§ 3.45 p.m.
§ Order for Second Reading read.
§ The President of the Board of Trade (Mr. Anthony Crosland)
I beg to move, That the Bill be now read a Second time.
This is a short Bill designed to make certain improvements in the law relating to restrictive trade practices. It has two main purposes. On the one hand, it makes it possible to exempt from registration under the 1956 Act trade agreements which may be needed to promote efficiency, raise productivity, or hold down prices. On the other hand, it strengthens the existing legislation and the power of enforcement in certain respects where experience has shown this to be desirable.
It may be useful, Mr. Speaker, if I try to show how the Bill fits into the sequence of post-war legislation on monopolies and restrictive practices, and how it relates to the Government's other industrial policies.
Ever since the 1944 White Paper on Full Employment, Parliament has proceeded with a broad measure of agreement on this subject. There have, of course, been important differences of emphasis, but generally the House has not been deeply divided on party lines. This was true when my right hon. Friend the Prime Minister, then President of the Board of Trade, introduced the Monopolies and Restrictive Practices Act of 1948 which set up the Monopolies Commission and, for the first time, provided that the exercise of market power, whether by individual firms or through restrictive agreements, could be investigated and, where necessary, brought under a measure of public control.
Then in 1956, the party opposite brought in the Restrictive Trade Practices Act, which provided for the registration of restrictive agreements relating to goods and set up the Restrictive Practices Court. The Resale Prices Act of 1964 was specifically directed against resale price maintenance and sought to abolish it except where it could be specially justified.
More recently, in the Monopolies and Mergers Act of 1965, the present Government extended the field of work of the 1006 Monopolies Commission to cover both important mergers and take-overs and also restrictive agreements relating to services. Throughout this process of evolution, the underlying objective has remained the same. It has been to check restrictions on competition and undesirable forms of market power, without at the same time hindering improvements in efficiency or necessary changes in industrial structure.
Throughout, the basis of the legislation has been pragmatic and not dogmatic. It is true that the 1956 Act introduced a presumption that restrictive agreements would generally operate against the public interest. This reflected the view—shared, I would think, by most economists and certainly by most hon. Members—that such agreements more often than not produce the disadvantages of monopoly, the feather-bedding and protection, without giving the advantages of greater size and greater strength in the individual firm.
But this presumption can be rebutted, and agreements accepted by the court, where it can be shown that they produce specific benefits and advantages outweighing their detriments. In the case of monopolies and mergers there is no presumption in the law that market power works against the public interest.
So much for the general background. But there is now a new factor in the situation, and a new emphasis in Government policy. The Government do not believe that the unaided working of market forces will always be sufficient to bring about the needed rationalisation of industry. There are always strong influences tending towards inertia and the maintenance of the status quo. So the Government have increasingly found it necessary to take a view about the structure of important sectors of industry, and to try to bring about desirable changes both directly through the sponsoring Departments for industry, and indirectly through the work of the Industrial Reorganisation Corporation and the Economic Development Committees, the "Little Neddies".
These changes, which are all designed to encourage long-run productivity and innovation, may involve co-operative action between firms in an industry; or they may involve a deliberate process of merger and rationalisation.
1007 I do not think that this policy is, in principle, inconsistent with the existing law on monopolies and restrictive practices, though it is sometimes said to be. If I decide, for example, to refer a merger to the Monopolies Commission, a commentator is sure to say that this is at odds with the policy of promoting rationalisation through the I.R.C.
In my view, however, it is not. On the facts of the case, out of nearly 250 mergers examined by the Board of Trade, only eight have been referred to the Monopolies Commission. The Government have no doubt that the leading firms in our major industries must take their place in the big international league and must operate on a worldwide scale. This will often mean that they must be of great size and strength, and may need to be vertically-integrated concerns covering several stages of manufacture. Moreover, it may be quite inappropriate to measure their market power simply by reference to the home market; in an open economy like ours, we need to look at it in relation to their place in world markets.
So there will be many situations where the long-term advantages of large scale, and the better use of resources through massive research and development expenditures and confident investment policies, will outweigh the possible detriment of monopoly power. In short, in particular situations market power may be a necessity.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
I thank the right hon. Gentleman for giving way. All he has said is entirely consistent and cogent in so far as one is referring to monopoly power. But, of course, the Measure introduced by his predecessor did not confine itself to that but introduced a £5 million test, quite irrespective of monopoly power; and it is to that that most of the criticism and alleged conflict to which he has referred has been directed. Would he deal with that?
§ Mr. Crosland
The answer to this alleged conflict, if it does not lie in the arguments I am giving, lies in the figures I am quoting; that out of about 250 mergers examined only eight have been referred to the Monopolies Commission. We could make a reference either under the monopoly criterion or, as the hon. 1008 Gentleman rightly pointed out, under the criterion of the capital sums involved.
On the other hand, as the T.U.C. Economic Review put it, it is… dangerous to assume that all takeovers and mergers necessarily lead to major gains in economic efficiency".Just because market power is often necessary, we must have a suitable means of watching and checking its effect; hence the need for laws on monopoly and restrictive practices. But provided that we keep a proper balance between the long-term dynamic considerations and those more immediately affecting consumers, there is, in my view, no inconsistency whatever in making use in particular cases of our powers to investigate the possible detriments of market power.
While there is no general inconsistency with the existing law, the new emphasis in Government policy requires some amendment to it, and particularly to the restrictive practices legislation. This legislation has done an excellent job in ridding the economy of many hundreds of restrictive practices designed to preserve the status quo and impede desirable change. At the same time, it has provided a sieve through which beneficial agreements could pass. It has been a fine sieve in that only 11 of over 2,000 registered agreements have been successfully defended—though there is no evidence that agreements that would have been in the national interest have been condemned.
However, although the law has generally proved satisfactory, the work done in the Economic Development Committees and elsewhere to find new ways of increasing industrial efficiency has shown the need for some amendments to it, and this is one of the reasons for this Bill. It has been represented to us that the law as it stands is impeding schemes, which, through the E.D.C.s or as a result of recommendations of the National Board for Prices and Incomes, or in other ways, the Government are urging industry to adopt. Industry takes the line, naturally enough, that it will not embark on such schemes if to do so might involve it in the trouble and expense of defending a registrable agreement before the Restrictive Practices Court.
For example, several E.D.C.s have suggested forms of co-operative action 1009 which might depend on making a registrable agreement. The E.D.C. for the electrical engineering industry has recommended a reduction in varieties—for example in cables and transformers—to reduce costs, but firms may be unwilling to reduce the number of lines they offer unless other firms agree to do the same. The E.D.C. for the building trades has recommended standard form contracts in the building industry, as was proposed also by the Banwell Committee. The E.D.C. for the chemical industry has suggested tiat its work on import saving might go ahead faster if companies did not feel inhibited about agreeing on their investment programmes.
A change in the law is needed to meet the requirements of the prices and incomes policy. The most effective way of ensuring that an industry holds down its prices may be for the trade association concerned to recommend its members not to increase prices, or only to increase them by a figure agreed with the Government. But such a recommendation might give rise to a registrable agreement. So, too, might an agreement to reduce prices, though this could hardly be seen as exploiting monopoly power.
I am certainly not saying that every argument of this kind should be accepted. There may be other and better ways of solving the problem. But I accept that in certain cases, and subject to proper safeguards, co-operative action to improve efficiency may be not only justified but positively desirable, and it would be absurd to place unnecessary obstacles in the way of action designed to carry out the Government's industrial policy.
The other main reason for amending the law is quite different. It arises from the need to remove certain weaknesses which have become apparent in the-operation of the 1956 Act. First, there is at present no effective deterrent against failure to register an agreement. In the early years of the legislation, parties to an agreement usually registered it of their own accord. But now it has become widely recognised that there is no penalty for failure to register, and three-quarters of all registrations are now made only after prodding by the Registrar.
Secondly, information agreements, particularly relating to prices, are being used to circumvent the object of the 1956 Act, and often replace agreements which have 1010 themselves been swept away by the Act. The parties can evade the Act in this way because the definition of a registrable agreement is not wide enough to include all information agreements which can be so drawn as to produce the same effect as common price agreements.
These are the broad objects of the Bill, and I now come to its details. Clause 1 gives the Board of Trade a discretionary power to exempt from registration under the 1956 Act—and so from judicial examination by the Restrictive Practices Court—for a specified period agreements of national importance which promote industrial efficiency or provide for new capacity.
I realise that this gives the Government wide powers of administrative discretion, and might be thought incompatible with the philosophy of the 1956 Act. I therefore stress that there is no question of the Board of Trade operating in the area of the court's jurisdiction.
