others thought a robust appeals process was needed for all mergers and markets cases.''

I do not believe that an appeals process for all merger cases would be a good thing on balance because it would add a whole set of decisions by another body to those of the Competition Commission. However, the penalties in some cases may be so severe that some appeal mechanism is necessary. It is worth considering whether, in divestment cases, for example, where the order made has substantial effects on a business by requiring the separation of businesses rather than a more modest undertaking, there should be some threshold above which the enterprise could have its case heard again on merits by a further tribunal. Otherwise, notwithstanding the positive record of the Competition Commission and the Monopolies and Mergers Commission on these matters, it is possible that the Monopolies and Mergers Commission, as investigating body, could get carried away when it comes to the penalty. An investigation into the penalty, rather than a hearing of the whole case, might be considered.

Indeed, in the Napp Pharmaceuticals case, the Competition Appeal Tribunal supported the Director General of Fair Trading in his decision, except for the penalty, which it scaled back. There may be a risk in competition decisions—we will consider this again when we discuss market investigations—that the enthusiasm of the commission to demonstrate its pro-competitive credentials is so great that it may overestimate what is the appropriate penalty, undertaking or obligation to be laid on parties to a merger, and that the penalty might be scaled back when viewed on its merits by an independent tribunal.

In trying to deter anti-competitive mergers, the Competition Commission may go over the top in setting undertakings and obligations in the first instance.

Douglas Alexander (Labour, Paisley South)

I am grateful to the hon. Gentleman for his comments. If he had carried on any longer, I should have disappeared under a blizzard of helpful notes from officials replying to his various points. I am grateful, too, for his citing of the relevant clause of the European convention on human rights. My study of the law pre-dated 1997 and the assimilation of the convention into British law, so it was useful to have a recitation of it.

While bearing his remarks in mind, I shall resist the temptation to be drawn into discussions of a more substantive role for the Secretary of State. The Committee will have plenty of opportunities to address that issue in detail. By way of a courteous reply for the trouble that he has taken to raise these points, I refer him to the explanatory notes. Page 133, paragraph 762 states:

''Remedies imposed in merger and market investigation inquiries may engage rights under Article 1 of Protocol 1 to the Convention. However, such remedies may only be imposed for legitimate reasons in the general interest, and the Bill provides for fair and transparent procedures to be followed in such inquiries and a right of review to the CAT. The Government is satisfied that this approach is compatible with the Convention.''

It should go without saying that the position in which decisions are taken in the public interest is the same as for judicial review under the Fair Trading Act 1973. The Bill provides for an independent and fair hearing before the CAT, as described in the explanatory notes.

The hon. Gentleman asked why the CAT had been given its specific role. We created the new route of appeal to the CAT because it offers the prospect of a faster and less expensive access to justice.

Andrew Lansley (Conservative, South Cambridgeshire)

Before the Minister leaves the point about the explanatory notes, I refer to the right of review. It is a right of judicial review alone, to investigate whether an error in law or procedural mistake has been made, or a breach of the proportionality or unreasonableness test. The review does not ask whether the merits of the remedies sought are in line with best practice under competition law, as with the Competition Act 1998. Will he comment on the scope of the review?

Douglas Alexander (Labour, Paisley South)

If the hon. Gentleman will indulge me, I will indeed go on to discuss the scope of the review. His point on that is mirrored in the clause.

The CAT offers a faster and less expensive route to justice than would be possible through the courts via a body expert in competition law and practice. The grounds of appeal will clearly mirror judicial review. The current case law suggests that those grounds may include errors of law or material or procedural error, such as the failure of an inquiry panel to comply with the chairman's procedural rules, and material errors as to fact and other material illegalities, such as unreasonableness or lack of proportionality.

The scope of judicial review in the courts has evolved over time and continues to do so following individual pieces of case law. We want the CAT's approach to reviews to mirror the principles applied to judicial review by the courts over time. That is why we have not opted to list the grounds for review in the Bill and chose instead the approach described in subsection (6), whereby the CAT will apply

''the same principles as would be applied by a court on an application for judicial review.''

A judicial review type appeal is appropriate for assessing decisions of the sort made under part 3. The CAT review will ensure that the procedures followed by the authorities were fair and that the parties were given the opportunity to put their case, and will further allow the CAT to assess whether a decision was reasonable and proportionate. That relates to the point about available remedies. I hope that I have covered the points made by the hon. Gentleman with regard to those remedies. The jurisdiction would allow scope in some circumstances for the CAT to consider whether a decision was based on a material error of fact.

Nigel Waterson (Conservative, Eastbourne)

Can we be clear about what the Minister is saying? If the CAT is able to consider matters of material fact, could there be a re-hearing of the original evidence to establish that in some circumstances? My understanding is that because it is a review and not an appeal it would not be open to the tribunal to do that.

Douglas Alexander (Labour, Paisley South)

My understanding is that the operation of the CAT would mirror the judicial review process that is under way in the courts at the moment. We would not seek to extend the CAT's remit beyond the terms of judicial review, but we are conscious of the fact that case law dictates the specific circumstances in which judges find a case appealable for judicial review. The Wednesbury ruling clearly set out the grounds for unreasonableness and in that regard a number of specific criteria have emerged in case law that allows for consideration.

For the sake of clarity, I affirm that the jurisdiction, which will mirror judicial review in the courts, will allow scope in some circumstances for the CAT to consider whether a decision was based on a material error of fact. That distinction between a material error of fact and a general review of the merits of the decision per se is important

On the substantive point about timing, subsection (3) requires applications to be brought without unreasonable delay and in any event within three months, as with judicial review in the courts. It is important that reviews are heard promptly and, if decisions are to be reassessed by the original decision-maker, that must be done quickly before the circumstances in which they were originally made change too much. The hon. Member for Eastbourne asked whether it would be possible within the three-month period for it to be deemed an unreasonable delay. I understand that that could be the case. For example, if within the three-month period a target was due to stop trading within a month, the time scale even

within that three-month interval could be deemed to be unreasonable. I hope that that answers the hon. Gentleman's question.

Nigel Waterson (Conservative, Eastbourne)

The Minister has confirmed my worst fears. We all agree that when there is a review or appeal procedure of any sort, whether it concerns an industrial tribunal, competition law or whatever, there should be absolute clarity about the period within which the appeal—in this case the review application—should be lodged. It is axiomatic that in English law reasonable notice and a reasonable period are often thought to be three months, which is neatly mirrored by the clause, except in its earlier part where it suggests that an application could be made within three months and still be held to be out of time. That is dangerous and worrying and I hope that the Minister will agree at least to reconsider it with his departmental lawyers to find out if there is a way of clarifying that position. If the circumstances are as urgent and pressing as they might be in the sort of case he described, would there be some obligation on the OFT, the Secretary of State or the commission to state that they determine that the period should be a month, two weeks, six weeks or whatever so that people know exactly where they stand? Otherwise, people will get into a terrible fix, believing that they have a three-month time limit when in fact they are working to another time limit of which they were unaware.

Douglas Alexander (Labour, Paisley South)

I defer to the hon. Gentleman's knowledge of English law. I shall start from my understanding of and education in Scottish jurisprudence. We sought to reflect as closely and accurately as possible the terms of judicial review as presently justiciable before the courts. In that regard we had to strike an appropriate balance between what I concede would be the admirable clarity of a fixed date with the reality that in present case law under judicial review there is scope for it to be deemed unreasonable even within that timetable. Our endeavour has been to strike that balance and to reflect the circumstances outlined, but to make it clear that there is certainly a long-stop bar of three months. I have heard the point raised and, given its seriousness, I shall speak to my ministerial colleagues and lawyers.

Andrew Lansley (Conservative, South Cambridgeshire)

Like my hon. Friend the Member for Eastbourne, I am not entirely comforted by the Minister's response. Ministers seem to have decided that the appeal process should be conducted by the Competition Appeal Tribunal and I recall that the Government's response to consultation was that the justification was that such decisions could be assessed not only more speedily—that is all to the good—but by those who are expert in competition law.

As we discussed earlier, the CAT for those purposes will consist of a senior lawyer, but the panel may consist of ordinary members whose expertise is essentially economic rather than legal. Yet the judgment that the tribunal is asked to make, which the Minister says that the Government have expressly tried to mirror, is not an economic, but a legal decision. Instead of asking the tribunal to focus on remedies, on whether they are genuinely proportionate as regards competition law, and on whether the remedy matches the problem economically, it is

asked to consider things in administrative law terms. I am not a lawyer, so there may be a point at which I stray beyond my competence.

If the Government want a tribunal that is expert in administrative law, they should set one up; it would certainly be subject to application for judicial review in the High Court. However, the Government are setting up a tribunal that is intended to be expert in competition law. At the same time, they are saying that experts in competition law, who understand the economic rationale of decisions by the Competition Commission, will not be able to examine the economic merits of the decisions. They must examine them in terms of administrative law and precedents in judicial review, where issues such as proportionality have a different meaning than they would have if one considered the remedies under review in relation to competition law—one would then consider the remedies' appropriateness and proportionality. There is a big difference.

It is good if the Government want to have a review of remedies, but that should be conducted in line with competition law on its merits rather than as an aspect of trying to mirror judicial review through the courts as part of administrative law.

Douglas Alexander (Labour, Paisley South)

The hon. Gentleman poses a fair question.

We face a fundamental challenge. We must harness the economic expertise of the CAT, which is consistent with the hon. Gentleman's points and our thinking on what is the appropriate body for the highly complex financial and economic challenges that are often brought before the tribunal. However, we must also recognise that were there no provision for issues to be ventilated in a judicial review appeal, there would not only be a forum in which decisions could be reached on an economic basis, but there would be an entirely separate structure that would have to deal with questions of administrative law.

