HL Deb 13 November 1997 vol 583 cc256-314

3.33 p.m.

The Minister of State, Department of Trade and Industry (Lord Simon of Highbury)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Simon of Highbury.)

On Question, Motion agreed to.

House in Committee accordingly.


Clause 1 agreed to.

Clause 2 [Agreements etc. preventing, restricting or distorting competition]:

Lord Fraser of Carmyllie moved Amendment No. 1: Page 2, line 21, at end insert— ("( ) Subsection (1) applies only if the agreement, decision or practice has, or is likely to have, a significant effect on competition within the United Kingdom.").

The noble and learned Lord said: I must tell Members of the Committee immediately that this is not just a probing amendment. It is our view that the wording of the prohibition should be explicitly confined to those arrangements which have a "significant" effect on competition. It is not just a matter of improvement of the wording for the sake of drafting; there is a real value involved.

The prohibition in the 1996 draft Competition Bill specifically applied only where there was a "significant" effect on competition. Under the law of the European Union, the scope of Article 85 is limited to arrangements which have an "appreciable" effect on competition. Therefore, in our view, it is entirely consistent with Clause 58 for the United Kingdom prohibition, modified as we suggest, to be worded in that way. We do not believe that that wording would hinder the overall aim of consistency with EU jurisprudence. The noble Lord, Lord Simon, will be aware from what was said on Second Reading of the Bill that, if we have one broad intention in putting forward amendments, it will be that so far as possible we shall attempt to secure the aim of consistency. We believe that the insertion of the word "significant" will be of particular benefit—

Lord Ewing of Kirkford

I am sorry to interrupt the noble and learned Lord, but I have to say that I am absolutely astonished to find him speaking from the Dispatch Box today. Am I not right in assuming that the noble and learned Lord has, in the past few days, been appointed non-executive chairman of an oil company? For a party that made so much so-called "capital" out of the shareholding in BP of my noble friend Lord Simon, I wonder whether the noble and learned Lord is entitled, first, not to declare an interest and, secondly, to speak from the Front Bench.

Lord Fraser of Carmyllie

I certainly will be declaring that interest. As I understand it. there is nothing in the rules of the House which restricts me from speaking from this position. If the noble Lord wishes to make a further point, I shall allow him to do so. However, I certainly did not understand that there was any such restriction. As the noble Lord indicated, I have been invited to become a non-executive chairman of an oil company. I should make it absolutely clear now, as I was intending to do in the register—which, I believe, is to be republished before the end of the month—that I shall certainly not be speaking on any matters relating to energy policy or, indeed, any matters relating to energy affairs.

As I was seeking to say, if the requirement of significance were attached to the wording, it would be of value to business and also to the OFT in that it would help to ensure that unnecessary notifications are not made. Those who are familiar with the problems that the European Union has encountered will be aware that, because of the wide interpretation that has been given to Article 85. a vast number of unnecessary notifications have been made. In those circumstances, the Commission has been unable to cope. We would not wish to see such an experience repeated within the United Kingdom. I should also point out that this matter is of concern not only to business broadly; there are legal interests who have brought the same point to our attention. I beg to move.

Lord Ezra

Amendment No. 4 in my name has been grouped with the amendment just moved by the noble and learned Lord. I wish to reinforce what the noble and learned Lord, Lord Fraser, had to say. It seems to me—this arises from points made by several noble Lords in the Second Reading debate—that we need, as far as possible, while accepting the general purpose of this Bill, to limit the amount of uncertainty and to limit the number of unnecessary notifications. I should have thought that the inclusion of the single word "significant" in the amendments standing in the names of the noble and learned Lord, Lord Fraser, and myself would help in that direction. I very much hope, therefore, that the Government will find it possible to introduce that word which was in the original draft Bill which accompanied the Green Paper on this subject.

Lord Borrie

I thought I should raise an issue which is not only relevant to this amendment but also to others which I have noticed have been tabled in the name of the noble and learned Lord, Lord Fraser of Carmyllie. Under the present jurisprudence of the European Union, as I understand it, Article 85 applies only where the effect on competition is appreciable. If the word "appreciable" and the word "significant" are more or less the same, is the amendment that is proposed otiose?

I also have a more general point to make. The noble and learned Lord, Lord Fraser, suggested that it was desirable to incorporate into our UK legislation the point at which European jurisprudence has reached in terms of the prohibition applying only if there is an appreciable effect on competition. That point can, of course, be applied to many, many matters in this Bill. I wonder whether the amendment is also unnecessary because, as I understand Clause 58 of the Bill, it incorporates into this UK legislation the current state of European jurisprudence, at any rate most clearly at the level of the European Court of Justice.

If we are to accept the point that is being made by the noble and learned Lord, Lord Fraser, and the noble Lord, Lord Ezra, I wonder whether we shall set a train in motion where we shall want to amend all sorts of clauses in order to ensure that we are brought up to date with European law. I know that will save lawyers from having to check their reference books as to what the state of European law is, but I do not think that is particularly the job of this Chamber or indeed the other Chamber.

3.45 p.m.

Lord Campbell of Alloway

As the noble Lord has said, this measure represents the perceived jurisprudence of the Commission and the Court of Justice today. However, that was not the case originally. In the very early days—I know this as I used to appear in these cases before the Commission and the court—before the jurisprudence developed, one had to register in order to obtain block exemption or exemption. No one really quite knew in those days where they were. I can see every advantage in this. This is not the thin edge of incorporating the jurisprudence of the court and the Commission into this Bill. This is an essential, practical and precautionary measure so that right at the outset everyone understands that, put another way, a de minimis situation is simply not relevant. What is the objection to that kind of clarity? One can put in a de minimis provision. That is the way we would draft it. That is the way our restrictive practices court looks at the matter. However, the Commission and the Court of Justice look at it in the terms of this amendment, so why not use it? Why not clarify the position?

The Earl of Balfour

Before the Minister replies, I wish to ask a question. I was interested to note that Amendment No. 1 standing in the name of my noble and learned friend Lord Fraser states, Subsection (1) applies only if the agreement …has, or is likely to have, a significant effect on competition within the United Kingdom". Almost exactly the same words appear in Amendment No. 4 which contains the words, has, or is likely to have". Clause 2(3) of the Bill states, Subsection (I) applies only if the agreement, decision or practice is, or is intended to be, implemented in the United Kingdom". I wonder whether this should be "was" or "was intended to be" because I cannot see how the Government can take action over something that has not yet been decided. This may be a technical point but I think it is worth raising. I was interested in the difference in sense as regards the amendments which have been tabled.

Baroness Oppenheim-Barnes

I, too, think this is an important amendment. I note the points that have been made by my noble friend which I believe are apposite. Those points illustrate perfectly that throughout the whole of this Committee stage we must not forget that after the passage of this Bill there will be an entirely new playing field with goalposts in some cases having been moved radically in relation to some of the monopoly legislation that we already have, and particularly with regard to definitions. What will the new definitions be? How will we be responsible for implementing them? Are they better, or likely to be better than the ones we already have?

Lord Simon of Highbury

I agree with the noble and learned Lord, Lord Fraser, and the noble Lord, Lord Ezra, that the competition regime should concern itself only with a situation where the anti-competitive effects of an agreement are significant or appreciable. That is the intention of the Bill as drafted. I accept that it will have the effect of reducing administrative overload if those points are clear. However, as the noble Lord, Lord Borrie, said, EC jurisprudence states that Article 85 applies only where an agreement has an appreciable effect on trade and competition. "Appreciability" is already part of EC jurisprudence. We consider therefore that the chapter 1 prohibition will apply only if an agreement has an appreciable effect on competition.

On that basis an explicit significance test written into this clause is unnecessary, and, moreover, we believe could be harmful in indicating a departure from the established European principles where this is not the intention. An explicit appreciability test does not fit well with our approach of reliance on European case law except in areas where it is clear a different approach is required. Worse, there is a risk that in apparently departing from established European principles, we might inadvertently create so high a threshold for action that we could impede the effective tackling of anti-competitive agreements.

As we stated at Second Reading, the reason for bringing in the changes is that, as we all agreed, the current system is not working well as an approach to competition. I believe, therefore, that it is better to stick with the established principles in the jurisprudence in this area.

I will nevertheless reflect most carefully on the points made by the noble Lord, Lord Ezra, and the noble and learned Lord, Lord Fraser. I hope that at this stage they are prepared to withdraw the amendment.

Lord Fraser of Carmyllie

I can immediately tell the noble Lord that I intend to withdraw this amendment. I am grateful for the approach that he took, and in particular his remarks about the intent on the part of the Government in promoting this legislation, that it is only those arrangements that have either appreciable or significant effect that will be caught.

The noble Lord, Lord Borrie, referred to Clause 58. It is a very important provision. We shall need to examine it very carefully—not today, I regret to say, but perhaps in a week or two when we reach it.

I am grateful to the noble Lord, Lord Simon, for his recognition that there is a risk of administrative overload if business is uncertain whether or not the arrangement into which it has entered is of such a nature that it needs to be notified. I am sure the noble Lord will acknowledge through that recognition that that is a problem which has confronted the Commission in the past. The inclusion of the word "significant" would at least provide business with a clear appreciation as to what is required of it and seems desirable. The noble Lord indicated that he would reflect on the amendment, and I am grateful for that. We may return to the matter at a later stage. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Fraser of Carmyllie moved Amendment No. 2: Page 2, line 23, leave out ("implemented") and insert ("acted upon").

The noble and learned Lord said: This amendment is grouped with Amendment No. 3. Unlike my first amendment, which I consider to be important, this one is simply a matter of drafting.

The amendment relates not only to undertakings or decisions. In those circumstances the use of the word "implemented" in the United Kingdom would seem a perfectly natural piece of drafting. However, the noble Lord will notice, in line 2 of Clause 2, that "concerted practices" is the third activity that is covered. In our view the words "acted upon" would be preferable to "implemented". It is purely a drafting matter but would seem to us to be an improvement.

The purpose of the second amendment is to ensure that if agreements have effects on competition in the United Kingdom, and a party to that agreement is located in the United Kingdom, the agreement should be within the scope of Clause 2, even if the decisions or concerted practices are not to be implemented or acted upon within the United Kingdom itself. It is a short point. It would seem to us to have the effect of widening the scope of the prohibition; however, the circumstances are such that in our view it would be desirable. I beg to move.

Lord Campbell of Alloway

I support the third amendment—with respect to my noble and learned friend, the second is neither here nor there. The third, if it goes to jurisdiction, could avoid certain disputes, certain difficult administrative problems and arguments over jurisdiction. It is a good safeguard and a useful amendment. I hope that the noble Lord will keep an open mind before rejecting it out of hand.

Lord Simon of Highbury

I thank the Committee again for the way in which the debate is being conducted at this stage. Questions of administrative overload, to which we referred previously, are matters for discussion as the Bill proceeds. It is well understood, and the point is well taken. That theme will continue through our discussions.

Turning to Amendments Nos. 2 and 3, it is perhaps best if I refer to the third and then comment on the drafting implication of the second. It may be helpful to set out the Government's thinking behind the territorial limitation provision in Clause 2(3). The prohibition is cast in terms of effects. Therefore, its territorial scope is extremely wide-ranging, even with the limitation that the effects on trade and competition actually be in the UK. It does not follow that we should depart from the normal UK policy of territoriality and follow the so-called "effects doctrine", where jurisdiction is claimed on the basis of the economic effects felt within a state resulting from behaviour outside that state, however indirect that link might be. I am advised that that could be the result of the second amendment tabled by the noble and learned Lord, Lord Fraser. The Government believe that to be too wide a basis for jurisdiction for the prohibition.

However, it is recognised that the place where an agreement having an anti-competitive effect is made is not always a determinate factor. We would not want to create a loophole whereby parties could avoid the prohibition by simply executing their agreements outside the UK.

We therefore decided that the best approach was to follow the current jurisprudence of the European Court of Justice based on the term "implementation" as set out in the case known as Woodpulp. That test requires that the agreement be implemented in the EC for the prohibition to apply. Similarly, the UK prohibition will apply only if the agreement is implemented in the UK.

