Enterprise and Regulatory Reform Bill

Public Bill Committee, 10 July 2012.

Norman Lamb (Liberal Democrat, North Norfolk)

I beg to move,

That the Order of the Committee of 19 June 2012 be amended as follows:

(1) in paragraph (1)(i), for “10.30 am and 4.00 pm” substitute “9.00 am and 1.30 pm”;

(2) in paragraph (4), for “8.00 pm” substitute “5.30 pm”.

The programme order provides for this Public Bill Committee to meet at 10.30 am and 4 pm on Tuesday 17 July, but on Thursday 5 July the House of Commons ordered that the House will sit on Tuesday 17 July as if that day were a Wednesday. On Wednesdays, Committees do not sit between 11.25 am and 1.30 pm, and my motion will achieve that effect for this Committee. I hope that that makes sense.

Hugh Bayley (Labour, York Central)

The hours are set out as the first item on the amendment paper and, as the Minister has said, they will be our sitting times for next Tuesday.

We now return to the Bill. I remind Members that I do not intend to allow a separate debate on schedule 4, and that their contributions to the debate on amendment 83 must be relevant to that amendment.

Schedule 4 - The Competition and Markets Authority

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 83, in schedule 4, page 64, line 27, at end insert—

Geraint Davies (Labour, Swansea West)

It is a great pleasure to serve under your chairmanship, Mr Bayley.

The question at hand is how the Competition and Markets Authority will relate to business. People are asking why we cannot have just the Financial Services Authority. Like many others in the room, I have had specific experience of growing businesses. The Bill is supposed to be about how we re-engineer a business for economic growth. An obvious key question is how micro-businesses and SMEs get access in the different phases of their evolution—they might be in a fast growth phase or going through difficulties because of short-term problems with demand—and how to have a flexible approach in which the banking community is not continuously pulling the rope at a business’s weakest moment. The Minister may say, “Well, they can just go off the FSA”, but that is not what small businesses do.

I was at Swansea Metropolitan university a week or so ago. It is the most successful university in Wales for generating small businesses that pass the three-year mark. I was talking to people who were generating innovations in multi-media, computer gaming and all sorts of fast-growth, export-oriented products. I found the same old story: the big transitions were from an idea to a product, to a brand, to scalability, to market access and to brand leadership. How can a business go on that journey without proper funding? Will it be crushed or taken over during that journey and picked off, because it does not have the means to grow?

The banking community is not providing the means. One question that one could ask conceptually about the words “competition” and “market” is what the financial community is doing to help competition, market access, market building, exports and economic growth. There is clearly a failure. It is obvious that the FSA or its successor will not be focused, alongside the business community, on that key issue for British success in a global marketplace.

I welcome and support the amendment. I have already referenced the issue of starting a new product or business from infancy. Another issue is established businesses that are going through difficulty. I have had personal experience of that, as I started a travel business some time ago, during a previous Conservative boom and bust. At the time—this was in 1989, a long time ago—the business was going well and there was a pretend Tory boom, but suddenly interest rates went up and house prices went down. The question for me was how to get funding in that difficult period. As it happened, I was able to get a second mortgage on my flat. I knew that if I went to a bank, it would either have said, “Sorry,” or charged penal interest rates, even if my business had downstream orders—in that case, holiday orders—that would generate cash flow and the loan was a short-term bridge. I have met many businesses that have had such generic problems.

There are other problems, such as consumers who buy foreign currency and are told, “Look, we’re not charging any commission,” which misses the point that they should be looking at the rates, not the commission. The financial community creates intentional confusion to make out that a good deal is on the table when it is not. Perhaps the FSA’s successor can do something about that. That is a consumer issue, but we need such changes for the business basis: new product development, small-business growth and even medium-to-large business growth.

On the interface between financial transactions and small business growth, credit card facilities are of key importance. Those who run, say, a restaurant or anything online, need credit card facilities, and some credit cards have them over a barrel. In sectors such as tourism—which might be regarded at certain times, such as during recession, as high risk—over night those people can stop businesses trading or impose bonds or fees, or whatever. So it is not clear that the financial community acts in a fair and balanced way towards certain small business areas.

I am not asking for answers to all those questions, but they are key questions and reasons for the dynamics of the relationship between business and the financial community. That underlines the importance of my hon. Friend’s amendment, which I have no hesitation in supporting. I hope the Minister will think twice before hurtling ahead and saying that everything he has thought before is a complete answer to the world’s problems. I also hope he realises that the amendment would be a major improvement to the business community’s ability to grow success and would offer somewhere to turn when a bank says, “Sorry, you cannot have any money. What’s more, we have taken away what overdraft facility you have,” and the business says, “Well, we’re going to go bust, and we have orders down the road.” The bank manager, Mr Lamb, says, “That’s not my problem,” but I think it is a problem—lambs to the slaughter. The Government need to realise that this is a moment in time when the financial community has been called to order, and the Bill is a one-off opportunity to make amends. We have had reference to other markets, and surely this is the most important market because it is the lubricant for economic growth.

Norman Lamb (Liberal Democrat, North Norfolk)

I join other members in confirming that it is a pleasure to serve under your chairmanship again, Mr Bayley. I also confirm that I do not have a complete answer to all the world’s problems.

Chris Ruane (Labour, Vale of Clwyd)

The Secretary of State for Business, Innovation and Skills does.

Norman Lamb (Liberal Democrat, North Norfolk)

That is why he is the boss.

Chris Ruane (Labour, Vale of Clwyd)

The Deputy Prime Minister is the boss.

Norman Lamb (Liberal Democrat, North Norfolk)

I have not made a very good start and am already facing plenty of abuse from Opposition Members.

I am grateful to the hon. Members for Newcastle upon Tyne Central, for Edinburgh South and for Hartlepool for their proposed amendment. The Government will strengthen the UK’s competition regime by creating a single Competition and Markets Authority with a strong focus on promoting competition for the benefit of consumers. The CMA will have a range of powers to deliver its objectives and, importantly, the independence to decide its own priorities. Key to the CMA’s success will be the arrangements for ensuring fair and robust decisions. The new institutional arrangements and other reforms to the competition tools are intended to streamline and improve the efficiency of the competition regime. The CMA will also work closely with the new Financial Conduct Authority, which will have lead responsibility for promoting competition and consumer interests in the financial sector.

I will now address some of the questions raised by the shadow Minister.

Geraint Davies (Labour, Swansea West)

Will the Minister give way?

Norman Lamb (Liberal Democrat, North Norfolk)

Let me address this point, and then I will be happy to give way. To fulfil its new competition objective, the FCA will need to keep markets for financial services under review, and it will, of course, be able to review financial markets. When it wishes to engage the CMA—the overall competition authority under the new regime—the Financial Conduct Authority will have a tailored power to refer matters to it. If the CMA receives an appropriate referral from the FCA, it may refer a matter for market investigation or bring Competition Act enforcement proceedings. That mechanism was widely supported by consumer groups, the industry and the Treasury Committee. The referral mechanism will not prevent the FCA taking the lead in addressing competition issues, but it will respect the expertise and powers of the CMA.

The Government believe that the FCA should have a far stronger role in competition than that of the Financial Services Authority, which relates directly to some of the shadow Minister’s concerns. That commitment is reflected in the FCA’s objectives and constitutes a radical departure from the model of competition “have regards” currently in place with the FSA. The FCA’s new competition mandate will mean that it will able to use the powers available in its regulatory toolkit—including rule making and firm specific powers—actively in pursuit of competition, for example, promoting transparency and ease of switching, which is key, and tackling barriers to entry, which was another issue raised by the shadow Minister. There is real concern about the concentration of power in the banking sector. If one goes to Germany or the United States, one is conscious of a large number of regional and local banks and so forth, increasing competition in that sector. The FCA can look at barriers to entry as well as addressing anti-competitive conduct relating to product design and sale. That reflects the Government’s commitment to having the FCA seek market-led solutions that promote competition whenever possible, but it still allows for protection and intervention when markets fail or market-led solutions are not appropriate.

The shadow Minister made specific reference to PayPal. The CMA will work with all sector regulators—I am conscious that there are a number of them—to deal with competition issues relating to individual sectors. The regulators have different but complementary duties and powers. Under the concurrency arrangements, the CMA and regulators will discuss in specific cases which of them would undertake any Competition Act enforcement action.

The amendment would undermine the independence, focus and effectiveness of the new regime, with consumers and businesses bearing the cost. To be effective, the CMA needs to be able independently to determine its own priorities, but that would be undermined by the obligation to undertake regular reviews in one particular sector. The Government are determined to improve financial regulation and to put in place better protections for consumers. That is one of the key objectives of the new regime introduced by the Financial Services Bill.

Geraint Davies (Labour, Swansea West)

The Minister has now said on a couple of occasions that the primary focus in terms of the mandate is consumer interest and we should respect that. However, the business community is another consumer, because businesses are consumers of financial services. It is all very well going down to the consumers—we all agree with protecting consumers, and regulators are normally completely focused on that, which is great—but small businesses’ interests are not being served in this particular case. It is not that the consumers are not. We are talking about intervention to stop businesses or banks doing the wrong thing. We want the money to go to viable businesses. We want that interest in the Bill, because it is about businesses, not consumers.

Norman Lamb (Liberal Democrat, North Norfolk)

The competition principle, which is recognised internationally, is that one ultimately always looks at the interests of the consumer. Often, there is conduct in a particular market that might have a significant impact on small businesses and that will ultimately have an impact on consumers, because it may restrict, for example, competition in that market. That is why, if the hon. Gentleman will recall, the Competition Commission reached the conclusions it did while investigating the groceries market. It focused on the impact on consumers, but it took the view that there was a potential negative impact on consumers through how some supermarkets sometimes treated their suppliers, which are often small businesses. Because of that ultimate impact, it proposed a groceries code that specifically addressed the relationship between the supermarkets and their suppliers—small businesses—about which the hon. Gentleman indicated concern. It also proposed that there should be an adjudicator to enforce that code. One always looks at the effect on consumers, but consumers may be affected by how large companies deal with their suppliers. I hope that addresses his point.

The current competition authorities already undertake work in the financial sector. For example, the OFT has reviewed barriers in the retail banking sector, cash ISAs and credit card interest rates. The CMA will no doubt want to keep development in the sector under close review. The amendment does not recognise that markets and market regulation evolve, and requiring the CMA—

Chris Ruane (Labour, Vale of Clwyd)

Atishoo!

Norman Lamb (Liberal Democrat, North Norfolk)

Bless you. That was quite a shock. I cannot cope with all the shocks I am experiencing at the moment.

Requiring the CMA to carry out specific studies every two years may limit the ability of the CMA to do work in sectors that may be more of a priority at that time. Obviously everyone’s concern currently is with financial services, but at some future date the concern may lie elsewhere, be it energy markets or something else.

Simon Danczuk (Labour, Rochdale)

Throughout this Committee we have seen that both the Minister and the Government have a reputation for devising and developing policy based on anecdote. The amendment gives the Government and the Minister the opportunity to devise policies based on evidence and research and I would have thought that they would welcome that.

Norman Lamb (Liberal Democrat, North Norfolk)

I am enormously grateful for that intervention, mischievous though it was. Any suggestion that the Government are basing their policies on anecdote is simply and completely untrue. The CMA is based on a lot of consultation and analysis of how the existing system operates, and the Government’s absolute intention is that the new body will always act on the basis of evidence. Requiring the CMA to undertake reviews every two years in one particular sector, wherever the priorities may actually lie, would impinge on its independence and potentially impinge on its ability to focus its resources where they are most importantly directed.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

The Minister has said on a number of occasions that the requirement to carry out reviews every set number of years would impinge on the CMA’s independence, but sector-specific regulators are already required to carry out reviews of their sector every set number of years. I am familiar with the telecommunications sector and European Commission law requires that market reviews be carried out every three years. We are not saying that the financial review we are proposing has to be every two years. If the Minister would prefer another time period, then let him say that. As my hon. Friend the Member for Swansea West said, it is very important that the right evidence is available in order to monitor and make the right decisions about the financial services.

Norman Lamb (Liberal Democrat, North Norfolk)

I am grateful to the hon. Lady for that intervention. The key difference is that this body has the overarching responsibility for competition across the whole of the economy. For it to have to undertake reviews every two years or any other period one might choose in one specific sector seems a bit otiose and inappropriate.

The amendment also does not recognise that the CMA needs to be able to choose which tool to deploy. The amendment may require the CMA to provide a general report on the financial sector during the course of a more targeted investigation. In these circumstances, the reporting requirement could waste resources if the CMA was trying to focus on one really significant issue in financial services that was causing concern, but then had to undertake its general review. That would be a waste of resources and could interfere with an investigation or even act as a disincentive to initiate a separate investigation. It would become process driven—we must carry out our two-yearly review—rather than focusing on the mischief that might emerge at any particular time.

Geraint Davies (Labour, Swansea West)

Does the Minister not also accept that the nature of financial markets is moving so quickly in a global environment that a holistic evaluation on a regular basis, whether it is three, four or two years, is required? We are moving around in the global marketplace, and consumers and businesses are in danger of not getting the best deal. We need an overview from a strategic body and that is what this is. We are not PC Plod going along investigating and saying, “Oh no, we can’t look for the cat because we’ve got to do a review of strategic crime in London.” This is a strategic approach and we can do the cat stuff as well.

Norman Lamb (Liberal Democrat, North Norfolk)

I do not envisage that this body will be characterised as PC Plod. As the hon. Gentleman says, it is rapidly evolving. There will need to be a constant watch over what is happening, but we have the FCA and then we have this body with the overall responsibility for competition across the economy. Keeping it under constant review is sensible, but to impose a bureaucratic requirement that there should be this process every two years seems inappropriate when we are focusing on one particular sector whose responsibility is across the whole economy.

David Mowat (Conservative, Warrington South)

Is it not the case that whatever the merits of the amendment—and there are some points in it that would gain approval—it is being made to the wrong Bill? The FCA is the initial competition authority. It will make a referral to the CMA, which will do a first-phase investigation as necessary. To the extent that a two-year review should be done, if that is the view of the Opposition that amendment should have been made to the Financial Services Bill which set up the FCA, not to the overarching CMA.

Norman Lamb (Liberal Democrat, North Norfolk)

My hon. Friend makes a very good point. The shadow Minister made the point that other sector regulators focus on particular sectors and are charged with carrying out reviews in those sectors. Likewise, the FCA will be responsible for the financial services sector. That is where the immediate responsibility lies. Of course, this body has to be able to look at where the particular mischief lies at any particular time across the whole of the economy, rather than having a bureaucratic obligation every two years to look at a particular sector.

The amendment also does not take account of the proposed arrangements for co-operation between the FCA and the CMA. These will ensure that the two bodies work together to ensure that their respective expertise is applied to the financial sector in an efficient and effective way. The financial scrutiny regime in the Financial Services Bill includes powers for the OFT and the Competition Commission to require the FCA to respond to their advice on competition problems caused by financial regulation. The FCA will also have powers to ask the OFT to consider whether a feature of the financial services market prevents, restricts or distorts competition. The OFT will then be under a duty to respond to the FCA within 90 days. The roles of the OFT and the Competition Commission will, as we know, be transferred to the CMA once the Enterprise and Regulatory Reform Bill is enacted. So the overall effect of the legislation being pursued by this Government will be to significantly strengthen the competition oversight and scrutiny of the financial services sector which the FSA, the current body, has not had the powers to effectively undertake. I therefore ask the hon. Member to withdraw amendment 83.

Hugh Bayley (Labour, York Central)

I call Chi Onwurah.