The balance has been more appropriately struck by ensuring that the membership of the body to which those appeals come—the Competition Appeal Tribunal—combines people of outstanding economic expertise, who are able to deliberate on highly complex matters, with someone who is legally qualified. At present, membership includes a High Court judge to ensure that expertise is brought to bear on deliberations. To be consistent with the Bill, we wanted to avoid unnecessary levels of appeal and costs for business, which I fear might be the outcome were the logic of the hon. Gentleman's position pursued. He wanted to have the CAT deliberate on competition law and the specifics of complex financial matters, and to have separate forums to deal exclusively with administrative law on the basis of judicial review.

The Government's approach is to recognise legitimate concerns about the areas of law covered by judicial review and to see that the appropriate forum in which those issues are determined is the CAT. The personnel of the tribunal will reflect the balance of its work, and it will have the capacity to deal with issues of administrative law and a significant

capacity to deal with issues of great financial complexity.

Question put and agreed to.

Clause 114 ordered to stand part of the Bill.

Clause 115 - Fees

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 296, in page 83, line 7, at end insert—

'(6A) Any order made by the Secretary of State which increases the level of fees payable shall require the approval by affirmative resolution of each House of Parliament.'.

The clause provides for the Secretary of State to make orders for the payment of fees to the Office of Fair Trading for merger filings. Given the substantial costs for companies to make merger filings—there are professional costs as well as the fees—any order under the clause requires approval by affirmative resolution in each House as a safeguard against an unjustifiable increase in fees. The Confederation of British Industry picked up on that point and we concur. We are therefore proposing the amendment. The straightforward question that I would add is, does the Minister intend to use the opportunity of the Bill as an excuse to hike the fees involved, and if so, by how much?

Douglas Alexander (Labour, Paisley South)

If I can answer a straightforward question with a straightforward answer, no. I understand that that echoes the views of my ministerial colleagues, who are fairly clear that the merger fee provisions in clause 115 reflect the provisions of the Companies Act 1989. They included the negative resolution procedure, so we consider that to be the appropriate mechanism to include in the Bill.

Changing the level of fees would affect businesses. Any change that we make, therefore, will involve undertaking a regulatory impact assessment. That will be a public document and the option for Parliament to debate that matter will always be open. I hope that my comments on the motivation for the clause, and the factual basis on which we have arrived at the mechanism, offer the comfort that the hon. Gentleman seeks and that he will feel able to withdraw the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

For clarification, is it not normally the case that such fees involve affirmative action?

Douglas Alexander (Labour, Paisley South)

As I said, we are mirroring the provisions in the 1989 Act, which had the negative resolution. To that extent, there is form: such provision has existed for more than a decade. That has therefore been deemed the appropriate mechanism for the Bill.

Jonathan Djanogly (Conservative, Huntingdon)

On the basis of the Minister's answer, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 115 ordered to stand part of the Bill.

Clause 116 ordered to stand part of the Bill.

Clause 117 - Offences by bodies corporate

Mark Field (Conservative, Cities of London and Westminster)

I beg to move amendment No. 297, in page 84, line 3, leave out

''or to be attributable to any neglect on the part of''.

The provision on offences by bodies corporate seems to mirror section 132 of the Fair Trading Act 1973. As is often the case with provisions in legislation, it is a clear example of a chunk that has been moved from one piece of legislation straight to another, albeit from the depths of time, 29 years ago, as the Minister pointed out, which is almost before his time—almost before many of our times.

As is shown in the amendment, our concern is with the idea that negligence alone should be enough. We are keen to delete the wording:

''or to be attributable to any neglect on the part of''

particular individuals from subsection (1). Our concerns are not the same as those expressed when we discussed negligence in relation to cartels, when the Minister's colleague the Under-Secretary was here. In that case, there is a criminal offence and the possibility of going to prison for five years. We are not in criminal territory with the mergers in part 3.

However, the offences are serious. No doubt, in the scheme of things, officers of companies may find themselves under threat of disqualification if they are company directors and subject to quite large fines. We are therefore concerned to include a sense of intent, rather than purely negligence or recklessness. I would be interested to have some guidance and perhaps some examples from the Minister, on where he thinks that negligence and recklessness would and should be enough for an officer of a company to fall foul of the provisions.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I am inclined to support the amendment. The clause seems to be exceptionally wide, in that much is attributable to any neglect. If the wording were changed to ''gross'' or ''culpable'' neglect, I could see that there might be some force in it, but the present, wide, drafting leaves me with some concerns about the wide range of activities that might be encompassed.

I am always mindful when dealing with such situations of my one outside directorship. I am a director of Aberdeenshire Women's Aid. I fully accept that that organisation is not likely to fall under the ambit of part 3 but, then again, we live in a funny old world and we just never know.

One can well imagine relevant circumstances involving people in partnerships. The Minister has a similar background to mine and may remember some of the prosecutions for cashier fraud undertaken by Aberdeen legal firms in the not-so-distant past. In such cases, there may have been a substantial degree of neglect, but nothing that would justify bringing proceedings against partners under the provision. I would be interested to hear the Minister explain why it is thought necessary to define the range of culpability as widely as has been done.

Douglas Alexander (Labour, Paisley South)

In the hon. Gentleman's absence last week, when I first attended the Committee, there was an interesting discussion about businesses in Orkney and Shetland. I understand that he was obliged to travel back to his constituency early. There was an amusing exchange across the Floor of the Committee about how many businesses in Orkney had a turnover of £45 million. Much as I am delighted that the Scottish Executive, under a joint Labour and Liberal Democrat Administration, have provided additional funding for women's legal aid and refuge centres in Scotland, I would be very surprised if the level of funding for the body of which he speaks would bring it anywhere near the de minimis requirements for the provision.

The hon. Gentleman raises the serious point of whether the description of negligence in the clause is too widely drawn. I am constrained by the fact that my background is in delict rather than tort, but I can offer the comfort that the clause is long-standing, as the hon. Member for Cities of London and Westminster (Mr. Field) was generous enough to acknowledge. It is a common provision in both existing and previous legislation. However, it would not be appropriate or right for the Committee to send the message that negligence does not matter and that company directors should not be held accountable for what information is brought before the relevant authorities.

It is critical that we take an amicable and proactive approach to the resolution of the matters that we discussed in Committee this morning and that there should be appropriate checks on directors to ensure that the information furnished to relevant bodies is appropriate and right. The provision is not a significant departure from that in other legislation that has been passed by the House. It is right that officers of companies should be liable to prosecution by a body corporate for an offence directly attributable to the director. I urge the hon. Member for Cities of London and Westminster to withdraw the amendment.

Mark Field (Conservative, Cities of London and Westminster)

We are still uncomfortable with the provision. The issue of negligence affects the Bill in a small way, but I think that that issue will come up increasingly frequently in Department of Trade and Industry and Treasury Bills in the next few years. Both the City of London and general corporate law are at a crossroads in relation to ethics and other such issues. More responsibilities are being heaped on directors—and, indeed, more junior employees—of companies.

One need only consider what happened recently with Arthur Andersen and Enron. Clearly, fraud was also involved in that case, but as the hon. Member for Orkney and Shetland rightly pointed out, the massive majority of the equity partners of Andersen world wide were entirely ignorant about the matter and found themselves in dire straits. There will have to be a recalibration of neglect as opposed to criminality, and of the way in which people, particularly company officials, can protect themselves if such relatively draconian measures are forced on to the statute book. Clearly, I shall not win the battle in

Committee today, but I would like to flag up the issue as one that will need to be discussed further.

Douglas Alexander (Labour, Paisley South)

I merely highlight the fact that DTI Ministers have the company law review before them and we are considering a wider range of those issues. I am certainly cognisant of the points that the hon. Gentleman makes and will bear them in mind during those deliberations.

Mark Field (Conservative, Cities of London and Westminster)

I thank the Minister. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 117 ordered to stand part of the Bill.

Clauses 118 to 122 ordered to stand part of the Bill.

Clause 123 - Power of OFT to make references

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 298, in page 90, line 9, leave out 'suspecting', and insert 'believing'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take the following amendments: No. 155, in page 90, line 9, leave out from 'that' to 'prevents' in line 11 and insert—

'the conduct in the course of a business of any person or persons substantially'.

No. 299, in page 90, line 11, after 'services', insert 'significantly'.

Nigel Waterson (Conservative, Eastbourne)

We now move to the market investigations part of the Bill. I am happy to speak to the amendments in my name and that of my hon. Friends in the first group—Nos. 298 and 299. It was rather a photo finish in tabling No. 155 and I shall leave the Liberal Democrats to speak to that amendment, although our names also feature above it.

A few general comments might obviate the need for a stand part debate on the clause, which is an important provision that kicks off this part of the Bill. It sets out the OFT's power to make references and extends its power to seek out anti-competitive behaviour.

Concerns have been expressed, not least by the CBI, about the clause, along with the Government's commitment to giving the OFT increased resources to ferret out anti-competitive behaviour in the UK economy. I assume that the Government believe that a great deal of illegal activity is going on that current powers and resources have been unable to tackle. That is not a view that the CBI entirely shares. It states:

''However the great concern of industry is the second case and the potential for an enlarged and empowered OFT to cast its net far and wide looking for any possible behaviour or structure that could be construed as anti competitive.''

It refers to the consumer protection aspects such as super complaints, for example. There was a slight worry that British business would be rather beleaguered as a result of the provisions. As a Committee, it is our job to reassure if possible. It refers to the need for ''some reasonable constraints'' on the OFT to avoid disruption and counter-productive investigations and so on.

Amendments Nos. 298 and 299 would change ''reasonable grounds for suspecting'' to ''reasonable grounds for believing'' and would insert the word ''significantly'' before

''prevents, restricts or distorts competition''.

In addition to the CBI's worries, there is a genuine concern about the cost to business of such investigations—that they might be extremely expensive and tie up an awful lot of resources, especially management time. The amendments are designed to produce a higher threshold for the provisions.