Following the test set out in the Woodpulp case, there is also the advantage of allowing business to tap into European jurisprudence on the meaning of the term. I am advised that adopting the first amendment of the noble and learned Lord, Lord Fraser, would lead to uncertainty as to its meaning and therefore create an additional doubt in the mind of business.

By, in effect, copying out the test in Woodpulp on the face of the Bill, we are also ensuring that in the event that EC jurisprudence develops and creates a pure effects-based doctrine, the application of the UK prohibitions will not follow suit. I therefore ask the noble and learned Lord if he is prepared to withdraw his amendment, given the implications of the word "implementation" and the existing jurisprudence.

Lord Campbell of Alloway

Before the noble Lord sits down, perhaps I may ask a question on the point about extra-territorial jurisdiction to which the noble Lord referred. I am fully conversant with the nature of our concept of claim and the American concept of such claim. But with the greatest respect to the noble Lord, that is not quite what is involved in this amendment. We are not claiming extra-territorial jurisdiction: a party …is located within the United Kingdom". The concept of this dispute as to territorial claim is very interesting but, with the greatest respect, as far as I can see, it is not relevant as an objection to the amendment. The noble Lord may wholly disagree with me but perhaps he will consider that point?

4 p.m.

Lord Simon of Highbury

The point I am trying to make is that we want to be absolutely clear of the relationship between the European jurisprudence and our own. The linkage with the United Kingdom as the location for the effect in this instance is the most important issue. We do not wish to put ourselves into a position where we have linkage in the extra-territorial effect and thus throw doubts into the mind of the business concerned. That may be a drafting point to which we shall wish to return. I am clear in my own mind as to what we are trying to achieve; but, if we need to discuss the matter further, so be it.

Lord Fraser of Carmyllie

Once again, I shall withdraw the amendments. As I indicated, they are drafting points. There was a recognition that Amendment No. 2 would have the effect of marginally widening the scope of the prohibition. I shall read carefully what the noble Lord said but I am surprised that the view is taken that it introduces an unacceptable degree of extra-territoriality. In speaking to the amendment I hope I indicated that it was important, as we too recognise, that it had to be in relation to an agreement which had an effect on competition within the United Kingdom. The only extension—if that is the right way to describe it—is that the agreement to achieve that effect might be implemented beyond our shores. I shall withdraw the amendment but we might return to it, together with the following amendment, at a later stage.

I am relieved to say that I shall not be batting on the next few groups of amendments. However, perhaps I may take this opportunity to signal a point in relation to Amendments Nos. 17, 19, 20, 21, 22, 23, 24 and 28. I should like to have a broad debate on predatory pricing. I understand that within that group of amendments a number of noble Lords wish to address the issue of predatory pricing in relation to the newspaper industry in particular. Before we reach that point perhaps we might reflect on whether it would be desirable to separate the two debates. It is of no great consequence to me but such a separation might be helpful for a more coherent debate. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 3 and 4 not moved.]

Lord Kingsland moved Amendment No. 5: Page 2, line 23, at end insert— ("(3A) An agreement, decision or practice to which subsection (1) applies shall not, for the purposes of this Part, be within the scope of—

  1. (a) section 18(1);
  2. (b) the Fair Trading Act 1973; or
  3. (c) the provisions of, or any licence granted under,—
  1. (i) the Telecommunications Act 1984;
  2. (ii) the Gas Act 1986;
  3. (iii) the Electricity Act 1989;
  4. (iv) the Water Industry Act 1991;
  5. (v) the Electricity (Northern Ireland) Order 1992; or
  6. (vi) the Gas (Northern Ireland) Order 1996,
and any question whether such an agreement, decision or practice is to be prohibited on competition grounds shall be determined in accordance with this Chapter and not in accordance with the conditions of any such licence irrespective of whether such conditions are expressed in similar terms to subsection (I).").

The noble Lord said: The purpose of the amendment is to invite the Minister to accept that implementing a single prohibition through two different regimes operated by two different sets of individuals is a recipe for both excessive cost and immense confusion. I beg to move.

Lord Borrie

For the benefit of those—of whom I am one—who do not know quite what the noble Lord is getting at, would it not be appropriate for him to say just a few more sentences?

Lord Kingsland

I have already moved the amendment.

Lord Simon of Highbury

The noble Lord has moved the amendment. The point raised is the relationship between two prohibitions, the Fair Trading Act and the legislation regulating the utility sectors. It may be helpful if I explain how the Bill is intended to operate in this respect. I shall deal with each of the relationships in turn.

The two prohibitions introduced by the Bill will operate hand in hand. Essentially they will have the same relationship to one another as do Articles 85 and 86 of the treaty. That relationship is well established and works satisfactorily in practice. Accordingly, for example, in considering whether to give an individual exemption for the Chapter I prohibition, the Director General of Fair Trading will have to take account of the Chapter II prohibition. He should not grant an exemption if in doing so he would be exempting under that prohibition something that appears to him to be prohibited under the Chapter II prohibition.

These matters must necessarily be considered in tandem as an agreement may constitute an abuse of the dominant position. Similarly, it would be wrong for a firm to be allowed to abuse a dominant position because an agreement benefited from a block exemption. Enjoyment of the benefit of a block exemption under the Chapter I prohibition should not bring immunity from action under the Chapter II prohibition. The inter-relationship between the two prohibitions ensures that that will not be the case.

More generally, a jurisdictional dividing line between the two prohibitions would conflict with the Government's desire to see the prohibitions applied consistently with Articles 85 and 86. As the noble and learned Lord, Lord Fraser, noted, and as I have already said, consistency in interpretation will bring significant administrative benefits to business.

The relationship between prohibitions and the Fair Trading Act monopoly provisions is the subject of a separate amendment which we shall debate in due course. However, the Fair Trading Act provisions enable wider market investigations than are possible under the prohibitions. Essentially they enable investigations where competition issues arise fundamentally from structure of the market rather than from restrictive agreements or the specific abuses which we discussed with regard to the alignment of Articles 85 and 86. We do not think it right or practical to circumscribe the monopoly references and investigations under the Fair Trading Act. That may be a point to which we shall return. We do not believe that a strict jurisdictional separation would work well.

It is important to say that, before framing a reference, the director general might have to examine every aspect of the behaviour of, and relationships between, the players in a market in order to decide what could be examined by the competition commission on a reference; or the competition commission would have to determine what fell within the prohibition regime in order to exclude it from its considerations. The prohibitions will be the primary tools for dealing with anti-competitive behaviour in the market place. The Fair Trading Act provisions will be reserve powers to deal with certain limited market circumstances.

As regards the relationship between the prohibitions and the Fair Trading Act merger provisions, Schedule I to the Bill provides for a clear demarcation between the two. We can debate that demarcation when we reach the relevant parts of the Bill.

I think that at this stage I am along the road to addressing the noble Lord's point.

Lord Kingsland

Does the Minister feel that he has addressed the final part of the amendment with sufficient clarity and detail to respond to my own amendment?

Lord Simon of Highbury

Of course, the noble Lord spoke but briefly and his clarity was magnificent. I spoke at some length and I hope that I clarified the position.

Lord Kingsland

I would like to thank the Minister for his extremely full reply to my brief question. As to the question of the Fair Trading Act, the Minister will recall from our exchanges at Second Reading that he can expect at some later stage in the proceedings an amendment proposing that the activities of the competition commission, in so far as they refer to complex monopolies and monopolies of scale, ought to be transferred to the Office of Fair Trading. I accept that this is not the moment to go into detail on that point.

As far as the individual public utility regimes are concerned, and considering that there is so little in the Bill so far to show how costs will be saved in respect of the application of these regimes and that certainty will be guaranteed, does he think that the maintenance of a dual regime will redound to the benefit of competitiveness in the United Kingdom? There is nothing on the face of the Bill to ensure that the operation of two separate regimes in relation to the single prohibition will not lead to lengthy procedures and problems of double jeopardy. I would like him to deal with that matter in a little more detail.

Lord Simon of Highbury

That fuller question deserves a fuller answer. Perhaps I can now turn to the relationship between the prohibitions and the utility legislation because that will be helpful and we can talk about the implications subsequently.

The two prohibitions introduced by the Bill are general prohibitions appropriate to the whole economy, and we believe that it is right that they should apply equally to the utility sector. Indeed, the amendments that we are discussing do not challenge that presumption.

It is important that competition is developing in the utility sectors. I believe that when we talked about it previously we talked of the dynamism of these particular market places being different from the general market place because we are creating markets in the utility sector. However, for that reason, there is still a strong case for retaining more detailed sector specific regulation of such matters as pricing, including the price caps. The access to networks is a crucial issue, as the dynamics of that marketplace develop, if we are talking about some of the energy sectors, the electricity sector and the gas sector.

We think it is right in the utility areas that the prohibitions apply and this seems to be part of the purpose behind the noble Lord's amendments. However, it is already the effect of the Bill. In other words, if one or other of the prohibitions is breached, action to be taken under the Bill would be possible, irrespective of the licence regime, so the general prohibition would apply. If the company is required to do something by law—and by this I include by a licence condition—then it is right that it should not be prohibited from complying with that requirement. The Bill achieves this result as well.

I hope in some way that much of what is sought in the amendments is achieved by the Bill. However, where the amendments seek to impose strict jurisdiction barriers, the changes, in my view, are unnecessary and probably undesirable. In practice, we believe that the Bill will ensure that the different regimes that we have discussed—the utility regime and the general regime—will apply in a complementary and common sense way.

The point in common-sense terms is the differing nature of the market places and the particular dynamism of the utility markets as they develop. Therefore, we need to see special capacities developed to understand those markets. Double-banking within the system would cause another kind of overload and would perhaps not be the best use of the valuable and scarce resources available for making the important judgments about the issues we have just discussed.

If that was a full enough answer to the second, rather fuller question, I ask whether the noble Lords is prepared to withdraw the amendment.

4.15 p.m.

Lord Ezra

Before the noble Lord, Lord Kingsland, answers that point, perhaps I can say that I am a little confused because it seems to me that that section of the amendment dealing with the privatised utilities legislation does provide the opportunity for the enterprises to act under licenses under the law. I would have thought that it was perfectly straightforward to say that so far as they do so they would not be subject to the impact of the prohibitions under this Bill. I am not absolutely clear why the Government seem to have any doubts about that.

Lord Simon of Highbury

As I tried to say in answer to the previous line of questioning, I think that that is the intention where a licence applies. Complying with the licence would, in general terms, not be outside the law. However, as I mentioned when we discussed a particular detail of a price cap which might be implicit in a licence arrangement, you could have a position where someone cut prices significantly in a price cap regime and, in fact, undercut the market to such an extent that they would be in an abusive position in terms of their market dominance in the relevant market. Therefore, what we are saying is that the overlap with the general prohibition, the two prohibitions, must stay in place despite the regime of licence being in general terms appropriate for the definition of good behaviour, if I can so put it, for a utility. There will be occasions when the prohibition will enter into effect; I have just mentioned one. I do not believe therefore that we can be absolute in drawing, if that is the appropriate phrase, the jurisdictional boundary.

Baroness Oppenheim-Barnes

Before the noble Lord sits down, as he originally said that there is now increased competition among the utilities, I wonder if he will acknowledge that it is no thanks to the party opposite that this position has occurred and that its claim to be a great supporter of competition has a few legs to grow before it can be taken seriously.

Can the noble Lord, on this important matter, tell the Committee whether he was referring to the possibility of discriminatory discounting practices, which are not at present subject to regulation in this country, except possibly under competition legislation, or was he speaking of different types of price cutting?

Lord Simon of Highbury

First, may I assure the noble Baroness that, as one whose title in my new career is half based on competitiveness, I can only applaud any progress made under any government to increase the competitiveness of our industry and of our people to do the things we know that we must do to create value in the world. I acknowledge that whoever has achieved that has served us proud.

As to the issue of pricing, it is important to note, as the noble Baroness rightly said, that discriminatory pricing is something which can be caught under the existing practice, but equally it is caught under both the prohibitions in the EC law. At the moment it can apply in both. When we discuss later, as I am sure we shall, the issue of pricing, we shall find that it is already covered in the general instance by the EC provisions. We have a separate law on that, as the Committee will be aware as we are about to discuss the impact of the Resale Prices Act, which applies to one sector currently but is generally being repealed. The answer is yes, I was talking about discriminatory pricing and it is currently covered by both regimes.