Norman Lamb (Liberal Democrat, North Norfolk)

Why don’t I get that?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his response and for clarifying certain points concerning the regulation of competition in the financial services for the first time, whether in this Bill Committee or in other Bill Committees, such as the Financial Services Bill Committee. We have moved a step further in our understanding of where the key competition responsibilities and powers will lie for financial services. However, the Minister has not solved all the world’s problems, and he has raised more questions than he has answered. It is rather disingenuous of the Minister to imply that this amendment amends the wrong Bill when, before today, we were not clear as to where competition responsibilities for financial services would lie. The Minister has said clearly that the primary lead on financial services competition will be the Financial Conduct Authority.

Norman Lamb (Liberal Democrat, North Norfolk)

I certainly will not accuse the hon. Lady, in a rather unfair way, of being disingenuous. Does she accept, on the basis of what I have said to her, that the new Financial Conduct Authority will have a far stronger role in competition, which is absolutely necessary, than the Financial Services Authority, an organisation established under her party’s government, has had to date?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for that intervention. The clarity he has brought by answering the questions put to him makes it clear that the Financial Conduct Authority will indeed have a stronger role than the Financial Services Authority. Whether it is more effective than the OFT in addressing competition issues remains to be seen because, as the Minister himself said, the OFT has done much—not enough, but much—to address competition issues. He gave a number of examples and we hope that the FCA will have the expertise and the resources to achieve that, but we recognise that the resources and the skills of the FCA are not directly of concern here.

Let me set out what is of concern here and what remains to be answered. My understanding from what the Minister said is that the FCA will have competition powers similar to a sector-specific regulator now. He has implied that it will, for example, have the power to refer competition issues to the CMA. It will have phase 1 referral powers or, after investigating an issue, it will be able to refer to the CMA, which will then rule on whether there is a significant competition issue and what undertakings are required to address that.

Will the Minister confirm that is the model? If that is the model, it again prompts the question why all the other sector-specific regulators are named and identified in the Bill but there is no reference to the FCA. The Minister has implied that all the legislation regarding the FCA and CMA working together is to be found in the Financial Services Bill. Will the Minister confirm that it is that Bill that would require the CMA to work with the FCA?

On the subject of regular reviews, if it is the duty of the FCA to carry out regular reviews, we might be inclined to withdraw the amendment. The Minister has referred on a number of occasions to bureaucratic reviews. The requirement for regular reviews is commonplace in competition law, and happens in the telecommunications industry. Will the Minister clarify whether the FCA will be required on a regular basis to have reviews, evidence-gathering and so on?

Finally, my hon. Friend the Member for Swansea West raised a number of pertinent and compelling points about SMEs, which I do not feel that the Minister fully addressed.

Norman Lamb (Liberal Democrat, North Norfolk)

He can look after himself.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

That may be true, but I would like further clarity on small businesses’ access to finance. That is a great issue for us at the moment as we seek growth in the economy. The Minister’s boss, the Secretary of State for Business, Innovation and Skills, often refers to that. The market in finance for small businesses is clearly not as competitive as it should be: 85% of all loans to small businesses are with the four major banks. Will that particular market for small business finance be a subject of investigation by the FCA, despite the fact that, as my hon. Friend the Member for Swansea West pointed out, small businesses are not identified as consumers? Will that particular market be a candidate subject of investigation for the FCA? If that is not the case, where in the Government’s plans for legislation are the measures to address small business finance competition?

Geraint Davies (Labour, Swansea West)

Given that, as my hon. Friend has already pointed out, finance, unlike gas, is not mentioned under the CMA, and given that we also have the FCA, will there not be a natural instinct for the CMA to say, “Hold on. We have all these things to do in different markets. We have got the FCA to do the finance; we don’t have to worry about that”? The linkage between the business community, economic growth and finance, which is so important for British prosperity, will therefore fall through the gap between the two bodies. With the amendment, it would be a clear that the CMA was required to look at the financial community. Its staff could not say, “We’re too busy; the FCA will do it, ” and if someone asked, “What about business?” reply, “What can you do? If they had wanted us to do that they would have written it down, and they haven’t, so we won’t.”

Chi Onwurah rose—

Simon Danczuk (Labour, Rochdale)

Will my hon. Friend give way?

Hugh Bayley (Labour, York Central)

The hon. Lady might want to respond to one Member before she takes another intervention.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Thank you, Mr Bayley, for that excellent guidance. My hon. Friend the Member for Swansea West makes an excellent point. As the Minister has said, the Financial Conduct Authority is a new authority, as is the CMA, and yet the Bill contains absolutely no guidance, legislation or proposals about how they should work together. Financial services are of huge importance, and one would expect that that should be made absolutely clear, at least initially, so that the business community and the rest of us who are concerned about the business community can be confident that their concerns will be addressed.

Simon Danczuk (Labour, Rochdale)

The Minister has spoken much in Committee about the public perception of employment rights. Given that we have been through probably one of the most catastrophic financial sector disasters in history, will not the public be puzzled as to why the Government are refusing to regulate or to examine the financial authorities in detail regularly? They will be concerned that the Government are stepping back from examining those authorities. On that basis, the Government should accept the amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

My hon. Friend makes an excellent point. The financial crisis of 2007-08 was the greatest market failure that we have seen. Although the Minister expressed the hope that, in a matter of years, financial services might no longer need to be a priority with regulators or Governments, I fear that the public will be astonished to learn today that financial services competition and regulation is not to be a priority of the new Competition and Markets Authority.

I have asked the Minister several questions, and I want to give him the opportunity to respond before I decide whether to press the amendment to a vote.

Norman Lamb (Liberal Democrat, North Norfolk)

I am grateful to the hon. Lady for her additional comments.

On the point made by the hon. Member for Swansea West, the shadow Minister has already accepted, following my intervention, that the new Financial Conduct Authority will have a much stronger focus on competition in financial services than the Financial Services Authority has hitherto had. The Government’s absolute intention is to have a much more effective regime to address competition issues in financial services. It is absolutely not the Government’s intention that the new body will be unable to focus on financial services when that needs to be its focus. It will rightly be an independent body, and it will determine its priorities and commit its resources in the most effective and optimal way.

The Government, and particularly the Secretary of State, absolutely recognise the problems of access to finance for small businesses. We have already taken several steps to seek to improve access to finance. That is a big and enduring problem, for which there is no quick fix and no easy solution, because of the shock received by the banking sector. There is a very strong case for more competition in banking, as everybody recognises. I absolutely share Opposition Members’ view about the importance of ensuring a regime in which small businesses can get access to finance when they need it.

Geraint Davies (Labour, Swansea West)

Does the Minister agree that despite enormous quantitative easing—the billions put in—and Project Merlin and everything else, all that has happened is that banks have propped up their balance sheets and money has not gone through to the business community? There would be no great cost in accepting that there should be an explicit duty on the financial community. After all, as in gas and other markets, it is no big problem putting a line in, but it would send a clear signal to the financial community that the emerging body, alongside the FCA, will focus on the financial community and that it has to get its act together. That would be an important move in terms of perception as well.

Norman Lamb (Liberal Democrat, North Norfolk)

It is actually quite important that banks rebuild their balance sheets after what happened to them—in part owing to weak and ineffective regulation not only in this country, but internationally. The Labour Government must take their share of responsibility for the ineffective regulation that led to the crisis in 2008.

Geraint Davies rose—

Hugh Bayley (Labour, York Central)

Order. The Minister is not giving way.

Norman Lamb (Liberal Democrat, North Norfolk)

The Chair is absolutely right. I am not giving way.

The FCA will keep competition under review. That is obviously central to its purpose, so it will constantly maintain a review of competition. The hon. Member for Newcastle upon Tyne Central was absolutely right to raise concerns, but that will be central to its objectives.

Let me say a little more about the way in which the CMA and the FCA will co-ordinate on competition. The FCA and the CMA will need a memorandum of understanding, but we do not need to provide for that in the Bill to make that happen. The OFT has MOUs in place with the FSA and other similar sectoral regulators such as Ofcom without the need for legislation. I see no reason in principle why the CMA and the FCA should not have one MOU to cover both competition and consumer protection, including, for example, co-ordination regarding the FCA’s powers to enforce unfair terms in consumer contracts regulations.

On the relationship between the CMA and the FCA, both regulators have an important role to play in promoting effective competition. The FCA needs a mechanism to engage the CMA if it is to make sure that the CMA’s powers and expertise are effectively brought to bear in the financial services sector. That addresses exactly the concerns raised by Opposition Members. The FCA will therefore have a power of referral to the CMA—first to the OFT and in due course the CMA—under a corresponding duty to respond within 90 days. The availability of the power will not prevent the FCA taking the lead in addressing competition issues where it is best placed to do so.

On an appropriate referral from the FCA, the CMA may have the information and analysis it needs to take action—for example, to launch a market investigation reference—almost immediately. It will also be able to consider whether enforcement action under the Competition Act 1998 would be more appropriate. There are clear benefits to the referral mechanism in terms of enabling the CMA in its role as the principal competition authority to bring its expertise and experience to bear in taking action to address restrictions or distortions of competition. These are pragmatic arrangements that will reflect the fact that the FCA will have no track record of or experience in making market investigation references or capacity to enforce competition law itself. As such, it will be essential that it has a mechanism to draw on the expertise and powers of the CMA.

In conclusion, the intent of the amendments to ensure that there is a focus on competition issues in the financial services sector is absolutely right. That is why the Government are legislating to create a body—the Financial Conduct Authority—that will have a much greater focus on competition in financial services than the FSA has had to date. That significantly improves the regime for ensuring proper competition in financial services. On top of that, there will be the relationship, which I have sought to describe, between the FCA and the CMA—the overarching competition authority—so that it can use its expertise and experience in taking on those issues as appropriate.

Geraint Davies (Labour, Swansea West)

Will the Minister give way?

Norman Lamb (Liberal Democrat, North Norfolk)

I am conscious that we need to move on. I have tried to address all the issues raised by Opposition Members. I hope that, on the basis of that reassurance, the shadow Minister will withdraw the amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for those clarifications, and I believe that we have moved forward in our understanding of the way in which the FCA and the CMA will work together and the process by which referrals will be made from the FCA to the CMA. I am particularly pleased to learn that a memorandum of understanding will be put in place between the CMA and the FCA. However, I remain concerned that the Minister sees no need to legislate for that or to refer to that in the legislation.

Norman Lamb (Liberal Democrat, North Norfolk)

I simply made the point that it has happened between the OFT and the FSA, two organisations that inevitably have to work together. It makes absolute sense for them to enter a memorandum of understanding. If that approach was appropriate under the previous Government, it would seem to be appropriate now. There is no need to legislate for something that the two organisations will obviously want to do.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

While I see the sense of what the Minister is putting forward about the reasonableness of leaving the matter to the CMA and the FCA, I say again that the change to our competition environment is quite significant, which the Minister acknowledges. To carry out that change at this time but make no mention of the new authority, the FCA, or the financial services sector, which is on the minds of many of our constituents right now, in a Bill that refers to every other sector and identifies their relationship, is not the best way forward. I would like to test the Committee’s feeling on that point.

Schedule 5 - Amendments related to Part 3

Norman Lamb (Liberal Democrat, North Norfolk)

I beg to move amendment 21, in schedule 5, page 79, line 39, leave out paragraph 32 and insert—

32 (1) Section 52 (advice and information) is amended as follows.

(2) In subsection (1), for the words from the beginning to “the Director” substitute “The CMA”.

(3) In subsection (1A), for the words from the beginning to “the OFT” substitute “The CMA”.

(4) In subsections (2) to (6) and (8), for “OFT” (in each place where it occurs) substitute “CMA”.’.

Hugh Bayley (Labour, York Central)

With this it will be convenient to discuss the following:

Government amendments 22 and 55.

Norman Lamb (Liberal Democrat, North Norfolk)

This is exciting stuff, so please stay calm if you can, Mr Bayley.

Amendment 21 is a technical drafting amendment—but none the less exciting—to schedule 5 of the Bill on the transfer of functions to the CMA. It will affect section 52 of the Competition Act 1998, which requires the director general of fair trading—the predecessor of the OFT—to publish one-off guidance about the new prohibitions of the Competition Act and the OFT to publish guidance about its duties under the 2004 EU modernisation regulation, with which I am sure hon. Members will be familiar. The amendment of those provisions needs to reflect the transfer of the OFT’s functions to the CMA, including its one-off duties to publish guidance. To ensure that the Bill is drafted in a consistent manner, the amendment will additionally change the reference to the “the Director” in section 52(1) of the 1998 Act to “The CMA”.

Amendment 22 is also a technical drafting amendment to schedule 5 and affects paragraph 5(3)(a) of schedule 2 to the 1998 Act. Those provisions require Ofcom to consult the director general of fair trading before publishing a list of networking arrangements that are excluded from the cartel prohibitions in chapter 1 of the 1998 Act. The reference to the director general was not amended by the Enterprise Act 2002 when the OFT was created, and the amendment will fix that so that the provisions refer to the CMA rather than the director general.

Amendment 55 is a technical drafting amendment to schedule 15 and affects paragraph 5 of schedule 1 to the 1998 Act. Part 1 of that schedule excludes mergers from the chapter 1 prohibitions of the 1998 Act in certain circumstances. The OFT has the ability to withdraw that exclusion, but that ability does not extend to protected agreements, which are defined in paragraph 5 where references are made to various types of merger reference decisions involving the OFT, the Secretary of State and the Competition Commission. The Bill, as drafted, replaces “the Competition Commission” with “the CMA”. The amendment makes the paragraph more consistent with other parts of the Bill, which provide that merger references are made by the board to the chair of the CMA for the constitution of an inquiry group, and it does so by removing “to the Competition Commission” wherever those words occur.

I am grateful to hon. Members for sticking with me on this exciting stuff.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for explaining the nature of his amendments and my colleagues and the Committee for listening with such rapt attention. Although, as I have said, this is my first Bill Committee, I am aware that what is termed a technical amendment may on occasion hide deeper and more meaningful changes. On this occasion, however, I can find no objection to the amendments.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 92, in schedule 5, page 83, line 28, after ‘subsections’, insert ‘(1A),’.

Hugh Bayley (Labour, York Central)

With this it will be convenient to discuss the following:

Amendment 91, in schedule 5, page 84, line 14, after ‘subsections’, insert ‘(1A),’.

New clause 10—Mergers: duty to take account of longer-term competitiveness in considering whether to make references—

‘(1) Section 33 of the Enterprise Act 2002 is amended as follows.

(2) After subsection (1) insert—

“(1A) When considering whether or not a situation results in a substantial lessening of competition for the purposes of (1) above, the CMA shall take into account the longer-term ability of the merged entity to compete effectively.”.

(3) Section 22 of the Enterprise Act 2002 is amended as follows.

(4) After subsection (1) insert—

“(1A) When considering whether or not a situation results in a substantial lessening of competition for the purposes of (1) above, the CMA shall take into account the longer-term ability of the merged entity to compete effectively.”.’.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Amendments 92 and 91 are consequential on new clause 10, which will strengthen the conditions under which mergers should be considered by the CMA. New clause 10 inserts a new subsection into the amended Enterprise Act 2002 on the Office of Fair Trading’s duties to make a reference to the Competition Commission under certain merger situations. The consequential amendments mean that the new clause fits within the transfer of powers. Sections 22 and 32 in the Enterprise Act concern the duty of the OFT to make references to the Competition Commission in relation to anticipated or completed mergers. This will still only apply when it is a relevant merger situation, with two or more enterprises ceasing to be distinct enterprises—this is slightly technical—and the turn-over of one of those enterprises in the UK is more than £70 million.