The CBI points out that in clause 123(1) there is no lower limit to the level of impact. There should be a de minimis provision to ensure that unreasonably counter-productive investigations are not launched because they would tie up businesses' time and lead to costs. That is why the requirement of suspicion is too low and there should be a good reason to believe that something has occurred, which is a somewhat higher test. The insertion of the word ''significantly'' would also tighten things up.

I mention the scale monopoly provisions. I think that they are mentioned in the White Paper, although I cannot find the reference—I am sure that the Minister has it at his fingertips. In a debate in the House of Lords on the Competition Bill on 13 November 1997, Lord Simon of Highbury said:

''We also believe that the scale monopoly provisions will continue to have value although we do not intend that their use should be limited with the introduction of the new prohibitions. In future we do not expect references to be made of scale monopolies except in circumstances where there has already been proven abuse under the prohibition and where the DGFT believes that there is a real prospect of future abuses by the same firm.''—[Official Report, House of Lords, 13 November 1997; Vol. 583, c. 300.]

Is that the Government's view on this Bill, or has their view changed since that debate?

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

In the interest of completeness, I am inclined to support the two Conservative amendments that are grouped with amendment No. 155, which stands in my name and the names of my hon. Friends the Members for Twickenham (Dr. Cable) and for Southport (Dr. Pugh), in addition to several Conservative members of the Committee.

To put it bluntly, our worry about the clause and the mischief that we want to remedy with the amendment is the broad nature of the powers that are given. One can imagine that a proactive Director General of Fair Trading could become a competition tsar who runs around looking for cases or causes to take up. The Minister may say that there are other restraints on the DGFT and no doubt that is the case. My experience shows, however, that if there is the possibility of a person abusing a power, eventually, the power will almost inevitably be abused.

There is a further argument about imbalance of resources. Costs to the Office of Fair Trading are borne by the taxpayer. Those resources would not be available to businesses investigated under the Bill. Investigations will be highly involved and complex and will require much management time and many legal

and accounting resources. It is fair and proper that without trying to diminish the force of the investigations, which I welcome in broad terms, a direct link should be established between the conduct of an enterprise that is the subject of an investigation in which it must account for its actions, and the effect on the market.

The amendment would leave the OFT with substantial power, but it would redress the balance that is presently out of kilter.

Douglas Alexander (Labour, Paisley South)

First, I shall deal with resources, which seem to underpin the thought behind the three amendments. The Government said in the White Paper that we want a strong and proactive OFT that will scrutinise markets throughout the economy to assess whether competition is working well. If it were not working well, the OFT would take appropriate action. That is why the OFT has the new markets and policy initiatives division, which will give it a stronger platform to tackle markets that are not working well for consumers.

However, I add the following caveat: action on markets does not necessarily mean referring a market to the Competition Commission for further inquiry. The right action may mean that the OFT is sharing information with consumers, that it is making recommendations to the Government about regulations that impede competition, or it could mean no action at all.

The amendments would limit the scope of the market investigations regime by restricting the basis on which references can be made about the conduct of firms and their customers. Amendment No. 155 would insert the word ''substantially'' into the reference criteria before

''prevents, restricts or distorts competition''.

They would also limit the scope of the regime by restricting the basis on which references can be made by requiring the OFT to have reasonable grounds for believing that one or more features of the market is or are preventing, restricting or distorting competition before it could make a market investigation reference or by requiring the OFT to have identified a significant or substantial impact on competition.

I shall now deal with the issue of belief and amendment No. 298. As it stands, subsection (1) requires the OFT to have reasonable grounds for suspecting such activities. The amendment would make the criteria that the OFT must satisfy before making a reference slightly more demanding—as identified by the hon. Member for Eastbourne. When formulating the reference criteria, we considered whether the OFT should be required to have a reasonable suspicion or a belief that a feature or features of the market is or are preventing, restricting or distorting competition.

I shall explain why we have chosen suspicion, not belief. Is it not appropriate that the OFT should be more, rather than less, certain that problems in a market merit investigation by the Competition Commission? There are two main reasons why we

did not choose belief as the test. In some cases, the OFT will have enough evidence to justify more than a reasonable suspicion that there are competition problems in a market. We certainly hope that the OFT will always ground its reference decisions in as strong an evidential base as is available to it.

However, there may be cases when the OFT has enough evidence to justify a reasonable suspicion, but not enough to justify a reasonable belief. The only way in which to obtain the extra evidence that it would need to satisfy the higher threshold is with the co-operation of companies in the market that are under investigation. In such circumstances, it does not seem right that, by not co-operating with the OFT to provide the extra information, companies could prevent it from making a reference decision.

Belief can be a tricky concept to pin down. Sometimes, if there is enough evidence to justify a reasonable suspicion that something is the case, there is probably enough—or nearly enough—evidence to justify a belief that it is the case. In other words, replacing ''suspecting'' with ''belief'' would make little difference. At other times, however, by the time there is enough evidence to justify a reasonable belief that something is the case, it will be virtually certain that it is so. Clearly, we do not expect certainty—or as close as economists can get to certainty—at the OFT stage of the investigations. If we did, there would be no purpose in the bipartite model of the OFT conducting a preliminary investigation, followed by a more thorough, determinative investigation by the Competition Commission.

The intention behind the amendment is no doubt to safeguard the interests of competitive businesses from unjustified investigation and, as we have heard, from the costs that will be consequent thereon. However, to the extent that it would make any difference at all, I fear that it would be more likely to provide shelter for uncompetitive businesses. It would sometimes require the OFT to carry out investigations almost as thorough as those of the Competition Commission to meet its thresholds, rather than achieving its purpose, which is to alleviate the burdens of businesses where possible.

Amendments Nos. 299 and 155 would introduce a formal requirement for the OFT to have reasonable grounds to suspect that one or more features of a market was ''significantly'' or ''substantially'' preventing, restricting or distorting competition before it could make a reference. I agree with the sentiment behind that: market investigatory powers should come into play only when the person making the reference has identified potentially serious competition problems in a market. I am not convinced, however, that it is necessary or desirable to introduce the proposed change of wording to prevent the making of unjustified or unnecessary references.

The power to make market investigation references is discretionary. We trust the OFT not to abuse its discretion by referring markets when it does not think that there are potentially serious competition problems. There are several reasons for that. While the OFT's budget is being increased to take account of

all its new functions—as set out in the White Paper—its resources will always be finite and it will naturally want to concentrate them on the most serious cases.

If the OFT makes references when the competition problems are trivial, or the Competition Commission finds that the imposition of a remedy is not justified by any adverse effects on competition that it can discern, the OFT's reputation and credibility will suffer.

Nigel Waterson (Conservative, Eastbourne)

The Minister describes an ideal world, and although I am sure that one exists out there somewhere, I rarely encountered one as a lawyer. The problem was graphically described by the hon. Member for Orkney and Shetland when he said that the OFT, flushed with new powers and functions, will be keen to make its mark. No matter how responsible, experienced and able are the people running the OFT at the most senior levels, there will be a double adrenalin rush of extra resources and extra powers.

Great pressure will be placed on those at the OFT, by Ministers as well as everyone else, to prove their mettle. Inevitably, they will not be able to divorce themselves from higher-profile campaigns in the tabloid press or the business pages of the more responsible papers. The Minister cannot simply hope that that will not happen. Matters will be pursued that may not come to anything in the end. However, in the meantime enormous costs will be run up—in terms of experts, lawyers and so forth—and damage will have been done to the businesses under investigation.

Douglas Alexander (Labour, Paisley South)

The hon. Gentleman raises an important point, but I am not predicating my support for the Bill as drafted on a hope or aspiration but on the fact that the reference power is not a new power for the OFT and that there are constraints under which it is clearly working. It must exercise its power reasonably, and if it does not, it will of course be open to review by the Competition Appeal Tribunal, regardless of the resource base for the OFT. The constraints on its operation and the expectation of how it must conduct itself continue to be in place.

The flexibility of having a power rather than a duty to refer also encourages the OFT to consider other ways of dealing with less serious competition problems that might technically meet the market investigation reference criteria—by reporting on its general duties, for example. At the risk of repeating myself, the current Fair Trading Act's monopoly reference criteria are pitched more or less as ''low'' as the proposed market investigation reference criteria in the Bill, but in only one of the last 12 cases did the Competition Commission not find adverse effects. Again, if we wish to anticipate future conduct by the OFT, acknowledging the points made by the hon. Gentleman concerning the additional resources and power outlined in the White Paper and the Bill, to recognise how the powers have operated in the past is a useful check on us.

In short, we do not expect that the new regime's reference criteria will lead to there being many more market investigations than there have been monopoly inquiries in recent years. Any increase in the number of

references is likely to result from increased OFT resources, not from changes introduced by the Bill.

On the comments made by Lord Simon of Highbury in the other place in relation to the Competition Act, it may not come as a complete surprise to the Committee to hear that I do not have the exact words of my erstwhile ministerial colleague in front of me, but I will try to offer what comfort I can about the thinking behind this part of the Act. In general, we would expect the OFT to use the Competition Act in cases in which it suspects that the Act's prohibitions on anti-competitive agreements or abuse of dominance are being infringed, and market investigation powers in cases in which the Act is not applicable. Whenever the choice is less straightforward, the decision about which powers to use will be at the OFT's discretion, on examination of all of the facts of the case in question. I do not wish anything that I say today to be taken as an attempt to tie the OFT's hands in terms of the discretion that it can exercise.

Nigel Waterson (Conservative, Eastbourne)

This issue may be very important in certain circumstances, although I accept that those may not be common. Does the Minister envisage that the OFT will issue guidelines on the question?