Lord Kingsland

The Minister will not be surprised to hear that we do not intend to press the amendment at this time. However, I hope he will accept that there is more to be said about it. In particular, we have taken note of his remarks about how sector specific these prohibitions are. If we are to accept that remark, perhaps we ought to be looking at this problem from the standpoint of the noble Lord, Lord Ezra, which is to leave the prohibitions in place in the individual sectors but to remove the prohibition from the Bill. At this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Nicol moved Amendment No. 6: Page 2, line 24, after ("any") insert ("provision of an").

The noble Baroness said: I propose to return to a more conventional way of moving an amendment. In moving Amendment No. 6, I wish to speak also to Amendment No. 7. I should perhaps first declare an interest in that I am chairman of the All Party Retail Group. I hasten to say that it is not a pecuniary interest.

The Bill as drafted provides that an agreement which contains provisions which infringe the Section 2 prohibition is void in its entirety. The proposed amendment, which follows the clause in the draft Bill published in August 1997, has the effect of rendering the offending provisions in an agreement void, but not striking down the agreement in its entirety. In such cases, if the offending provisions can be severed from the lawful part of the contract, the relationship between the parties can be preserved. Parties to commercial agreements frequently insert an express provision in their agreements providing that the unenforceability or illegality of one clause will not affect the enforceability of the remainder of the agreement.

The provisions in the Bill reflect those in the Treaty of Rome, but the Committee will recall that that particular European provision has been subject to criticism. In particular, the provision has been used by parties seeking to avoid obligations they willingly entered into, arguing that one of the provisions in the agreement is unlawful and therefore the entire agreement fails, and they are excused from all their obligations. The amendment would remove that opportunity in English law in circumstances where the offending provision can be severed from the agreement.

Perhaps I may remind the Committee that the doctrine of severance in English common law provides that where you cannot sever the illegal from the legal part of a covenant, the contract is altogether void, but where you can sever them, whether the illegality be created by statute or by the common law, you may reject the bad part and retain the good. It seems sensible to recognise that in the Bill. I beg to move.

Lord Simon of Highbury

I agree with my noble friend Lady Nicol that the application of the prohibition to a contract should not always lead to the entire contract being void. I am advised that the best way to avoid such a possibility is to mirror the language of Article 85(2) of the European treaty, which deals with the consequences of an agreement being caught by the EC prohibition. That is what we have done in Clause 2(4).

The European Court of Justice has held that it is only those elements of an agreement which are prohibited under Article 85 that are void. This principle of European Community law will apply to the interpretation of the Chapter I prohibition as a result of Clause 58 of the Bill, the clause relating the treaties to our own law base. Whether those elements are severable from the agreement as a whole is a matter for the normal rules of national law. Indeed, we consulted on the basis of the language set out in the amendment and we received comments from legal practitioners that it would displace normal UK rules of severance and prevent the possibility of severing offending parts of whole provisions. Moreover, it would risk divergence from EC law and therefore would create more burdens on business.

Advice has been taken. If my noble friend understands the legal construct we are putting—from her question it was clear that she did—I would ask her to withdraw the amendment.

Lord Graham of Edmonton

I declare an interest as secretary of the all party group, an interest properly registered in Part 3 of the Declaration of Interests. Is the Minister saying that the case made out by my noble friend is already covered and that, despite what we consider to be a blunderbuss or scattergun approach, the advice that has been given is to the effect that what we have proposed is not only undesirable but not possible? If what we have here is a sledge-hammer to crack a nut, which sometimes can be used to avoid obligations, and can lead to the calamity of the whole contract being declared null and void, that is not acceptable.

I note that the Minister relies heavily on Article 85(2) of the European treaty in this respect. However, given the circumstances pointed out by my noble friend Lady Nicol, where it is possible to make a clean break between an offending part and the whole, I wonder whether the Minister would care to look again at this point. If the wording we are using is not quite right perhaps the Minister can come up with another form of words to take care of the points that have been made.

Lord Simon of Highbury

I thank my noble friend Lord Graham for giving me the opportunity to comment again. The way in which the Bill has been redrafted, following the consultation process and the August document, has the effect that the noble Lord wishes. The reason for the change was to meet the circumstances which the noble Lord was saying might cause a large number of problems.

Baroness Nicol

I am grateful to my noble friend Lord Graham for adding to the arguments. I was convinced by the Minister's first answer and I certainly do not intend to press the amendment. However, I should like to read carefully what he said and to take advice on it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 7 and 8 not moved.]

Clause 2 agreed to.

4.30 p.m.

Lord Graham of Edmonton moved Amendment No. 9:

After Clause 2, insert the following new clause—


(" . The Chapter I prohibition does not apply to any agreement, decision or practice relating to the price to be charged on the retail sale of any medicinal product, or any food comprising vitamins or minerals or both, which is at any time commonly sold in pharmacies without prescription:).

The noble Lord said: In moving this amendment I raise what I believe is a burning issue in a great many cases. I do so with considerable support outside the House. The Minister is aware, but I shall remind him, that there is a body called the Community Pharmacy Action Group (CPAG). When I look at the names of the bodies behind this group I am enormously impressed. They are the Royal Pharmaceutical Society of Great Britain, the National Pharmaceutical Association, the Pharmaceutical Services Negotiating Committee, the Scottish Pharmaceutical General Council, the Company Chemists Association, the Proprietary Articles Trade Association, the British Association of Pharmaceutical Wholesalers, the Proprietary Association of Great Britain, and last but not least, the Co-operative Pharmacy Technical Panel. That last body impresses me greatly. I declare an interest as chairman of a body called the United Kingdom Co-operative Council.

There is a two-edged argument: there is the philosophy of competition—I am not arguing against that—but in this amendment we are arguing against the application of this particular Bill and its effects on the consumer and the high street besides a great many other places. No one here has less experience than anyone else as regards observing what has happened in the high street over the years. We have all had the same experience.

I shall use as a general illustration a village or a small town which, many years ago, boasted a number of bakers, butchers, greengrocers, hardware shops and chemists. With the advent of the car-borne shopper and affluence, together with freedom and time and competition, the greengrocers have gone and in their place there is one big supermarket. I do not make a case against them because I believe in supermarkets which provide a very efficient form of retailing. Then one shrugs one's shoulders and says, "There used to be three very good butchers and now there is one which is struggling. There is now a very good supermarket which provides the meat". The same thing has happened to the baker. At the end of a period, say, 20 years, one finds that in the village high street there may very well be good overall provision of an efficient service, but the heart and nature of the village has declined. As a result of competition and people's choice—I do not argue about them—the village is the poorer and the life of the people in the village is the poorer.

The case made out in this amendment is that at the present time there is a modest attempt to keep in existence the agreements that have been made, but which this Bill will remove. That will inevitably lead to a diminution in choice for the consumer. By creating choice—I mean the ability to shop in the supermarket— the consumer may very well say that that is a better use of his or her time and opportunity. I have been told that out of 12,000 community chemists we may very well lose 3,000. That is not a guess, but the result of a properly carried out survey. I say to the Minister that we should reflect and we should stop.

What will be the effect of RPM on OTC? It is retail price maintenance on over-the-counter supplies. The effect of that is that there is a range of people who have relied for a long period of their lives on going to the same little chemist and getting service. They are not only comfortable in doing that, but they also have a rapport with, and sympathy, confidence and belief in the integrity of the chemist. Sometimes they are almost surrogate doctors. The customer asks for advice, he or she gets it and it is taken.

Therefore, I ask the Minister and his ministerial friends to reflect very seriously on the fact that there are large groups of people who will find that their access to an essential primary healthcare service will be restricted; namely, the elderly, infirm, carers, mothers with young children and the like.

I use my own town of Loughton as an example. I have lived their happily for seven years. When my wife and I decided to move there it was because there was a choice. It was not just the choice of a big supermarket at each end of the high street, but there was also a choice of little shops. Over the period of time that I have lived in Loughton there has been a steady diminution in the number of small shops. I almost do not argue against the general good, but far too often, after the event, people regret the fact that by being slothful and careless they have allowed something to happen which will result in a facility never returning. People might say, "You can start up another chemist or another bakers or butchers". But that is not the way it is. I hope very much that the Minister will recognise that this is a situation that can be stopped or deflected.

The Office of Fair Trading has carried out research. It found that 36 per cent. of those asked would switch to buying from supermarkets rather than pharmacies if RPM and OTC medicines were removed. That is consumer choice, but in exercising it one is also staring at the fact that one diminishes the number of smaller units that can provide the service.

I believe that this Government and others have had enough experience of wanting to see hypermarkets and large stores on the edge of towns, and good luck to them. Theyalso do not want town centres to disappear, but they have become the poorer. I say to the Minister that there is a case for re-examining the intentions of the Bill.

I mentioned my interest in the Co-op which I declare. It has over 400 pharmacies and they go back a very long way. Originally they were part of a network with the philosophy and belief of providing for the needs of ordinary people as near to them as possible. We are as interested as anybody else in establishing larger stores, supermarkets, hypermarkets and stores of that kind. I believe that the Minister and his colleagues might have missed a trick. Although the removal of RPM per se and philosophically may be a good thing, in social terms and in this instance, the removal of that modest protection will have enormous consequences.

I should not like to stand up in this House in 10 years' time when the impact has been felt and have either to make or defend a case in the knowledge that we might have done something to ameliorate the effects in 1997, and not to have to bemoan the fact in 2007 that we did not. I very much hope that the Minister is in a listening and giving mood and can say something of comfort to those outside who believe that my amendment is worth supporting. I beg to move.

Baroness Miller of Hendon

I rise to support the noble Lord, Lord Graham of Edmonton, in what he so ably said about the advantages of competition and the loss to the consumer of our independent pharmacists. Perhaps I may mention one matter which the noble Lord did not. Medicines should not be thought of in the same way as the products which consumers ordinarily buy. They should not be bought in bulk, stored, discounted and sold as loss leaders. Medicines are very important items. From my previous experience as a chairman of an FHSA, I believe that the best way to purchase medicines, whether over the counter or with a prescription, is by visiting a pharmacist.

Perhaps I may add another point for the benefit of the Minister. I very much hope that he will take this on board. When I was chairman of the Barnet FHSA, in line with the previous government's philosophy—I believe that it is also the philosophy of the present Government—we regarded as paramount the concept of bringing health care out into the community. We began an experiment in Barnet, known as "high street health". The idea was to enhance the benefits which independent pharmacists can bring to consumers by giving them extra training and by encouraging consumers who were suffering from, say, a cold or a sore throat to visit their pharmacist rather than blocking up their GP's surgery. That happened in the past when people used to visit their local chemist rather than rush immediately to the GP. That system in Barnet worked so well that it was used as a model by FHSAs across the country. In the areas where that system was adopted independent pharmacists became people of real value, not only to consumers but also to GPs. I stress that pharmacists in Barnet and elsewhere where the scheme was adopted worked in harmony with, and with the support of, their local GPs.

I grieve for the fact that if the Bill's provisions remain unamended we shall lose so many independent pharmacists that the benefits of competition, as we now know it, will be lost in this important area. I urge the Minister to look carefully at his noble friend's amendment.

Lord Morris of Castle Morris

I support the amendment proposed by my noble friend Lord Graham. The Minister and most of your Lordships may not be particularly well acquainted with the little country town of Llandysul, which nestles in a very agreeable part of west Wales. Your Lordships would not be out of kilter with many other citizens of both Wales and England in not being able to recognise Llandysul because it is a very small place and is not easily found either on a map or on the ground.

I mention Llandysul because last week I received a very closely argued, very detailed and very carefully researched plea from the pharmacist—the only one—in Llandysul pointing out in great detail the dangers which attended upon his particular business, which has been there for many years, if something like this amendment is not accepted by this Committee. In that area it is not easy for people to exercise any sort of choice. The area will support the work of only one pharmacist. May I therefore ask my noble friend the Minister when he goes home tonight to spare a moment or so to look on a map for the town of Llandysul and, before he goes to bed, to consider the very real problems which affect people in that area? I hope that the result will be that my noble friend's amendment will be accepted.

4.45 p.m.