Our amendment also retains the test that a merger must result in a substantial lessening of competition in order to be referred. The change is that the new clause adds the following subsection to that test:

“When considering whether or not a situation results in a substantial lessening of competition for the purposes of (1) above, the CMA shall take into account”—

this is the key phrase—

“the longer-term ability of the merged entity to compete effectively”.

The new clause will mean that the CMA will take a longer term view of the possible merits and demerits of mergers and takeovers in the UK. I am sure that Members on both sides are familiar with high-profile mergers and takeovers in the past few years, some of which have certainly not been in the best long-term interests of employees, consumers and businesses. Just last week we read the news that the owners of Manchester United will relocate the club’s management to the Cayman Islands and sell off shares with few voting rights in order to pay off some of the debt they used to buy the club.

As a Newcastle fan I have to declare an interest, which is that I hold Newcastle’s success to be much more important than Manchester United’s, but as a football supporter I am with all football supporters in feeling that we too rarely get the owners that the fans deserve. Football has done amazing things over the past decade or so—working to kick out racism and homophobia; reducing hooliganism; making games more family-friendly—but we still have ownership structures that do not act in the interests of the fans or the beautiful game. Indeed, those practices may well be against the new UEFA rules.

Ian Murray (Labour, Edinburgh South)

I am delighted to declare an interest as a fan of the famous Heart of Midlothian football club. One of the biggest concerns in Scottish football at the moment is, of course, the demise of Rangers. Ownership of that club, and ownership across football, has been a huge issue and one that it would be very suitable for the new CMA to investigate in the future.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank my hon. Friend for that intervention. He is absolutely right that takeovers in the football industry have led to a situation in which we have ownership that is not in the interests of football fans. I hope that the CMA will take that into consideration.

David Mowat (Conservative, Warrington South)

As it happens, I am a Manchester United fan, but the ownership and takeover of Manchester United have absolutely nothing to do with this amendment. This amendment would not in any sense have stopped what happened at Manchester United with the Glazers as far as I can see. If it would, will the hon. Lady say how?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I will come to the exact way that the amendment would address some of these issues with regard to takeovers, mergers and other competition implications.

Neil Carmichael (Conservative, Stroud)

I am a supporter of Newcastle United, so I agree with the hon. Lady on this particular aspect. What I am struggling with is how this discussion has a huge amount of relevance to this particular amendment; chiefly because she is really talking about the structure of companies and clubs, which is more properly a matter for the Department for Culture, Media and Sport and how it might address football governance.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the hon. Gentleman for that intervention. He makes an excellent point, which may put Newcastle United supporters in the majority on this Committee—[[ Interruption. ] Perhaps not. He and his hon. Friend are right to suggest that this amendment will not address all the issues around ownership, takeovers and mergers, but it will help to address some of them. I will explain how. Leveraged buyouts in football and more widely should concern us all. Kraft’s takeover of Cadbury is perhaps the best—or worst—example of short-term interests taking precedence over the long-term interests of a great British company. Reflecting on the takeover, Lord Mandelson, the Secretary of State at the time, said:

“It is hard to ignore the fact that the fate of the company with a long history and many tens of thousands of employees was decided by people who had not owned the company a few weeks earlier, and probably had no intention of owning it a few weeks later”.

The Kraft/Cadbury affair flagged a weakness, not just in our regulatory system, but in our economy as a whole. Our approach to fixing it should attack both. This amendment seeks to strengthen the hands of the CMA in any future case and, hopefully, would prevent some of the situations arising in the first place.

The Labour party has an ongoing review into the impact of short-termism on British business. The review is currently nearing the end of its initial phase of investigation and has been carrying out interviews with a wide range of top business people, investors, academics, employees and civil servants. The EEF, IOD and CBI have all expressed their support. It is led by Sir George Cox, a former director-general of the Institute of Directors and a director of the New York Stock Exchange Euronext. Sir George will report in due course. We on this side of the House are committed to putting together a strategy for the UK’s economy that will prevent a fast-buck, short-term culture.

With this new clause, we do not seek to pre-empt our report. It is not in itself a solution to the deep-set structural problems that we have in our economy. It looks only to address the competition side of the argument and is the first in a series of steps. Our review will set out in more detail the role that Government should have in driving a more long-term approach within UK business. The review is looking at the time scales under consideration by boards and senior management in evaluating corporate risk in opportunities; by institutional shareholders and managers in making investment and governance decisions; and the extent to which these match the long-term needs of business. Changes to the takeover code have already been considered in the wake of the Cadbury takeover by Kraft and proposals to strengthen the position of companies that find themselves the target of hostile takeover bids were rejected by the code committee following the Kraft affair. The consultation did not attract enough support, but the committee said:

“The Code Committee understands that qualifying periods (or weighted voting rights) could be introduced through changes in company law. If such changes were to be made, the Code Committee considers that it would be logically consistent for the Code to be amended accordingly. In the absence of such changes, the Code Committee does not believe that the Code should be so amended”.

So the code committee believes that the changes should be made through company law.

Peter Cadbury advocated similar changes in that consultation. In a letter to The Times in November 2009, he said:

“Is it too late to implement a measure of this nature before another fine British company is surrendered to short-term interests, and with it the danger that much of its manufacturing base will be transferred to Eastern Europe?”

Peter Cadbury is a direct descendant of the founder of Cadbury Brothers. He has been a corporate finance adviser for more than 40 years and owns a corporate advising business.

That letter was written more than two years ago. On 25 October 2010, the Secretary of State launched what he called

“the first stage of a review into corporate governance and economic short-termism”.

That is the Kay review of UK equity markets and long-term decision making. Yet, 20 months later, we are debating an Enterprise and Regulatory Reform Bill that contains nothing to reform corporate governance or address short-termism.

David Mowat (Conservative, Warrington South)

Having established that the example of Manchester United has nothing to do with the amendment, I find it difficult to see how the amendment would have made any difference to the outcome of Kraft’s Cadbury bid. There may be public interest issues, but the amendment does not address that takeover. There is nothing in the amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

The hon. Gentleman displays impatience to get to the root of the matter, which I applaud, but to say that the amendment would have no impact on a case similar to the Kraft Cadbury deal is wrong, and I will explain why.

I was rather looking for an intervention from the Minister to explain how or when his Government will introduce a Bill to address short-termism in the British economy. Last week, Government Members voted against our amendment to require the CMA to have a general regard for long-termism in going about its business, but I hope they will be more supportive of this amendment.

The amendment would give the CMA the power to take a longer-term view on the impact of such deals when deciding whether to investigate further. That is the critical point, to address the hon. Gentleman’s intervention. We believe the Government should be putting in place measures to ensure that short-termism is not rewarded in Britain. Changing the takeover code would be one such measure, but as the code committee has said:

“In the absence of such changes…the Code Committee does not believe that the Code should be so amended.”

In his submission to the committee’s consultation, Peter Cadbury had this to say on the takeover code:

“Recent experience has led me to believe that as a consequence of short termism, the City Code, as presently drafted in respect of hostile takeovers, operates to the considerable advantage of the Offeror, and unfairly against the interests of the Offeree, its employees and the wider interests of the company. I believe that the simplest, and most effective way to remedy this imbalance would be…to disenfranchise all shareholders, who acquire shares during an Offer Period.

A more level playing field needs to be established to allow longer term investors a greater say in determining the future of British…companies, having proper regard to issues affecting management, employees, customers, suppliers and not just the potential for short term financial advantage.”

The then director general of the CBI, Sir Richard Lambert, backed similar changes to the code:

“George Cadbury and his family believed that a successful business depended on a long-term partnership between genuine investors, their employees and the interests of their consumers. We share that belief.”

But there needs to be legislation, too. The amendment is not about one company or one episode, but about improving a test that has, in general, worked well over the past 10 years. The Government have talked a lot about fostering long-termism, but we have yet to see any action. Although the amendment does not address the takeover code or company law, I would like the Minister’s views on when his Government will promote long-termism.

Graham Evans (Conservative, Weaver Vale)

I would like to make two points. First, the hon. Lady mentioned 2009 and short-termism, but her Government had been in power for 12 years; why did they not do anything about short-termism? Secondly, I remember what happened with Cadbury very well. Irrespective of the takeover by Kraft, which is an international company of very good quality, the Cadbury family and company would probably have closed the plant in south-west England anyway.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Like a number of hon. Members, the hon. Gentleman’s position seems to be that he will not support anything that the previous Government did not do, while at the same time criticising everything that they did do. We have acknowledged that stronger regulation should have been in place. Now that the Government have been in power for two years, we might have expected to see progress in that direction.

John Cryer (Labour, Leyton and Wanstead)

What the hon. Member for Weaver Vale said about the plant in Keynsham may or may not be the case, but the point about the takeover is that Kraft, without being too specific, indicated that the plant would be kept open, and as soon as the takeover went through, it was shut.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank my hon. Friend for his clarification of that scandalous episode in British business.

Graham Evans (Conservative, Weaver Vale)

May I clarify my point? The factory in the south-west was earmarked for closure before the takeover. I am not trying to defend Kraft for a moment. Kraft may have intimated to Mr Mandelson that the factory would be kept open, but irrespective of the takeover, it was earmarked for closure.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

It is my recollection that Kraft did more than intimate; it gave the impression to the wider public that the factory would remain open.

Ian Murray (Labour, Edinburgh South)

The point is that there were two very critical reports by the Select Committee on Business, Innovation and Skills into the undertakings that Kraft gave when it took over Cadbury. Immediately after the transfer of business, Kraft’s undertakings did not come to fruition, including various pension funds undertakings.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank my hon. Friend for bringing those excellent Select Committee reports to the Committee’s attention. As I think we would all agree, in that case, the merger process left a lot to be desired, which gives us even more reason to look for measures to promote long-termism.

Iain Wright (Labour, Hartlepool)

To clarify a point on which the Business, Innovation and Skills Committee is very firm, in its takeover proposal of September 2009, Kraft said:

“Our current plans contemplate that the UK would be a net beneficiary in terms of jobs. For example, we believe we would be in a position to continue to operate the Somerdale facility, which is currently planned to be closed and to invest in Bournville, thereby preserving UK manufacturing jobs.”

A week after the takeover, Kraft announced that it would shut the Somerdale plant. When the takeover panel investigated the matter, it said that

“Kraft’s initial statements in relation to Somerdale breached the Takeover Code”,

particularly rules 19.1 and 19.3. Are we not discussing the fact that Kraft’s initial communication, on which shareholders may have made a decision, was misleading?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank my hon. Friend for that intervention, which clearly shows that Kraft misled shareholders and the public, rather than making general intimations. That point goes to the heart of the need to change the culture of the City and of takeovers, and the amendment aims to be part of that.

David Mowat (Conservative, Warrington South)

I make the point again that I do not defend what happened with the Kraft takeover. There may be public interest issues around the takeover and, as part of that, the takeover code, but new clause 10, which is concerned purely with the competition issue, would not have made a difference to the outcome, so the point is not relevant to new clause 10.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the hon. Gentleman for that intervention, and for saying the public interest test needs to be changed. I will come on to that. To be able to say that new clause 10 would not have made any difference, we would need to be able to look into the minds of those considering the consequences of the merger at that time.

New clause 10 requires the CMA to consider the long-term ability of the resulting entity to compete effectively in the market. If an entity is laden with debt, that has an effect on its ability to compete effectively, as I will show. The amendment by itself would no doubt give speculators, such as those who were involved in that Kraft Cadbury takeover, something to think about before buying up shares in companies for a few weeks before selling them on at a higher price after a deal has been done.

The amendment does not go as far as many of my hon. Friends, and perhaps some Government Members and people in industry, would like. It does not attempt to change the reasons for public interest referrals so as to include, for example, employment or investment concerns. It does not attempt to change the takeover code either. That may come, but the Opposition like to be evidence-based in their approach, rather than take an “anecdotes r us” approach. Our proposals will follow on from our reviews and the evidence we find in them.

The amendment looks purely at the competition consequences following a takeover, but it gives the CMA the power and the duty to look at the long-term competition consequences. That makes absolute sense in pure competition terms. It is all very well to say that a merged entity will not result in a significant lessening of competition, which is the test, but what happens if it is so reliant on debt that it cannot compete effectively?

We can, and should, recognise that the ownership structure may determine the strength of a company as a competitor in all markets. In the football market, the chocolate market and all other markets, the ownership structure may determine the competitive strength of a company. It may be desperately trying to maintain its cash flow to make its interest payments and not go under. If it does not go under, it certainly will not be a competitor. A recent US research paper, “Bankruptcy risk model and empirical tests”, by H Eugene Stanley and colleagues, found that the relationship between relative debt and bankruptcy risk generally followed a power law. That means that a company with half the debt is twice as likely not to fail. So there is certainly a relationship between debt structure and the likelihood of bankruptcy, which in turn has an impact on the level, and likelihood, of competition.

This is a very reasonable amendment. It deals purely with the competition issues. It does not attempt to change company law or the takeover code, but it also sends a strong signal. It should be the first step in helping to build the economy of the future—the economy that my right hon. Friend the Leader of the Opposition has called for, which is based on long-termism, patient investment and responsibility shared by all, not on predatory behaviour.

John Cryer (Labour, Leyton and Wanstead)

It is always a pleasure to serve under your chairmanship, Mr Bayley. I want to speak briefly again about the Kraft takeover, partly because there seems to have been a misapprehension among Government Members, particularly the hon. Member for Skipton and Ripon. I am sorry that he is not here today. I imagine he is out on manoeuvres in preparation for the day when the trade unions try to take over the world and he is summoned by destiny to prevent that. The hon. Gentleman gave the impression that even questioning a particular takeover or merger makes us a cross between Bismarck and Stalin, wanting to nationalise everything that moves.

My view is that there should be a national or public interest test when judging major takeovers and mergers. That would not affect many takeovers and mergers, only certain key ones, such as the Kraft takeover of Cadbury. The record that Kraft had at that point was not widely admired. Kraft had managed to expand consistently over many years, but not by the efforts of the people running the company. It had a record of taking over company after company, closing plants and very often shipping out production to developing countries, at much lower rates of pay and often without the quality controls we expect in this country, Europe and north America. It had become laden down by debt, as my hon. Friend the Member for Newcastle upon Tyne Central mentioned.

On the other hand, Cadbury was, and still is fortunately, though it is only three years since the takeover, a company that had expanded about six years in succession by its own efforts. It is arguably one of the most successful and recognised brands in British history. That is what led to a campaign against the takeover by, among others, the Daily Mail, hardly an organ of the hard left. The chief executive of Kraft refused to talk to the Select Committee inquiries, which were very good and produced admirable reports, and refused to meet anybody connected to Cadbury, such as employees’ representatives, other than the management. Cadbury had a very good history of industrial relations.

The takeover happened only three years ago, but we will be looking at the consequences for a long time. I hope it works out well; I do not want to sound like the voice of doom. I hope things go well for the people working at Cadbury and Kraft, but it is early days. We have to see what happens. Such a takeover would not have occurred in Germany, for instance, because the Government would have been able to say it was not in the national interest and would not allow it to happen.

It is not the only takeover in British history that has been deeply controversial and perhaps to have had the potential to undermine a strategic part of the economy. I will give one example. We think now of the 1970s as an era of massive regulation and Government intervention. To some extent that is a myth. One takeover that springs to mind was that of Norton Villiers Triumph in 1975. Basically, the company was the entire British motorcycle industry. It was taken over by a corporate raider with all sorts of promises of expansion. Within weeks, all three plants—all in the west midlands, an area with economic problems—were closed down and asset-stripped, and that was more or less the end of the British motorcycle industry, at least for quite a long time.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank my hon. Friend for citing an excellent example. The nature of the ownership of the party taking over the company and its asset-stripping led to a substantial reduction in competition in the motorcycle industry in the long term. That is exactly the sort of example that the amendment is designed to capture.