Douglas Alexander (Labour, Paisley South)

We had a discussion earlier this morning about what guidelines and information would be made available. The hon. Member for Twickenham is no longer in the Committee. He upbraided me for saying that I would write and tell hon. Members what was in the Bill. In fact, I gave an undertaking to explore the issue of when guidelines would be made available, and I am happy to add this issue to the list of matters on which I will be in touch with the hon. Member for Eastbourne.

Nigel Waterson (Conservative, Eastbourne)

The Minister has taken our concerns seriously, and there appears to be an element of unanimity on the issue. That may be because only one Liberal Democrat Member is here, and we would have to take a poll of all three to be sure that they agreed. None the less, there is concern about this important issue not only among Conservatives and Liberal Democrats but in industry and business.

I am grateful to the Minister for saying that he will investigate whether there will be any guidelines. It would be depressing if the answer to what I might call the Lord Simon point was no. We strongly believe that the restriction in clause 123(1), in particular, should be stronger. We may return to the issue later, but for now I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 300, in page 90, line 13, at end insert—

'(1A) In making its decision the OFT shall take into account countervailing benefits to customers or to innovation.'.

This is another amendment inspired by our friends at the CBI. It deals with countervailing benefits to customers or to innovation, and echoes an issue that we discussed in a different context the other day. The Competition Commission is required to take

countervailing benefits to customers into account when undertaking investigations once a reference has been made, and the OFT should be given a similar duty if we are to limit unnecessary references.

I have already dwelt on the cost to industry of references that get nowhere and are not justified to begin with. There can be a superficial, short-term impact on the market structure and conduct of industries that depend on rapid innovation, particularly in a global market, and that must be considered in the context of countervailing benefits. One example from the CBI is the formation of consortiums of competitors to bid for major Government contracts that no one supplier can handle alone. A current example is the contract for new aircraft carriers, which almost by definition is beyond the capacity of a single contractor, because of the different technical skills and the number of shipyards that would needed for the work. We should also consider the situations described in the OFT and DTI report ''Innovation and Competition Policy'', which notes that traditional competition regulation is seriously flawed when applied to high-technology markets.

For all those reasons, it is important that the Bill provides that the OFT, like the Competition Commission in a different context, should take into account countervailing benefits of the sort that I described.

Douglas Alexander (Labour, Paisley South)

In contrast to the mergers reference test, there is no need to specify countervailing benefits in the markets reference test. The OFT has a duty to refer qualifying mergers to the Competition Commission, and we must therefore specify that it need not refer such mergers if it believes that the adverse effects of the resulting substantial lessening of competition are outweighed by any customer benefits.

Let me deal first with the hon. Gentleman's reference to consortiums and with the treatment of individual joint ventures and consortiums. Those will almost always be examined under chapter 1 of the 1998 Act or the merger control regime, rather than by means of the market investigations under the Bill. In any event, the competition authorities will have discretion under all three regimes to allow arrangements that can be seen as restricting competition, where such arrangements bring sufficiently wide economic benefits to justify the anti-competitive outcome.

The substance of my other point in response to the hon. Gentleman's query is that the Competition Commission is not required to consider customer benefits, but only has discretion to do so. The amendment would impose a requirement on the OFT to take account of countervailing benefits in the markets regime, whereas it only has discretion to take account of customer benefits in the mergers regime. In contrast to the position in the mergers regime, the amendment would require the OFT actively to search out potential countervailing benefits and to assess their importance relative to competition concerns in the market, making it significantly more difficult to refer a market to the Competition Commission. That might also encourage

parties to delay the OFT's investigation by making frivolous claims that are evidently not worthy of further consideration but are none the less cumulatively time-consuming for the OFT to examine in turn.

The amendment also contains a wider definition of customer benefits than that used elsewhere in parts 3 and 4. It refers to

''countervailing benefits to customers or to innovation''

rather than solely to customer benefits. That phrase would include benefits to innovation per se, even if they did not benefit customers, and that is not right. In markets where competition is not working well, customers may suffer significant detriment. A benefit, however large, that does not accrue to them should not prevent the market from being referred to the Competition Commission with a view to making it work more effectively.

The amendment would undermine the flexibility of the market investigations regime. It would make the pre-reference investigation process longer and more complicated, without making it any fairer or significantly improving the quality of the OFT's substantive decision making. That would make market investigations more costly and time-consuming for the firms involved. I am sure that no one on the Committee would want that.

Andrew Lansley (Conservative, South Cambridgeshire)

Before the Minister concludes, I hope that he will make it clear that the OFT will be expected to strike the right balance. On the one hand, it has an obligation to avoid long, complex and costly pre-reference investigations. On the other, I hope that it will not simply consider competition aspects—in relation to supermarkets, for example—or the level of concentration in the market, and say that there must be a reference. There may be substantial evidence, in whatever form, to show that customer benefits are being derived from the market's structure.

Douglas Alexander (Labour, Paisley South)

I would not wish my remarks to fetter the discretion that is exercised. In that sense, I am not convinced that the amendment would achieve its purpose without unbalancing the consideration that needs to be given to the OFT's market investigations. I therefore ask the hon. Member for Eastbourne to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I am far from convinced, but in the interests of progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Nigel Waterson (Conservative, Eastbourne)

I beg to move amendment No. 258, in page 90, line 14, leave out from 'reference' to 'services' in line 15 and insert 'to conduct'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this we may discuss the following amendments: No. 156, in page 90, line 14, leave out from 'to' to 'shall' in line 15 and insert 'conduct'.

No. 301, in page 90, line 14, leave out from 'to' to 'shall' in line 15 and insert 'conduct'.

Nigel Waterson (Conservative, Eastbourne)

I am interested only in amendments Nos. 258 and 301, and I shall leave the hon. Member

for Orkney and Shetland to tell us about the merits of amendment No. 156.

Again, our amendments are blatant attempts to restrict the basis on which references will be made. We tabled them out of a general wish to assist business, and to ensure that we do not end up with costly references that result in no further action. Amendment No. 258 would remove the words

''reference to a feature of a market in the United Kingdom for goods or services'',

referring instead to ''conduct''. We are trying to narrow down the provision by removing the rather woolly phrase ''feature of a market''—whatever that may mean—and referring to actual conduct.

Even more significant is the fact that amendment No. 301 would delete the phrase ''whether or not''. Unless we remove those words, grounds for making a reference could arise as a result of conduct outside the market concerned, although I am not sure what that means. The wording may simply be an example of sloppy draftsmanship—but it would be unfair to say so, and I withdraw the suggestion unreservedly, so it must represent a calculated effort by the Government to create a large gap through which whole markets and industries will be drawn before becoming the subject of references. The wording of the clause does not focus on specific, narrow references, which this part of the Bill is supposedly about. My hon. Friends and I are concerned about the inclusion of the words

''whether or not in the market concerned''.

I do not know what the Government are thinking of—I assume that they have thought about it. Why have they included those words?

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I associate myself with the hon. Gentleman's remarks. Amendment No. 156 is virtually identical to No. 258, although I believe that it has a slight edge in elegance of drafting. It would take out some unwanted words and leave the phrase ''to conduct services''. I am not sure what it means, but it is all semantics and I suspect that it will not be accepted, so it does not make much difference.

Douglas Alexander (Labour, Paisley South)

I would not endeavour to intrude on a private squabble over the relevance of the amendments. With admirable candour, the hon. Member for Eastbourne conceded that the thinking behind the amendments was an explicit attempt to restrict the scope of investigations. I shall try to deal with the substantive points that he raised on the structure of the market and on the Government's thinking with regard to being outside a particular market.

Drawing on the remarks of the hon. Member for Eastbourne, the thinking behind the first two amendments seems to be that competition problems that warrant a market investigation can arise only from the conduct of particular firms or customers in that market. However, the conduct of firms and their customers may not be the whole story if competition is not working properly. For example, high barriers to entry into a market may have nothing to do with the conduct of firms already operating in that market, including regulatory obstacles to entry and constraints that can make it difficult for new entrants to gain

information. [Interruption.] I knew that my speech was exciting, but I am overwhelmed by the response.

When such structural causes of competition problems exist, the OFT should be able to take account of them when taking reference decisions. It is also important that the Competition Commission should be in a position, as far as possible, to take action to address such structural problems—something that the amendment would make impossible, because clause 126 relies on the definition of ''feature of a market'' in clause 123(2).

Opposition Members may agree that structural features of a market can, in theory, cause competition problems, but they may still say that it is unfair to burden businesses with an investigation into matters that are not a consequence of their actions. If that is the reason for the amendments, I would offer this explanation.

Monopoly inquiries and market investigations are not a one-way street for business—one that it always finds itself worse off for going down. They often improve the process of competition in the market by removing the all too often cosy and protected positions enjoyed by the incumbents. That should give small firms a better chance of entering the market, and it would expose businesses and consumers alike to the benefits of more vigorous competition. We have no intention of saying to potential entrants into an uncompetitive market, ''Sorry; the Competition Commission cannot help you because the problems that are keeping you out of the market are structural rather than discrete to the actions of an individual company.'' That would not seem appropriate, not least given our determination that the OFT's role in advancing competition should be proactive, as narrated in the White Paper.

I turn to the proposal in amendment No. 301 to restrict the OFT, when considering whether the conduct of firms acting in a particular market has prevented, restricted or distorted competition, to consideration of what those firms do in that market. The conduct of firms in a given market may prevent, restrict or distort competition not only within that market but in other markets, such as those in which their immediate suppliers and customers operate.

I was asked to give an airing to the Government's thinking on the clause. Perhaps the best example at such short notice is the Competition Commission's investigation into supermarkets. That found that the large supermarkets' buying power meant that some of their purchasing practices adversely affected the competitiveness of their suppliers, and distorted competition in the supplier market. That meant that suppliers were likely to invest less and spend less on product development and innovation, which would lead to lower quality and less consumer choice in the retail market. The Competition Commission also found that there were likely to be fewer entrants into the supplier market regardless of the issue in relation to the supermarkets.