Baroness O'Cathain

I rise to speak against the amendment moved by the noble Lord, Lord Graham. In doing so, I should mention that I know Llandysul very well, but I am not sure whether it is the same Llandysul because I did not recognise it from what the noble Lord said. Llandysul certainly has a pharmacy, but the people I know in Llandysul have as their objective catching the free bus down to the local Tesco where they can buy their pharmaceutical products. I can discuss this matter with the noble Lord, Lord Morris, because I happen to know Llandysul.

I heard from both the noble Lord, Lord Graham, and from my noble friend Lady Miller about the benefits of competition. Of course, it is lovely to have five pharmacists in one street in a small town, but the real benefit of competition is the fact that prices can come down. I have in my hand a list of comparative prices for the ordinary medicines that we all buy. You do not need to go to your local GP to get a prescription if you want aspirin or Nurofen—at least, I believe that that is the case.

A 24-pack of soluble aspirin costs 39 pence in a supermarket while a 24-pack of Disprin—exactly the same product—costs £1.50 in a pharmacy. There is a big difference between 39 pence and £1.50. In a pharmacy 24 Nurofen tablets cost £4.69 while in a supermarket they cost £.1.99.

I should declare an interest. Most Members of this Committee realise that I am a non-executive director of Tesco—

Lord Graham of Edmonton

Keep taking the tablets!

Baroness O'Cathain

I am sorry; I had been intending to declare that interest when we reached my amendments. I have it properly registered, according to the noble Lord, Lord Graham, in Section 3 of the Register of Interests. I have done that all along, but I repeat it for the benefit of the newer Members of your Lordships' House who may not know. Those who were here during our arguments on Sunday trading know perfectly well where I stand on this.

We must recognise that all governments in this country have wanted to battle non-stop for low inflation. The mark-ups on some ordinary products are significant. Although such high mark-ups support the local pharmacies—I do not disagree with that strong point—it is the self-same people who use those local pharmacies who are the least able to pay those extremely high mark-ups on highly priced goods. I am afraid that by restricting supply and maintaining the retail price mechanism on such products we are not doing what the Bill sets out to do, which is to lower the cost of living for a lot of people.

Baroness Ludford

I am extremely sympathetic about the concerns which have motivated the amendment because I can appreciate the conflict between achieving lower prices through competition and the maintenance of essential local services, particularly (although not exclusively) in rural areas. In the very metropolitan area from which I come, the London Borough of Islington—the Minister is not unfamiliar with it—our local pharmacies are relied on particularly by those who are not mobile. As I said, although I am sympathetic to the motivation behind the amendment, I can see difficulties with the maintenance of the retail price mechanism on this basis.

Can the Minister assure us that he and his department will look carefully at other ways in which small shops can be helped either through the planning mechanism or the uniform business rate? The powers of local authorities are extremely limited in this regard. Even in urban areas we face ongoing problems in trying to maintain essential local shops. Can the Minister give us such an assurance, even if he cannot accept the amendment?

Baroness Oppenheim-Barnes

I rise to speak briefly and apologise to the noble Lord, Lord Graham, for not being present when he moved the amendment. My noble friend Lady O'Cathain has provoked me—

Baroness O'Cathain


Baroness Oppenheim-Barnes

Obviously, I respect my noble friend's knowledge of these matters given that she is a non-executive director on the board of Tesco, but I was a non-executive director on the board of Boots for 1 1 years and I must express this caution to my noble friend. She says that exactly the same aspirins are sold in different places. Many cut-price drugs have been manufactured in the third world where quality control is nowhere near as good as that which is applied to more reputable brands. Whereas in some cases the mark-ups may be exceedingly high—probably too high—I believe that to go for cheapness is not the greatest economy.

Lord Fraser of Carmyllie

I rise to support the amendment moved by the noble Lord, Lord Graham. I very much look forward to hearing the response of the Minister. If I have one disappointment about the Government Front Bench it is that for a debate as potentially important as this on the first day of the Committee stage there is no Minister from the Department of Health. There is here a risk of conflict between clear Government policies. As I understand it, the health policy of the Government continues the policy of the previous government; namely, that general practitioners are to be at the forefront of the National Health Service but every effort should be made and every encouragement given to ensure that they do not have an unnecessary workload. Accordingly, the approach promoted by my noble friend Lady Miller when she, among others, had responsibility for the National Health Service was that community pharmacies should be a valuable point at which people with a range of minor ailments could get the requisite advice. Therefore, instead of taking up the time of their GPs and wasting their own time sitting for hours in waiting rooms, they would be able to go along to a pharmacy and see whether their ailments could be quickly dealt with by over-the-counter drugs. Alternatively, if the chemist felt that there was a worry about the individual's health he would be properly referred to his GP. That seems to me to be a good policy. If it remains the policy that we on this side pursued when in government we warmly support it and will give every encouragement to its achievement.

A specific question was asked about this issue at Second Reading. The noble Baroness, Lady Jay, indicated then that the Department of Health was neutral on the point. Frankly, I found that astonishing. In moving this amendment the noble Lord referred to research which indicated that approximately 37 per cent. of those who currently went to pharmacies would go to Asda, Safeway and so on.

Lord Graham of Edmonton

The figure I gave was 36 per cent.

Lord Fraser of Carmyllie

I am grateful to the noble Lord for that precision. The effect of such a shift in buying patterns means that the economic viability of up to about 3,000 pharmacies throughout the length and breadth of the country will be affected. If those 3,000 pharmacies disappear it follows as night follows day that the policy of this Government on the vital matter of health will suffer serious detriment. If that is the policy—it should be the policy—we should look very carefully at anything that affects the viability of these pharmacies. It is not simply a case of special pleading for one sector; there is a sound public policy reason for maintaining their independent position.

It is of interest to note that prior to the last general election Labour Members of Parliament in another place were extremely supportive of RPM on over-the-counter medicines. Indeed, the consumer affairs spokesman, Mr. Nigel Griffiths, now the Minister, who is a colleague of the noble Lords, Lord Simon and Lord Haskel, in the Department of Trade and Industry, organised a petition in support of RPM on over-the-counter medicines. He urged his fellow election candidates and Members of Parliament to support it. While I know that Mr. Griffiths has signed just about every petition that there has ever been, this one was a soundly-based petition. It is regrettable that there should be even a hint of inconsistency over a matter of such important public policy.

Sometimes the counter-argument is advanced that these pharmacies should not be dealt with by the device of maintaining RPM in respect of over-the-counter medicines; instead, there should be support through public funding under the essential small pharmacies scheme. There is some support provided in that way, but that is in respect of pharmacies which, even with the existence of RPM on over-the-counter drugs, are in such a perilous position that they need to be supported. They are pharmacies located perhaps in the more remote parts of Wales and Scotland. They simply could not exist if they did not receive some kind of payment. But the fact of the matter is that it is not a particularly effective subsidy and it barely covers the annual costs of a single pharmacist, let alone other overhead costs.

There is a very strong case to be advanced in support of these pharmacies. We wish to ensure that as this Bill proceeds nothing is done to damage their interests. I hope that the Minister will be able to provide me with some comfort that in the Government's view, if regard is had to Clauses 6 to 11 which provide block exemptions, the criteria in Clause 9 to allow for individual or block exemptions are sufficient to enable this group of pharmacies to be brought within the exemption.

I believe that I understand the argument advanced, but I am not wholly persuaded that it is as explicitly set out as it might be. If the noble Lord could provide us with some comfort on that matter we would be very pleased to hear it. That would enable us to consider constructively how at later stages of this Bill we can take forward the campaign on behalf of pharmacists to ensure that their position is protected. I should be grateful to receive any indication that the noble Lord is able to give at this stage that that is the Government's approach in seeking to protect these pharmacies.

There are other provisions in the Bill which affect these pharmacies and need to be addressed. The position is slightly complicated. My understanding is that at the moment the Office of Fair Trading is looking at the exemption which was provided as long ago as 1970. It has been considering the matter for about a year. A preliminary indication is that the matter may be taken back to the courts with a view to securing the removal of that exemption. My understanding is that there must be a first step taken to secure an indication that prima face there has been a material change in circumstances which means that the exemption should no longer remain in place. I do not believe that any such first step has yet been taken, notwithstanding the fact that this matter has been considered for at least a year without any clear outcome.

I invite the noble Lord to look carefully at one matter as a matter of procedure, not just drafting. I believe that it is unsatisfactory. The transitional arrangements which would affect the continuation of this RPM arrangement are to be found in Part III of Schedule 13. It could not be found in a more remote part of the Bill. Paragraph 8 provides:

(I) The Chapter 1 prohibition does not apply to an agreement, decision or practice— (a) at any time when it is the subject of continuing proceedings". Can the noble Lord hazard a guess as to when the Bill will receive Royal Assent and when it will commence to operate? It is far from obvious when or if the requisite proceedings will begin.

It is extremely important, if we cannot resolve this in the way I hope it can be resolved by securing an exemption under the provisions to which I have referred, that we in any event have clearly set out what exactly will be the transitional arrangements for these pharmacies. We would at least wish to see the five year period maintained for it. More importantly, we would like to see in principle a continuing exemption provided for pharmacies.

I have spelt out in a constructive fashion the line that we would like to take forward, and we will listen carefully to what the Minister has to say. It is an issue that is causing real concern in the country and I am grateful for the contributions from all sides of the House.

I seldom part company with my noble friend Lady O'Cathain but I regret I very much do so on this occasion. We do believe that medicines are different. I will give one example of one respect in which medicines are different from other products. In the past two weeks the Department of Health has required that paracetamol be sold in small quantities. The reason behind that requirement is, in our view, a sound one. Regrettably, far too many people—young people in particular—take overdoses of paracetamol. Even if they have repented or relented of it subsequently, such has been the damage to them that their position is irrecoverable. That is a perfectly sound reason for the Government to make that requirement.

That is an example that we could find across a broad range and indicates that the sale of medicines—even if they are over-the-counter drugs such as paracetamol—is not in quite the same category as many other products which are now sold in supermarkets.

I hope that the Minister will give as clear an indication as possible of the way forward on this vexed issue.

5 p.m.

Lord Hughes

I have an interest to declare. I live in the village of Comrie in Perthshire in Scotland. In the village there is a pharmacy; the pharmacist is my daughter. I am the non-executive chairman of the company which owns the business. Having declared that, I will take no further part in the proceedings on this Bill, on any amendments—either voting for it or against it; I will abstain—but I think I have some information which will be useful.

I am the non-executive chairman but, because it is a family concern, I know a great deal of what goes on. I know the extent to which the chemist in a village plays a very important part in the life of the community. The village of Comrie is a very pleasant place in which to live. There are many people who retire to it and it has a very much larger proportion of elderly people than other villages. I am quite sure there are a number of villages up and down the country, both north and south of the border, which are in the same position.

I know the extent to which my daughter plays a part in the life of the village. She is not just the pharmacist; she is called on for many things. She is involved in organisations, where people rely on the sort of advice that she can give them. As has been stated, the Government's policy now is to switch work from the doctor to the chemist—although there is no indication that the chemists are going to get any more money for doing it—and it would be a pity if they lost the important over-the-counter part of the business. Having said that, I hope that I will not be accused of seeking to influence the debate, but it is of interest that I am able to speak about this part of the life of a village.

Incidentally, when the register of interests was raised in this House, I informed the clerk who was dealing with it, Mr. Vallance White, and he informed me that I did not need to declare that as an interest. So if anybody looks, my name is not on the register.

Earl Howe

I rise, briefly, in support of what my noble and learned friend Lord Fraser and others have said regarding the amendment tabled by the noble Lord, Lord Graham, on this important matter.

The noble Lord, Lord Graham, set out with great clarity and persuasiveness the threat that this Bill poses to community pharmacies. There is a critical difference between, for example, the village shop and the village pharmacy because of the heavy reliance that is placed on local pharmacies by those who are in real need—by virtue of illness, infirmity or whatever—and who are dependent on quick and easy access to medicaments and advice. That has been emphasised by a number of noble Lords. The situation is exactly the same regarding their dependency on community healthcare services of other kinds.

At the very least I hope the Government understand that there is an issue here and that the Minister will acknowledge its importance to very many people. The public interest takes many forms, but I put it to the Minister that there are one or two areas of our national life where the public interest is not necessarily served by unfettered competition—and access to the community pharmacy is surely one of those.