John Cryer (Labour, Leyton and Wanstead)

I am grateful to my hon. Friend. That is absolutely true. Japanese companies were able to become more dominant, not due purely to the excellence of their products, but because their British competitors had been removed from the market.

I must comment briefly on football as I feel strongly on the subject. As someone who is mad keen on all sorts of sport, I feel that money and corporate interests have become far too dominant in many sports, particularly football. We have seen that in the history of many clubs. I have an uneasy feeling that we will see a lot of premiership clubs experience enormous financial difficulties over the next few years. I hope I am wrong, but we might see some go to the wall. That sort of corporate dominance will, I suspect, dominate the Olympics. I accept that is completely beside the point, before the hon. Member for Warrington South intervenes on me. It has nothing to do with new clause 10; I just wanted to get it off my chest.

In conclusion, I see new clause 10 as a modest safeguard. It would not be an undue intervention in the workings of the market or the economy. I want to see a national or public interest power given to the Secretary of State. We would then have to put our faith in the Secretary of State to intervene appropriately, as I am sure he would, because he is such a decent sort of bloke. New clause 10 would be a start and I hope that the Minister will consider accepting it.

Norman Lamb (Liberal Democrat, North Norfolk)

I guess I need to declare an interest again, to set the record straight. I am a Norwich City supporter. I suspect I am on my own in that in this room—I have no support here.

I thank Opposition Members for their suggested new clause and amendments. Following the interesting debates that we had last week around similar issues, we have considered these amendments at some length. I am also grateful to Members for talking after a sitting last week about the new clause and the seriousness with which they wanted to address the issue in debate. I completely accept their seriousness in wanting to address the need for long-termism in the economy. As I understand it, they are concerned about corporate takeovers that are cleared by competition authorities because they have no detrimental impact on competition, but which may have other consequences later down the line. We very much share those concerns around long-termism in corporate behaviour, but the question is about the mechanism to address it. There is a danger that we would load the competition authority with the responsibility of addressing all ills of corporate behaviour, when it might be inappropriate to do so.

When Lord Mandelson was giving evidence at the time of the Cadbury-Kraft takeover—I know that Opposition Members take his words seriously and follow his every word—he said:

“You have to form a judgment about whether it is desirable and necessary to change legislation to introduce some sort of public interest criterion that the Government might operate in relation to takeovers and mergers. I am unconvinced that such a change is necessary or desirable. I would rather stick, for the time being, with the terms and the spirit of the 2006 Companies Act, which said that directors needed to discharge their responsibilities by taking a properly balanced view and pursuing ‘enlightened shareholder value’, a value that is not limited to the short-term. One, incidentally, that recognises the value of effective relationships with employees, stakeholders and suppliers and, indeed, the community more widely. This approach, in our view, is likely to drive long-term performance and maximise overall competitiveness of that company.”

He did not want to interfere with the competition regime or framework.

The Kay review delivered an interim report on its findings in February and will make recommendations to the Secretary of State in its final report later this month. The review will inform future Government policy on addressing short-termism in equity markets and corporate governance more widely. The Government will consider the review’s recommendations carefully.

There has been a lot of reference to the Kraft-Cadbury takeover. I have no detailed knowledge of the absolute circumstances, but I would not defend anyone who misleads in any public statements and I fully recognise that there were difficulties in the early stages of the takeover. While I recognise that the loss of jobs following the takeover was immensely distressing for everyone involved, fears about the future of Cadbury—the hon. Member for Leyton and Wanstead said that he hopes it remains successful—under Kraft’s ownership are not supported by recent evidence; £50 million has been invested to improve the competitiveness of Cadbury’s plants over the past two years. Bournville is now Kraft’s global centre of excellence for chocolate research, where £70 million has been invested and 54 additional high-value jobs created, with another 44 at Kraft’s R and D facility in Reading. Elsewhere, Oreo biscuits are being manufactured in the UK for the first time, creating new jobs in Sheffield, and investment has been made in Kraft’s coffee operations in Banbury. Overall, Kraft has invested £130 million in its UK business since the acquisition.

It is worth reinforcing the point—I know that Opposition Members accept this—that we must never allow the debate to become one about the wisdom of allowing foreign investment in our country. It is essential and a clear priority for this Government to make the UK an attractive place to invest and base a business. Anything that seeks to dissuade foreign investors from coming to the UK and investing here would absolutely be a retrograde step. We must always remember that.

The shadow Minister chastised the Government for taking two years to address long-termism. I must say that the Opposition took 13 years and never addressed long-termism in the economy. The Government want to build a stronger culture of long-term commitment to sustainable company growth based on co-operation between ultimate owners, fund managers and the corporate sector. We do not want investors to try to make a quick profit at the expense of the long-term health of the UK economy. However, I am not convinced of the appropriateness of the competition regime in achieving those aims. The competition regime is there for a specific purpose: to ensure that the economy is competitive in the interests of consumers. We must always remember that central duty.

The new clause would place a duty on the CMA to take into account the longer-term ability of a merged entity to compete effectively when it is considering whether to make a reference under phase 2 of the merger regime. The purpose would be to allow mergers to go ahead only if the merged company is judged to be able to compete effectively in the long term. Another way of looking at the duty might be to oblige the CMA to consider whether the merger might improve the ability of one or both of the merging parties to compete in the longer term.

The CMA—the OFT in the existing regime—will make a reference to phase 2 if it believes that it is or may be the case that first, a relevant merger situation has been created, and secondly, the situation has resulted or may be expected to result in a

“substantial lessening of competition within any market or markets for goods or services in the UK.”

To the extent that the ability of the merging parties or the merged entity to compete impacts on the level of competition in the market, the CMA will already have to consider that as part of its assessment of any merger, just as the OFT and the Competition Commission do. Their task is to assess whether the merger will substantially lessen competition in the market, which would be bad for consumers and the economy more widely. It is very much a competition test, in line with tests used in other countries around the world. However, if the CMA was required to take a broader view of the ability of the merged entity to compete, it would take the UK’s regime out of step with the international standard and blur the clear lines between the current competition test and other considerations.

The Opposition have rightly lauded the international standing of the UK’s competition regime, but if the amendment were accepted, it would put at risk the UK’s international standing, because it would introduce factors that would not be central and appropriate for its competition duty into the equation that the CMA would have to consider. For example, a merger that created a monopoly would almost certainly create an entity with an enhanced ability to operate effectively in the long term. However, it would not be a good thing for competition or consumers. We have to stay focused on the importance of promoting competition in the interests of consumers. Aside from the fundamental point about moving away from a purely competition-based test, the amendment would add a requirement for the CMA to consider the long-term ability of the merged entity to compete.

Currently the OFT and Competition Commission consider the impacts of any merger versus the counterfactual—what would have happened if it had not gone ahead—over the foreseeable future. There is no precise period for how long this is, and it will vary from market to market. For example, the appropriate period in, say, power generation markets and social media markets is likely to be quite different. The further one looks out from that particular point in time, the harder it becomes to predict what the competition environment will look like in the years ahead.

Furthermore, there will be all sorts of other external factors that would have an effect on the ability of the merged entity to compete effectively, and which competition authorities are not best placed to try to predict. I therefore think that we need to be careful about extending the competition regime in the way that the amendments propose. However, as I have said, we have a lot of sympathy with the purpose and intent—I will not use the word “sentiment”, which was perhaps overused last week—behind the amendments. Indeed, the intent of encouraging long-termism in companies is something about which the Secretary of State, the Government and I are passionate.

The issues have already prompted several work areas to be taken forward by the Government. I should make it clear that the measures in the Bill that seek to strengthen the voluntary merger notification system are in part a response to those issues. These will provide strength and powers to the CMA to pause mergers, so that it can investigate the issues and ultimately address any competition issues effectively.

In addition, following a consultation last autumn, the Takeover Panel to which the shadow Minister referred and which oversees the City code on takeovers and mergers, made a raft of changes to the takeover code to strengthen the position of target companies during takeovers. The changes have already shortened virtual bid periods, reducing the period of uncertainty for target companies. There has also been an increase in representations from employee representatives—it is important that their concerns are heard—as a result of the changes that have been made.

Stemming from concerns around short-termism in corporate behaviour, we also have Professor John Kay’s review. He is conducting an independent review of investment in UK equity markets looking at how to encourage shareholders to support long-term decision making by UK companies. The principal focus is to ask how well equity markets are achieving their core purposes—improving the performance of UK companies and enhancing resulting returns to investors.

The Government look forward to receiving Professor Kay’s recommendations, and we will consider them carefully. We will work with hon. Members on the issues the review raises to promote a long-term approach by UK companies. I am sorry that I have to disappoint hon. Members once again, but I do not believe that their amendments are the best way of achieving their aims. If Opposition Members think about the potential consequences of their amendments in facilitating a monopoly situation, while it might be sustainable for that organisation, it would, as I said earlier, be completely contrary to the principles of competition.

I hope I have reassured the Committee that the Government share concerns about the importance of promoting long-termism, and we are already exploring ways to address them. I therefore urge the hon. Members concerned not to press amendments 91, 92 and new clause 10.

Iain Wright (Labour, Hartlepool)

I was not planning to speak in this debate, but I am very conscious of what the Minister has said. He has made a thoughtful response and he mentioned four important points. First, he mentioned the vital role played by foreign direct investment in the competitiveness of the British economy. The Opposition agree with that. We have seen how over the last 25 years or so in the automotive industry it has revolutionised productivity and efficiency to the point where the British car industry is now one of the best in the world. The Minister mentioned three other principles: the interests of consumers; the duties of directors under the 2006 Act; and the ability of companies effectively to compete in the long term. Can I take him back to Manchester United as a case study with regard to those three principles?

I declare an interest. I am a season ticket holder at United: Hartlepool United, which is obviously the best and most successful club in Hartlepool. This is an important point. The people who have taken over Manchester United took over a successful debt-free company and bought it by loading it up with debt. Off the top of my head, the annual turnover of Manchester United this year is around £367 million. Interest payments are around £71 million. In the last three or four years Manchester United as a company has made an operating loss. In addition, the prospectus for the listing on the New York stock exchange published last week revealed that members of the Glazer family have taken out loans at preferential rates on the back of Manchester United’s assets.

Manchester United does not seem to have been run in the long-term interests of the club or its supporters. My understanding is that season ticket prices and other prices at Old Trafford have gone up substantially since the Glazer family took over. As for the issue of the owners of the business extracting value as quickly as possible, regardless of the long-term value and regardless of the club’s long-term ability to compete effectively both domestically and in Europe, Manchester United did not win the premiership this year and the prospectus for the New York stock exchange says that interest payments may hinder its ability to compete and buy players in future.

On the basis of all that and the three principles that the Minister mentioned—the interest of consumers; the ability of the club to compete effectively in the long term; and the duties of directors under the 2006 Act—how does he think Manchester United has been run? Is there anything that can be done with regard to directors’ responsibilities? Is he looking at this to make sure that we can have effective competition? I shall be very interested in his thoughts.

Norman Lamb (Liberal Democrat, North Norfolk)

The hon. Gentleman raises legitimate concerns about the way in which football is administered and how some owners have acquired clubs through debt. I just do not think that they are competition issues. That is where the problem lies. I come back to the point that I made right at the very start. We can identify all sorts of concerns about corporate behaviour but we should not load all of those concerns on to a competition authority which is there to ensure that there is a well- functioning, competitive economy which acts in the interests of consumers. I share the hon. Gentleman’s concerns about the matters he has described, but I do not think they are relevant to the operation and function of this organisation.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I start by thanking the Minister for his response and for the thoughtful way in which he has considered the aim of the amendment and the best way to achieve it. I also thank my hon. Friends for their contributions. The debate has highlighted the fact that the Opposition see real competition issues when it comes to debt-fuelled mergers and takeovers that have happened in football and other areas for some time.

The Minister began by saying that our concern was about cases where there was a takeover without a substantial lessening of competition, and that we wanted to be able to address it in some other way. That is not entirely accurate. The point and principle of the new clause is about takeovers where there is no apparent substantial lessening of competition in the short term, but there may be in the long term, taking into account the ability of the merged entity to compete. The Minister is absolutely right—and other Members have made the point—that this does not address all the concerns about takeovers. It is because we do not want to load other concerns on to competition law, such as employment issues, which my hon. Friend the Member for Leyton and Wanstead raised, or investment issues, that we are proposing this reasonable first step to enabling the CMA to look at the longer-term ability of the resulting entity to compete.

Norman Lamb (Liberal Democrat, North Norfolk)

Does the hon. Lady share my concern that if she takes her amendment to its logical conclusion, it potentially protects the interests of a monopoly that might be in the process of being created through a merger? I made the point earlier that a merger creating a monopoly would almost certainly create an entity with an enhanced ability to operate effectively in the long term. Surely that is not what she would want, because it would be completely contrary to the interests of competition and therefore in the interests of consumers.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for the opportunity to clarify that. No, I do not share his concern. I do not know whether he has had advice from competition lawyers. It is clear to me that the test is about a substantial lessening of competition and for that reason we are not changing the test. A monopoly is an absence of competition, so if a monopoly were to be created, that would undoubtedly be a substantial lessening of competition in the short term and in the long term. That scenario is not a danger, given that a monopoly is the absence of competition. On that basis, this clause seeks only to give the CMA the opportunity to look at the longer-term competitive environment and to address the concerns of debt-fuelled takeovers where the resulting entity will be less able to compete. My hon. Friend the Member for Leyton and Wanstead gave an example of that in the motorcycle industry. We have discussed the football industry, where competition happens both on the field and in the boardroom, and the example my hon. Friend the Member for Hartlepool gave of Manchester United being in less of a position to compete for players would certainly impact on its ability to compete on the playing field in the longer term.

This amendment is very reasonable and quite a small first step. While the Minister talked about the importance of not confusing public interest and competition law, I believe there may be an argument for extending a public interest, but that is not what this amendment proposes. It focuses clearly and specifically on competition law. As for inward investment, I support the Minister’s and my hon. Friend’s points that in this clause we are in no way looking to deter those who wish to invest in this country. Inward investment has been a major force for good in many areas and in many industries. However, when it comes to competition law, inward investment, like all investment, should be considered on the basis of the resultant competitive environment. Where the resultant entity is going to be less able to compete effectively in the long term, that should be an issue for consideration by the CMA.

The Minister implied that this was something that the CMA does already, in considering the ability of the resultant entity to compete, and that what this amendment would change would be by making it consider the ability of the resultant entity to compete in the longer term. That gets us back to the agenda of promoting long-termism, which is where we on this side want to focus the measures in the Bill. So unless the Minister would like to clarify the ability of the CMA to look at the long-term ability of the resultant entity to compete, I would like to test the opinion of the Committee on this amendment.

Norman Lamb (Liberal Democrat, North Norfolk)

I beg to move amendment 23, in schedule 5, page 87, leave out line 28.

Hugh Bayley (Labour, York Central)

With this it will be convenient to discuss Government amendments 24 and 25.

Norman Lamb (Liberal Democrat, North Norfolk)

There is more exciting stuff to come, so hold tight, Mr Bayley. Amendments 23, 24 and 25 are technical, drafting amendments to schedule 5 which deals with transfer of functions to the CMA. Amendment 23 removes the current provision in the Bill that specifies that where the CMA exercises functions under or by virtue of sections 56(3) and 56(6) of the Enterprise Act, this function is to be exercised to a group rather than the board. These latter provisions cover the case where a phase 2 public interest merger inquiry reverts back to an ordinary merger inquiry because the Secretary of State decides not to make an adverse public interest finding or the CMA cancels a public interest reference under section 53 of the Enterprise Act but the effect on competition still needs to be investigated. In such cases the functions of the CMA are to be exercised by the merger inquiry group rather than the CMA board.