Nigel Waterson (Conservative, Eastbourne)

I may be missing the point, but surely that does not tackle my question. They would still be in the market concerned—supply of foodstuffs or whatever—to the public. The bit of the vertical chain that they are in is not relevant. With respect to the Minister, I do not think that that deals with the issue.

Douglas Alexander (Labour, Paisley South)

I am concerned if I have not made the point clear. The effect of the supermarkets within that supplier market was so significant as to affect its structure. Therefore, there was cause to look not only at the supermarket environment because the effect for suppliers, while they were able to sell products more widely, was significant.

Mark Field (Conservative, Cities of London and Westminster)

On the point about supermarkets, the way in which the report took place was somewhat disingenuous. Effectively, it redefined the market for the purposes of being able to clobber the supermarkets, which struck me as a good example of a politically oriented investigation. There was a lot of furore in the press about the ''Rip off Britain'' campaign—that seemed to bring out the very worst of what we have been trying to expose in the debate, specifically in the amendments on this clause. The worst instincts were revealed. Common sense, as opposed to detailed statistical and academic analysis, will tell anyone that supermarkets run a good show, offer inexpensive food and give consumers masses of choice. However, it is easy, statistically, to justify an argument by redefining the marketplace, in this case by considering the suppliers' market rather than that of the supermarkets. That is the sort of problem that we envisaged—large and small business hamstrung by masses of regulation and by having to go through inquiries when many of them are politically motivated. I apologise for having made an intervention that was longer than many of my speeches.

Douglas Alexander (Labour, Paisley South)

I discern from the hon. Gentleman's longer contribution that he is making two points. The first concerns the entitlement to investigate something such as the supermarket market and the consequential impact on the suppliers market. The functions and powers that are given to the relevant authorities in the Bill reflect the fact that sometimes the test is not common sense; hugely complex financial and market matters have to be addressed. That is why we are keen to ensure that the authorities are underpinned not just by expertise but by resources that will enable complex negotiations and discussions to be taken forward in an appropriate manner.

I would agree with the hon. Gentleman if he were highlighting the importance of removing an overtly political motivation from many of the competition matters that we are addressing—that is the basis on which I hope that he would feel willing to support the Government. One of the principal underlying rationales of the Bill is to remove what has all too often in the past been an arbitrary position of politicians and to give a degree of comfort and certainty to the businesses involved, not least on the basis of the expertise and resource that I have described for the Competition Commission.

The definition of conduct in subsection (2) (b) is not as excessively wide as some speakers have suggested. It

includes only firms and customers who are active in the market that is the focus of the investigations of the OFT or the Competition Commission. The OFT will not be able to make a market reference on a whim. I sense a fear that might underpin some of the contributions to the debate; the OFT will have to be confident that it has reasonable grounds for suspecting that the conduct that it has identified prevents, restricts or distorts competition in the market concerned. I therefore hope that the hon. Member for Eastbourne will feel willing to withdraw the amendment.

Nigel Waterson (Conservative, Eastbourne)

I hope that the Minister will not take it amiss if I say that I am no more reassured than I was to start with. I do not follow his rationale. However, for the sake of progress, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 123 ordered to stand part of the Bill.

Clause 124 - Ministerial power to make references

Nigel Waterson (Conservative, Eastbourne)

When I first saw this clause, I wondered whether it was just one of those quirks that computers sometimes throw up and whether it had been included in error. I hoped that a raft of Government amendments would follow to show that it was all a horrible mistake. Only a few moments ago, acting as my straight man, the Minister referred to the rationale behind the Bill. Those who take a more superficial interest in the Bill may have noticed that removing Ministers from the process appeared near the top of most press releases that trumpeted the wonders of the Bill as it neared the House. That has been welcomed by everyone, including Conservative Members, not least because it is what happens anyway in most instances, it is the right thing to do and it will command widespread confidence in the process.

Harry Barnes (Labour, North East Derbyshire)

There are exceptions to those who support this clause.

Nigel Waterson (Conservative, Eastbourne)

Since the hon. Gentleman set up his office in the corridor this morning, I had almost forgotten that he was a member of the Committee. I apologise profusely to him for suggesting that he supports the Government's proposals. As a former Whip, it remains a mystery to me how he was selected to be a member of the Committee in the first place. I am sure that you will sympathise with that, Mr. Conway.

Clause 124 bears re-reading because it leaps off the page. The Bill has been promoted as taking political decisions out of competition policy, which everyone agrees is wonderful, yet this clause, unashamedly, allows a Minister to intervene when he is not satisfied. I suspect that Ministers of all political persuasions are not satisfied a great deal of the time. However, the Minister will be able to intervene when the OFT decides not to make a reference under clause 123. Curiously and paradoxically, it makes not a blind bit

of difference how dissatisfied the Minister is, if the OFT has decided to make a reference with which he does not agree, because it appears that he or she can do nothing about that. I would be interested to know why the clause provides for such a one-way system.

It is remarkable that the clause flies in the face of the general philosophy of the Bill. Even if we allow for the public interest aspect—which, on any view, is a tiny part of the equation and can be left to one side in the great mass of cases—the clause gives the Minister a power to intervene when the OFT has carried out its investigations and reached the conclusion that there is no case to refer under clause 123. No matter what the OFT has done, the Minister can step in and say that there should be a reference. If that looks and sounds like ministerial interference, it probably is. It flies in the face of all the Government's claims about the Bill. Why is the provision included? What is the rationale? Why is the system only one way? Surely it is a drafting error.

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

I wonder whether the hon. Gentleman thinks that the clause is partly intended to deal with cases in which the OFT is not fulfilling its duties as we should all like it to. If a Minister used the power, it would represent an expression of no confidence in the OFT, and presumably a review of its membership might follow. My experience with West Hertfordshire health authority has led me to want to have its members dismissed. The OFT might be as incompetent as that public body, and the Minister might need to send a shot up the gunnels.

Nigel Waterson (Conservative, Eastbourne)

Across the gunnels is probably the correct nautical expression—a shot up the gunnels sounds potentially far more disastrous.

The hon. Gentleman makes an excellent point, but sadly he is entirely off-message, as the Government have suggested quite the opposite to everyone, including industry and hon. Members. The last thing that Ministers want is for the Derbyshire-Hemel Hempstead axis to come pounding on Ministers' doors and saying, ''I'm fed up with this—there's a factory closing in my constituency and the OFT is almost as bad as West Hertfordshire health authority, so what are you going to do about it?'' Ideally, the Minister should reply, ''There's nothing I can do about it, squire. It is not down to me—it's down to an independent body that employs wonderful people and has massive new resources. In the bad old days of Mrs. Block-it and the Tories, of course, we could have done something about it, but not anymore. We are just getting on with the business of governing the country and trying to get a third term.''

That is the theme that runs, like the word ''Blackpool'' through a stick of rock, through the entirety of this part of the Bill, apart from this clause. Although I understand the point being made by the hon. Member for Hemel Hempstead (Mr. McWalter), both he and the hon. Member for North-East Derbyshire (Mr. Barnes) are talking about a different piece of legislation.

The debate has thrown up a whole series of questions for the Minister, and I shall listen agog to his response.

Andrew Lansley (Conservative, South Cambridgeshire)

I am happy to concur with my hon. Friend. I shall not quote the White Paper at great length, but it is curious to discover in the proposals for the market investigation regime a whole series of paragraphs on the role of Ministers but no specific reference or foreshadowing of the clause. On the contrary, paragraph 6.42 says:

''Reducing Ministerial Involvement is an underlying theme of the changes made to our competition regime. The Government believes that competition authorities acting on the basis of sound economic analysis are best placed to take decisions in order to correct competition weaknesses, and restore healthy competition for consumers. This view has strong support within our domestic competition community, and internationally.''

Although subsequent paragraphs express reservations in relation to exceptional public interest cases or major divestment remedies, at no point does the White Paper say that decisions on competition will be made by the Competition Commission, but decisions on references to the commission by the OFT and other sector regulators will not be made solely by the competition authorities—they will be interfered with by Ministers.

The provision is completely contrary to the thrust of the Bill and it is astonishing that Ministers should want to include it. The question of public interest cases is not involved here. I imagine that the hon. Members for North-East Derbyshire and for Hemel Hempstead might want to go to Ministers and use the public interest provisions, which we shall discuss later. However, we are dealing only with competition matters at this point. On competition grounds, the Government propose to retain a power for the Secretary of State to set aside the view of the competition authorities on competition matters, which will undermine the predictability and consistency that Ministers claim to want and to be pursuing in the Bill as a whole. Frankly, one could take out the clause and there would be no negative consequences, only positive ones.

Jonathan Djanogly (Conservative, Huntingdon)

I totally concur with my hon. Friends the Members for Eastbourne and for South Cambridgeshire on whether a Minister should have the right to be satisfied with a decision by the OFT in those circumstances.

Materiality is another aspect of the clause that has not yet been mentioned. Subsection (2) will allow a Minister to make a reference if they suspect that any feature or features will distort competition, and there is a materiality aspect to that. It is not only a question of whether a Minister is satisfied, but a question of the basis on which they can be satisfied. The clause works on the basis that there is no bottom line or level at which it would or would not be acceptable for a Minister to refer. They can refer for any reason at all, which is why clause 124 is inadequate.

Mark Field (Conservative, Cities of London and Westminster)

Much has been said already on the clause, so I shall speak only briefly.