Lord Simon of Highbury

I was enjoined a while ago by my noble friend Lord Graham to listen—and indeed I have. I have learned something rather important: that Llandysnl is a place that more than one person knows well in this House. I am also sure of another thing: whilst now knowing of it, I cannot spell it.

The discussion that we were all privileged to hear on the difficulties of balancing competition and value and service to the community at a cost—which is the real nub of this question—were excellently debated from both sides on the other side of the Committee. That of course makes the position a little more complex for me but it is interesting in terms of balance of advice. I do not wish to open a debate on our views on health policy when I am debating the Competition Bill, I could forebear perhaps to make a glancing reference to the point that the noble and learned Lord, Lord Fraser, made about one of my colleagues taking a neutral position. Perhaps "neutral" was used in the sense of "balance".

I will not go further on health policy but I will take the opportunity of welcoming him to the fraternity of the oilers. I miss that. I wish him great good fortune and as much happiness as I had in my brief period in the business—brief to the extent of 36 long years.

I came to the crucial question of the balance that we are thinking of very carefully and trying to strike. First—and I do not mean this in any way as a pun—I have to issue a health warning. The noble and learned Lord, Lord Fraser, mentioned and made clear that the Director General has announced his intention to refer retail price maintenance of over-the-counter medicines back to the restrictive practices court.

I am sure the Committee is aware that the Government have no role in decisions of the court or in the Director General's decision to refer. However, despite the intention to refer, we have thought it right that agreements which have been approved by the court should gain, on a transitional basis, exclusion from the relevant provisions of the Bill. That would be achieved by the cross referencing that the noble and learned Lord, Lord Fraser, mentioned, in Schedule 13. That would avoid repeating the scrutiny at too early a stage.

The period would start from the time the prohibition came into force, or, in the case of continuing proceedings, when the proceedings come to an end. The Bill sets that transitional period at five years. I refer here to the issue which the noble and learned Lord raised with me, which is the time issue relative to a reference. I hope that I have given you a clear answer on how that would follow. Members of the Committee will no doubt note that I have the extraordinary weakness of saying "you" on occasions. It is, I am afraid, my version of "urn", as I think, but is in no way meant to show disrespect.

Similarly, decisions under the Bill will be a matter for the Director General, subject to appeal to the new competition commission and, on points of law and the amount of penalties imposed, to the courts. I am now taking us back to the relationship under the new agreements. I am sure that the Committee will understand that it is not right for Ministers to comment upon the position under the Bill of any particular agreement on an arrangement such as resale price maintenance for medicines.

My noble friend Lord Graham's amendment, and his speech to which I listened carefully, raised important issues as to how the framework set down in the Bill—and, in particular, the criteria for exemption which the noble and learned Lord, Lord Fraser, mentioned—will operate generally. That is a matter which should properly concern us and which we need to get right.

By virtue of Clause 58 the interpretation of the exemption criteria by the Director General is to be along the same lines as the interpretation made by the EC Commission. Although the exemption criteria may seem narrow, the Bill requires them to be interpreted in the light of the general principles (Clause 58). I shall mention that clause frequently. It is the linking clause between EC law and our own in our new prohibition in the Bill.

In practice—this is important—the Commission has taken into account a wide range of countervailing benefits when making decisions under Article 85. In particular, the Commission has taken into account the public health benefits of agreements when reaching decisions. However, the issue goes wider, as we have discussed, than public health. The Commission has, for example, taken into account environmental benefits of agreements. Many have spoken of the environmental importance, in the broadest sense of the words, of the chemist's shop.

It is clear that under the Bill the Director General and competition commission can be expected to do likewise: to form the same judgments against the body of law that I have mentioned which have existed in the interpretation by the Commission under Article 85. Because we recognise that that is an important issue the department has commissioned a study on the case law of the ECJ and the Court of First Instance, and the practice of the European Commission in respect of Article 85(3). That was carried out by Professor Whish of King's College, London, who is a distinguished authority on competition law, and it confirms the analysis which I have given the Committee. I shall send a copy to my noble friend and will place a copy in the Libraries of this House and another place.

With regard to the point made by the noble and learned Lord, Lord Fraser, in his preamble on the exemption and how it would be seen. in the light of that, if an assessment is to be made by the Director General of the case for an exemption in respect of agreements for resale price maintenance in over-the-counter medicines, I would expect any public health benefits, the ready availability of over-the-counter medicines to consumers, and the benefits of local distribution, to feature in the assessment. I therefore believe that the Bill will provide the right, balanced framework for the Director General and the competition commission to deal properly with the complex issue that we have been discussing.

In those circumstances, I hope that my noble friend will accept that special provisions for over-the-counter medicines would be neither necessary in special terms nor desirable, given the legal framework that I have outlined. I hope, therefore, that he will feel able to withdraw his amendment.

5.15 p.m.

Lord Lucas

I do not see how the nuances of interpretation avail the Minister when Clause 9, which is the governing one on exclusions, provides—if I may paraphrase it—that the clause applies to any agreement which does not,

afford the undertakings concerned the possibility of eliminating competition in respect of substantial part of the products in question". In the case about which we are talking that clause is clearly breached. Therefore there can be no exemption under the Bill, whatever nuance of interpretation is applied.

Lord Simon of Highbury

This is a swift interpretation and I take note of it. My case rests as it is; that we believe that the legal framework here allows us to strike a correct balance. If we need to discuss this matter further perhaps we can do so at a later stage.

Lord Graham of Edmonton

I am grateful to my noble friend the Minister because he has clearly listened. He has put up a good defence to show that the fears and worries of those whom I seek to represent are misplaced. That may or may not be the case. We shall have to wait to see. I am also grateful to the noble and learned Lord, Lord Fraser, for having linked what might be the defence, the outcome. or the manner in which those whom I seek to represent might have their fears allayed. That remains to be seen.

I had seen on a piece of paper the various points made by the noble and learned Lord. The Committee is indebted to him for putting the matter carefully and cogently. I understood what he said much better than what I read. That is an advantage in a debate such as this.

I welcome the noble Baroness, Lady Ludford, on the Liberal Benches to a debate like this. It is refreshing to have a new face and a new voice. The case she was making was that she did not like special exemptions. If the only way to protect a business or a sector of the community is to give a special exemption, I am all for it. It may not be necessary in this case. For the past 30 years the public have believed it to be necessary and we want the present position to continue.

The noble Baroness, Lady O'Cathain, said, in summary, that the criterion was price, price, price—not location, location, location!

Baroness O'Cathain

I thank the noble Lord for giving way. Of course it is not the overwhelming criterion. I merely said that it should be brought into the equation. We were talking about location, location, location, but there is another element. We must strike a balance between the high mark-ups and availability. I genuinely worry about those who are less able to pay high prices for over-the-counter drugs and I simply wished to add another spoke, so to speak.

Lord Graham of Edmonton

I agree that we are talking about the people who, on the one hand, say "I want to be able to shop in a smaller shop, even though the price may be higher", and the 36 per cent. of people who say, "Even though the distance is further, if the price is cheaper I am prepared to go there". I know that this is not an empirical study and that interpretations must be made.

I was most taken with the case made by the noble and learned Lord, Lord Fraser, that when the Minister and. more importantly, those outside the House look at the explanation they may well take the view that there is no need to proceed down this route.

I wish to draw one issue to the Minister's attention and to follow on from what was said about it by Labour Party spokesmen before the election. Nigel Griffiths, who is a good friend of mine, spoke honestly and sincerely in repeating what had been said by Chris Smith, now a Minister. Chris Smith said: the question of RPM on non-prescriptive medicines is important and Labour believes that RPM plays a valuable role in safeguarding the position of local pharmacies.". If that is not the road down which we are going I shall be happy to withdraw the amendment. But we need assurances from others, the Minister having served us well at this stage. I advise him to keep taking the tablets, but in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness O'Cathain moved Amendment No. 10:

After Clause 2, insert the following new clause—

("Non-excluded cases


(" . Any case which would be excluded by virtue of section 3, but in which a supplier without any published and justifiable reason—

  1. (a) refuses to supply goods to a reseller or categories of resellers who cannot obtain those goods elsewhere on suitable terms, or applies to them differing prices or conditions of sale, or
  2. (b) applies less favourable prices to resellers in one territory as compared with prices applied to resellers in any other territory,
shall not be treated as excluded for the purposes of section 2.").

The noble Baroness said: In moving Amendment No. 10 I shall speak also to Amendments Nos. 11, 31 and 32. First, I wish to declare an interest; I am a director of Tesco. I apologise for not doing so during my intervention on Amendment No. 9.

We all know that the objective of the Bill is to strengthen competition law, in effect allowing greater competition by removing barriers to competition. My noble friend Lord MacLaurin, who regrets that he is unable to be here today to reinforce the views that he expressed on Second Reading, stated during that debate that he agreed with the right honourable lady the President of the Board of Trade who, spoke of the importance of using competition policy to ease the pressures on family budgets".—[Official Report, 30/10/97; col. 1179.]

The purpose of the amendment is to achieve just that by virtue of dismantling selective distribution agreements. I am aware that such agreements are not at the forefront of most people's minds, but they are what they describe. Some manufacturers, for their own reasons, say, "We will not distribute our products to retail outlet X or supermarket A". They restrict the number of outlets allowed to sell a product.

I suggest that the public interest is not generally served by such action. Some suppliers refuse to supply certain outlets because they fear that those outlets will discount the goods. The self-same suppliers—and they are mainly from overseas—see this market as an opportunity for high margins if they restrict the outlets in which their goods are sold. Some companies refuse to negotiate price with the retailers, which results in consumers being disadvantaged. In respect of some goods, the mark-up is as high as 300 per cent.

Perhaps I may give the Committee some hard examples, although Members may not be in the market for Levi's 501s, which are jeans. The US selling price of those jeans is the equivalent of £25, while the price in the United Kingdom is £52. In the US, Calvin Klein's men's jeans cost the equivalent of £28, while in the United Kingdom they cost £59.95. The problem is that the suppliers of such jeans suggest that selling them in supermarkets ruins "the allure" of the product.

Perhaps not all your Lordships identify with jeans, but many will identify with champagne. Is the allure of Moët & Chandon ruined by being universally available in supermarkets and other outlets? Perfumes or fine fragrances, as they are known in the trade—they are reasonably dear to my heart—present another case. I suggest that people should be allowed to buy their jeans and fine fragrances wherever they live or normally shop, irrespective of their economic classification of A, B, and C 1 s, C2s or D3s. Surely it is the Government's view that access and availability should not be restricted.

When debating Amendment No. 9 we discussed the small pharmacy in Llandysul but this amendment does not deal with such small pharmacies. The manufacturers who are restricting the distribution of their goods are huge international and multi-national businesses. Unilever, for example, which is one of the biggest companies in the world, owns the European rights to Calvin Klein perfumes.

The point was clearly made at Second Reading by my noble friend Lord MacLaurin. He said: The more goods you allow to be sold by a diverse and large number of retailers the more you will improve the quality and standard of living of the population as a whole. You will also hear down on inflation—a goal shared by every government I can recall".—[Official Report, 30/10/97; col. 1180.]

Furthermore, the National Consumer Council has expressed concern about selective distribution and its impact on the customer.

I am not launching an attack on branded and luxury goods; after all, they are the spice of life and I want more people to have them. However, I am anxious that consumers in London or Leeds pay prices for the goods they wish to buy that are comparable to the prices paid by consumers in Seattle or Atlanta. Retail price maintenance was abolished in 1964 save that certain classes of goods are exempt from that prohibition on public interest grounds. I suggest that this Bill is an ideal vehicle by which we can stop that apparent discrimination caused by selective distribution agreements. I beg to move.

5.30 p.m.

Lord Borrie

The noble Baroness, Lady O'Cathain, has made a very plausible case. Indeed, it is more than plausible. It is extremely accurate in relation to many types of selective distribution agreements and goods because they have involved what one might call covert retail price practices. They have involved the refusal to supply those retailers who are known to reduce margins, perhaps through their efficiency, so enabling customers to buy goods at a cheaper price than elsewhere. However, the noble Baroness's speech was just a little one-sided. It was as if all goods must be supplied to Tesco, or all branded goods made available to the mass distributor without restraint.