Amendments 24 and 25 also give these functions to the group and furthermore clarify that where the group has taken its final decisions on the merger and then disbanded, the CMA board may enforce the orders made by and undertakings agreed by the group. The amendments uphold the separation of decision making between the board on one hand and the independent panellists on the other, which is so important to the success of the CMA, while also giving the CMA an efficient and effective mechanism for enforcing an independent group’s remedies after it has been disbanded.

Schedule 12 - Markets: time-limits

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 62, in schedule 12, page 188, line 35, leave out ‘6’ and insert ‘3’.

Hugh Bayley (Labour, York Central)

With this it will be convenient to discuss the following:

Amendment 65, in schedule 12, page 188, line 35, leave out ‘6’ and insert ‘12’.

Amendment 63, in schedule 12, page 189, line 32, leave out ‘6’ and insert ‘3’.

Amendment 66, in schedule 12, page 189, line 32, leave out ‘6’ and insert ‘12’.

Amendment 64, in schedule 12, page 189, line 41, leave out ‘6’ and insert ‘3’.

Amendment 67, in schedule 12, page 189, line 41, leave out ‘6’ and insert ‘12’.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

We have made such rapid progress through so many of the clauses and schedules that I fear that amendment 62, being of a technical nature, may be a disappointment to some members of the Committee; but though technical, it is very important. We have passed through the general clauses of the Bill and we are now at the meat of the CMA’s activities. They include market studies involving examining markets, which may not be working well for consumers, and the CMA will have the power to impose remedies when an adverse effect on competition is found. The OFT’s “Positive Impact” report noted that market studies and market investigations saved consumers £479 million per year. It is an important area for consumers.

The Minister accepted that the UK has one of the best competition environments in the world, put in place by the previous Government, as I may have already mentioned. However, he also pointed out that it is one of the slowest, and I accept that. It is better to come slowly to the right decision than speedily to the wrong, but just as justice delayed is justice denied, a dysfunctional or anticompetitive market leaves consumers paying a price. For that reason, we support the Government in speeding up the process of market investigations and merger assessments. I share the Minister’s sentiment.

The means by which the Minister is proposing to speed up the process also has our support. He proposes to introduce a statutory time limit in a number of areas. Market investigations will now have tighter timetables and a statutory time limit of 12 months in phase 1 and 18 months in phase 2. A timetable of 40 working days for phase 1 of the mergers regime will also be placed on a statutory footing. We agree that statutory time limits should help speed up the investigation assessment procedure and give greater clarity and predictability to industry.

Statutory timelines should enable the CMA to work backwards to a known deadline and organise its resources effectively and efficiently to achieve the given end. The key question is: what are the right timelines? It is for that question that we have tabled probing amendments. As the amendments are probing, they seek both to double and halve one particular timeline. I am not so capricious as to believe that the CMA or the Minister can do both at the same time, but I am keen to probe the reasoning behind the particular choice of timelines for the merger and the market investigation activities.

We hope that six months was chosen not because it is half a year or two quarters. The market investigation process can certainly be sped up.

Andrew Bingham (Conservative, High Peak)

I was puzzled by the amendments, but the hon. Lady has explained them. If we were minded to support an amendment, which one would she prefer? One is shorter and one is longer.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the hon. Gentleman for that helpful intervention—helpful inasmuch as it enables me to clarify again that the amendments are probing. We look to the Minister to make it so clear that he has chosen those time periods for the right reasons based on evidence rather than anecdote that I will have no alternative but to see his excellent logic.

The impact assessment said that in practice, market studies that have not been referred to the Competition Commission have taken between three and 21 months, an average of 10.4 months. Most market studies that have been referred have taken between four and 10 months. The assessment also said:

“Given that referrals to phase 2 are generally being made more quickly by the OFT…we do not envisage huge time savings with this option over and above a non-statutory route.”

That left me pretty confused as to the evidence base for a six-month statutory timeline, extendable by six months for the study, and the 18-month timeline for the investigation. Does the Minister believe that the timelines could be halved if we doubled the resource? What international examples has he considered in coming to his conclusions? What will the remedies be if the time limits are not met? I hope the Minister will enlighten us in relation to not only these timelines but the others in the Bill.

We have been told that the main purpose is to reduce the time scales for investigations and decisions, an issue which has been identified as the greatest defect of the current system. Deadlines give certainty to all parties, but they must be accompanied by the appropriate resource, and the Minister has offered us no evidence for that or for the particular choice of timelines.

Norman Lamb (Liberal Democrat, North Norfolk)

I am tempted to respond to the shadow Minister’s questions simply with the comment made by my hon. Friend the Member for High Peak that we have chosen six months because that is midway between the Opposition’s two suggestions. I could just sit down at this point, but perhaps I should take them more seriously and explain my thinking. I thank the hon. Lady for her suggested amendments.

The overarching vision behind the creation of the CMA is to streamline the UK’s competition regime. Schedule 12 is central to that vision, in that it will speed up market investigation processes. It provides statutory time limits for all stages of market inquiries that do not currently have them, and will reduce the time limit for phase 2 market investigations. Those time limits are expected to reduce the end-to-end market process by up to a year in some cases.

The amendments deal specifically with the time period within which the CMA should complete the initial phase of its market study and publish its proposed decision whether to refer the market for a phase 2 investigation. The Bill states that the time limit should be six months. It is of course possible for the CMA to publish that decision before the six-month point, if it is ready to do so, and it should work to publish its decisions as soon as it can. The hon. Lady’s amendments question whether that time limit should be a shorter one of three months or a longer one of up to 12 months.

One of the Government’s key considerations in choosing the time limits introduced by the Bill was to balance the desire to speed up and streamline the regime with maintaining the robustness of the decision-making process, which is a strength of the UK’s competition framework. We believe that it is reasonable to give the CMA six months to complete its initial market study, at which point it should publish its proposed decision whether to make a reference to phase 2.

To date, most market studies that have been referred to the Competition Commission have taken between four and 10 months, so an initial decision point after six months will speed things up, while still allowing good time for a full and proper consideration of the market. Three months would not allow for sufficient consideration of the issues, and I suspect that the hon. Lady would probably concede that. Extending the period to 12 months would go well beyond what is needed in such cases. Given that the current time period tends to be between four and 10 months, to suggest that we need to go beyond that, to 12 months, seems illogical. The objective must surely be to increase the speed of the slowest investigations as well as to be realistic, and therefore to find a time period for the initial phase that is within the current range of such periods.

The CMA will have a further six-month period in which it will be required to consult on its decision on whether to refer a market to phase 2 and to prepare its final market study report. Where a reference is the most appropriate course of action, the CMA should make the reference promptly after the close of the consultation. However, the market study may lead to outcomes other than or additional to making a reference. Those may take more time, for example, in instances where it wants to agree improvements with industry participants or it accepts undertakings in lieu of making a reference. These cases may need a longer period of consideration, which is why there is an additional six months before the CMA is required to make its final decision. We expect that the new phase 1 time limit will have a more significant impact on those cases that are not referred to phase 2.

Of the 35 market studies conducted by the OFT between 2004 and 2011 that were not referred on, 12 took more than 12 months to complete, and the average was 15 months. That is a long period of time and we would be shaving at least three months off these types of cases, which is a material benefit for all concerned. Based on the past experience of the OFT, and following the Department’s consultations with the OFT—we have talked to the body that undertakes the work now—the Government believe that six months is an appropriate time period for the initial market study phase.

The UK’s market investigation process is at the forefront of competition law internationally. It is one of two countries that can implement structural change or legally binding behavioural remedies as a result of an investigation. Israel is the other one and it has replicated the UK model. On the basis of my explanation and that we have worked with the OFT to come up with this proposal, I hope that the hon. Lady will be prepared to withdraw her amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to ask leave to withdraw the amendment.

Norman Lamb (Liberal Democrat, North Norfolk)

I beg to move amendment 26, in schedule 12, page 193, line 15, after ‘if’, insert

‘the CMA has accepted an undertaking or group of undertakings under section 154 and’.

Hugh Bayley (Labour, York Central)

With this it will be convenient to discuss Government amendments 27 and 28. [Interruption.]

Norman Lamb (Liberal Democrat, North Norfolk)

I so appreciate the spirit of good will and, in the absence of cheering on my side, I am grateful to the hon. Member for Edinburgh South.

I will try to deal with these amendments in the three minutes that we have available before lunch. These amendments make three technical changes to schedule 12 to ensure that it is internally consistent and works in the way it was intended. Amendment 26 makes a minor and technical change to make clear that the undertakings referred to in paragraph 12 of schedule 12 are undertakings that have been accepted under section 154 of the Enterprise Act 2002, in lieu of a market investigation reference. The provisions in the Bill are not particularly clear on that, so the amendment provides greater clarity and certainty.

Amendment 27 makes a minor and technical change to the CMA’s publication requirements. It will provide greater transparency for stakeholders and affected parties. Under current and new legislation the CMA is required to publish many of its decisions, so that interested parties have information about them. The amendment adds a provision to ensure that where the CMA has consulted on making a market investigation reference, and subsequently decides not to make that reference, it must publish that decision. The amendment will ensure consistency with other publication requirements.

Amendment 28 makes a minor change to preserve the existing situation for appeals on decisions on whether to launch a market study. Currently, a decision by the OFT to launch a market study is expected to be subject to appeal to the High Court on grounds of judicial review. Changes in the Bill on time limits mean that under the current drafting, parties may have more reason to believe that such decisions would be now subject to judicial review by the Competition Appeal Tribunal, not the High Court. The amendment preserves the High Court as the appeal destination for those types of decisions, as it was not intended that the Bill change that. I have finished with one minute to go, and I hope that the Committee will support the amendments.

Schedule 11 - Markets: investigation powers

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 86, in schedule 11, page 183, leave out lines 18 to 21.

Graham Brady (Conservative, Altrincham and Sale West)

With this it will be convenient to discuss amendment 87, in schedule 11, page 186, line 12, leave out from ‘exceeding’ to end of line 17 and insert—

(None) ‘10 per cent. of the company’s revenues for the previous year, or £30,000 whichever is the higher;

(b) in the case of any amount calculated by reference to a daily rate, an amount per day exceeding 10 per cent. of the company’s revenues for the previous year, or £15,000 whichever is the higher; and

(c) in the case of a fixed amount and an amount calculated by reference to a daily rate, a fixed amount exceeding £30,000 or 10 per cent. of the company’s revenues for the previous year whichever is the higher, and an amount per day exceeding £15,000 or 10 per cent. of the company’s revenues for the previous year whichever is the higher.’.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Thank you, Mr Brady, it is a great pleasure to see you in your place and to serve under you again.

We come to a narrow and somewhat technical measure, which is none the less important for all that, because it seeks to address one of the few failings in the current regime. We are keen to probe the Government’s thinking. As discussed, our merger regime is highly regarded throughout the world. The Office of Fair Trading estimates that the merger regime saved the UK customer £127 million—

Iain Wright (Labour, Hartlepool)

How much?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

One hundred and twenty-seven million pounds in 2010-11.

The Minister is also right, however, to say that we must not be complacent and that the merger regime can be improved. The regime might be underused at the moment, given the number of references made to the Competition Commission. To date, 11 market investigation references have been made, for in-depth inquiries, fewer than the four references per year initially anticipated.

Among the criticisms of the current merger regime is that it does not give sufficient weight to the public interest, examples of which we covered in a lively debate this morning—in particular the Kraft takeover of Cadbury. Other criticisms concern the ability of the regulator to prevent mergers going ahead, or to take remedial action when a merger happens—we will discuss that under a future amendment—and the speed of the merger regime. We have discussed the proposal of mandatory time lines, but there are also concerns with regard to information gathering. The Bill sets out to streamline information-gathering powers throughout the different phases. So far, so good—we would support that.

The Bill also repeals section 175 of the Enterprise Act 2002, so that failure to comply with an information request from what will be the Competition and Markets Authority will no longer be a criminal offence. Instead, the CMA will have new, civil powers to fine companies that do not comply with its requests. There is, however, no explanation or justification given for the amounts chosen as a maximum fine: for a fixed amount, an amount not exceeding £30,000; and, for an amount calculated by reference to a daily rate, an amount per day not exceeding £15,000. Can the Minister set out his thinking on the fines? Will the Minister explain the amounts chosen? They do not seem a significant threat or deterrent for a financial services company with an annual turnover in the billions of pounds.

When the accountancy firm Arthur Andersen was found guilty of obstructing justice, when it destroyed Enron documents when on notice of a federal investigation, it faced five years’ probation and a fine of $500,000. That was a criminal rather than a merger investigation, but will the Minister justify the limits in the Bill? I understand that the EU increased its maximum fines in 2004, from €50,000—close to the amount proposed by the Minister—to 1% of the aggregate turnover of the companies concerned, while the daily fine was increased to 5% of the aggregate daily turnover. I am sure the Minister has reviewed all relevant examples from across the world and can now set out his thinking for us. Our proposal of a cap of 10% of revenues is, we agree, at the high end in order to concentrate the mind. I look forward to the Minister’s explanation.

Norman Lamb (Liberal Democrat, North Norfolk)

It is again a pleasure to serve under you, Mr Brady. I hope you were not too flustered coming from wherever you have been. It is good to see you.

I will first clarify that amendments 86 and 87 apply only to the markets regime. The shadow Minister referred to mergers, but the information-gathering powers and enforcement will in effect be the same across both mergers and markets. The principles apply equally. I thank hon. Members for their suggested amendments. It is important that the CMA has access to relevant information so that it can do its job properly within new statutory time limits.

Clause 28 and schedule 11, which are related, apply information-gathering powers across the end-to-end markets process. Schedule 11 makes provision for enforcement of those information-gathering powers in market studies and investigations. That mirrors the existing civil enforcement information-gathering powers in phase 2 of the markets regime. Those powers enable the CMA to impose civil penalties on any person who, without excuse, does not provide information when requested. The powers also make it a criminal offence purposefully to alter, suppress or destroy information, which reflects the relative seriousness of such actions.

The proposed amendments seek to strengthen considerably the enforcement powers. Amendment 86 would provide that if a person had failed to comply with an information request under section 174 of the Enterprise Act 2002, and had been found intentionally to alter, suppress or destroy information, that person could be subject to both a financial penalty and criminal proceedings. Currently, when a penalty has already been imposed, the criminal offence does not apply. The amendment would appear to strengthen the deterrent against non-compliance with information requests, and against the more serious activity of purposefully altering, suppressing or destroying information. However, I question the need to strengthen the enforcement powers, which would potentially increase burdens on business. There is always the question of getting the balance right, particularly as the proposal would extend a criminal offence.

As I noted, the information-gathering and enforcement powers are already available to the Competition Commission. They are not used in all inquiries, but are used as necessary. However, it should be noted that the Competition Commission has never imposed penalties for non-compliance with an information request. The penalties have served as a proportionate and robust deterrent to ensure that parties provide the information needed. The Commission’s experience has been that, with the potential to impose the civil penalty in the background, parties have complied with information requests.

Amendment 87 would increase the maximum penalty that could be applied in cases where a person has failed to comply with an information request. The Bill provides that the Secretary of State may, by order, set out the maximum penalties that the CMA can impose when an information request has not been complied with. They are as follows: in the case of a fixed amount, the amount cannot exceed £30,000; in the case of a daily rate, the daily amount cannot exceed £15,000; and in the case of a fixed amount and a daily rate, the fixed amount cannot exceed £30,000 and the daily rate cannot exceed £15,000 per day.