I have spoken about mergers on a number of earlier occasions in the consideration of part 3. I instinctively feel that it is naïve to believe that mergers do not have a political angle. To that extent, I have always had some sympathy with the view that there should potentially be some ministerial input on mergers. There is, however, no justification for ministerial input into market investigations. Indeed, our concern is that that will allow Ministers to play to the tabloid gallery when it whips up a furore about a particular market. A Minister may insist on a reference, but they will not have any sort of balancing veto on a reference put forward by the OFT. In other words, ministerial power will be one way, rather than two way, in relation to OFT references, and, egged on by the mob, a Minister will be able to use that power to appear to rescue the situation as and when it suits them, which is not sensible, especially in relation to market investigations.

There are other areas of the Bill in which some ministerial input may be a sensible way forward. That is, in a sense, a matter of—dare I use the phrase—political philosophy, and I am sure that such commercial thinking changes from one era to the next. There is absolutely no justification for any ministerial intervention on market investigations.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

I shall likewise be brief. Frankly, it sticks in my craw to agree with the hon. Member for Eastbourne time after time, and I now find myself in a position in which I agree with four Conservative Members, which is more than even I can stand.

Nigel Waterson (Conservative, Eastbourne)

Just to probe the hon. Gentleman, does it stick in his craw because I am a Conservative, because I represent an English seat or because I took my seat off a Liberal Democrat—or all three?

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

The fact that the hon. Gentleman is a Conservative is certainly enough for me. The fact that his seat is in England is of no consequence whatsoever. I am married to an Englishwoman—

Nigel Waterson (Conservative, Eastbourne)

Very broad minded.

Alistair Carmichael (Liberal Democrat, Orkney and Shetland)

It is certainly broad minded on her part. I hold no part in xenophobia against the English. The hon. Gentleman took his seat from a Liberal Democrat, but I am sure that that is a fault that will be mended in time.

The clause is a sensible backstop position. We are dealing with what I expect will be a very small number of cases. At the end of the day, the business of Ministers and politicians is to take hard decisions and not simply to abdicate all responsibility. The clause may be inconsistent with some of the ministerial press releases that have been put out, but I certainly would not damn it for that reason. What we have is a sensible backstop position. In circumstances in which the OFT has taken a decision that, in the wider sense, may be acceptable to it but will not be acceptable to the wider community, there should be some recourse for the Minister to make that clear.

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

I am grateful that the hon. Member for Eastbourne took my intervention, because it gave rise to a lively debate that has flushed out the clear

differences between the sides in the debate. I get the strong impression that those on the Opposition Benches—at least, those on the Conservative Benches—would like the OFT to be as inefficient as I claim that the West Hertfordshire health authority is, on the basis that it would be supine and inefficient, and business could just get on with doing its stuff without anyone asking whether the climate in which they were conducting their business was actually one of fair competition. I believe that it is important that the function be delivered effectively because, as has been said repeatedly in the debate, that would be to the benefit of good business. I hope that the Minister will not feel inclined to accept the argument that has been made by Opposition Members.

Harry Barnes (Labour, North East Derbyshire)

The Fair Trading Act 1973 allows references by the Secretary of State on competition and public interest grounds. My understanding is that, as a matter of policy since the early 1980s, different Governments have seldom used public interest grounds to make references. However, Secretaries of State must have made several references to the Competition Commission, despite what has been said. It might be interesting to know how many there were and what the Government's policy is on references under the clause. If their policy is the same as that for public interest, Opposition Members have nothing to worry about.

Douglas Alexander (Labour, Paisley South)

To be perfectly honest, I am not quite sure where to start, given the range of comments and the excitement generated by the clause. Perhaps the obvious place to begin is with the comments of the hon. Member for Orkney and Shetland. As the debate proceeded, I found myself having ever more in common with him. We both represent Scottish seats, we both have English wives, and we both think that the clause is sensible and logical.

I assure my hon. Friends the Members for North-East Derbyshire and for Hemel Hempstead that, emboldened by their remarks, I shall reject Conservative Members' view and urge the Committee to do so. The accusation levelled at the Government is that the clause contains a word-processing aberration. I would have had more sympathy with the Opposition's comments if they had used the word ''remedy'' in place of ''reference.'' That is the key point and the sense of proportion that must be brought to the discussion.

The danger is—again, this turns on quite an important point—that, had we not had such a power, an opportunistic Opposition might have said that it was an outrageous breach of parliamentary accountability and would have argued for appropriate accountability. Therefore, it is important to recognise that retaining a reserve power for Ministers to make references in exceptional circumstances will enhance the overall accountability of the new regime. Subsection (3) specifies that, like the OFT and certain sectoral regulators, Ministers will be able to refer a market only if they have reasonable grounds to suspect that one feature or more of a market is preventing, restricting or distorting competition in the supply or acquisition of specified goods or services.

For clarification, I confirm that the Minister must satisfy the same reference criteria as the OFT. As with references made by the competition authorities, ministerial references will be subject to review by the competition appeal tribunal. We intend that the primary responsibility for making market investigation references should lie with the independent competition authorities—for these purposes, the OFT and certain sectoral regulators—which is entirely consistent with the spirit and letter of the White Paper and discussions on the Bill. Under the new regime, Ministers will no longer be able to veto references made by the OFT and certain sectoral regulators.

In line with the intention, Ministers' power to make a market investigation reference is more constrained than their power to make monopoly references under the Fair Trading Act. Subsections (1) and (2) specify that Ministers will be able to refer markets only in exceptional circumstances in which they are not satisfied with a decision of the OFT not to make a market investigation reference to the Competition Commission, or in which they are satisfied that the OFT or relevant sectoral regulator is aware of the evidence that has led to a suspicion but that it is not likely to reach a decision on whether to make a reference within a reasonable time.

Therefore, the reserve power is consistent with our decision to take Ministers out of the vast majority of decisions in competition cases. The reserve power allows Ministers only to request that a decision be made. I return to the point with which I began my remarks: there is a fundamental difference between a reference and a remedy. We are asking only that Ministers be allowed to request that a decision be made, but that does not entitle them to any involvement in the decision-making process itself.

Andrew Lansley (Conservative, South Cambridgeshire)

I see the Minister's point, but I am afraid that I do not agree with it. Essentially, he is not saying, ''Is not it reasonable for Ministers to have reasonable grounds for suspicion of an anti-competitive effect and, therefore, to make it a subject for reference?'' He must address the point that, by using the power, Ministers will be seen in the market to be substituting their decisions for those of the Office of Fair Trading on exactly the same information. That is at the heart of our objection.

Douglas Alexander (Labour, Paisley South)

I merely reinforce what I said previously. We are conscious that the power is to be used only in exceptional circumstances and that a balance must be struck. We want to ensure that there is a greater degree of accountability throughout the process. If one were to ask me candidly what I think the market would wish, I would say that it wants a situation in which references can be made to the Competition Commission and, indeed, the appellate body of the competition appeal tribunal, but, none the less, there is provision for further investigations to take place. A degree of proportion must be brought to the debate. There is a fundamental difference between a reference being made for further investigations, deliberations and decisions and the idea that the provision is in breach of the spirit, thrust or rationale of the Bill.

Andrew Lansley (Conservative, South Cambridgeshire)

If we are trying to bring proportion to the debate, we should do exactly that. The regulatory impact assessment in the White Paper suggests that there might be five such investigations in a year. If the Minister decides in any year, on the basis of the same competition evidence—we are discussing only competition grounds—to make a reference where the OFT does not, that would be a substantial part of the Competition Commission's activity on market investigations for that year. The Minister must tell us not about balances and possibilities, but whether he can contemplate any specific instance—hypothetical, perhaps—in which Ministers would exercise the power.

Douglas Alexander (Labour, Paisley South)

I would make a couple of immediate responses. First, I do not fully understand the logic of the hon. Gentleman's position. He says that he does not want to talk about possibilities and balances, but he invites me to do exactly that, by identifying a specific possibility. By definition, exceptional is exceptional.

Secondly, the idea that there will be a vast rush of ministerial requests that the Competition Commission investigate matters is defied by the exercise of a similar power in previous circumstances. I explained the specific terms on which a reference for further investigation would occur, and I simply do not think that the evidence of history bears out the hon. Gentleman's suggestion of a hypothetical scenario in which there would suddenly be a rush of references on the basis of ministerial recommendation.

Nigel Waterson (Conservative, Eastbourne)

This provision is very important and we would wish to divide the Committee on it, unless the Minister has some further pearls of wisdom for us. He makes three broad points. First, he says that this is a reserve power. The clause does not say that it is. Secondly, he says that it will be used only in exceptional circumstances. The clause does not saying anything about that at all, and he would not be drawn on what would constitute exceptional circumstances. Thirdly, he talked about accountability. One cannot have it both ways. One can have the world order wished for by the hon. Members for North-East Derbyshire and for Hemel Hempstead—on that basis, I presume that they will be voting with us on the clause—in which Ministers can respond to political pressure from sources such as their colleagues and step in, which was the case in the bad old days; I suppose that one could call that accountability. Alternatively, one can have a system in which the OFT is set up as an independent body. That would mean that it could do whatever it wanted, which would include wreaking mayhem like West Hertfordshire health authority.

The Minister has not even attempted to tackle the final issue. If it were not for my high regard for him, I would regard that as a slight discourtesy to the Committee. On what basis would a Minister take a different perspective from the OFT, after it had made a thorough initial investigation, on exactly the same set of facts? That is the key issue. Unless the Minister can reassure us, we shall not be happy with the clause.

Douglas Alexander (Labour, Paisley South)

I assure the hon. Gentleman that no discourtesy was intended to him or the Committee.

Returning to the substantive point at issue, asking for a decision to be taken rather than taking a decision, which is the current position, does not contradict the spirit or, indeed, the rationale of the Bill. However important the involvement of Ministers may be, it is also important that their involvement is transparent and that they fulfil their role in close co-operation with the OFT. There is, perhaps, a genuine disagreement there.

I do not fully understand the logic that suggests that my hon. Friends the Members for North-East Derbyshire and for Hemel Hempstead would, given their contributions to the debate, find favour with the arguments outlined by the hon. Member for Eastbourne.