What I propose is a separate procedure to deal with urgent problems of industrial structure and efficiency, where it is a matter of national importance for an agreement to be made and where it would be unreasonable, therefore, having accepted the need for an agreement, to force the parties to bear the cost of defending it before the court. There is no question of sharing jurisdiction with the court, and for agreements outside these categories the court's jurisdiction remains absolute. I fully recognise the essential contribution which the court has made, and will continue to make, in ridding industry of undesirable agreements.
This exemption procedure is subject to a number of safeguards. The Board of Trade must be satisfied that, on balance, the proposed agreement is desirable in the national interest, that its object cannot be achieved in a reasonable time except by means of the agreement and that the restrictions it contains are no more than necessary to secure this object. The Bill also provides for exemption orders and copies of exempted agreements to be laid before both Houses of Parliament, and for copies of exempted agreements to be made available for public inspection, save in certain exceptional cases.
On the other hand, industry must have some assurance that an exempted agreement will be allowed to run for a 1011 reasonable period. So, although the Board has certain limited powers to withdraw exemption before the period for which it was granted has elapsed, it may not do so in the first year of its operation, except where there has been misrepresentation or where important new facts come to light. In administering Clause 1, I shall, of course, work closely with the Departments responsible for the industries to which such agreements relate.
Clause 2 relates to the administration of the prices and incomes policy. In operating a prices policy on a voluntary basis, Government Departments will often wish to secure the acceptance by industry of restraints on price increases. In particular, they need to secure undertakings, under the early warning system, that industry will give them advance notice of proposed price increases, and that such price increases will be deferred or limited in amount. But such undertakings, if they affect trade associations or two or more suppliers, may involve industry in making an agreement which would be registrable under the present law; and industry is naturally unwilling to risk the consequent proceedings before the Restrictive Practices Court.
Clause 2 therefore empowers those Government Departments which are concerned in operating the prices and incomes policy to exempt from registration agreements made at their request for the purpose of reducing prices, or preventing or restricting increases in prices. Exemption may be given for a period not exceeding two years, and it may be either extended or withdrawn for misuse. exempted agreements must be made available for public inspection.
Clause 3 makes various supplementary provisions which follow from Clauses 1 and 2.
The present law already exempts from registration agreements to make goods in accordance with a British standard. Clause 4 widens this exemption, both to cover agreements about the acquisition or supply of goods made in accordance with British standards, and agreements about standards approved by the Board of Trade and made by standard-making bodies other than the British Standards Institution. This Clause supplements the provision exempting agreements of importance to the national economy.
1012 With Clause 5 we come to the second main purpose of the Bill, which is to remove certain weaknesses in the operation of the 1956 Act. The first of these is the use of information agreements to circumvent the object of that Act. Clause 5 therefore empowers the Board of Trade, by Statutory Instrument, subject to the negative Resolution procedure, to require any class of information agreements to be registered.
The Board is given a wide power to classify agreements. The power is an enabling one, and it is not my intention to call up for registration obviously useful types of agreement, for example, agreements made to support work on inter-firm comparisons. This provision is similar to that proposed in the previous administration's White Paper of 1964.
The other weakness to which I referred was the difficulty which the Registrar has experienced in securing compliance with the provisions of the 1956 Act. While that Act imposes an obligation to furnish particulars of an agreement to the Registrar within three months, it imposes no penalty on those who fail to comply. The Bill therefore seeks to strengthen this part of the legislation.
Clause 6 lays down the periods within which particulars of agreements are to be sent to the Registrar for registration. The period is normally three months, as at present, or before the restrictions in the agreement come into force, whichever is the earlier. Special provision is made for transitional cases; for amended agreements; for information agreements newly called up for registration under Clause 5; and for agreements exempted under Clauses 1 and 2, when the period of exemption has expired, or the exemption has been revoked.
Clause 7 makes unlawful any agreement which is not registered within the period laid down by Clause 6. It does not impose criminal sanctions, but persons damaged by the operation of an unlawful agreements can seek civil remedies. This follows the precedent of the Resale Prices Act. The Registrar is also empowered to seek an injunction to prohibit parties to an unlawful agreement from operating it; or from carrying out or enforcing any other registrable agreement if they have not duly registered it.
Under the 1956 Act, the Registrar has a statutory duty to refer all agreements 1013 to the Restrictive Practices Court, including agreements which have been determined, or whose restrictions have been removed or abandoned. I am using as far as possible the legal language of the Act. To relieve the Registrar and the court of much unnecessary work, Clause 9 gives the Registrar discretion whether or not to refer such defunct agreements to the court. The only purpose of instituting procedings in respect of an agreement which is genuinely defunct is to seek a court order precluding the making of a fresh agreement to the like effect. Such proceedings are likely to be rare, but will sometimes be necessary.
The Board of Trade already has power under Section 12 of the 1956 Act to exempt insignificant agreements from examination by the court on the ground that they are of no substantial economic significance. In practice, we have found that the definition of such agreements is too narrow. There are a large number of agreements on the register which do not warrant legal proceedings, but which do not seem to satisfy the criteria of Section 12. Moreover, the requirement that the Registrar should remove particulars of insignificant agreements from the register has in practice proved a nuisance. One agreement has been removed and then restored because of trivial amendments no less than six times.
The Bill, therefore, repeals the existing Section 12, except for certain transitional purposes, and substitutes for it a power for the Board of Trade to direct that an agreement should not be referred to the court, if it is not of such significance as to call for investigation by the court.
Clause 10 provides a new ground for defence which will allow parties to plead before the Court that a restriction is not contrary to the public interest because it does not have the effect, directly or indirectly, of restricting competition to a material extent. This ground is intended mainly to provide a defence for information agreements, for which the other so-called "gateways" in section 21 of the 1956 Act are not likely to be appropriate. But it is not confined to information agreements. It can be used in defence of any restriction. This is also in line with what was proposed in the previous administration's 1964 White Paper.
1014 Article 15 of the E.F.T.A. Stockholm Convention recognises that certain types of restrictive and monopoly practices may be incompatible with the Convention. Like other member States of E.F.T.A., we have accepted the obligation to implement decisions under this Article. Clause 11 therefore provides that the Board of Trade should have a discretionary power to declare void any agreement registered or notified under the 1956 Act which the E.F.T.A. Council has found by formal resolution to be in breach of Article 15. This will not apply to restrictions which were successfully defended before the court before the Bill becomes law.
The Anglo-Irish Free Trade Area Agreement contains a similar provision to Article 15 of the Stockholm Convention, and Clause 11 will, therefore, also apply to agreements which are incompatible with that agreement. The House will recall that powers were taken in the 1965 Monopolies and Mergers Act to enable the Government to honour international treaty obligations in relation to monopoly situations.
The remaining Clauses deal with relatively minor and consequential matters.
In introducing this Bill I have two objects in mind. The first is to ensure that our restrictive practices legislation does not fortuitously inhibit the over-riding national need for higher productivity and higher efficiency. The second is to ensure that the legislation works effectively to achieve the purposes which Parliament has in mind. I hope that both objectives will commend themselves to the House.
§ 4.8 p.m.
§ Mr. Patrick Jenkin (Wanstead and Woodford)
Those of my hon. Friends who were here 12 years ago in 1956 when the Act to which this Bill is an amendment was passing through the House, and those of us who since then have read the debates which took place on the Act, will have been astonished by the eulogistic attitude displayed by the right hon. Gentleman the President of the Board of Trade towards the 1956 Act. He said that there had been broad party agreement on legislation of this type since the war. He declined to mention that his own party voted against the 1956 Act on a Reasoned Amendment.
1015 I can well recollect the argument which raged in the House and in the Press. Hon. Members opposite denied that there was any room in a system for controlling restrictive practices for the activities of a court. They argued that these issues were not justiciable issues; they were the function of Parliament.
§ Mr. Douglas Jay (Battersea, North)
Perhaps I might remind the hon. Gentleman that the 1956 Act was much improved in Committee and on Report, thanks to the efforts of the then Opposition, and was a better Measure when it reached the Statute Book.
§ Mr. Jenkin
I shall be quoting from the Third Reading debate, which no doubt will lend weight to what the right hon. Gentleman has just said.
Looking at what was said on Second Reading with regard to matters of principle on which there was no change throughout the passage of the Bill, though there were many changes in detail, perhaps I can do no better than quote what was said on 6th March by the then legal spokesman for the Labour Party, Sir Lynn Ungoed-Thomas:The Bill hands over to this court governmental and parliamentary power. All judgments are founded upon law or upon facts, but in this case the decision which really matters will be a decision founded neither upon law nor upon fact. It will be a political and economic decision."—[OFFICIAL REPORT, 6th March, 1956; Vol. 549, c. 2030.]Yet the President of the Board of Trade has told us today that the court still has an essential rôle to play in this legislation.