The amendment would increase those limits. In the case of the first two instances, the maximum penalty could be up to 10% of the company’s revenues for the previous year if that amount is higher, in a particular case, than the amounts listed in legislation. I think the hon. Lady made reference to the EU increasing its penalty to 1%. The Opposition would go 10 times higher than that level to 10%. I strongly urge Opposition Members to reconsider their amendment.

The penalty of 10% of turnover would be an extremely onerous fine for any business. Penalties of that sort should reflect the amount of harm and detriment that a breach might cause. Hon. Members might wish to note that breaches carrying a fine of 10% of turnover include breaches of antitrust—including the most serious infringements of competition law, such as price fixing—and here it would be imposed for failing to comply with information-gathering powers. The harm that those infringements can cause is potentially very large, and therefore the size of the fine is justified. Conversely, I do not think that the mischief we are seeking to avoid here, which is not complying with an information request in a market investigation, warrants this level of potential penalty. It would be highly disproportionate. Moreover, given that the Competition Commission has never used its existing enforcement powers, because the existing level of penalties operates as an effective deterrent, I do not believe that it is in any way necessary. Where is the mischief that we are seeking to cure?

The Government do not believe in enforcement for the sake of enforcement. It is right that measures are proportionate and used only as appropriate. The amendments tabled by Opposition Members would be disproportionate and place unnecessary burdens on business. I therefore hope that they will see that they have gone a wee bit over the top in this particular case, and will be prepared to withdraw amendments 86 and 87.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for that response, and for clarifying some points with regard to the purposes of the other fines and the frequency with which they are used. I remain of the view that a maximum fine of £30,000 seems insignificant compared with the costs of doing business for many of the companies and organisations that the CMA will be dealing with, but I accept the Minister’s assurances that it has proved an adequate deterrent in the past. I accept entirely that a fine of 10% of revenues may be somewhat disproportionate. On that basis, I beg to ask leave to withdraw the amendment.

Norman Lamb (Liberal Democrat, North Norfolk)

I beg to move amendment 29, in schedule 11, page 184, line 42, after ‘140A(2)’, insert ‘(b)’.

Graham Brady (Conservative, Altrincham and Sale West)

With this it will be convenient to discuss Government amendments 30 and 31 to 54.

Norman Lamb (Liberal Democrat, North Norfolk)

This group of amendments has been tabled to close a loophole that has inadvertently arisen as a result of changes the Bill is making. Under existing legislation, the Secretary of State can intervene at certain points in market inquiries on limited public interest grounds set out in legislation. The policy intention has never been to remove that power, which ensures that issues of particular national significance are considered in a transparent way by Ministers who are accountable to Parliament. However, as a result of a number of changes the Bill is making, an unintentional gap has arisen, which means that in cases where the CMA has not published a market study notice, the Secretary of State would be unable to intervene on public interest grounds when he or she could do so in the current regime. For example, the CMA could have a particular market under review and decide that it had sufficient information to refer that market for a more detailed phase 2 investigation, without having first to undertake a market study. In that case, under the Bill, even if there were relevant public interest considerations—around national security, for example—the Secretary of State would have no power to intervene on those grounds and the CMA would have no power to consider the public interest.

The amendments simply maintain the status quo and close the loophole so that there remains an opportunity for the Secretary of State to intervene in such cases. They do that by making additional provision for the Secretary of State to intervene on public interest grounds in cases where the CMA has not published a market study notice, but is consulting on making a reference. The CMA is obliged to consult on any reference it proposes to make. That should therefore close the gap I described. Unfortunately, given the complexity of the Enterprise Act 2002, that minor change requires consequential amendments, but they are drafted such that whichever route has been taken for a public interest intervention, the procedures that follow should be the same as far as possible.

Neither the amendments nor the Bill will widen the opportunity for Ministers to intervene in market investigations on public interest grounds. Currently, Ministers can intervene only where there are national security considerations—that is not changing. The Secretary of State can intervene only where the CMA is already looking at a potential competition issue in the market—that is not changing. The Secretary of State must accept the findings of the CMA on any competition issues—that is not changing. The amendments will merely preserve the existing power for Ministers to intervene in limited circumstances of significant national importance.

Clause 27 - Public interest interventions in markets investigations

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Clause 27 refers to public interest interventions in markets investigations. The thrust of the clause is to give the CMA powers to report on public interest issues. Currently, the Secretary of State has the power to call in market inquiries that affect defined public interests. The Competition Commission reports to the Secretary of State on competition matters, which is its area of expertise, and the Secretary of State considers public interest matters, where he or she, being an elected representative and in touch with his or her constituents, supposedly has the expertise. The Secretary of State must accept the CC’s competition ruling, but makes his or her own mind up about possible public interest remedies. The Opposition believe that is entirely right, but of course it was the Labour Government who put those highly regarded rules in place.

The Government’s response to the consultation said:

“Opinion on proposals to enable the CMA to provide independent reports to Government on public interest issues”

alongside competition issues “was divided.”

I have not read every response, but I have had a good look through a lot of the ones relating to this particular issue, and I suggest that that statement is slightly disingenuous. Few of the responses welcoming the proposed idea argued much in favour of it, whereas those opposed expressed a number of concerns that have not been addressed by the Government at all.

The idea behind the change seems to be to bring it into line with the merger regime. Given the Secretary of State’s experience with the public interest test in the merger regime during the proposed BSkyB takeover, I am surprised that he wants to emulate it with market investigations. However, mergers and market investigations are different. There is a reason why Labour left the public interest test with the Secretary of State when we designed the regime. As one consultation response put it, in a merger case,

“as a matter of necessity, competition and public interest issues need to be considered at the same time and having regard to the same facts. In a market context, the justification for joint consideration of public interest issues and competition issues is much less and the risks greater.”

To put it another way, public interest issues are relatively simpler to spot and investigate in a merger investigation than in a market investigation. The public interest considerations in a market investigation are numerous and varied. The Government should not simply copy something that works well in one area of competition law and apply it somewhere else.

The Competition Commission is a highly regarded institution. I never miss an opportunity to remind the Government which party designed the current regime.

Iain Wright (Labour, Hartlepool)

Which one?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I believe it was the Labour Government. The regime is internationally recognised, and our international competitors seek to emulate it. One reason is the unrelenting focus on promoting competition for the benefit of consumers. The Opposition are not convinced that the Competition Commission has the expertise to take public interest decisions into account during market investigations.

We discussed at some length concerns that the new CMA might not be properly resourced or skilled to carry out its functions. The Minister has sought repeatedly to assure us that that will indeed be the case. However, had the proposed arrangements been in place in 2010, it is likely that the Independent Commission on Banking would have been put in place by the CMA. Although I accept that such investigations are relatively rare, would the CMA really have had the same resources to devote, and would it have attracted the same level of public interest?

Will the Minister explain how the CMA will absorb or attract the necessary expertise to deal with all the additional considerations to which the public interest requirements will give rise, or will it outsource all those requirements to new members? What additional costs will be associated if the CMA rather than the Secretary of State takes public interest considerations?

I am sure that the Minister will be able to offer assurances, but even if he can, I wonder whether he should. The CMA will, I hope, retain the OFT and CC focus on competition. We have yet to be convinced that broadening the focus will not compromise the CMA’s primary function of promoting competition in the interest of the consumer. Of course, there will be occasions when there will be overriding public interest concerns, but surely that is a matter for the Secretary of State. Has he become so out of touch with the public that he feels the need to give away public interest powers to a regulator—a process-focused competition regulator with no experience of public interest tests in market investigations? That brings me to my next point.

The CMA will be tightly focused on competition. We have established that it will focus on enforcing the well-written UK competition laws, but as the Minister made clear in an earlier debate, public interest is a rather vague term, and introducing it in this area is likely to cloud a process we are trying to streamline. He emphasised in an earlier debate the need to focus on competition and competition law, but is the clause not introducing a new, complex and broad area of public interest? We are told that one of the main objectives of this part of the Bill is to speed up the timetable of a highly regarded system. How will adding this test affect that? If we are trying to speed up the market investigation process, we should ensure that the CMA’s sole priority is competition, and let the Secretary of State worry about the public interest.

That point was made forcefully by the CBI in our evidence sessions. Katja Hall said:

“Our concern is about the risk of blurring the responsibility of the new Competition and Markets Authority. What is the benefit of giving the CMA the right to look at wider public interest issues rather than just leaving those with the Secretary of State? That would be our concern: why is that change necessary and is there a risk that it would blur the duties of the CMA?”––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 19 June 2012; c. 7, Q12.]

The CBI made a wider point in its written submission to the Committee when it said that it was clear that the CMA should have

“a clear focus on competition”.

There is also concern that introducing the fuzzy public interest test in market investigations could undermine confidence in our competition laws. As the CBI said:

“The UK has one of the most highly regarded competition regimes in the world, being robust and free from political interference. Outcomes based on clearly-drafted competition law are more predictable than subjective tests and underpin business confidence and investment. The CBI supports the objective of eliminating duplication and overlap between the”

OFT and the CC

“by establishing the CMA: speedier and more efficient processes will reduce costs to business. However, the Bill proposes that in certain cases the CMA will be able to consider the public interest in addition to effects on competition, which could blur what should be the CMA’s clear focus on competition. Business will be concerned that this does not mark a retrograde step and believes public interest tests should remain a decision for the Secretary of State.”

The phrase “retrograde step” was echoed by the in-house Competition Law Association. We know from earlier sittings that Government Members seem to have developed a dislike of lawyers, or at least they limit the company they keep with lawyers.

Norman Lamb (Liberal Democrat, North Norfolk)

We are just concerned about excesses.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

There are plenty of dissenting views on the matter. In its evidence on the consultation, British Airways said succinctly:

“Public interest issues should be for Ministers who are accountable to Parliament, rather than the CMA which is intended to be a competition law centre of excellence.”

At the very least, the situations in which the CMA should report on public interest issues should be tightly limited. Will the Minister make it clear what the limitations are with regard to the proposals for the CMA to report on the public interest?

A further point is that, without political accountability, businesses may not accept the legitimacy of a CMA public interest market ruling, especially if concerns about resources and expertise are not properly addressed. We all accept the need for a balance between public accountability, and expertise and stability. The worry is that the Government may step too far towards establishing a technocracy, which might be less efficient. Establishing what is and is not in the public interest is basically a policy decision, as I hope the Minister agrees. Should we hand over policy decisions to an unelected body? With a debate on Lords reform raging as we speak, it is rather odd that a Liberal Democrat Minister is proposing to remove wide-ranging policy-making decisions from the Secretary of State.

The final concern that I want the Minister to address is how the changes will work with concurrent regulators that already have public interest powers for market investigations. For example, Ofcom has a duty to report on the fulfilment of the public service remit by public sector broadcasters. Will the CMA have a role in that? I look forward to the Minister’s assurances.

As I have previously observed, the Government seem to have an obsession with top-down reorganisations—moving responsibilities around like deckchairs on the Titanic. [Interruption.] I look forward to the Minister’s response. In this case, we must stop and think about what the Government are for and what their purposes are. How does outsourcing the public interest to the CMA send the right message about the responsibility and accountability of the Government? This Government seem rather like those companies that have been invaded by management consultants telling them to focus on their core purpose. They decide to outsource their call centres to one company, their sales fleet to another, their cleaning to a third and their security to a fourth, so that they can focus on what they do best, which is their core purpose. But if looking after the public interest is not the core purpose of the Government, what is their core purpose? How does the Minister justify removing the public interest power from the Government and putting it in an unelected body?

Norman Lamb (Liberal Democrat, North Norfolk)

I thank the shadow Minister for that philosophical contribution to our discussion. I thought that talking about an obsession with top-down reorganisations was a wonderful example of the pot calling the kettle black after 13 years spent doing exactly that.

I completely share the hon. Lady’s view that the primary function of the CMA is the promotion of competition in the interests of the consumer, but let me deal with some of the issues that she raised. As I said, the CMA will be the principal competition authority, with the primary duty to promote competition for the benefit of consumers. It is important to make the point that public interest cases are extremely rare. To date, there has never been a public interest markets case and, in themselves, the changes are unlikely to lead to any increase. We should remember that in markets the only public interest that is identified is national security. The CMA’s focus will therefore remain overwhelmingly on its competition responsibilities, so let us keep this debate in proportion.

If a public interest issue were present in relation to national security, it would make sense to look at it, holistically, as part of one process. The Secretary of State already has powers to intervene in certain market investigations on public interest grounds. That power exists now, and it will not be changed by the clause, which simply gives the Secretary of State the option to ask the CMA to examine public interest issues alongside competition ones in a phase 2 market investigation.

On the hon. Lady’s point about the Independent Commission on Banking, there is no reason why that could not be established in the future any more than was the case in the past. That has a number of benefits, not least a more consistent approach to public interest matters across the mergers and markets regime. It will enable a much more holistic consideration of competition and public interest issues, resulting in better informed and more comprehensive recommendations on such cases.

Although such cases are extremely rare, they are, by their nature, of particular significance to the United Kingdom. It is therefore vital that the Secretary of State has access to the best possible expert advice when taking decisions on such cases. For example, as Malcolm Nicholson highlighted in his evidence to the Committee,

“the skill set of an independent regulator of the sort that we have should mean that it is quite well placed to consider public interest issues alongside competition issues. I could certainly conceive of a competition inquiry looking at competition in wholesale and retail energy markets while having regard to security-of-supply considerations…I think there is scope here for doing something quite useful.”––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 21 June 2012; c. 111, Q252.]

The introduction of the powers would also mean that there is an option to use the CMA, the premier competition authority, as an alternative to a stand-alone independent inquiry, such as the Independent Commission on Banking that we have already debated. That is an alternative option, not a replacement of that way forward. It should streamline the processes as well as provide a more straightforward route for fixing competition problems, as measures can be implemented by the CMA itself where necessary, which would not be possible for a stand-alone inquiry group.

I want to clear up a couple of issues that I think have caused confusion. First, the powers will not make it any easier for Ministers to intervene on public interest grounds in the first place. The Secretary of State can make a public interest intervention only where the CMA has already begun a market study, or where it is consulting on making a reference, which is where the CMA already suspects that there may be a competition issue. Currently, the Secretary of State can intervene only where they are issues of national security. We are not changing that, so we do not agree that the changes will lead to any increase in public interest cases.

Secondly, it will not be for the CMA to decide where the balance is between competition and public interest issues. That will remain, as it should be a decision for Ministers, who are accountable to Parliament; that directly addresses the hon. Lady’s point. Some people have said that that risks politicising the CMA—I think there was a hint of that in the shadow Minister’s contribution—but I disagree. The changes will not affect the independence of the CMA. As I have said, the Secretary of State can make a public interest intervention only where the CMA already suspects that there may be a competition issue. The Secretary of State must accept the findings of the CMA on competition issues. Its independence is absolutely guaranteed. If the CMA finds no competition issue, the matter cannot be referred for further examination. Those principles are not changing either.

Others have said that the CMA lacks the expertise to advise on public interest issues, or that the issues dilute its focus on competition. Again, with respect, I disagree. The Competition Commission is already able to consider public interest issues in the merger regime. The CMA will be the principal competition authority and will have a primary duty to promote competition both within and outside the UK for the benefit of consumers. In cases where there are both competition and public interest aspects, it makes sense to consider the issues in the round, particularly what the most appropriate remedies might be, taking all the issues into account.