Mr. Lansley rose—

Douglas Alexander (Labour, Paisley South)

If I might make some progress, I will then be happy to take an intervention.

We need to strike an appropriate balance between respecting the independence of the competition authorities in making determinations and decisions, which is a rationale that runs through the entire White Paper and the Bill, and recognising that there are exceptional instances in which it would be appropriate for a Minister to ask the Competition Commission to investigate further.

Andrew Lansley (Conservative, South Cambridgeshire)

I am getting worried by the Minister's desire to treat the fact that decisions on competition grounds will be made independently by the Competition Commission as sufficient in itself to guarantee the independence of the OFT. Those are two distinct bodies. The OFT will be trying to establish in the marketplace a clear, consistent and predictable understanding of the competition grounds on which it would expect to refer a market for investigation by the Competition Commission. The Minister must understand that independence means that if the Secretary of State were to bring information to the OFT, and the OFT considered it and decided not to make a reference, substituting a Minister's decision for the decision of the OFT would directly undercut that independence. The independence of the Competition Commission on the decision cannot restore the independence of the OFT.

Douglas Alexander (Labour, Paisley South)

I fear, once again, that I must dispute the logic of the hon. Gentleman's position. We would both agree that there can be a position whereby the Competition Commission is deemed to be, and recognised as, fully independent in terms of its deliberations and, ultimately, its decision. Equally, there could be a decision in which the criteria for investigations conducted by the OFT would be recognised within the marketplace. There could be circumstances in which a Minister would, acting on their own initiative, take the view, having met the same criteria, that a reference was appropriate.

Given the history of the role of the OFT, I do not accept the logic of the point that the hon. Gentleman is advancing. Given the OFT's independence to date, I suggest that the market has not questioned whether Ministers' powers will be restricted. If that was his point, it is a serious allegation.

Andrew Lansley (Conservative, South Cambridgeshire)

Let us not get into red herrings. The Bill makes it perfectly clear that the Secretary of State will be able to make references on public interest grounds. We are, however, only discussing competition. The Minister proposes that the Secretary of State should have powers to undermine the independence of decision making on competition grounds by the OFT.

I want to put a second question to the Minister. If the OFT issues guidance in pursuance of the legislation about how it should interpret markets, conduct or any of the other factors in clause 123 that flow into whether a reference should be made, is the Minister saying that the Secretary of State will consider himself or herself bound to consider a reference on the same criteria as that published guidance?

Douglas Alexander (Labour, Paisley South)

I shall answer the first of the comments, and then move on to the substantive second point. There was an interesting interplay between the comments of the hon. Members for Eastbourne and for South Cambridgeshire. A question was posed asking why a reference could be made to the Competition Commission by a Minister but a Minister could not block a reference to the Competition Commission by the OFT .

I would have more sympathy with the argument of the hon. Member for South Cambridgeshire that that is a significant impediment to the independence to the OFT, if what we were proposing was a means by which a Minister could bar the OFT from making such a reference to the Competition Commission. That is simply not what the clause is intended to do, or narrates.

Andrew Lansley (Conservative, South Cambridgeshire)

With respect, I have not proposed that the Secretary of State should have a power to bar references by the OFT, so I would appreciate it if the Minister would address the arguments that I have made, rather than different ones.

Douglas Alexander (Labour, Paisley South)

If the hon. Gentleman had allowed me to make some progress, I would have merely pointed out that, if we are in the arena of red herrings as he describes it, I do not accept the logic of the idea that the ability of the Minister to recommend that the Competition Commission investigate the matters somehow inhibits or destroys the independence of the OFT. I would accept the logic of that position were it the case that Ministers could prevent the OFT from making references to the Competition Commission—a point which was raised earlier in the debate.

Nigel Waterson (Conservative, Eastbourne)

This is an important point, and the Minister is being generous in allowing me to intervene. It is important that we nail down what we are debating.

For the record, I did not say that there should be a two-way power; I was merely inquiring what the logic was, but let us put that on one side and lock it away in its box for the rest of the debate. Surely the Minister has grasped that the political pressure will come when a Minister receives a reference in which the OFT says that it does not think that it is appropriate because of some campaign, Back-Bench pressure, or whatever. Is

that not the sort of situation that we are trying to get away from?

Douglas Alexander (Labour, Paisley South)

We should return to the issues under debate, and being investigated by the OFT. By definition, those are issues on which discretion is exercised. There could be circumstances in which highly complex and important matters were under consideration. A reasonable body—the OFT—could reach one conclusion, and the Minister could reach a view that it was necessary to have the matters further investigated. I would make clear the distinction between a decision and a discussion.

Harry Barnes (Labour, North East Derbyshire)

I shall not rise to the continuous provocation from the hon. Member for Eastbourne. Is not the reason for the clause quite straightforward? The Bill is entirely different from the Fair Trading Act 1973. Under the 1973 Act it was possible for the Secretary of State to ask for a view from the OFT, and on the basis of that view he could decide whether to go to the Competition Commission. There are no avenues for that in the Bill. Instead, there is a free-standing area for the OFT. With competition policy only, the Government have a fallback provision for exceptional circumstances that could come along—[Interruption.]

Derek Conway (Conservative, Old Bexley and Sidcup)

Order.

Douglas Alexander (Labour, Paisley South)

I have a couple of points to make. Of course, the entire scope of the Bill is not fundamentally different from the 1973 Act, many of the provisions of which are drawn and modernised in the Bill. I would concur with the view that one must have regard to the exceptional nature of the circumstances. Although there are complex matters in which discretion may be exercised, it is explicit that it would be an exceptional circumstance if a Minister chose to ask for those complex matters to be further investigated by the Competition Commission. I fear that there is a genuine disagreement about the import and significance of the clause. If the view being offered from the Conservative Benches was that the matter concerns decisions being taken by Ministers as distinct from a request for further investigation by the Competition Commission, I would have more sympathy. However, the provision is important, further strengthens accountability in the overall process and is consistent with the spirit of the Bill.

Huw Irranca-Davies (Labour, Ogmore)

The arguments of Conservative Members would have validity if there were to be constant challenges to the OFT by the Secretary of State, but they will be rare or very infrequent and on that basis the reserve power seems sensible. It would undermine confidence within the OFT if they became a regular occurrence and I am sure that the Minister will confirm that that will not be the case.

Douglas Alexander (Labour, Paisley South)

I am certainly happy to give that assurance and I reiterate that, as my hon. Friend said, it would be exceptional for circumstances to demand action by the Secretary of State. I reinforce the point that even under the existing provisions of the Fair Trading Act, Ministers have not sought to act with a cavalier disregard for the position of the OFT or the impact of a referral on business. The provision is sensible and appropriate to ensure that in exceptional

circumstances—I emphasise exceptional circumstances—Ministers have a power to ask for further investigation.

Andrew Lansley (Conservative, South Cambridgeshire)

I remind the Minister that colleagues deflected him in other directions—I understand that—and he has not answered my question. He said that the Secretary of State would decide whether to make a reference on the same criteria. Will that be not only on statutory criteria but on the same guidance that might have been published by the OFT?

Douglas Alexander (Labour, Paisley South)

Certainly the reference criteria that the Secretary of State will have to satisfy will be the same as for the OFT. However, there are obviously circumstances in which there may be a genuine disagreement about the discretion that must be exercised in reaching a decision on whether to refer.

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

Does my hon. Friend agree that one of those circumstances might be privileged information? For example, information that is available only to members of the Cabinet or others about foreign countries might have the effect of potentially reconfiguring a market in a way that the OFT might not be aware of. If the Secretary of State took a decision in part on that information, he would not be making it on the same information base as the OFT, which is what the hon. Members for Eastbourne and for South Cambridgeshire keep insisting on. There could be a differential in information.

Douglas Alexander (Labour, Paisley South)

Tempting though my hon. Friend's offer is, I shall resist being drawn into a series of examples about the exceptional circumstances that I have described. However, his point was well made. I remind the Committee that there will be a degree of accountability in that the Secretary of State is accountable to Parliament. To that extent I see no inconsistency between the independence not just of the Competition Commission but the OFT and its work and a reasonable and appropriate power for the Secretary of State who is accountable to Parliament.

Question put, That the clause stand part of the Bill.

The Committee divided: Ayes 10, Noes 5.

Clause No. 126 - Questions to be decided on market investigation references

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 302, in page 91, line 35, after 'services', insert 'significantly'.

Derek Conway (Conservative, Old Bexley and Sidcup)

With this it will be convenient to take the following amendments: No. 303, in page 91, line 40, at end insert 'significantly'.

No. 305, in page 92, line 23, after second 'a', insert 'significant'.

Jonathan Djanogly (Conservative, Huntingdon)

Some of the issues that arise with regard to this batch of amendments have been discussed. However, they should also be debated now, as we are discussing the questions to be decided on the market investigation and significant changes have been made to monopoly inquiries from the 1973 Act.

In the broadest sense, changing the focus from the vague public interest test to one based on identification of the adverse effects on competition that arise from the structure of markets is welcome. We will direct our protests and I hope that—the last debate not withstanding—the political input will be reduced.

Although the new test will more clearly identify what is to be reviewed, one of the main concerns about the new regime is that the 25 per cent. supply share level that is contained in the 1973 Act is missing from the provisions. Therefore, business is rightly concerned that the new all-powerful OFT might use its increased funding and prosecuting powers to roam around on what will effectively be fishing expeditions, in circumstances that do not merit reviews. That could be destabilising to affected businesses and to the business environment in general.

These amendments recognise that the mere prevention, distortion or restriction of competition should not be sufficient grounds for investigations, which should be based on the belief that there is a significant restriction or distortion of competition, to avoid fishing expeditions and unnecessary investigations, no matter how irrelevant the effect is likely to be on competition.