The right hon. Member for Battersea, North, was not slow in his criticisms of the Bill. On Third Reading, after all the changes to which he has referred were made, he said:… there is a danger that we shall simply have a series of decisions whitewashing the restrictive practices of industry".—[OFFICIAL REPORT, 14th June, 1956; Vol. 554, c. 897.]What an astonishing proposition. What is industry's main complaint about this legislation today? It complains of the extreme rigour of the law. The Confederation of British Industry repeatedly has made its view known to Governments of both parties. It regards this legislation with the utmost distaste. In a recent paper it pointed out how few of the agree- 1016 ments have survived the procedures of the 1956 Act. The right hon. Gentleman referred to this in his speech. The Confederation said:The position which faces firms who contemplate a new agreement today is even more forbidding. They know that they will eventually have to defend the agreement before the Court. They know that their chances of success are slender and that the effort they will have to make to present their case will be costly and a serious burden on their senior staff. Few agreements are likely to be so potentially attractive that they will justify such risks and uncertainties.All that I can say is, some whitewashing!
Perhaps the most astonishing forecast was made by Sir Lynn Ungoed-Thomas when adverting to the chances of success that an agreement would have to negotiating the obstacles placed in its way by the Act. In the same speech, he said:I do not believe that a single one of the multitude of agreements which come within Clause 5 could not be brought under one or other of the tests laid down in Clause 16."—[OFFICIAL REPORT, 6th March, 1956; Vol. 549, c. 2030.]What is the history? Only a tiny handful of agreements which have gone into the court have been approved. It might be said that a rich man has a greater chance of entering the Kingdom of Heaven than has a price fixed of securing the approval of the Restrictive Practices Court.
I will not weary the House with any more prognostications of gloom and doom which emanated from right hon. and hon. Gentlemen opposite during the passage of the 1956 Bill. They adverted to the prospective futility of the Bill; yet today we had a eulogy which showed that those prognostications were wholly without foundation. It would have been nice to have had some recognition of that from the President of the Board of Trade.
However, the right hon. Gentleman has provided perhaps the best evidence of the complete reversal of his attitude in the Government's own proposals in this Bill. He has come before the House not with massive provisions to tighten up the Act. Instead, in the first Clause, he proposes to exempt from the operations of the Act certain activities because the Act is operating too stringently. The major tightening that he proposes is one which was put before the House over four years ago by my right hon. Friend the Member for Bexley (Mr. Heath).
1017 Perhaps it is difficult to measure the effects of the Act over the years. There is little doubt that many hundreds and perhaps thousands of agreements were abandoned and never appeared on the register at all. Many others have appeared on the register and, subsequently, were not defended. Many others have been varied to make them harmless. Many have been found contrary to public interest and have been declared void.
In his third report, the Registrar made some attempt to assess the results at that stage, and that took one up only to 1963. In paragraph 13, he said:In some such industries there is clearly now keen competition between the former parties in price and in the various aspects of service.In paragraph 14, he said:The effect of the termination of agreements it some industries appears to be that large buyers can obtain competitive offers or discounts although any distributed price lists show few differences.There is no doubt that the Act has had a soundly beneficial effect on the growth and increase of competition. It is bringing to consumers lower prices, greater choice and better service. It is bringing to industry a greater stimulus to higher efficiency, and to the country as a whole a more vigorous and competitive industrial environment.
Although it has been criticised by industry as being harsh and rigid with procedures which are narrow, legalistic, cumbersome and expensive, and although it has been criticised by some economists as operating too slowly, there is no doubt that the Act has been one of the outstanding legislative successes of the decade.
It has operated most successfully when there has been in the economy an atmosphere of growth and enterprise which characterised the now famous 13 years of Conservative government. The point was put very well by Sir Reginald Mathys, in an article in the Sunday Telegraph on 7th January of this year. He said:The most important single fact to remember about monopolies and restrictive practices is that they are an inherent part of life, and the way to reduce their more harmful effects is to encourage enterprise and initiative, and so create a more positive climate in which it really pays the individual to be more efficient and outward looking than to be restrictive. Moral indignation is no help.1018 During the past two or three years, there has been a sight too much moral indignation and too little encouragement and incentive from right hon. and hon. Gentlemen opposite. It is evident that those attitudes are highly prevalent among Ministers today. Only on Sunday, the Secretary of State for Productivity and Employment exhorted the shopworkers' conference at Margate. As reported in yesterday's edition of The Times, she said:Harold Wilson has put me in this job to find ways by which we can all help ourselves to an improvement in the quality of our lives within the context of the essential economic policy.The right hon. Lady went on to say that the purpose of the new Department was to keep prices down bynot accepting slipshod methods or hollow excuses from anyone: manufacturers, retailers or nationalised industries.
§ Mr. Jenkin
With great respect, there is nothing wrong with it. We are waiting to see if it is simply more moral indignation, or is intended to be a serious contribution to our economic problems. My right hon. and hon. Friends and I will wait and see. Time alone will tell. The next six to nine months will show all too clearly and will provide the acid test of whether the right hon. Gentleman's fine words are anything more than mere pious verbiage.
Of one matter we can be certain, and it is that any success that there has been during the last two or three years in holding down prices has owed infinitely more to the Restrictive Trade Practices Act passed by my right hon. Friend Lord Thorneycroft, to the Resale Prices Act, piloted through the House by my right hon. Friend the Member for Bexley, and to the monopolies legislation, piloted through by both parties, than the whole rigmarole of the prices and incomes legislation which has been foisted on the country. There is plenty of evidence that that legislation and many other aspects of Government policy have been counter-productive. The prices and incomes legislation is not the only example. I thought that the right hon. Gentleman stood condemned—qui s'excuse s'accuse.
1019 Businessmen are baffled and confused by the conflicting policies imposed on them by the Government. The Restrictive Trade Practices Act bans restrictive agreements. The National Board for Prices and Incomes recommends them. I need only refer the right hon. Gentleman to the Report on the bakers, which recommended the standardisation of types and shapes of bread by agreement between the bakers and the apportionment of bread rounds by the allocation of streets between different firms. If any bakers had attempted to indulge in that they would immediately have fallen foul of the Restrictive Trade Practices Act, and I cannot think that any of those scheme would have been included in the Bill now before us.
The I.R.C. aims to promote mergers. The right hon. Member for Battersea, North insisted, despite pressure from both sides, on including in his Monopolies Bill the silly £5 million test which resulted in 250 mergers being referred to the Board of Trade and only eight to the Monopolies Commission. The Government asked for further rationalisation in the now defunct National Plan, and yet continued to demand keen competition. The Ministry of Technology seeks to avoid wasteful duplication by exchange of information on investment intentions in the chemical industry but the new Bill will now require the registration of information agreements of exactly the sort that the Ministry of Technology urged the industry to carry out.
I cannot do better than to quote the Economist of 12th November:Like children whose parents have extreme and opposite views, businessmen are already confused by the non-creative tension between free trade sections of the government like the Board of Trade, and the more collectivist departments and quasi-departments like Neddy.This is an example of the basic schizophrenia which characterises the Government's whole approach to economic problems and gives rise to great uncertainty in industry.
I am convinced that this is a very material factor in the widespread loss of confidence which has been so marked a feature in the last two or three years. There is a fundamental dilemma which will arise whenever a Socialist Government try to operate what is still substantially a free market economy. The late 1020 Lord Attlee said that it was impossible. He said:A Labour Government cannot run a market economy because they do not believe in it".Of course he was right.
With some modesty I can claim to be one of the earliest who pointed out this basic inconsistency two years ago. On 17th February, 1966, I asked the then President of the Board of Trade whether he intended to amend the Restrictive Trade Practices Act to promote the rationalisation called for in the National Plan. I was answered by the right hon. Member for Sheffield, Hillsborough (Mr. Darling):No, Sir. There is no a priori reason why rationalisation proposals designed to improve the competitive efficiency of industry need involve restrictive agreements."[OFFICIAL REPORT, 17th February, 1966; Vol. 724, c. 1511]It was a different story which was given today by the President. Now they have seen that this is necessary and Clause 1 is intended to solve the problem by giving the Board of Trade the power which the President described to the House. The right hon. Gentleman gave the background to this new power and the reasons why he thought it necessary. He emphasised, and I was glad that he did, the narrow and stringent limits within which the power is to be exercised.