The noble Baroness mentioned some products. I am perhaps more familiar with champagne and perfume than I am with Levi 501s. However, there is evidence that the success of some goods—of many perfumes, I am sure—is due in part at least to the fact that they are available only in a particular kind of environment or shop. There is mutual benefit to the manufacturer, the retailer and of course to the consumer who feels that he has something special. Let us take the gift shop at the House of Lords. If those chocolates and other items with the appropriate brand markings upon them were available freely in Tesco, it might be that there would be some diminution of value, excitement and enjoyment to the customers.

However, I have a more serious point to make. There are a number of distribution agreements which are beneficial to manufacturer, retailer and customer because particular kinds of retail outlet are freely chosen by the manufacturer on the basis that they offer a certain kind of service or repair service; or they have certain kinds of skilled employees; or they wish to promote those goods through marketing arrangements which involve the retailer's agreement to take certain steps in relation to, for example, product display and so on. Those retailers would not be prepared to do that if the goods were available freely everywhere because they would be incurring a great deal of expense in marketing those goods and would achieve very little return because the goods would be available in all sorts of other places.

I am saying to the noble Baroness, Lady O'Cathain, and the Committee that you can make generalisations but there is merit in those cases being dealt with on a case-by-case basis. After all, that is fundamental to this Bill which enables the director general and the competition commission on appeal to determine whether agreements which appear to be prohibited should be specially exempted or not. I should not like to see a generalised provision of the kind which the noble Baroness suggests.

Lord Simon of Highbury

My noble friend Lord Borne has approached the problem, in a sense, from the end of the jeans back to the general. I should like to stay with the general in trying to respond to the noble Baroness's amendments.

I put this matter in the context of what is the scope of the prohibition. I emphasise that the Government's intention in reforming competition law is to set up an effective framework for investigating anti-competitive practices; for assessing in individual cases whether a practice is anti-competitive; and to take action to stop anti-competitive practices where identified. The Bill is not designed to deal explicitly with every conceivable anti-competitive practice. We could not do that.

Very shortly we shall be debating specific amendments in relation to the exclusion of vertical agreements from the Chapter I prohibition, which will be relevant in general terms. If introduced, any such exclusion must of course allow anti-competitive practices to be tackled. A refusal by a dominant supplier to supply certain outlets, a problem sometimes associated with selective distribution agreements, would, if found to be abusive, remain subject to the Chapter II prohibition. Equally, I am advised that there is EC jurisprudence that differential pricing by dominant firms which is abusive may be tackled under Article 86. Therefore, both those approaches exist. As I shall continue to say because it is such a pivotal point, such jurisprudence will apply in the interpretation of a Chapter II prohibition as a result of Clause 58. Therefore, we are covered in general terms for the particular set of circumstances which the noble Baroness put before the Committee.

Finally, the safety net, as it were, is that anti-competitive practices resulting from networks of vertical agreements will remain subject to an examination under the Fair Trading Act. Therefore, with those three statements of the way in which we can generally approach the particular problem that the noble Baroness put, I am confident that we have a regime which will work, and work effectively, in tackling anti-competitive behaviour however it expresses itself and in particular in the sense explained by the noble Baroness explained. Therefore, I ask the noble Baroness to withdraw the amendment.

Lord Lucas

I should be grateful, if not now then later, if the Minister will enlighten me as to how this Bill works in with copyright law. A similar difficulty to that raised by the noble Baroness exists in relation to buying US books in this country. People set much higher prices for the same book in the UK than would be paid in the US, even counting the cost of postage. I should be grateful for the noble Lord's advice as to whether this Bill overrules that sort of practice under copyright law.

Lord Simon of Highbury

I take note of that question. It sounds to me as though we are into extraterritoriality, which was a word that I knew if I tried to say it twice, I would get wrong. I take note of the question raised by the noble Lord, Lord Lucas, and I shall return to it if necessary.

Baroness O'Cathain

I am grateful to the Minister for his comments on my amendment. I was slightly concerned when he referred to the fact that the Bill would set up an effective framework against anti-competitive actions, assessing whether the actions are anti-competitive and taking action against those anti-competitive actions. All of that made me return quickly to the Official Report and the Second Reading where I registered one major concern at col. 1166 about the hidden costs of the Bill. I hope that by having a three-pronged attack or approach to the problem, we are not building in huge costs. I have thought long and hard about my amendment and it seemed to me an easy way to tackle the problem. However, I shall read most carefully what the Minister said. I shall think again on the matter. I shall go back to Article 86 and its jurisprudence, and do my homework. If I am not satisfied, I shall return to the matter at later stages of the Bill. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 [Excluded agreements]:

[Amendment No. 11 not moved.]

Baroness Wilcox moved Amendment No. 12: Page 2. leave out line 42.

The noble Baroness said: I have been asked by the Whips' Office to apologise on its behalf for the fact that there is a mistake in the way that Schedule 4 has been placed on the Marshalled List. It shows the schedule as standing part in isolation when it should be grouped with Amendments Nos. 12, 51 and 52. Therefore, I am speaking to Amendment No. 12 under Clause 3, and I shall also oppose the question that Schedule 4 be the fourth schedule to the Bill.

It is important for us to have a debate about the way in which the reformed competition system, and this Bill in particular, will deal with professional rules. Perhaps I may make some general points about professional services. They have been a growing area of our economy over recent years. Many more of us now have contact with professional services than we did 20 years ago, whether it be accountants helping us to wrestle with self-assessment or lawyers helping us to enforce our rights. It is therefore important that we, as consumers of those services, are adequately protected from any anti-competitive practices. Although I would not agree with Bernard Shaw that, all professions are conspiracies against the laity", there has been concern that some of the professions have operated rules over the years which have been anti-competitive. They might relate to advertising or to the setting of fees, or the range of services that can be offered in one firm. Of course, after prodding by the Monopolies and Mergers Commission, many of the professions have improved to some extent.

The Office of Fair Trading has published a number of reports about the professions, many of which were produced when the noble Lord, Lord Borrie—and I am extremely glad to see him in the Chamber today—was Director General of the OFT. For example, in 1986 Members of the Committee may remember looking at restrictions on multi-disciplinary practices among architects, accountants, barristers and solicitors; and, indeed, supporting the idea of mixed partnerships. In 1989, the National Consumer Council published a document called, Ordinary Justice in which, under the doughty leadership of my noble friend Lady Oppenheim-Barnes, who is sitting here beside me, it supported the concept of multi-disciplinary practices. I believe that consumers could be provided with more choice in professional services on offer. For example, when buying and selling houses, should not people have the option of obtaining a mortgage, a survey, help with the selling of a house and also conveyancing services all in one place?

The legal restrictions on solicitors as regards multi-disciplinary practices were removed by the Courts and Legal Services Act 1990. However, as pointed out by the Director of Competition Policy at the OFT, Margaret Bloom, in July of this year, the Law Society's practice rules do not reflect the legal position. I know that the situation is being monitored by the OFT. It has been pressing the Law Society to change its rules. Despite the improvements that we have seen in recent years, it is important that we do not now start to go backwards. The way professions behave should be monitored carefully and action taken when necessary. That is why we need to debate the way in which this Bill deals with professional rules.

As the Bill is currently drafted, the professional rules will be excluded from the prohibition on agreements which prevent, restrict and distort competition. In considering that, perhaps the Minister could answer the following questions. Under the reformed competition policy, how could the OFT deal with the situation that I have just outlined with regard to the Law Society and multi-disciplinary practices? More generally, why should the professions listed in Schedule 4 be treated any differently from any other service sector of the economy? Should the competitive aspects of the professional rules of surveyors be treated any differently from those of an estate agent? Will we have the ludicrous situation where the Director General of Fair Trading could force estate agents to change their rules, but not force surveyors to change theirs?

Why not keep the professional rules within the prohibition in Chapter I so that the OFT has the power to investigate and take action over any of those rules which are anti-competitive? I ask the Minister: how did the Government arrive at the particular professional services which are listed in Part II of Schedule 4? Why are not licensed conveyancing services or osteopaths, for example, included? I should like to suggest that it would be a much simpler process if those rules were included within the scope of the prohibition so that the Director General of the OFT could scrutinise the rule books. He could then exempt those parts of the rule books which guarantee genuine consumer protection.

I should like to hear what the arguments are for excluding professional rules listed in Schedule 4 from the prohibition in Chapter I. I must say that I will need some persuading that they should be treated differently from equally important and valuable consumer services. 1 beg to move.

5.45 p.m.

Lord Berkeley

I rise to express my support for the noble Baroness in her amendments. For the convenience of the Committee, perhaps I may speak to Amendments Nos. 51 and 52 which are tabled in my name. I should, first, declare an interest as a member of the Institution of Civil Engineers. I believe that we shall find ourselves in a situation where we shall be talking about sheep and goats—that is to say, those who are included and those who are not.

My view on this particular aspect of the Bill is that, if we support the principles of the legislation, we have to consider any exclusion extremely carefully. This Chamber has a right to hear the reasons which the Government may put forward regarding any exclusions which are to remain in the Bill. The noble Baroness gave us a clear explanation of why she believes that Schedule 4 should be excluded. My amendments were tabled with a view to something which is perhaps a little easier to accept; in other words, leaving the exclusions in if there are proper legal reasons for them but, nevertheless, excluding anything which affects competition between members of that profession. I do not believe that I have drafted them particularly well, but perhaps I may explain the reasons behind my amendments. That will at least enable the Minister to consider them.

I have taken on board what my noble friend the Minister said about the role of the director general and of the competition commission and the powers that they will have to consider exemptions and exclusions. One has to ask why we should exclude them specifically now. I cannot speak about Schedules 1 and 3, but Schedule 4 has the effect of excluding only Chapter I prohibitions and not those under Chapter II, though I suppose we should be grateful for that fact. But why are the professions any different?

I can only speak for engineers, but we have a long list in Schedule 4. One engineering company that I know well is a big firm of civil engineering consultants. It is owned by a company which used to be called Welsh Water and is now called Hyder. I believe that it is now a publicly-quoted company and, indeed, there are many others like it. Why is that company any different from estate agents or window cleaners? Why are accountants included along with lawyers? I am sure that there are very good reasons for that, but surely they have a duty to compete among themselves and with others in the same way as any other company or organisation in this country is required to compete for services. Surely they should be prohibited from engaging in restrictive practices which are obviously against public interests.

I am not convinced about this long list of, civil engineering: mechanical, aeronautical … agronomy … metallurgy, chemistry". and (f) any other form of engineering or technology analogous to those mentioned in sub-paragraphs (a) to (e)".

There must have been a reason for that incredible drafting. Perhaps it is to be found in the reasons for which these organisations were set up in the previous century; namely, to protect the interests of their members. We could debate whether they do protect the interests of their members now. However, I strongly believe that this whole schedule, or certainly the anti-competitive element, has no part in this Bill. I shall be pleased to hear what my noble friend the Minister has to say on this matter.

Baroness Oppenheim-Barnes

I speak briefly but with the credentials of someone who was created in effigy by architects so that they could stick pins into me as a result of the dealings which I had with them—as the noble Lord, Lord Borrie, will recall—in trying to dragoon them into at least adopting a posture where their restrictive practices were not pursued. I do not think I was as successful as I would have liked. I believe the noble Lord, Lord Borrie, will also recall that at one time he wanted me to attack veterinarians. I told him that I could not possibly do that as they were folk heroes and under no circumstances was I about to incur their wrath. On a serious note, it seems that in an age when everyone, including the party opposite, has now accepted the value of competition with the bottom line being the consumer and what he or she obtains in terms of value, or safety in many cases, there should not be the kind of exemptions from this Bill which have existed in the past which have not benefited consumers.

Lord Howie of Troon

As older Members of the Committee will know, I have a long-standing connection with the construction industry and with consulting engineers and architects. I would never dream of putting a pin in the noble Baroness who has just spoken—although I may in a moment!