The CMA, like the Competition Commission, will have panel members with a wide range of expertise and experience in different industries and markets. If the CMA does not have enough in-depth expertise on a specific public interest matter in question, the clause makes provision for the appointment of a public interest expert or experts, who would work alongside the CMA teams. Whether they work as part of a CMA investigation or independently, it seems that the costs will be the same. The fact that they are part of a holistic exercise, as is intended by the clause, does not cost any more. The changes seek to bring the public interest markets regime into line with the public interest mergers regime, and provide holistic expert recommendations to the Secretary of State on those important cases.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his comments. I am glad and relieved to find that we agree on some of the underlying philosophical points and principles, although I am still uncertain about what the Government are trying to achieve. On the one hand he says that such occurrences would be rare, that only one public interest—national security—has been identified, and that he expects such cases to arise infrequently. In that case, however, is it really worth while sending a message about public interest not being with the Secretary of State, and making those changes? On the other hand, he says that it is important that the CMA has the ability to consider the public interest in the round. I found the Minister’s example of national security particularly worrying. Some would argue that the Government’s first responsibility is to ensure the security of its citizens.

Norman Lamb (Liberal Democrat, North Norfolk)

I want to make the point that it is not inconsistent, because although such cases are likely to be rare, when they occur they may be quite significant. It therefore makes sense to look at such issues in the round as part of a recommendation to the Secretary of State, who retains political responsibility.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for that clarification. If I have understood him correctly, the Government argue that such cases will be rare, but that they could be important, but if that is the case, it is also important that the elected Government and the Secretary of State are accountable and take the necessary decisions. In the case of national security, I would consider it even more important for such decisions to be taken by the Government of the day.

Norman Lamb (Liberal Democrat, North Norfolk)

I want to reiterate the fact that recommendation to the Secretary of the State will take place following consideration of the matter. It remains the Secretary of State’s decision and that is not changing in any way.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for that clarification. The CMA will investigate the public interest but it remains the decision of the Secretary of State. Why is the CMA being asked to investigate the public interest around something like national security, simply because it has expertise in competition? I do not believe that that is a consistent approach. We are keen to support the Government in ensuring that the CMA is highly skilled and has some of the best competition minds in the world, as well as the expertise necessary to deal with, consider and assess competition issues, but we believe that the skills concerning issues of public interest should be found within the Government or perhaps the civil service.

The example of energy provided by the Minister is particularly interesting. Energy is a complex market in competition terms, and Ofgem has many experts, both in technical matters and on energy competition. Should they consider issues of national security? Surely, national security issues to do with the energy markets—security of supply—should be a matter for the Government of the day, as they control the regulation of those markets and relevant policy issues. I am not reassured by the Minister’s description, distinguishing between the public interest as the CMA will assess it and the public interest, which is the responsibility of all hon. Members as parliamentarians and for which we should be held accountable.

The final point that the Minister made about rolling over a successful approach for mergers to markets does not recognise the essential difference between the two. The CMA responds to a merger, which is a time-limited affair in comparison with the review of markets. I urge him to consider whether it is appropriate to make such a change for the limited benefits that he has described. If not, we must put the issue to the vote.

Norman Lamb (Liberal Democrat, North Norfolk)

I am grateful to the shadow Minister for her comments. She talks about the distinction between mergers and markets, but the fact is that the Competition and Markets Authority would be dealing with and looking at public interest issues to do with mergers, which she suggested would be inappropriate. If it can do that in respect of mergers, it seems not to be too great a leap for it to consider competition issues in an investigation into markets.

Her primary concern seemed to be political accountability for public interest issues. However, I have sought to reassure her that political accountability remains, exactly as it is now, with the Secretary of State after receiving a recommendation. It makes sense for competition issues relating to or impacting on public interest to be considered holistically, rather than as two separate processes. That is an option, not an obligation, but in many cases it may make sense for it to be done holistically.

The Secretary of State has to accept the recommendation of the CMA, so far as competition is concerned, but the responsibility for political accountability for public interest remains with the Secretary of State. I hope that, after my responding clearly to the hon. Lady’s legitimate concerns, she will see that the proper safeguard is in place to ensure that the matters that she has raised will not arise.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his further clarification. I am reassured that he does not think that the clause will result in a change in accountability or a movement of responsibility for the public interest away from the Government. However, I do not agree with his assessment of the effect of the clause. Although the decision-making power remains with the Secretary of State, if the responsibility for assessing the public interest case of markets, which as I have said are different from mergers, is to rest with the Competition and Markets Authority we should put the issue and principle of public interest to the Committee in a vote.

Schedule 10 - Markets: public interest interventions

Clause 29 - Interim measures: pre-emptive action: markets

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 57, in clause 29, page 28, line 11, at end insert—

‘(2BA) When subsection (2B) is applied, the relevant authority must publish a cost benefit assessment for the measures applied.’.

I sense that we may be regaining our full strength and although it was a disappointment to see that the numbers have been reduced in the last vote, the Government majority is not increasing. So I will take that. It was seven-ten, as opposed to nine-twelve.

Norman Lamb (Liberal Democrat, North Norfolk)

It was twelve-seven. That is an increase.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Okay. I misheard. In the hope that the Government Members had been reduced, I heard what I wanted to hear.

We have made substantial progress, and again we come to what is a rather technical amendment but a rather important one. As previously discussed, the UK merger regime is highly regarded throughout the world. I may have already said that the mergers regime is estimated to save the UK consumer £127 million in 2010-11.

Ian Murray (Labour, Edinburgh South)

How much?

Chi Onwurah (Labour, Newcastle upon Tyne Central)

One hundred and twenty-seven million pounds. However, the Minister was right to say that we must not be complacent and that the regime can be improved.

One of the key criticisms of the current system is that the regulator has no ability to prevent mergers from going ahead or to take remedial action when a merger happens. The Bill attempts to address that by ensuring that the CMA’s powers to impose interim measures include the power to require parties to take steps to reverse pre-emptive action taken, or to reverse the effects of such action following a market investigation reference being made. The intent is to prevent parties from taking pre-emptive action that may impede implementation and measures required by the CMA following an investigation.

We support measures that strengthen the mergers regime and we recognise the concern here. Currently during an antitrust investigation, if evidence comes to light of practices that pose serious irreparable damage to a person or that threaten the public interest, the authorities have powers to impose interim measures. Generally, these are directions that a business has to comply with immediately. We can imagine, for example, an abuse that the authority identifies as predatory pricing, when a competitor lowers prices to drive their competition out of business. One might think that lower prices were good for consumers, but generally the strategy of the company concerned is to raise them once everybody else has gone bust. Without any competition, consumers are forced to pay much higher prices.

Those who have been critical of the Leader of the Opposition’s condemnation of predatory capitalism might want to reflect that current competition law recognises that a small minority of companies engage in predatory behaviour. In the case of predatory pricing, by the time the authorities have finished their investigation it may be too late: competitors would have exited the market.

To date, the power has hardly been used, which is one reason why the Government have agreed with the OFT’s argument to amend the threshold for interim measures from serious irreparable damage to significant damage. The OFT argued that the current wording prevents the OFT or a sector regulator from making an interim measures direction in cases where the victim of the alleged infringements is likely to suffer significant harm, but there is no current threat of their exiting the market or going out of business.

We support the measures, but we wish to make sure that they are transparent. Our amendment simply requires that the relevant authority must publish a cost-benefit assessment for the interim measures applied to ensure that the measures are not disproportionate and are, at the very least, transparent.

Norman Lamb (Liberal Democrat, North Norfolk)

I thank Opposition Members for their amendment. First, it is important to note that the Competition Commission and the OFT interpret the existing legislation as already enabling them to reverse pre-emptive actions. The powers are not new. The Bill simply makes it explicit that the powers can be used in all phases of the CMA’s work. Clause 29 makes it clear that the CMA’s powers to impose interim measures during a market investigation include the power to reverse any pre-emptive action taken by the parties or to reverse the effects of such action. The current legislation is not particularly clear on the issue although, as I have said, the existing bodies interpret the legislation as allowing them to act. We would all agree that clarity and certainty is important both for business and for competition authorities.

Where pre-emptive actions are taken, they can undermine the implementation of remedies following a market investigation. They might include any steps taken to bind an operating unit more closely to a parent company, which would make it harder to separate it if required at the end of the investigation. For example, it might include actions taken by a large organisation to integrate the IT structures or finance functions of its smaller companies, making it harder to sell off any of those companies. Where competition authorities have difficulty in remedying competition problems that they find, it can have detrimental effects on consumers.

The clause ensures the CMA has access to the widest possible toolkit to assist it in addressing competition problems that may be identified during a market investigation. In turn, this will help the CMA choose remedies that are proportionate and appropriate. The amendment imposes a requirement on the CMA to publish a cost-benefit assessment whenever the CMA adopts interim measures to reverse a pre-emptive action during a market investigation.

While I agree with the principle that the CMA should think carefully before it issues an order to reverse a pre-emptive action and in general seek to employ its resources in a cost-effective manner—that is absolutely right—this additional requirement on the CMA is not appropriate. It would be practically difficult for the CMA to publish an accurate cost-benefit assessment at the time of issuing an order to reverse pre-emptive action. At the stage of the market investigation where this measure would be issued, the CMA is unlikely to know the precise detail of the problems that it is trying to solve. Therefore, it would be difficult to assess what harm might be caused to consumers by any problems, which the CMA would need to know to determine the benefits of reversing the pre-emptive action.

David Mowat (Conservative, Warrington South)

I am surprised by the amendment, which would make it more difficult to reverse a pre-emptive action, which puts something back to how it would have been. Is it not the case that if this amendment was agreed the cost-benefit analysis, which by its definition is somewhat judgmental, could be challenged and therefore stop the pre-emptive action being taken? The amendment would reduce competition and I think that it is wrong on this occasion.

Norman Lamb (Liberal Democrat, North Norfolk)

That was a fair and reasonable intervention, making a good point. The amendment would also slow the process down. If it has to go through a cost-benefit assessment, it is challengeable through judicial review. If a cost-benefit assessment has to be done before action is taken—that action might be necessary to protect the position and stop the parties doing something that is more difficult to undo—it will be, as my hon. Friend says, more difficult to exercise this important power.

Imposing such a requirement would add an additional and potentially time-consuming burden to the CMA, which needs to be able to act quickly to reverse pre-emptive action in such cases. If the CMA decides that it wants to issue interim measures, it would want to do so as soon as possible at the start of the process, to avoid a situation being created that would make it difficult to resolve any competition problems. The Opposition may reflect that imposing an additional hurdle by making it more difficult to use this important power would not be sensible.

Geraint Davies (Labour, Swansea West)

Does the Minister have any plans to put right the previous injustices, where the big supermarkets have predatorily priced out bakers, fishmongers and others and then lifted their prices? Any potential entrant will fear that Tesco or whoever it is will come and do it again. Is there any strategy to right the previous wrongs?

Norman Lamb (Liberal Democrat, North Norfolk)

It is asking a bit much to reverse things that have happened in the past. We want to get a framework in place that deals effectively with problems that arise in the future to ensure that—we can learn lessons from where the regime was not effective enough in the past—it will be more effective in the future for genuine competition issues.

The requirement would also be costly for the CMA by requiring it to divert resources away from the primary task in hand: the market investigation itself. One of the Government’s key aims is to speed up the market investigation process. The amendment goes against that aim by requiring the CMA to allocate resources to the cost-benefit assessment in specific cases. It is worth noting that when the Competition Commission makes its conclusions from a market investigation, including deciding what remedies should be imposed, it undertakes an assessment to ensure the reasonableness and proportionality of the remedy at the end of the process. As part of the process, the Competition Commission assesses the costs and benefits of the remedies. There is more certainty at that point so it can do a proper and sensible exercise, whereas, at the earlier stage, when it is considering interim measures, it is making assumptions, which are difficult to make at that point in time.

I would expect the CMA to continue to act in the way in which the Competition Commission has done in the past and up until now. Therefore, there is no need to impose an additional requirement on the CMA, as this amendment proposes.

Geraint Davies (Labour, Swansea West)

I just wanted to know whether the Minister thought that it was reasonable for big multiple groups such as Sainsbury’s and Tesco to move into small high street shops, use their economies of scale and actually push out convenience stores across the land. Is that a competitive thing, and are the Government going to do anything about it, or are they just going to sit back and let them take over everything?

Norman Lamb (Liberal Democrat, North Norfolk)

I suspect that Mr Brady might intervene if I start to develop any further debate on that issue. [Interruption.] I am conscious that in all of our communities, such issues arise and cause considerable concern, but they have very little, if anything, to do with this particular amendment. Despite the encouragement of the hon. Member for Swansea West, we should remain focused and disciplined in the way in which we debate these clauses and amendments. I will resist the temptation to go any further and I encourage the shadow Minister to withdraw the amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his clarifications. There is a balance to be found between speed and due process. I was somewhat surprised to hear the Minister apparently agree with the hon. Member for Warrington South that the effect of this amendment would be to reduce competition while, at the same time, also agreeing that public bodies, such as the CMA, must give detailed and quantitative consideration to the impact of the measures that they impose. The effect of this amendment would be to require the CMA to publish the internal assessment which, in my expectation and, I believe, the Minister’s expectation, it would be doing in any case. If it did not do such an internal assessment, it might find itself subject to judicial review. The imposition of any disproportionate measure by a public body could be a cause for concern.

David Mowat (Conservative, Warrington South)

Let us suppose that I was a major multinational and I came in and started to merge with a smaller company in a way that gave the competition authorities an issue. Here I am doing this merger and I am putting in all the IT systems and all the rest of it in such a way that, if it carries on, I cannot go back to where I was. The CMA says, “Stop, and put it back as it was.” How should the CMA make a judgment of the cost of putting the IT systems back as they were? It is reasonable for it to say in this case that the multinational is out of order, and that the pre-emptive stuff needs to happen. I am really surprised to find that the Opposition are arguing against that process and putting hurdles in the way of it.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I have made it clear that I am arguing in favour of having interim measures and transparency. If the CMA has no idea of the costs, even in order of magnitude in terms of assessing what the costs and benefits are, then it is not in a good position to impose those measures. It must have some idea of the costs involved. The second point is that publishing a cost-benefit analysis does not mean that it should not go ahead if the costs outweigh the benefits. It just shows that there has been significant and detailed consideration of the costs and benefits associated with the impact. I would have thought that Government Members would be clamouring to ensure that any public body assessed the impact it would have on businesses and the business environment as well as on the consumer.

Given the Minister’s assurances that the CMA will consider in detail the impact of its measures without the need for the amendment, I beg to ask leave to withdraw the amendment.

Clause 39 - Cartel offence

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 89, in clause 39, page 35, line 6, at end insert—

‘(2A) In subsection (1), after “at least two undertakings (A and B)”, insert—

“with the intention of substantially reducing competition.”.’.

We have made tremendous progress, Mr Brady, and have come to the last amendment we have tabled to the competition and markets part of the Bill.

Simon Danczuk (Labour, Rochdale)

Shame!

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I hear expressions of “Shame!” I know we will be sorry to leave this part behind, but I am happy to leave it by looking at the interesting and important issue of antitrust. Antitrust is one of the most difficult and complex parts of the competition regime. The notion of what antitrust is can be difficult to pin down. It includes enforcing legal prohibitions against anticompetitive business agreements, including cartels, and the abuse of dominant market position. When in Government, we put in place a specific criminal cartel offence against individuals who engage in certain forms of price fixing and other types of what can be termed hardcore cartel activity.

Antitrust laws are necessary because history shows that a small minority of companies will always think it easier to make money by fixing the market rather than by winning customers in open competition. As Richard Whish and David Bailey put it in their textbook on competition law:

“The mysteries of some aspects of competition policy should never be allowed to obscure the most simple fact of all: that competitors are meant to compete with one another for the business of their customers, and not to co-operate with one another to distort the process of competition.”