It is right that one should offer some comment on this. The basic need for this power stems from two quite different causes which have emerged in recent years. One is outside the Government's control and one is within the Government's control. The first is the great surge in technical innovation which is going on all over the world in mass marketing and production, the growing importance of factors of scale of marketing, production and research, and the rapidly mounting costs of research. The second cause, within the control of the Government, is the growing pattern of intervention by Government in the long-term, medium-and short-term in the decisions of industry.
If one looks at the legislation brought before the House during the last three years the list is formidable. Corporation Tax, discriminating against distributed profits, the investment grants with an unreal distinction between manufacturing and services, the same unreal distinction is the S.E.T.——
§ Mr. Jenkin
I am attempting to argue, and I will come to it as quickly as I can, that the Bill arises as an inexorable result of the cumulative effect of the policies pursued by the Government.
We have had the Industrial Reorganisation Corporation building licences, restrictions on overseas investment, and all this represents a massive interference by the State with the working of a market economy. Every new measure which the Government introduces leads inexorably to the next. New disincentives require a new pattern of inducements. Money extracted from industry in one form has to be handed back in another. Fetters on competition in one sphere lead to demands for cartels in another.
If this rising tide of Government interference were the sole origin of Clause 1 we would have no hesitation from this side of the House in condemning it out of hand. As it is, the other cause, the growth of technical innovation, is also a major factor which cannot be ignored. It leads one to the belief that it is right that one should take a cool look at Clause 1 and its possible merits. After much heart-searching we on this side of the House have come to the conclusion that those who have sought this suspension of the operation of the 1956 Act may have a case.
The United Kingdom market is small by international standards. Large-scale industry needs to operate in huge units in many cases. I think particularly of the industry with which I am most familiar, the chemical industry, in which often only one plant may be necessary to meet the total United Kingdom requirements. Sometimes this can be achieved by merger, but sometimes only by phasing of investment or sometimes by one firm building and others buying from it.
In the latter two cases the 1956 Act even precludes conversations leading to what might appear desirable, yet this may be the only way of solving the problem. I believe that, on balance, this should not be automatically illegal. The President of the Board of Trade referred to the recommendations of the N.E.D.C. for "Little Neddies", I do not necessarily regard that as a guarantee of respectability. Producer interests un- 1022 doubtedly dominate "Little Neddies" and they can lead to cartels just as easily as trade associations.
§ Mr. Arthur Palmer (Bristol Central)
I wonder in this connection if the hon. Gentleman has studied the view of the Select Committee on Science and Technology on the reactor industry.
§ Mr. Jenkin
I have not given the matter the attention which the hon. Member has given to it, so perhaps he will forgive me if I do not follow him too far into that labyrinth for the one in which I am engaged is complicated enough.
It is very easy for "Little Neddies" to constitute a trap for Government which would lead one to equate the interests of a particular industry with the public interests. Therefore, it is right that there should be no general blanket consent for the schemes put up by the "Little Neddies". The full rigour of the 1956 Act should be reserved for all but a very few special cases. There may be a case for an occasional very special exemption, but how are we to secure that this shall not be a major breach in the dyke against the resurgence of restrictive practices? The Financial Times, a year ago, rightly said:Economists tend to become suspicious whenever businessmen suggest that restrictive practices are justified.I recognised in that a watered-down version of the famous dictum of Adam Smith who said, about 150 years ago:People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or some contrivance to raise prices.This attitude may be regarded by some as being over-suspicious, but in this field, I believe a healthy suspicion is the right attitude. I would add—and I am glad to have support from hon. Gentlemen opposite—doubly so when it is the Government, the Government of any party, who take upon themselves the function of being the arbiter. Having looked at this most carefully, I agree with the view of the Economist last month, which was that if there is to be such a power as is now contained in Clause 1The Board of Trade solution is the only possible one.I do not believe that we need necessarily conclude the Government have got 1023 it right. In the meantime, perhaps the Minister of State, who is due to wind up this debate, could be a little more explicit about how this power is intended to be used.
What does this curious phrase—"national importance"—mean? I do not recollect having seen it in legislation before, although I may be wrong. How does it differ from "the national interest" or "the public interest"? Does it imply a certain size of project, or the importance of the product to the national economy? Does it imply the material or product which is to be produced is essential in British industry? Does it imply that it should be important in relation to the balance of payments? If so, what sort of saving have the Government in mind on this? Is it a project of national importance if it saves £10,000 a year on the balance of payments, or is it £100,000, £1 million or £10 million?
What safeguards will there be? How is the consumer to be protected from the exploitation which is one of the easiest pitfalls into which a restrictive agreement can lead? How are we to ensure that agreements of this sort are not used to shelter inefficiency or failure to innovate? How are we to ensure they are not used to preserve rather than readapt an outmoded industrial structure?
The President of the Board of Trade referred to the need to give a reasonable duration to these agreements. How is the Board of Trade to decide upon the duration, the situation which has created the need for the agreement in the first place, or the progress of the scheme which has been introduced under it? On these and, indeed, on many other points—some of them will no doubt be referred to by my hon. Friend the Member for Morecambe and Lonsdale (Mr. Hall-Davis)—we shall need to be satisfied before we would be prepared to let this Clause go on to the Statute Book.
The former President of the Board of Trade, when forecasting the Bill, said that he would use the power very sparingly. I would certainly hope so, but I do not believe that that, by itself, is enough. I suggest that he looks at some of these important safeguards which may make the power more acceptable in a competitive economy. I would suggest he takes a very hard look at tariffs for 1024 instance. A cartel of the sort which the Bill envisages is just what might be dealt with by the sort of advice which my right hon. Friend the Member for Bexley referred to in his speech on the Government cuts on 18th January, when he said that the Government could conduct atariff review in those fields where monopoly is likely or possible."—[OFFICIAL. REPORT, 18th January, 1968, Vol. 756, c. 1966.]Market-sharing arrangements, price stabilisation arrangements, agreements not to compete in certain fields can lead—and it is important to emphasise that in thousands of cases in this century have led—to the exploitation of consumers, to the misuse of resources, to sluggishness and lack of enterprise. It is essential that Clause 1 should not be allowed to become a vehicle for the return of old, bad habits, so recently eradicated after so much travail. The recent Report of the Monopolies Commission on "man-made cellulosic fibres" shows the harm that can be done if agreements—in that case with other European producers—are allowed to continue indefinitely against the public interest.
I would propose one more safeguard—and we shall move an Amendment to this effect in Committee—that the Clause itself, and not merely the Orders under it, should have a time limit. This must be only a temporary power for the Government. It stems basically from the fact that the British market is too small in which to allow the rationalisation which we all require to take place. All this is changed if we join the Common Market; if we find ourselves part of a giant Continental market I do not believe that there is a place for a dispensing power of this sort.
In short, we on this side of the House view this Clause with great reserve, verging on a deep suspicion and we require much more explicit information as to how it will work. We shall insist on full safeguards, and I must add that under no circumstances must the consent of the Board of Trade be accompanied by a demand for a shareholding in the venture. Nothing would be more guaranteed to ensure the permanence of an arrangement which is intended to be temporary than that the Government themselves should put money into it and become a shareholder.
1025 I believe that the President of the Board of Trade may have made out a prima facie case for the Clause, but I that he will have to prove it categorically in Committee.
May I turn briefly to the rest of the Bill. Clause 4 is a welcome extension of Section 7(3) of the Act and would allow such valuable bodies as the Engineering Equipment Users' Association and the Oil Companies' Materials' Association to continue to operate without the need for registration.
Clause 6 seems to be a sensible Clause, establishing the need for registration before the agreement takes effect. We have looked at Clause 7 very carefully and I believe, on balance, this is necessary. No honest trader will object to the existence of sanctions on the dodger and it is certainly right to give the injured party a remedy in damages, although I believe that the President of the Board of Trade has been right to resist the temptation to imitate the Americans and introduce triple damages.
We note that the gateway in Clause 10 on restrictiondoes not directly or indirectly restrict or discourage competition to any material degree,and it is not likely to do so. Again, we welcome that.
Finally, I come to Clause 5, which deals with information agreements. I must go into this at a little greater length. One of the Registrar's earliest complaints was that an information agreement was a method of circumventing the 1966 Act, and my right hon. Friend the Member for Bexley's White Paper of 1964 indicated an intention to legislate. It is unfortunate that there has been so long a delay on this matter.
The basic slag case in 1963 represented a very great extension of the interpretation of what constitutes an arrangement—and that is a technical word. Under the 1956 Act, this was a considerable extension of the law and it has the effect of making a great many information agreements—certainly any of those that constitute restriction—registrabl under the Act.