I oppose these amendments on the ground that professions are not the same as businesses. I shall not discuss estate agents and people of that kind; I shall stick to those I know; namely, consulting engineers and architects. The noble Baroness, Lady Wilcox, quoted a well known maxim of Bernard Shaw, a man whom I greatly admire. However, she quoted one of his more foolish remarks. If she wishes to understand the difference between professions and businesses she should read the debates that took place in the previous Parliament on compulsory competitive tendering for local authority professional services. That whole matter was discussed at great length by myself and others. I shall not speak of that at great length tonight. The noble Baroness should also turn her mind to a well known philosophical work on the acquisitive society by R.H. Tawney. In that work the difference between professional services and businesses is clearly explained. I admit that the situation now is not as clear as it was in Tawney's day. My noble friend Lord Berkeley has referred to Welsh Water in this connection.

We opposed competition at the design stage—I emphasise I am talking about design here—because a cheap design is not necessarily the design that you want. This is the weakness of CCT. A good design, whether of architecture or structural engineering, is a design in which the life cost of the commodity, be it a building or a structure, is the cheapest. We all know that a cheap initial cost leads to increased maintenance costs later, making the long life cost of the structure dearer than it might otherwise have been. That is the difference between buying and selling things across a counter—that is, business—and the buying and selling of what is essentially intellectual property. That is a different matter entirely. To confuse the two is merely to become a fanatic of competition. I have no doubt that competition has some merits here and there, but they should be closely examined.

I noted that the noble Baroness, Lady Oppenheim-Barnes, indicated earlier in the debate on pharmaceuticals how a distinction could be made in competition terms. I draw her attention and the attention of my noble friend the Minister to a distinction which should be made here. 1 now have to do something extremely uncivil in that I must apologise to the Minister because I must leave the Chamber almost immediately for what we normally describe as a pressing engagement. I apologise as I know that is rude. If I miss my noble friend's reply, I shall certainly read what he has said.

Lord Skelmersdale

Before the Minister replies and the noble Lord, Lord Berkeley, rises to speak, I have two questions which have been prompted by this short debate. I understand that we are also discussing Schedule 4 in this grouping of amendments. Given that my noble friend Lady Wilcox said that the legal restrictions on multi-disciplinary practices were removed for solicitors by the Courts and Legal Services Act 1990, one wonders why solicitors are mentioned in line 8 of page 50 of the Bill in Schedule 4. Is it not legal tautology to refer to solicitors in both places?

The other question which sprang to my mind while I was listening to this short debate was that under Clause 3 the excluded agreements mentioned in Schedules 1, 2 and 3 are grouped together in that the Secretary of State can add to or subtract from them, by order, at any point—I believe those are the words used in the Bill—whereas in Schedule 4 he has no such permission. Again, one is bound to wonder why. For example, chiropracting is gradually being accepted in this country. Indeed there is a register these days of chiropractors and another one of osteopaths. As many of the professional services listed in Schedule 4 are medical services, one wonders whether at some stage the Secretary of State might well want to include either of those professions in such a list, or at another point remove something else so that, for example, nurses and midwives come together. That may well happen in the fairly near future. Surely there should be a way to add to or subtract from Schedule 4 not using primary legislation.

Lord Lucas

I, too, wish to support my noble friend Lady Wilcox. I am delighted to see that the noble Lord, Lord Howie of Troon, is present. I remember the debates we had in the course of the housing and construction Bill on a particularly daft definition clause. The noble Lord, Lord Howie, demolished that at great length and in the end managed to make considerable changes to it. I think we have a similar situation here. I am a chartered accountant and speaking of my own profession I can understand why auditing might have some special part in the Bill. Auditing is governed by statute and the Government may wish to exercise greater control than normal over the way in which the rules that are applied to associations of auditors are established. The way in which this Bill allows changes to be made by the Minister rather than by the Director General of Fair Trading seems to me to be reasonable. But why govern accounting? Anyone can do accounts. There is absolutely no reason why rules governing accounting should be subject to special pleading. It is a perfectly ordinary activity.

Anyone can do any number of the things that are mentioned in this list. I myself have been a midwife, although I have not offered professional services in that regard. There are some services in the list that seem to have a special place; but there are any number of others which are just ordinary trades, trading in information rather than goods, and should be in the Bill along with everything else. I hope that the Government will very seriously reconsider this part of the Bill, especially Part II of Schedule 4.

The Earl of Balfour

Will the Minister dealing with the Bill consider the pilotage functions of pilots taking ships in and out of ports and around this coast? Recently their circumstances were changed quite dramatically. If this list is to be part of the Bill, pilots working around the coast should be considered.

Viscount Bledisloe

I must declare an interest as a practising barrister—which I believe is still a profession! Without going into the detail of the professions listed or seeking to interfere with the desires of those who abandon unprofessional accountancy and take up equally unprofessional midwifery, surely the whole concept of a profession is that it restricts competition. The concept of a profession is that certain activities shall be limited to those who have acquired certain qualifications and who behave in the ways laid down by their professions. That is the distinction between a profession and a business. A profession which has no rules and is wholly open to competition is not a profession. If anybody could appear in court and address an argument to the court on behalf of a client whether or not he has passed an exam, behaved appallingly or whatever it may be, it would no longer be a profession. To talk about professions without restrictive rules regulating the degree of competition and degrees of behaviour is to abolish professions.

6 p.m.

Lord Simon of Highbury

In responding to the noble Baroness, I find myself in a certain confusion. I am never quite clear as to whether it is a problem or a benefit if one is on the list. That is my quandary at the start-point. I shall return to the question of who might be on the list at the end of a statement I wish to make as to why there is a list and to what extent it offers differential treatment from a list that might start with candlestick-makers or whatever that wonderful rhyme might be.

In looking at what special treatment, if any, should be afforded to the professions under the Bill, it is helpful to begin by recalling what their present treatment is under competition law. In the past it has been accepted that competition law should not be applied to them willy-nilly, and we need to consider the arguments.

At present, agreements in respect of the provision of many professional services are excluded from the Restrictive Trade Practices Act by virtue of Schedule 1 to the Act. That means that not only are professional rules excluded, but also other agreements that members of professions might enter into, including agreements they may reach to fix prices or share markets. So those agreements do exist. No doubt that was of some comfort to members of the professions concerned, including some Members of this House.

The Government do not consider that replicating an exclusion as wide as that contained in the Restrictive Trade Practices Act would be justified. We see no reason why the normal run of agreements between members of a profession in the carrying out of their professional services should not be subject to competition law just like those of any other business. Despite what I said earlier about members of the professions, I am sure that that view is widely supported.

I do not, however, accept that professional rules are necessarily the same as the normal run of agreements into which businesses may enter, as my noble friend pointed out. Their purpose is to protect the public. They have attached to them disciplinary arrangements which often involve some judicial process and under which penalties can be severe. Enforcement of them may be reviewed judicially. They are often subject to approval by Ministers or members of the judiciary. In those ways they are a form of quasi-public law. Indeed, many professional rules have the force of statute and would not, anyway, be covered by the Chapter 1 provision. So there seems no good reason to have markedly different arrangements for members of different, even if related, professions—for example, solicitors and barristers—depending on the arrangements by which their rules are made. For those reasons, we believe it would be sensible if the Chapter 1 prohibition did not cut across the existing arrangements for making and enforcing professional rules.

Noble Lords have commented that it is all well and good but have not professional rules in the past served the purpose of protecting members of the profession and not the public? That is the point of the amendment tabled by my noble friend Lord Berkeley. I wholly accept that professional rules can give rise to competition concerns. The question then is whether we can enable professional bodies to draw up rules and regulate the professions as they do now, while at the same time enabling competition considerations to be brought to bear where necessary in a focused and targeted way.

I submit that that is what the Bill does, for it requires the Director General of Fair Trading to keep the list of designated professional rules under review and to report to the Secretary of State if he considers that any of them should no longer be designated and hence be excluded from the list. The Committee will note that I said "requires". The Bill places duties upon the director to do those things.

The Secretary of State will then wish to consult—and indeed under the Bill must consult—any other Minister who has functions in relation to the profession. It is to be hoped that a professional body will have regard to any criticisms that the director may make and consider whether its rules should be amended. But it is clear that, as well as being targeted on professional rules which may give rise to competition concerns, the Bill must provide a way of enforcing proper competition scrutiny. The Bill therefore enables, subject to affirmative resolution by your Lordships and in another place, the designation of a professional rule to be revoked and subjected to the Chapter 1 prohibition.

I stated at the start the need to bear in mind the present position of the professions under competition law and to consider the arguments for any special treatment. The Government do not accept that there should be a blanket exclusion from the Chapter 1 prohibition for the professions. The Government believe that, viewed as a whole, it would be unwarranted to apply prohibitions designed primarily for the private sector business to the quasi-public law processes of drawing up and enforcing professional rules. The Government accept that there needs to be appropriate competition scrutiny to prevent consumers being damaged by any anti-competitive professional rules, and believe that that needs to be done in a targeted way.

I said that in responding to the questions raised by the noble Baroness, Lady Wilcox, I would come back to the list. I am not sure whether this is the answer she wants. Non-mention of licensed conveyancers, osteopaths and other people on the list means that they are subject to the ordinary rules of competition. The prohibition therefore applies to all anti-competitive agreements, and the director general is free to look at them. Members have asked about the nature of the list. It is a fixed list and reflects the position under the Restrictive Trade Practices Act, though adjustment to the list would be a function for those carrying out the tasks allotted to them in drawing up the new framework and applying the prohibitions.

I hope that on reflection Members of the Committee will agree that the Bill now strikes an appropriate balance between protecting the consumer by appropriate frameworks for people working in professions in order to guarantee standards and allowing the prohibitions to take their effect in those areas where we wish to see competition apply. I hope that in the light of that explanation the noble Baroness, Lady Wilcox, will withdraw her amendment and not press her opposition to Schedule 4 and that my noble friend Lord Berkeley will not move his amendment.

Lord Skelmersdale

The Minister has given us a full explanation and proved that I was wrong—or half-wrong—in what I asserted earlier. My attention has been drawn to sub-paragraphs (3) and (4) of paragraph 6 of Schedule 4 on page 49, particularly to the end of sub-paragraph (3). That shows quite clearly that I was wrong and that the Secretary of State may by order revoke the designation if certain acts have taken place. However, the Minister has still not explained whether the Bill contains a procedure for adding to the list should that be necessary in the future. Surely one does not want primary legislation?

Lord Simon of Highbury

I think the appropriate answer is that one must always have the list under review. The appropriate balance will have to be struck between what is required within a designated profession to protect the consumer and the requirement for competition to ensure that the marketplace is protected and not abused. There is currently no procedure for adding to the list. The issue is whether we should review it. I think that we can consider and review procedure.

Lord Berkeley

Before the noble Baroness, Lady Wilcox, rises to speak to her amendment, perhaps I could say that I very much welcome the Minister's comments on these amendments, which I shall read very carefully. I believe that we should restrict our comments to the restrictive practices, if any, between members of the same profession. This is not about other, unqualified people joining the profession but about whether there is opportunity for fair competition between members of the profession. be they public limited companies, professionals or whatever. We should consider carefully whether the professions can and do regulate themselves in the interests of consumers.

6.15 p.m.

Baroness Wilcox

I thank Members of the Committee for the debate. I am sorry that the noble Lord, Lord Borrie, felt unable to take part. I have great respect for him and the work that he did at the Office of Fair Trading. Perhaps it was sufficient for me to refer to his achievements.

I am very grateful for the points that have been made, some of which I had missed. When I made enquiries to find out why there was a problem I was given all sorts of fudges, such as that under European law there is no ruling that professional rules constitute an agreement and that professional rules are part of public law or quasi public law. It was all pretty unsatisfactory and it does not sound much better now.

I will admit to an interest. I am the mother of a barrister, so I understand what the noble Viscount, Lord Bledisloe, said. However, I find it odd that people who make rules for themselves would be admonished by someone else and would then consider whether they should change their rules. In the meantime, a member of the general public who has been hurt, maimed, done-badly-to, has to sit back while the professionals consult themselves on their own rules. It is like putting children in a sweet shop and telling them to make up the rules as to how many sweets they should eat. I do not accept that argument.

I hope I am right in believing that the Minister said that he would consider the procedure following the request of my noble friend Lord Skelmersdale. I welcome that. I was pleased to see the amount of work being done in the corner following my questions. It was gratifying to see civil servants, and indeed some Ministers, on their hands and knees with bits of paper. I can only assume that some of the questions were interesting and exciting, though some of the answers that I received were not very satisfactory.