The Labour party believes in a co-operative approach. We were founded on co-operative principles, and many Labour MPs are also Co-operative Members, which I applaud. However, co-operation is a dangerous thing in competition. As Adam Smith stated in “The Wealth of Nations” in 1776:

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

Cartels were recognised and prohibited in Byzantium, and the constitution of Zeno in 483 BC punished the price fixing of clothes, fishes, sea urchins and other goods, which was punished with perpetual exile, usually to Britain. We have spoken of the importance of competition and choice. At the heart of the cartel offence is the desire to limit the choice of consumers. Clause 39 amends the criminal cartel offence established under section 188 of the Enterprise Act 2002, which was passed by the last Labour Government.

Norman Lamb (Liberal Democrat, North Norfolk)

Just to prove it is so ineffective.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Despite the sedentary comments from the Minister, one legal guide to the 2002 Act, written by Tim Frazer, described the measure as one of the Act’s most radical innovations. It is certainly considered one of the most controversial elements of the legislation. In the White Paper preceding the 2002 Act, the then Labour Government identified two possible approaches to establishing the offence. The first was to make it unlawful for a person to participate in a hardcore cartel that had been found to breach the prohibition of such an agreement in competition law. The disadvantage with that approach was that if there had not been a prior determination of an infringement, a court would first have to find that the agreement breached one of them. That could require a lay jury with no competition expertise to consider potentially complex economic arguments. For that reason, the Government at that time proposed that the offence should be defined as a dishonest participation in an agreement.

Frazer gives some background on the perceived advantages to the dishonesty element of the offence, saying:

“The cartel offence is much broader than the classic price-fixing cartel, incorporating a broad range of anti-competitive arrangements such as limiting supply or production, market-sharing, customer sharing and bid-rigging arrangements. Some of these activities are regarded as hard core or per se anti-competitive in other jurisdictions. For example, horizontal price-fixing and bid-rigging arrangements are universally excoriated as being contrary to the requirements of free and competitive markets.”

Geraint Davies (Labour, Swansea West)

Bob Diamond.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

Exactly. Frazer continues:

“There are, however, occasions on which customer-sharing and market-sharing arrangements are either not significantly anti-competitive or even may be efficiency enhancing. The requirement on the prosecution to show that the defendant was dishonest means that it is insufficient merely to demonstrate that the defendant agreed to make the arrangements…The breadth of the offence will therefore afford a defence that the parties did not realise what they were doing was dishonest and contrary to the law.”

In the Enterprise Act 2002, the then Government decided to include a dishonesty bar to the offence having taken place on the basis that it was possible for people to meet—contrary to what Adam Smith proposed—to make agreements that were not necessarily part of a hardcore cartel. In the Bill, the Government propose to remove the dishonesty element of the offence, which has proved one of the most contentious elements of the Bill’s competition proposals.

The clause also specifies the circumstances in which an offence would not be committed. It lowers the bar by removing dishonesty, but provides a big get-out clause by saying that if customers are given the relevant information about the arrangements before they make a purchase, an offence is not committed.

The Library briefing paper notes politely:

“The Explanatory Notes to the Bill do not give details as to the Government’s thinking on how exactly these publication requirements should be crafted, though some details were given in the response document”.

Will the Minister give some details of his thinking? The concern is that there has not been much thinking on the issue.

The decision to remove the dishonesty bar has had a mixed reaction. In his evidence to the Committee, Simon Pritchard said:

“My conclusion is that I am in favour of removing dishonesty, because I see the logic, but a lot more work should be done soon to hammer out what you replace it with. Taking the provisions of the Bill and the publication requirements lock, stock and barrel raises a lot of practical issues. I am very sympathetic to the concerns, which are mainstream anti-trust concerns, about how that would work when the rubber hits the road…The reality is a little more complicated when it comes to jury trials, dishonesty and the subjective element of people knowing that what they did was dishonest. On that element, people are very good at rationalising that what they are doing is perhaps not strictly above board or something that they would shout from the rooftops, but nor is it that bad either.”––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 21 June 2012; c. 93, Q208.]

Mr Pritchard’s point was that the dishonesty offence is subjective and can be difficult to prove, but that something else is needed in its place.

Katja Hall, chief policy officer of the CBI, agreed:

“On this whole issue around the cartel offence and removing dishonesty, I think we understand the intention behind the proposal. We accept that at the moment it is a high hurdle and therefore difficult to prove dishonesty. Our concern is about getting the change, but in a way that is practical for businesses. Our concern is that if you just remove dishonesty and leave it as it is proposed, you will catch a lot of legitimate business activity, such as joint partnerships. Given that the sanctions are so severe”—

it is a criminal offence—

“that is a worry for us and for our members. We would be interested in looking for solutions so that you can get a system that works and can deal appropriately with cartel offences”.––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 19 June 2012; c. 7, Q13.]

She suggests using the phrase “intent to deceive”.

The problem with the Government’s proposals is that although they are lowering the bar to zero so that any group of competitors coming together could be considered cartel activity, their get-out-of-jail-free card—published activities will not be criminalised—is not practical. It simply takes us back to the days of registered cartels as they existed in the 1970s, which was neither successful nor effective.

We agree with the Government that the dishonesty bar is too high. Given the many concerns expressed, it seems that we must replace it with something. Our amendments propose to insert, after “at least two undertakings”, the phrase

“with the intention of substantially reducing competition”.

That would have the effect of retaining a test, but not one requiring a judgment as subjective as dishonesty. It gets to the heart of the offence: although it is the objective of all competitive companies to reduce competition, hopefully by making the best products, reducing competition through agreement with competitors is and should be the target of legislation.

On the registration of cartel activities, as I have said, we appear to be going back to the Restrictive Trade Practices Act 1956, under which agreements had to be registered with the Registrar of Restrictive Trading Agreements. That function was transferred to the Director General of Fair Trading in 1973. We leave it to the Government to come up with proposals that are more practical, but we have sought to help by suggesting that the company website could be a fitting location, in some cases, to publish competitive agreements. The sites are generally easily searchable, and if all such agreements were located under the heading, “Commercial Arrangements”, they would be easy to find for all concerned. That should help ensure that cartel-like activities of undertakings can be easily identified by their customers.

Cartels are like dangerous dogs. They need to be treated with great care and the owners should be held accountable for them. The legislation, however, must not attack the entire dog population. Britain depends on its businesses and their legitimate activities must be supported.

Norman Lamb (Liberal Democrat, North Norfolk)

I appreciate the shadow Minister’s offer to be helpful. We have raced through so many clauses and, despite Opposition Members’ protestations, it is clear that they support much of what the Government are doing through the Bill, and I welcome that.

Turning to amendment 89, the shadow Minister referred to the measure’s design back in the 2002 Act being described as a radical innovation. It may have been, but the truth is that it has not worked. It has been difficult to pursue prosecutions and he recognises that point, which again, I welcome.

I appreciate why hon. Members may feel that a new mental element needs to be incorporated in the cartel offence to replace “dishonesty”, which is what the amendment seeks to do, but I do not think that the change is necessary. The introduction of the amendment’s proposed new requirement would make prosecutions more difficult and, in some cases, impossible, even where the individuals concerned should clearly be prosecuted because of the conduct that they have indulged in.

It is worth bearing it in mind that even without dishonesty, there are already clear mental elements to the offence, which the prosecution would have to prove beyond a reasonable doubt. Under the offence, the individual must agree, first of all, with one or more others, that two or more undertakings will engage in one or more of the prohibited cartel activities. Therefore, it is a state of mind that has to be proved, so the prosecution would need to prove to a criminal standard that there was a meeting of minds for a common purpose. Furthermore, for a conviction, it would need to be proved that the individual intended that the arrangements would operate to fix prices; limit or prevent supply or production; divide supply or customers between undertakings; or, be bid-rigging arrangements. A range of different activities fall under the offence, as the shadow Minister mentioned.

It is also worth bearing it in mind that “dishonesty” was not chiefly incorporated in the offence to attach clear moral blame to the conduct, but it was recognised that dishonesty might be a marker to juries of the offence’s serious nature and it might encourage judges to impose deterrent penalties. Reference was instead made to dishonesty not because it was seen to be intimately connected with hardcore cartel conduct, which is inherently damaging in itself, but as a mechanism to ensure certain effects. These were, first, to ensure that benign agreements that would benefit from exemption under the antitrust prohibitions were not criminalised; and secondly, to ensure that the offence could not be classified as “national competition law” for the purposes of EU law. If it were so classified, EU law would most likely operate to prevent individuals engaged in cartels investigated under the civil antitrust prohibition by the European Union from being prosecuted in the UK, which would be wholly counter-productive.

The third reason was to try to make the offence easier to prosecute and reduce the likelihood that juries would have to consider economic evidence. It was felt that dishonesty provided a relatively straightforward test, commonly applied by juries in a host of other offences, for example, under the theft acts.

We believe that those objectives have now been overtaken, or can better be achieved in other ways. Benign agreements can be taken out by the disclosure or publication mechanisms in the Bill. The Court of Appeal decided in the BA case that the cartel offence was not national competition law and their arguments did not depend on dishonesty, so unless the Court of Appeal’s ruling were to be overturned by a higher court, the requirement is no longer needed to support that case. As for putting economic evidence before juries, ironically, the existence of the dishonesty requirement has actually opened the way for such evidence to go before juries. The judge trying the BA case decided such evidence was potentially relevant to the question of whether the behaviour had been dishonest.

I have dwelt on those points because they are relevant to amendment 89. In several ways, the amendment would reintroduce or make worse problems that the drafters of the Enterprise Act sought to avoid, not always successfully, and which we believe clause 39 will overcome.

The amendment would require the prosecution to prove, in addition to other requirements, that the defendant intended that the arrangements would substantially reduce competition—that is what it says. That would introduce a significant impediment to prosecutions. Leaving aside the difficulties in assessing another’s intentions, competition analysis is a complex area over which highly qualified experts can disagree, especially when it comes to such matters as how substantial an effect on competition an arrangement might be expected to have. One could end up with a whole load of expert evidence being given on that particular point. Putting in place a requirement to prove an intention substantially to impair competition would inevitably open the way to the jury being faced with evaluating complex, and no doubt conflicting, expert economic evidence, clearly significantly increasing the cost to both parties—to the prosecution and to the defence—of the whole exercise. Not unnaturally, they would be inclined to give the defendant the benefit of the doubt, and, of course, the case has to be proved beyond reasonable doubt.

Worse, the amendment would substantially increase the chances that the cartel offence would be classified as “national competition law” under EU Regulation 1/2003. An offence that required proof that a substantial effect on competition was intended would look rather like competition law. If it were brought within the scope of EU law, it would have the effect that a prosecution could not be brought. Let me just explain that. As I have explained, the consequences of that would be that the CMA would most likely be unable to prosecute any individuals where the European Commission was dealing with a case against the undertakings under the regulation. Of course, it tends to be the biggest cartel cases that are being investigated at European level.

This is more than a theoretical concern. The only persons to have been successfully prosecuted under the current offence were involved in a cartel involving marine hose. The civil antitrust case against the undertakings concerned was dealt with by the European Commission. Were the cartel offence to be regarded as national competition law, the OFT would most likely have been prevented from bringing those prosecutions. As I said, it is the only successful case brought. This was a case in which the defendants pleaded guilty and received substantial prison sentences. If accepted, the amendment would significantly increase the chances that the CMA would not be allowed to bring such a case. I am sure that the shadow Minister recognises that that would be a perverse consequence of the amendment. In the light of what I have said, I hope that she will withdraw the amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for his clarifications. We are not saying that our proposed wording is the best possible wording for replacing the dishonesty bar, but we are suggesting that it is necessary to add something to his proposals. How would he answer the concerns of the CBI and of the in-house Competition Law Association that the clause, as it is currently drafted, is too wide?

May I also ask the Minister to address the concerns regarding the practicality of the registration of cartel activities? He did not cover that in his speech, but I think that we are debating amendment 59 together with amendment 89.

Graham Brady (Conservative, Altrincham and Sale West)

For the guidance of the hon. Lady and of the Committee, we are taking amendments 89 and 59 separately.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

In that case, may I therefore ask the Minister to address the concerns of the CBI, British Airways and other bodies? I urge him to consider how the offence might be better worded. It is absolutely right that we wish to ensure that all hard-core cartel activities are caught within the offence, but we do not wish to criminalise legitimate business activities.

Norman Lamb (Liberal Democrat, North Norfolk)

I am grateful to the shadow Minister for her comments. I understand that she is trying to be constructive and to get to the right conclusion. We have consulted on such issues, and the Government consider that this option provides the best solution to the difficult questions arising from the operation of the cartel offence. However, we are of course always prepared to consider reasoned arguments for incrementally improving the provisions in the Bill. In this case, although I do not accept her arguments for the specific change, I will reflect on her points before Report, because we want to ensure that we get the provision absolutely right.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for saying that he will reflect on the amendment, which means that I have finally achieved that singular honour of having an amendment reflected on. On that basis, I beg to ask leave to withdraw the amendment.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I beg to move amendment 59, in clause 39, page 35, line 35, at end insert—

‘(2A) All “relevant information” must be made available on the undertakings website under the title “commercial arrangements”.’.

Thank you for your guidance and understanding, Mr Brady. I will not try the patience of the Committee by repeating some of my earlier comments on the practicality of the registration requirements that will be imposed, and which the amendment is designed to address. The arrangements have been called impractical by many of those who have responded. We helpfully suggest making use of commercial activities sections on websites. We recognise that the amendment relates to the previous amendment, in that information about cartel-like activities needs to be published because the bar has been changed on the dishonesty offence.

Norman Lamb (Liberal Democrat, North Norfolk)

I thank the shadow Minister for tabling the amendment, but I question whether the additional requirement placed upon undertakings is necessary to achieve the desired publicity for cartel-type arrangements. It would of course be possible for the Secretary of State to specify publication on the undertaking’s website in the manner laid down under subsection (1) of new section 188A. In that case, the additional requirement would be wholly nugatory.

In practice, there may be difficulties in specifying electronic publication, which also apply to the requirement in amendment 59. The smallest companies may not have a website—of course, that is changing, but it will be the case for some businesses, although unusual. Even the smallest companies may agree to fix prices; for example, there have been cases of small shops in a particular locality agreeing to abide by common prices. There is also the question of which website is to make the relevant information available. Far from having no websites, big international businesses may have several. In the case of overseas companies, the main website may not be in the UK or even in English.

I do not suggest that those are major problems or that it would be impossible to overcome them, but we do not need to face such difficulties in the Bill. It already clearly provides for customers—those who would be affected by the arrangements—to be informed of relevant information about the arrangements, or for that information to be published in the prescribed manner, for example, when informing customers would not be reasonably practicable or where the arrangements do not envisage that there will be customers, because they would wholly prevent supply. It is not at all clear what advantage there would be in requiring the information to made available on a website in all cases. I therefore hope that the hon. Lady will withdraw amendment 85.

Graham Brady (Conservative, Altrincham and Sale West)

It is amendment 59.

Norman Lamb (Liberal Democrat, North Norfolk)

Thank you, Mr Brady.

Chi Onwurah (Labour, Newcastle upon Tyne Central)

I thank the Minister for the points he makes. I recognise that publication on a website would not be without challenges, which would need to be overcome. However, given the criticism of the Government’s proposals and their vagueness, a broader solution is required. That said, this amendment relates to amendment 89 in that if the cartel offence was accurately and more narrowly defined, how one published the information about cartel-like activities would not be of such great importance. Having won the agreement of the Minister, for which I am grateful, to take the proposal away for consideration, I beg to ask leave to withdraw the amendment.

Schedule 15 - Minor and consequential amendments: Part 4