One learned commentator, in a fascinating article in the Modern Law Review on this subject, has even suggested that no further legislation is necessary, because the basic slag case and the mean- 1026 ing given to "arrangement" is adequate to catch all the information agreements that one would want to strike at. I disagree with this because we are introducing here new penalties for failure to register, and it is necessary that it should be clear beyond a peradventure what the agreements are that require to be registered. Industries and firms must not be put into grave doubt as to whether their agreements are registrable or not. However, I do believe that Clause 5 may have gone further than the circumstances of the case require. I recognise that at the moment it is merely an empowering Clause and the categories of information agreement will have to be brought before the House in a Statutory Instrument.
I would ask the President of the Board of Trade to give some thought to this, and perhaps the Minister of State might comment on it in winding up. Why is it necessary to go beyond information agreements regarding prices, terms and conditions, which include discounts, rebates, and so on? The right hon. Gentleman has included in the Bill agreements on information about quantities, descriptions, costs, processes, customers, areas, and so on. At first sight, I believe that he has gone much wider than is necessary. If Orders are brought forward relative to these agreements, the right hon. Gentleman will sweep into the net, and compel the registration of, tens of thousands of entirely commonplace, harmless commercial agreements.
One example is a price list which offers quantity discounts. It is easy to postulate an agreement that the same discounts are to be offered to all customers of the trader. That, therefore, will be caught. The licensor of a process who licenses his process to several firms and provides for an exchange of technical information is clearly caught, if such agreements are brought forward. Take the case of trade associations, which goes even further. The Confederation of British Industry provides the Board of Trade with the names of chemical manufacturers. The President of the Board of Trade may not have realised it, but that may be a registrable agreement.
If the Scotch Whisky Association—I am sorry that my hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) has left—agrees to give a Member of Parliament figures of the production and 1027 sales of Scotch whisky, that will be a registrable agreement. This goes very much too far and I do not believe that the House ought to give the Board of Trade these powers.
There is a further difficulty, Subsection (2) provides for what is to be the effect of these agreements—how they are to be interpreted—by the device of a statutory hypothesis that the information agreement is deemed to be a restriction. In other words, the court, if the agreement ever comes before the court, will not be required to consider the information agreement which actually exists, but an entirely different agreement containing a hypothetical restriction of a different scope.
The query to which we must have an answer is: how will the gateways in Section 21 apply to Rich a hypothetical restriction? If the agreement is already restrictive, such as an agreement to inform about proposed price increases, which is clearly restrictive, the hypothesis is quite unnecessary. If the agreement is not a restrictive one, it cannot be made a restrictive one, or at any rate not so as to be amenable to the provisions of Section 21. It just will not work. I believe that the right hon. Gentleman will have to look at the Clause very carefully again, because I believe that it is misconceived.
We recognise that something needs to be done. We recognise that it is entirely unclear as to what are the agreements that ought to be registered as embodying a restriction, but we do not believe that the President of the Board of Trade has hit on the right answer yet. Surely what is important here is that the mere provision of information is a perfectly harmless activity. What is damaging to the economy is the misuse of that information.
I want to quote a statement by a very distinguished judge in an American case—United States v. E. I. du Pont de Nemours and Company in 1948:The Sherman Antitrust Law does not…force men to buy or sell without knowledge of what they must compete against.In the absence of any combination or agreement or conspiracy in restraint of trade … manufacturing competitors may legally exchange current price lists and cost information …A manufacturer may legally ask competitors whether the information he has received from his salesmen … is accurate, and he may, 1028 if he wishes, legally make such information or portions of it available to competitors.So long as these activities are done for the purpose of gaining or exchanging accurate information concerning current market conditions, they are normal and necessary to the running of the business and are not unlawful."Unlawful" is in the context of the American antitrust law, but if we substituted "harmful" for "unlawful" that doctrine could well be transported to this country. I believe that that is the right objective. I cannot believe that it is right to clutter up the Register with a great welter of agreements which by no stretch of the imagination could be regarded as restrictive. I suggest that between today and the Committee stage the right hon. Gentleman takes the Clause back and has another very careful look at it to ensure that he is not asking Parliament for a power which is unnecessarily wide.
I want to end by joining the right hon. Gentleman in paying a tribute to the Registrar and his staff, who perform what is now an essential function in any modern industrial state. They have proved that the Act can work, and work well, despite the grim forebodings of right hon. and hon. Members opposite a decade ago.
Much of the Bill is welcome. Some of it is overdue. Some of it is right in aim but wrong in method. Some of it must be viewed with suspicion. In the meanwhile, while we cannot offer it more than a moderate welcome for itself, we can recognise, with a rather greater warmth, that it represents a most notable conversion of the Labour Party to a system to which, only 12 years ago, it appeared to take very grave exception.
§ 4.45 p.m.
§ Mr. Arthur Palmer (Bristol, Central)
I congratulate my right hon. Friend the President of the Board of Trade on his typical flexibility of mind and approach in introducing this revising legislation to the 1956 Act. The intention is to assist the Government in improving in present circumstances the effective working of the prices and incomes policy—particularly, I should have thought, the prices leg of that policy—and in some special circumstances, where the previous legislation is perhaps working against rather than for industrial efficiency, to assist that efficiency.
1029 The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), who, as usual, made an interesting speech, was just a little plaintive when he complained that the Conservative Party had not been praised for bringing in the 1956 legislation. If that is all that is required, I suppose that most of us would be prepared to say immediately that the Conservative Administration did at least one, or even two, good things during the years that it was in office.
To be serious, in the 1950s there was a great movement of opinion against restrictive trade practices in general. Some of it, but not all of it, was well informed. There is always a fashion in these things, and today perhaps the pendulum has swung a little in the other direction. Many of us concede that, although the 1956 Act was generally good and has probably increased industrial and commercial efficiency all round, it has not always at the same time improved the extent of consumer or customer choice.
I can give an example from the heavy electrical engineering plant industry, of which I have some small personal knowledge. A decade ago there were more heavy electrical engineering firms in Britain—in turbines, cables, transformers, switchgear, and so on—than exist today. There were at that time many ring prices and restrictive agreements which indirectly often helped quality and which certainly aided research. Nevertheless, it must be admitted that those agreements kept smaller, and not always very efficient, firms in existence, not that I am arguing all the time that every small firm is necessarily inefficient.
Now, due to the effect of the 1956 Act and of parallel economic trends, over the last decade there has been a large number of amalgamations and mergers in the heavy electrical engineering plant industry, the latest and most remarkable of which is the merger between A.E.I. and the General Electric Company. The result, we hope, is certainly much greater efficiency, but it has hardly increased customer choice.
As the hon. Gentleman was prepared to accept for chemicals, we could easily soon reach the paradoxical situation where for heavy electrical plant in this country there is a single publicly-owned monopoly buyer served by a single privately-owned monopoly supplier. The net result may be to 1030 increase all-round efficiency, but, as I say, it does not necessarily result in greater customer choice.
However, my intention is not to speak about technology, tempting as that normally is to me, but rather to give shortly some of the experiences of the Co-operative movement, in which I have an interest, of the working out of the 1956 Act. The devotion of consumers' co-operation in this country to the principle of sharing trading profits among members according to the extent of their purchases is well known.
It was on that historic principle that the retail Co-operative movement in this country was founded, has grown, and largely holds its supporters today. But an interesting example of one of the anomalies that can arise under this kind of legislation is that when the Co-operative Union, some time ago, advised its members, the retail societies, that they should stick to dividends and avoid the temptation of gift stamps it was rebuked by the Registrar. That is rather like ticking of a bishop for advising his clergy that they should continue to extol the traditional advantages of virtue.
It was the opinion of the Co-operative Union that it was not Parliament's intention in 1956 to inhibit recommendations of a general character on matters of public interest given by a trade association to its members. But in a letter from the Assistant Registrar to the Union two statements by the Co-operative Union were quoted as evidence of the need to register a restrictive practice in the circumstances I have mentioned. They were:Approaches from trading stamp companies should, therefore, be firmly declinedand:Stand firm against the introduction of gift stamps.This does not sound very restrictive to me.
I appreciate that this is probably a Committee point, but the issue is really over the interpretation of Section 6 (7) of the 1956 Act. The question is whether the term "goods" should be interpreted widely or narrowly. From the point of view of the Co-operative movement this is a difficulty because, as is well known, the Co-operative societies do not deal only in goods but render a wide range of services. One can get one's hair cut by the Co-op or be buried by the 1031 Co-op as well as buying one's groceries there.