It is important to state that there will always be some distortion of the market: there is no such thing as a perfect market. The key issue is the extent of the distortion of a market. In effect, these amendments are saying that a certain level of disturbance needs to be established, which is the level at which it becomes significant. At that point, it should become unacceptable, because the public would not want that.

We last discussed this type of issue when we debated clause 123. The Minister said that investigations might not lead to action. That is a straightforward and fair point. However, he will also appreciate that the fact that investigations may not result in action will not necessarily be a comfort to businesses, or alter how they will view this legislation.

The Minister also spoke about the possibility that the reputation and credibility of the OFT would be damaged if it went on a series of fishing expeditions, as if that would be the reason why it would not do so. I

appreciate that the hon. Gentleman has not been present throughout our deliberations, but I have spoken on several occasions about the fears that businesses have with regard to investigations. I mentioned a few examples—which I will not go over again now—to show why there have been problems in practice. Problems do arise. The hon. Member for Hemel Hempstead asked what would happen if the OFT got it wrong. That is also a fair point to make.

It is a case of legislating on the basis not only of what we would like to see, but of what is possible. To that extent, materiality is a valid concern and it is not adequately dealt with in the clause. The amendments will deal with that.

Douglas Alexander (Labour, Paisley South)

On amendments Nos. 302, 303, 305 and 306, the first three amendments would restrict the Competition Commission's duty to remedy—

Derek Conway (Conservative, Old Bexley and Sidcup)

Order. To help the Minister, we will be taking amendment No. 306 as a separate debate, so if he could restrict himself to amendments Nos. 302, 303 and 305 that would be helpful.

Douglas Alexander (Labour, Paisley South)

I am grateful for that clarification. Amendments Nos. 302 and 303 would modify the definition of adverse effect on competition and insert the word ''significantly'' before

''prevents, restricts or distorts competition''.

The amendments may be intended to prevent the Competition Commission from imposing remedies that are not justified, but there is no need for that. The lack of a threshold word such as ''significant'' or ''substantial'' to qualify prevention, restriction or distortion of competition in the questions to be decided by the Competition Commission does not mean that it will be able to impose unjustified remedies. The commission cannot impose any remedy unless it considers that a reasonable and practical way to deal with an adverse effect on competition, which it has identified, or perceives a detrimental effect on customers resulting from the adverse effect of that competition.

The commission's view of what is reasonable and practicable must be reasonably held. The factors that it may take into account, when deciding whether a particular remedy is reasonable and practicable, will vary from one case to another and from one remedy to another. We would always expect the commission to take account of whether an adverse effect or customer detriment that a given remedy is designed to address, and their removal or mitigation, are sufficiently serious to justify whatever course of disruption to business will be involved in implementing that remedy.

The question to be asked in relation to each adverse effect is therefore not whether that is significant, whatever that would be construed as meaning. I have doubts as to whether we could formulate in appropriate legal language a satisfactory, objective definition of what significant would mean in this context. A more appropriate question would be to ask whether there is a remedy that could reasonably and practically be put in place.

When a remedy would have an impact on the existing property rights of parties, the Human Rights Act 1998 will place the Competition Commission under a specified additional obligation to impose remedies that are no more than is necessary and proportionate to address the competition problems that it has identified. The additional obligation will apply to a large number of possible remedies and, where it applies, will act as a further constraint on the requirement to impose only remedies that the commission considers reasonable and practicable.

The Competition Commission's report on a market investigation would, by definition, be an in-depth study of all the workings of competition and the markets concerned. Any adverse effect on competition that it has identified is potentially worth remedying, so long as it can be remedied in a reasonable manner. To give the Committee an example, if the commission can see a barrier to entry that is restricting competition and has identified a reasonable and practicable way of removing that barrier, it should be able to do so without considering whether or not it is significant. Without the intervention, that barrier to entry might persist indefinitely, leaving the market less competitive, new entrants excluded, and customers potentially worse off than they need to be.

Moreover, there may be many different adverse effects on competition, many of which may not be especially significant, but all of which taken together make for a very uncompetitive market place. The question of whether and how to remedy each of them still needs to be explored for each individually. The amendments would limit the potential effectiveness of market investigations as a means of addressing comprehensively the competition problems of a market and interfere with the Competition Commission's exercise of its discretion in determining what remedies it is reasonable and practicable to impose where it has found adverse effects on competition.

Jonathan Djanogly (Conservative, Huntingdon)

The Minister's argument was based on the same lines as before. I do not want the argument to go on for too long. However, when I hear that the decision will be based on a belief about what is reasonable and practicable, and that that belief must itself be held on reasonable grounds, it seems to me that we are opening the matter of determination to the law courts. That is potentially a greater and more complicated issue than what could be defined as ''significant''. The ability of someone to make a claim under the Human Rights Act is not a practical or ideal approach on which to base the drafting of legislation, which I hope is drafted with the aim of keeping away from that Act.

The Minister said something that gave me new cause for concern. He said that any adverse effect may be worth changing. That is easy for Governments and Departments to claim because they have deep pockets and if they identify a tiny distortion in a market that they think makes for an interesting debate as to whether competition is being affected, they can make it a test case. In previous debates, I gave examples of where that had arisen. However, people who are trading do not have deep pockets for test cases, which

concerns me. There should be a degree of materiality and the Government should not be able to go on fishing expeditions in cases of intellectual or academic interest. I have not been comforted by the Minister's response, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 304, in page 92, line 22, at end insert 'including public interest cases'.

I do not have much to say about the amendment, but it has been brought to our attention by the CBI that, as a definitional point, the words ''market investigation reference'' should include a reference to public interest cases.

Douglas Alexander (Labour, Paisley South)

As we are nearing the end of the sitting, I hope that I can offer a new approach from Ministers by agreeing to consider amendment No. 304. The amendment seeks to ensure that the same definition of a detrimental effect on customers applies to all market investigation cases, including those with an intervention notice in force. That was our intention, so I am grateful to the hon. Member for Eastbourne for highlighting that part of the Bill might benefit from redrafting.

Jonathan Djanogly (Conservative, Huntingdon)

It is the first time that that has happened to me and I am not sure what happens next.

Derek Conway (Conservative, Old Bexley and Sidcup)

I must confess that I am not sure whether the Minister was inclined to accept the amendment, or whether he was giving an undertaking to return to the issue.

Douglas Alexander (Labour, Paisley South)

I ask the hon. Member for Huntingdon to withdraw the amendment, but we will give it due consideration on Report.

Jonathan Djanogly (Conservative, Huntingdon)

On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 306, in page 92, line 44, after 'services', insert—

'(iii) improvements to production or distribution; or

(iv) promoting technical or economic progress'.

The question is, am I on a roll? Perhaps my luck will run out at this point.

If the Competition Commission has decided on a market investigation and it shows an adverse effect on competition, subsection 4 provides that, as part of the decision on whether action must be taken, it can consider the question of whether there have been customer benefits. Benefits include such things as lower prices, higher qualities and greater levels of innovation. However, the amendment proposes that two further issues should be considered. The first is

''improvements to production or distribution'',

and the second is

''promoting technical or economic progress''.

Some of the greatest technological advances in the history of this country and others have been effected through monopolies—

Nigel Waterson (Conservative, Eastbourne)

Or a cartel.

Jonathan Djanogly (Conservative, Huntingdon)

Indeed. That is not to say that a monopoly or a lack of competition is necessarily good. I hope that the Minister knows from having read previous debates that that is not the position that I, or other hon. Members, take. However, in certain cases, such a position should be considered. The provisions would align the Enterprise Bill with the Competition Act 1980 and article 81 of the treaty of Rome.

The Confederation of British Industry said that without the change, it is probable that ''benefits to customers'' will be taken as benefits to the immediate customers, rather than to customers in the wider sense. It is important to consider not only the person receiving the goods but the wider market. It may also be relevant to consider where that market is heading. I am happy to have tabled the amendment.

Andrew Lansley (Conservative, South Cambridgeshire)

I am happy to support my hon. Friend. The amendment is interesting because when the Government published their White Paper on productivity and enterprise, they expressly invited views on two models of how to define consumer or customer benefits for those purposes. One model was that which we considered previously in relation to mergers. The Bill follows that model in relation to investigating markets. The other model is more akin to the test of consumer benefits in article 81 of the treaty of Rome and the Competition Act 1980. On that model, the Government said—I quote from the White Paper—that

''Under article 81 and the Competition Act, the relevant test is broader and includes whether the agreement contributes to improving production or distribution; or promoting technical or economic progress . . . European case law demonstrates, for example, that countervailing benefits can be taken to include consideration of the environmental, social and health benefits.''

Even if the production or distribution benefits and the technical progress benefit specified in the amendment were not so specified, there is a substantial chance that they would become part of the decision made by the Competition Commission when it considers customer benefit, not least by virtue of the incorporation of competition law from the European Community into our law. None the less, Ministers consulted on the matter in the White Paper. It is interesting that in the response to the White Paper, the Government say:

''The majority of respondents who commented on this issue favoured following the Article 81(3)/Competition Act model''.

In fairness, I should add that they go on to say:

''However, a number of respondents thought the more tightly defined merger model was preferable.''

It is interesting that the Government have chosen to take the route preferred by the minority of respondents. However, Ministers rightly stress, as has been acknowledged on Second Reading and elsewhere, that the Bill—especially the competition provisions within it—is the product of a great deal of consultation. It is important that we test the Minister on why the Government have chosen to go down that route. It is all very well for them to say, as they do in that document, that the competition authorities, or the competition revision judgments could be considered

authoritative on those narrow issues, and more consistent across the two regimes. However, in practice, if the market investigation regime has to proceed on a wider test, as I am sure that it will, it will incorporate the EC regime over time.

It being Seven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till Tuesday 7 May at half-past Ten o'clock.