However, the Co-operative Union took the very plain hint of the Registrar and has registered its so-called agreement. The question I want to put shortly is whether this new revising legislation should not give commonsense relief, which I think is necessary, on such a point. I am doubtful that Clause 1 or Clause 2 will help very much, but that can be explored further in Committee. Clause 10 might provide grounds for defence in proceedings before the court but it is bound to be a rather negative and cumbersome procedure under the terms in which the Clause is drawn.
I said at the beginning of my speech that I am sure the House will congratulate my right hon. Friend and welcome the Bill if it will do something to bring about greater stability in prices by collective trade action. But it is a pity that the opportunity has not apparently been taken to give more general relief where it is necessary in the light of the experience of the working of the 1956 Act. For the Co-operative movement it is not just a question of trading stamps as against the traditional dividend policy. There are other issues, such as the rationalisation of milk and bread deliveries, which seemed to be brushed aside by the hon. Gentleman the Member for Wanstead and Woodford as unnecessary. I believe that there is a very strong case for such rationalisation. That was certainly the view of the Davies inquiry into milk distribution and of the Prices and Incomes Board in its report on bread prices.
It is surely perfectly consistent to oppose monopoly and restrictive trade practices in general and where competition is beneficial while arguing at the same time for sensible rationalisation in parts of the economy where this will also be in the general public interest. That is the view of the Co-operative movement, which has had, and continues to have, vast experience in milk distribution and of bread production. But the intentions of the Davies inquiry and the Prices and Incomes Board in this matter cannot be applied, because of the restrictive trade practices legislation which stands in the way.
1032 The Bill was an opportunity to look at a number of anomalies which have appeared in the 1956 legislation in the light of experience. It was an opportunity to remove some of the absurdities which have arisen and which were not intended by the House, I am sure. It is a pity that the opportunity has not been taken as far as I can judge.
Nevertheless, I join with those who will yet take part in the debate, I hope from this side of the House, and, perhaps, the other side, in welcoming the Bill as a step forward.
§ 5.0 p.m.
§ Mr. A. G. F. Hall-Davis (Morecambe and Lonsdale)
As it would appear that this is to be a short debate, the Minister of State will appreciate that this may involve my reiterating some of the points made by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin). I make no apology for that. I have found in my comparatively short sojourn in this House that sometimes Bills of very considerable significance pass by without a great deal of comment. Not being a member of the legal profession, I would add that sometimes phrases that do not attract a great deal of attention in Bills turn out to be of particular importance when they are interpreted in the courts.
My first comment is on the general attitude of the parties and the country toward restrictive practices and this Bill. The President of the Board of Trade went a long way towards paying tribute to his predecessor, Lord Thorneycroft, and the success of his Measure. He said that there was a degree of agreement between the parties on this Bill and on the attitude to restrictive agreements.
I am not at all sure that we are not reaching a watershed in this direction, and that the attitudes of the parties are beginning to diverge, not because my hon. Friends and myself are changing our attitudes, but because the interventionist outlook of the Government inevitably leads them to find themselves from time to time not only thwarted by, but perhaps in conflict with, market forces, and therefore, anxious to free themselves from the restrictions of the type of legislation embodied in the 1956 Act.
The President of the Board of Trade was very frank in his comments as to 1033 what lay behind Clause 1. He went to some length to emphasise the fact that there would be very few occasions, and they would be very exceptional—to paraphrase what he said—when the Clause would be used. Surely, if the occasions are to be so few, and if the nature of those occasions is to be so unusual or of such significance, would it not be better, rather than cast doubts upon the whole basic attitude of the Government, for these to be dealt with by special legislation?
The right hon. Gentleman will know that I come from that part of the country, Lancashire, with which successive holders of his office have been very much concerned. He used the phrase—and I hope I am being fair to him—that a new factor was that the Government did not believe that the unaided working of market forces would always bring about the desired structural changes. This is not entirely a novel concept, because the Textile Reorganisation Act was produced precisely to bring about structural changes more quickly and less painfully, and perhaps more definitely than market forces could have done.
It was done by means of a special individual Measure which could be debated in this House and where the merits of the decision could be fully discussed before action was taken. There is a case to be answered as to why it is necessary to embody in general legislation, in general terms, provisions that could be covered by special legislation, since it appears that there are occasions when the House is not over-pressed for time.
We should realise the extent to which the 1956 Act achieved the purpose for which it was introduced. Like my hon. Friend the Member for Wanstead and Woodford, I was not in this House when the Act was passed, and I have been reading and studying the debates. It is fair to say that on a technical, complicated and somewhat controversial subject, it is remarkable how well the then President of the Board of Trade framed his legislation in order to achieve the desired purpose. Although it is perhaps too much to say that the 1956 Act changed the mood of industry, it is very important when discussing amendments, to recognise that the Act confirmed and reinforced the trend, which at that time was none too firmly established.
1034 Some of the quotations that we have heard support that. The trend was to view it as a prima facie operation against the public interests to enter into an agreement in restriction of competition. At that time, there was still a very wide fear of unemployment, and there was a persistent belief in many quarters, not confined to one political party, that in some way it was competition and not lack of demand that created unemployment. If we have learned one lesson since 1956, it is that periods of excess home demand have led eventually to unemployment and that a lack of competition, or at any rate an inability to be sufficiently competitive, has been a danger to the success of our economy and the maintenance of full employment.
I would like to put on record that I believe that any unemployment we may suffer in future is more likely to result from over-cossetting ourselves against the competition than from over-exposure to it. The 1956 Act has stood the test of time and changing circumstances well. This is nowhere more evident than in the reports of the Registrar of the Restrictive Practices Court. Those reports make fascinating reading. I am quite certain that industrial historians in future, and perhaps even the Minister of State, if he ever undertakes an historical work of this kind, will find the reports of the Registrar to be most fascinating reflections of industrial practices in this country in the period since the war.
Experience has shown that certain amendments are desirable. The intentions of the last Government were set out in the White Paper of March, 1964. Some have been incorporated in the Bill. Certain provisions in the Bill arise directly from the recommendations of the Registrar. Clause 5, for instance, relates to information agreements which were the subject of comment in the White Paper, and on a number of occasions by the Registrar. I would like to echo the remarks of my hon. Friend and ask the Minister of State if he could be a little more explicit as to the type of agreements he envisages might require the invoking of the full provisions of Clause 5. Some of them seem to be designed to restrict activities which have been encouraged, and thought desirable by successive Governments.
I cannot see why subsection (1)(d) of Clause 5 should be in the Bill and I would 1035 like the Minister of State to give us further information as to why a simpler Clause, restricted more to prices and terms and conditions of sale, would not have met the purpose. Clause 10 was foreshadowed in the then Government's White Paper of March, 1964, and in the Report of the Registrar of the Restrictive Practices Court. I have certain reservations on the effect that Clause 10 will have on restrictive practices agreements. I hope that I am wrong, I do not attribute any deep design to the right hon. Gentleman, but I just feel that this innocent, small Clause may well be subject to a very wide range of interpretations when it comes to be considered by the Restrictive Practices Court.
I wonder whether the intentions behind it will be best served by the wording of subsection (1)(h). My first reaction to the Clause was that it was very negative in its approach. I felt that the layman in industry looking at the Clause, wondering whether to become a party to an agreement, might feel that all he would need to do to justify the agreement would be simply to declare before the court that the agreement would not restrict competition, and that the onus would then lie with the Registrar to prove that it would.
This was my first reading, as a layman, of the Clause. I then spoke to my learned friends in the legal profession, who took an exactly opposite view. They drew my attention to the opening words of Section 21 of the 1956 Act and to the concluding paragraph of that Section. They said that the onus would be on the party to the agreement to show that there was no restriction of competition. They then went on to say that the establishment before a court of a negative situation such as Clause 10 demanded of the party to the agreement was perhaps the most difficult thing of all to do. So we had gone full circle.
My initial thought was that it might be easy for the party to an agreement to throw the onus on the Registrar. I was then given the opinion that it would be most difficult even in the most simple cases for the party to the agreement to establish it, and I then thought that instead of opening the door too wide the clause would not open it sufficiently or at all. Finally, there came into my mind the words of the Lord Chancellor, in the 1036 House of Lords debate on Second Reading, about Clause 21 of the 1956 Act. I should like to quote these at length, because I do not consider myself to be an authority on these matters, and I make that quite clear to the Minister of State, but I feel that this is a clause which might produce a much greater effect than is appreciated.
The Lord Chancellor said:What the parties to the agreement will have to do here is to show, in the first place, that the restriction comes within certain exceptions, which the Bill defines, to the general principle laid down by Parliament that restraint of competition is prima facie against the public interest. I submit that all reasonable grounds of pleading are covered by paragraphs (a) to (g). They mean that a restriction must confer some specific—I repeat, specific—benefit, or prevent some specific—again I repeat, specific—harm. A specific benefit would be, for example, the promotion of the interests of consumers to the development of better techniques by co-operative research.That is a point my hon. Friend commented upon.A specific harm would be the prevention of abuse of economic power by a dominating buyer or seller, or the adverse effects of export trade or on the general level—I emphasise 'general level'—of unemployment in an area."—[OFFICIAL REPORT, House of Lords, 26th June, 1956; Vol. 198, c. 17.]If Clause 21 of the 1956 Act is examined it is seen to be entirely different in the justiciable issues it lays down from the present Clause 10, and I hope that the Government are confident that when this Clause comes to be interpreted by the court it will not have effects far beyond what they are anticipating, or that it will not be so difficult for the party to an agreement to establish or validate that it will be of little use at all.
Another point about the construction of the Bill is that for the first time it reverses the trend towards recognising that the efficient use of economic resources depends upon the existence or the creation of competitive conditions. I am not trying to be provocative, but I think it fair to say that hon. Gentlemen opposite would want to qualify this by saying that this is so outside the public sector.
That certainly is the principle upon which the 1956 Act is based and this underlying attitude is very clearly reflected again in Section 21 of that Act, 1037 what I call the overriding provisions—which I will return to later—where it says thata restriction accepted in pursuance of any agreement shall be deemed to be contrary to the public interest unless the Court is satisfied of any one or more of the following circumstances …and unlessthe restriction is not unreasonable having regard to the balance between those circumstances and any detriment to the public or to persons not parties to the agreement (being purchasers, consumers or users of goods …I feel that the omission of that type of overriding consideration from Clause 1 is a reason for regarding it with some degree of suspicion.
I think that we can say also that the introduction of Clause 1 goes directly contrary to the legislation to which the right hon. Gentleman has referred—the monopolies and mergers legislation, the General Agreement on Tariffs and Trade and certainly the European Free Trade Area Convention, as well as the underlying attitude which gave rise to the Kennedy Round negotiations. All these operate and, I believe, were intended to operate to secure the efficient use of economic resources by the existence or creation of competitive conditions.
Here, in Clause 1, we find the Government taking a step in the exactly opposite direction and I believe, in view particularly of what the right hon. Gentleman said, that this is a decision taken directly by the Government because they feel that a more interventionist policy is justified, that this removes the Bill from the category of a minor Measure and gives it a good deal more consequence than has been appreciated.
The circumstances which are given in Clause 1 as justifying a restrictive trade agreement are comletely different from those in Section 21 of the 1956 Act. So far as I am aware, they are circumstances to which no reference is made in any of the previous legislation—in the Monopolies and Mergers Act or in the international agreements to which I have referred. That is why I think that this Clause requires a full and detailed explanation and justification by the Government.
There is one particular feature of the Clause which, I think, is certainly in 1038 accord with a trend in the Government's legislation and particularly, I am afraid, the legislation brought before the House by t[...] Board of Trade. It is the trend towards the extension of administrative direction and administrative discretion. My hon. Friend has referred to the Bills which have been brought forward in this Parliament which, over and over again, have given a widened field of administrative discretion to the Board of Trade.
In this particular case, it is not only that in Clause 1 the Board of Trade has taken unto itself administrative discretion, but, as the President has said quite frankly and openly, that it is administrative discretion which may well arise and be exercised as a result of administrative or executive direction or pressure brought upon industry by the Board of Trade or by the right hon. Gentleman's colleagues. I think that in view of this double conjunction of administrative direction and discretion the Government should consider very carefully whether some provision should not be made for the public interest to be represented at some stage in the operation of this clause. The Registrar represents the public interest element in hearings before the Restrictive Practices Court.
As I understand, it is quite possible under Clause 1 for the machinery to operate in such a way that the right hon. Gentleman the President of the Board of Trade feels that, as he would put it, some structural change in industry is required and that this can only be brought about by an agreement between industrial concerns which would constitute a restrictive agreement under the terms of the 1956 Act, and, therefore, the matter is considered and an Order is made by the President of the Board of Trade giving approval to that agreement.
The right hon. Gentleman used a phrase in his speech which touched upon a point I was going to introduce here when he said, I think, that in normal circumstances the Order would be laid before the House. I am relying on my memory: he made a very lucid speech with little repetition and I think that he said that in normal circumstances an Order resulting from Clause 1 would be laid before the House.
What are the circumstances in which the Order would not be laid before the 1039 House? Is the Minister referring to the special section of the register kept by the Board of Trade or by the Registrar of the Restrictive Practices Court? Is he referring to agreements involving export or national interests which under the present procedures would be kept in the special section of the court's register? If he is, it is very likely that a high proportion of these Orders would not be laid before the House.
Surely the sort of situation which would justify what the right hon. Gentleman said would be an exceptional procedure for matters of very considerable importance would be such that the whole purpose of the operation could be jeopardised if the agreement was laid before the House and would be just the type of agreement which would qualify for inclusion in the special section of the register kept under the 1956 Act. I ask the Minister of State to make this point clear.
That brings me to Clause 1(5), which deals with the question of laying a copy of any Order before each House of Parliament. It is not bringing Parliament very closely into supervision of the actions of the Executive to bring it in at the tail end of this procedure. Members are quite right to be vigilant in this type of matter. Here we have a procedure which from start to finish may be carried on in private—I will not say in secret—and which culminates in laying an Order before the House, but not in such a way that it requires the affirmative resolution procedure or is subject to the negative Resolution procedure. I understand that this is purely an informative action under the Statutory Instruments Act making the Order available to the House. This sequence suggests that there must be a better and safer procedure to follow to achieve the right hon. Gentleman's rather doubtful objective.
I contrast the wording of the criteria in Clause 1 with the clarity and exactness of the criteria in Section 21 of the 1956 Act. This is an indication of the difference in attitude between the present Government and the Government of that day. The Government who introduced the 1956 Measure laid down justiciable issues in language which surely the experience of the Restrictive Practices Court has shown was clear, definite and easily interpetable. The language of Clause 1(2) is of the 1040 woolliest kind. It is just as well that it is the President of the Board of Trade who will interpret the powers which he is giving himself in this Clause, because any legal court would have great difficulty in doing so.
I take particular exception to the use of the phrase "national interest". The phrase "public interest" is used in Section 21 of the 1956 Act. As far as I can see, it is used invariably. Never is the phrase "national interest" used. I have always felt that the "public interest" was what the public regarded as being its own interest and in the achievement of which it could often count on the support of the courts. I regard the "national interest" as something which Governments regard as in the interests of the public and impose on the public, whether it requires it or not.
It is significant that the wording of the original announcement and the replies to Parliamentary Questions made by the Minister was different. Then we had reference to agreements which were "positively beneficial to the national economy". I do not know whether that is any more exact, but I prefer it to the phrase "national interest".
The Bill has certain features which are unexceptionable and generally acceptable. However, it contains a number of disquieting provisions about which the President of the Board of Trade has not allayed our apprehensions. Although he is comparatively new to his office, this is not a new field for the Minister of State, and, since he has plenty of time available, I look forward to listening to him. Perhaps he will reply to the points of substance made with clarity by my hon. Friend the Member for Wanstead and Woodford and the points which I have endeavoured to make, perhaps with less clarity, in such a way that the Committee stage will be even more constructive and perhaps a little more abbreviated than would otherwise have been the case.
The Bill will benefit from and will receive a constructive examination in Committee, although I do not altogether accept the right hon. Gentleman's feeling that, since perhaps his intentions are good, the Bill will be accepted as not having the fundamental significance to which I feel it may give rise.
§ 5.26 p.m.
§ The Minister of State, Board of Trade (Mr. Edmund Dell)
I should be glad to think, after this surprisingly short debate considering the importance of the subject, that I could give an answer today which would make it possible to discount the Committee stage altogether, but I am afraid that, despite what I say in answer to the questions raised, we shall have a Committee stage. I thank hon. Members opposite for indicating the sort of points which they will raise in Committee. This will give us an opportunity to consider them between now and the Committee stage.
I expected that hon. Members opposite would not miss the opportunity to give a paeon of praise to the 1956 Act. Obviously, that legislation having worked very successfully for the last 12 years and having cleared away the vast majority of restrictive agreements which existed at that time, the sensible thing to do is to build on that legislation, to accept the success which it has had, to improve it in the respects which the Bill proposes and not to change the basis of restrictive legislation. Nevertheless, there was a genuine debate in 1956, and not a debate which had a clear and definite answer, namely, whether one should proceed by judicial review or administrative review.
There are clear advantages in those two methods. Different countries have used one or other of them. We have used the judicial method, and it has been successful. That does not mean that the other method would not have been successful. One of the interesting things about the Bill is that it provides for a greater degree of administrative discretion than was embodied in the 1956 Act, because experience has shown that it is necessary to have a degree of administrative discretion in operating legislation against restrictive practices.
Hon. Members opposite have said that they view Clause 1 with some suspicion, but that they accept it. The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) gave two reasons why Clause 1 might be necessary. He was very unhappy about the reason which related to the Government's industrial policy. The other reason related to what he called the growth of technological innovation. He accepted that as a 1042 reason for some such power as exists in Clause 1.
Although we have had a very rapid rate of technological innovation in 1968, we did also in 1956. Many of the characteristics of our industrial society which are present today were present in 1956. For example, 1968 is not the first year in which we have heard of information agreements. All these things could have been dealt with in the 1956 Act. We have to deal with them now.
The main lesson of today's debate is the importance of providing in this legislation for administrative discretion to create some degree of flexibility in operating this type of legislation.
One of the consequences of choosing the judicial review procedure in the 1956 legislation was that there had to be a presumption in favour of competition and that restrictive agreements were against the public interest. That presumption had to be in the legislation so that the court could have a basis upon which to operate. No doubt that presumption was right in the conditions of 1956. But equally—and this is an inevitable consequence of this presumption, and the hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis), in talking about Clause 10, expressed anxiety about this presumption which will still exist in the operation of the Restrictive Practices Court—this presumption means that it is a difficult, costly and very uncertain procedure to secure exemption, even for beneficial restrictive agreements.
Apparently it is now accepted on both sides that there are certain types of restrictive agreement which can be beneficial and which, therefore, in some way, have to be provided for. This is what we are doing in this legislation. Industry has asked us to do this. Industry has expressed disquiet about the operation of this legislation and has suggested that there should be some sort of adminstrative discretion vested in the Board of Trade. This is what we are doing now.
Of course, I accept what the hon. Member for Wanstead and Woodford said about this sort of representation from industry. It has to be looked at with considerable care, because obviously it is self-interested representation, and industry may not have as good a case as it argues.
§ Mr. Patrick Jenkin
The hon. Gentleman by implication is chiding my right hon. Friends for not having recognised the need for this power in 1956. But he will remember—and I quoted what was said to me by his predecessor only two years ago—that in the view of the Government there was no need for this power. Surely this is totally inconsistent.
§ Mr. Dell
What was said in relation to mergers is somewhat different from what has to be embodied in legislation regarding restrictive practices. Concerning the suspicion of the purposes or intentions of industry, to which expression was given, particularly by the hon. Member for Wanstead and Woodford, it has to be remembered that in the 1956 Act not all restrictive agreements had to be registered. Provision was made in that Act for certain types of agreement not to be registered. Indeed, reference has been made to the provision regarding standards and the fact that in the Bill we are extending that provision—again on the representations of industry which thinks it important we should do so. These were the types of agreement which did not have to be registered under the 1956 Act and are included in Sections 7 and 8 of that Act.
Equally, even in the 1956 Act, room was provided for, at any rate, some element of precisely the kind of administrative discretion that excites such suspicion in the mind of the hon. Member for Morecambe and Lonsdale. For example, Section 7(1) gave administrative discretion regarding iron and steel, and Section 12 gave administrative discretion to the Board of Trade regarding insignificant agreements. The question really is where the line regarding administrative discretion has to be drawn.
The hon. Member for Wanstead and Woodford asked what safeguards there would be in the operation of Clause 1. I accept that it is important there should be safeguards, but safeguards are embodied in the Bill and no doubt we can consider them further in Committee.
First, there is the safeguard by making reference to the national interest. I will come later to the question of what "the national interest" means. This is a limiting criterion and in itself provides a safeguard. There are other conditions laid down relating to the exercise of the powers in Clause 1. Where the object 1044 cannot otherwise be achieved in a reasonable time, exemption is provided for a limited time. The restrictions must be no more than necessary and there will be publicity of the fact that there is an exception, and exemption orders and copies of exempted agreements will be laid before Parliament.
The hon. Member for Morecambe and Lonsdale asked what the exemptions were and he correctly indicated their nature. He said that the public interest should be represented in this procedure. It is agreed—and I understood it to be agreed by the hon. Member for Wanstead and Woodford—that the only body that can do this job is the Board of Trade. Together with the other safeguards and the publicity which will be given to its decisions, I consider that the safeguards in Clause 1 will prove adequate.
I am asked what "national importance" means. Reference was made to possible criteria of "national importance". Such criteria, for example, are the size of the project, the size of the industry and its importance to our balance of payments. There are other criteria which might be of importance in this regard, such as the fact that there has been a report by the National Board for Prices and Incomes. We will have to judge in the light of the circumstances.
The object of the Clause is to provide flexibility. It would not be sensible, when one is providing this degree of flexibility subject, as it is, to the safeguards to which I have referred, to immediately start limiting it to an undesirable degree. This, again, was one of the problems with the 1956 Act. One cannot always meet the wishes of lawyers to have everything cut and dried. But I think that here we are providing a useful flexibility together with adequate safeguards.
None of this implies that the Registrar and the Restrictive Practices Court have not done a first-class job. They have. For this reason we are building in the other section of the Bill, strengthening the powers against restrictive practices. We are meeting the representations made by the Registrar in his fourth report about current inadequacies of the legislation. We are meeting most, though not all, of the points which he thinks should be improved by subsequent legislation. Some of the points that he makes have been met since he made that report 1045 by the decision of the court in certain cases, which will be known to hon. Members, to impose very severe fines where there were agreements in like effect.
There is also the new fact that there is now no significant backlog of cases. Therefore, new agreements can be rapidly brought before the court. Therefore, in essence we are meeting the points made by the Registrar about the ways in which the current legislation should be strengthened.
I was asked specifically about information agreements, and reference was made to the Basic Slag case. It was suggested that some people thought the Basic Slag case made it unnecessary to have this provision regarding information agreements. We do not take that view. Indeed, the 1964 White Paper, published by the party opposite, made it clear that while they were in power they did not take that view. We think it is necessary to have this Clause for a variety of reasons, among which is the need for certainty regarding what is registrable. In deciding what is registrable, we will have full consultation with those who might be concerned.
I was asked by the hon. Member for Wanstead and Woodford why in this respect we were going beyond agreements covering prices. He listed a whole series of desirable information agreements which he feared might be called up under this Clause. I think that those fears are rather exaggerated.
We have here what is in fact merely an enabling Clause under which we will call up by Order. These Orders will be made only after the fullest consultation to ensure that as far as possible we do not call up desirable information agreements. We have inserted in the legislation—this is the answer to the question asked by the hon. Member for Morecambe and Lonsdale—the new material effect gateway in Clause 10 because, as has been made clear on many occasions, including by the Registrar, if we are proposing to call up information agreements, we must have a material effect gateway. If we do not, it will make the practice of the court very difficult in respect of information agreements.
Under Section 12 as it will be when amended by the Bill we will have new powers in respect of insignificant restric- 1046 tions. We decided that we must have power to call up information agreements other than those covering prices because there is a danger—and it is a danger against which we are right to safeguard ourselves—that other kinds of information agreements could, in certain circumstances, be a cover for agreements relating to prices.
However, on this point as on others, if hon. Gentlemen opposite have doubts which they wish to discuss in Committee we shall be glad to consider them all because we have no desire other than to make the legislation as good as it can possibly be.
My hon. Friend the Member for Bristol, Central (Mr. Palmer) asked about recommendations by the Co-operative Union. I should like to give a considered answer after I have read exactly what my hon. Friend said. My immediate reaction is that a recommendation by the Co-operative Union to its members about the conditions under which they should supply goods, for example, that they should not give trading stamps, is registrable. Whether it will be let out by Clause 9(2), asnot of such significance as to call for investigationwill be for consideration in the first instance by the Registrar. I cannot say that it would be. It would almost certainly not qualify under Clause 1 dealing with administrative exemptions for agreements of national importance.
§ Mr. Palmer
The Co-operative Union is not seeking any special privilege, but its dividend policy is fundamental to its whole method of trading. It is bound up with its philosophy.
§ Mr. Dell
I appreciate the point made by my hon. Friend. I should like to give it further consideration when I have read exactly what he said.
This is a useful Bill. It looks as though it will prove to be, at any rate in part, non-partisan, and I hope that we can proceed with it with the support of the whole House.
§ Question put and agreed to.
§ Bill accordingly read a Second time.
§ Bill committed to a Standing Committee, pursuant to Standing Order No. 40 (Committal of Bills).