I do not understand why we cannot keep professional rules within the Chapter 1 prohibition so that the OFT has power to investigate and take action over rules that are anti-competitive. I do not understand why the Government, who are so keen on being in Europe, which is very much against any form of self-regulation, intend to continue with the rules as they are now. I hope that the Minister will give further consideration to this point. I am prepared to withdraw the amendment at this time but reserve the right to speak again on the subject.

Amendment, by leave, withdrawn.

Lord Kingsland moved Amendment No. 13: Page 2, line 42, at end insert ("or) (e) Schedule (Exclusion for vertical agreements)").

The noble Lord said: Amendment No. 13 seeks to add to Clause 3(1) a fifth category of exclusion for vertical agreements. Amendment 53 sets out an appropriate definition of "vertical agreements", which will form the new schedule. Essentially it proposes that all vertical agreements be excluded save for two categories: those which have the character of price-fixing agreements and those made in contemplation of a parallel agreement between competitors.

I believe it was accepted by the Minister during the debate on Second Reading that the Government were contemplating the possibility of that approach but felt themselves in difficulties about how to put it into execution. The alternative approach would be to include vertical agreements and then have a raft of parallel exemptions and home-grown block exemptions, which—if the experience of the European Community is anything to go by—would be numerous and complex and would have to be renewed at frequent intervals.

I am aware that the European Community is currently looking at the question of vertical agreements. We do not know what conclusions it will reach, but it is highly likely that what will emerge will be, if not a new regime based on the one proposed in these amendments, an extremely light regime. In those circumstances, and given that we are talking about smaller enterprises than those that will be subject to the Community regime, I hope that the Minister will be sympathetic to these amendments. I beg to move.

Lord Lucas

Perhaps I may speak briefly to Amendment No. 14 which is along the same lines, but drafted differently to incorporate my concerns that, first, the Government should be able to draw in general classes of these agreements which are seen at the time to be anti-competitive and, secondly, that the director general should have that power with regard to specific agreements when they are brought to his attention, but, if so, that there should be no retrospection in the penalty which he imposes.

I have one particular concern which I suspect arises from the drafting of Amendment No. 53, where the concept of "connected" is introduced. Perhaps it goes back to a lack of understanding of the definition of "undertaking". Is "undertaking" defined in this Bill in such a way that it is necessary to introduce this concept of connection? I cannot find a definition, so perhaps the Minister could elucidate on that.

Baroness O'Cathain

Generally, I support the proposition that vertical agreements are largely benign.

I have one particular concern which I suspect arises from the drafting of Amendment No. 53, where the concept of "connected" is introduced. Perhaps it goes back to a lack of understanding of the definition of "undertaking". Is "undertaking" defined in this Bill in such a way that it is necessary to introduce this concept of connection? I cannot find a definition, so perhaps the Minister could elucidate on that.

Baroness O'Cathain

Generally, I support the proposition that vertical agreements are largely benign.

I have one particular concern which I suspect arises from the drafting of Amendment No. 53, where the concept of "connected" is introduced. Perhaps it goes back to a lack of understanding of the definition of "undertaking". Is "undertaking" defined in this Bill in such a way that it is necessary to introduce this concept of connection? I cannot find a definition, so perhaps the Minister could elucidate on that.

Baroness O'Cathain

Generally, I support the proposition that vertical agreements are largely benign. Amendment No. 53 is grouped with Amendments Nos. 13 and 14 and I am worried because Amendment No. 53 excludes all vertical agreements other than price fixing, and price fixing is not always transparent. A lot of people know exactly what is going on and this came out at Second Reading of the Bill.

Some vertical agreements can act against the interests of the consumer. I would draw my noble friend's attention to the fact that, as I read it, a blanket exclusion would prevent the Director General of the Office of Fair Trading from investigating cases where there are clear abuses.

I should like to see some amendment whereby the effect of this exclusion of vertical agreements could be judged by the Director General of the Office of Fair Trading; in other words, to give him some power to make an economic assessment, to investigate the real effect of the exclusion of vertical agreements, rather than looking at these vertical agreements themselves. I hope I have made myself clear.

Lord Borrie

I have some sympathy with what the noble Baroness, Lady O'Cathain, has just said. We did have a consensus around the Chamber earlier on and the noble Lord the Minister, if I do not understate what he said, indicated that the prohibition in Chapter I of this Bill is a prohibition of agreements which have meaningful and appreciable adverse effect on competition. If that is so, and if there are vertical agreements apart from price fixing agreements that might have an appreciable adverse affect on competition, then why should they not be within the prohibition? For reasons similar to those of the noble Baroness I am not keen on a blanket exclusion.

The other point which I should like to make is that if at some point in the near future there is a greater definition given by the European authorities to what vertical agreements should be exempt, then it seems rather odd if we devise or agree in this Bill to have a definition of vertical agreements, which are excluded from the prohibition, which may be out of line with that forthcoming exemption that the European authorities may devise.

At this stage, I feel it may be unwise to agree an exemption of this sort.

Lord Simon of Highbury

A great deal has been said in this debate with which I can agree. I accept that if we can adequately exclude vertical agreements, the new competition regime will operate with more certainty, and the administrative burden on the Office of Fair Trading, caused by people seeking clearance of their agreements for safety's sake, is going to be reduced. We have all agreed that that is devoutly to be desired.

It will enable the director general to concentrate his resources on the kinds of agreements and conduct which are a real source of competition concern. We all know, and it has been mentioned, that many vertical agreements are benign and only become a source of concern when the party has market power, in which case they can be dealt with under the Fair Trading Act or under Chapter II prohibition. So that follows.

That being said, it would be as well not to overstate, as I fear some noble Lords may be at risk of doing, the impact of the Bill on vertical agreements, such as an agreement between an undertaking and its customer or supplier. Many such agreements are in no sense anti-competitive and a Chapter I prohibition in the Bill, therefore, would not apply to them.

Furthermore, many of those agreements that may have an effect on competition should be perfectly capable of individual or block exemption. Indeed, many will, without further ado, be exempted under the Bill since they will have been exempted under Article 85 and provisions in Clause 10 on parallel exemptions. That will ensure that they are automatically exempt from the Chapter I prohibition.

As many noble Lords will know, the treatment of vertical agreements under Article 85 is currently under review in Europe. The noble Lord, Lord Kingsland, mentioned that fact. If, for example, the Commission were to provide for wider exemptions for vertical agreements, agreements to which those exemptions applied likewise should automatically be exempt from Chapter I prohibition under the terms of the Bill.

Nevertheless, as I have said, I can see that there would certainly be an advantage in excluding vertical agreements from Chapter I prohibition. That is why the Bill provides the power to make exclusions from the Chapter I prohibition, in certain circumstances, by order. The Bill also provides for an exclusion, once made, to be varied. This is to help ensure that any exclusion remains appropriate in the light of developing experience.

The difficulty is, of course, how to frame a definition which is of real practical benefit in giving comfort to businesses that their agreements are not at risk from the prohibition, without at the same time allowing seriously anti-competitive agreements to avoid the application of the Chapter I prohibition. We cannot claim to have cracked the conundrum yet although the noble Lord, Lord Kingsland, encouraged me to crack it as fast as I could. I do regret that. However, we have made progress in discussions with business in identifying the considerations that will need to be taken into account in the drafting. In accordance with our approach of close and detailed consultation in order to bring forward this Bill, we shall be continuing the dialogue so that we draw up a suitable definition.

I will certainly reflect carefully on the points which have been made by the noble Lords. Unfortunately, the process of consultation will necessarily take time. I believe that it is right that it should because we know the difficulty of what we are attempting here. I would hope that noble Lords will feel able to withdraw the amendment to allow that process to continue. In summary, I would say that as an ex-businessman, and after listening to noble Lords' arguments, I attach considerable importance to finding a solution and a suitable definition regarding this problem.

In turning to definitions—this may not encourage the noble Lord as much—I should like to respond to the query of the noble Lord, Lord Lucas, about the definition of an undertaking. The definition of an undertaking is the definition standing in Articles 85 and 86 of the Treaty of Rome. I understand that an undertaking is an undertaking.

6.30 p.m.

Lord Kingsland

Perhaps the noble Lord will undertake to crack this conundrum before the Report stage of the Bill. It would make such a difference to business if there were real certainty in this area. It is not so much the fear that if there is not an exclusion a great many firms will be caught by the rules—I do not think they will—but the uncertainty that will continue if there is not an exclusion, which will lead to compliance costs being needlessly expended by those firms. However, in the spirit of the Minister's answer, I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 14 not moved.]

Lord Lucas moved Amendment No. 15: Page 3. line 6. leave out ("or removing").

The noble Lord said: I simply wish to inquire of the Minister which bits he is thinking of removing; and if he is not thinking of removing any bits, why he needs this power. I beg to move.

Lord Simon of Highbury

The powers in Clauses 3 and 19 of the Bill are important and extensive. Their broad purpose is to ensure that the prohibitions remain targeted efficiently and effectively on areas of real concern in the light of changing economic circumstances and practical experience of the operation of the prohibitions.

In the case of the exclusions provided in respect of Schedule 1, their more specific purpose is to ensure that the exclusion for certain mergers and concentrations dealt with elsewhere under the competition law, which, as we shall doubtless see in our discussion on a later group of amendments, is a very difficult line to draw, can be refined if their operation shows that there are gaps or overlaps.

The ability to amend or remove a case in Schedule 1 with respect to the Chapter I prohibition at present extends only to new cases added under the power in Clause 3 and to the planning obligations case. This is because that is the only specific exclusion of particular agreements as opposed to exclusions based on general propositions or on powers to exclude which the rest of Schedule 3 provides. If, during the course of our deliberations, we were to add further specific exclusions to the schedule—and, as I shall explain in the debate on a later group of amendments, I am continuing to receive representations for them—the Government may propose that the Clause 3 power to amend or remove should apply to them.

The Government have no proposals in mind to exercise the powers to remove exclusion cases, but we believe that the ability to refine the exclusion for the purposes I have mentioned must include the ability to remove a case. As the noble Lord will be aware, your Lordships' Select Committee on the Scrutiny of Delegated Powers has specifically reported that these powers are acceptable. If the Secretary of State were, however, to propose to remove a case under Clauses 3 or 19, or otherwise exercise her powers under those clauses, the Bill contains a significant safeguard. By virtue of Clause 67, the order cannot be made unless a draft of it has been laid before Parliament and approved by a resolution of each House. Your Lordships would therefore have the opportunity to debate, and if necessary divide, should noble Lords be concerned about the exercise of the power to remove an exclusion case which we are incorporating in the Bill.

In the light of that safeguard, I hope the noble Lord is able to see the case for the withdrawal of the amendment.

Lord Lucas

I am grateful to the Minister for that extensive explanation. It satisfies my every desire and indeed goes further in confirming the right of this House to divide on affirmative resolutions. I am delighted to withdraw the amendment.

Amendment, by leave, withdrawn. Clause 3 agreed to.

Clause 17 [Enactments replaced]:

Lord Fraser of Carmyllie moved Amendment No. 16: Page 10, line 16. after ("practices)") insert ("and those sections of the Fair Trading Act 1973 relating to monopoly investigations").

The noble and learned Lord said: This amendment sets out to ensure that the provisions relating to complex and scale monopoly investigations will cease to have effect. The effect of the present proposals in the Bill for a wide-ranging general prohibition on the abuse of market power combined with the retention of both the complex and scale monopoly provisions of the Fair Trading Act will be to impose a more extensive regime for regulating the competitive behaviour of firms than presently exists in the United Kingdom. Indeed, as we understand it, it would provide for the imposition of a more extensive regime than anywhere else in Europe or North America, and, for all we know, anywhere else in the world.

We see no pressing need for such heavy regulation. The Minister knows of our agreement with the approach that has been taken on matters of ensuring competition, but we really must do what we can to avoid an unnecessary degree of regulation. This may be the most important area where that seems likely to be imposed. What is of particular concern to us is that this combination of powers seems to have been undertaken without any real research into its potential effects on the United Kingdom economy. If I am wrong about that, and the Government have undertaken a careful assessment of how these sets of powers will interplay and can come to the conclusion that, contrary to what I am saying, there is not an unnecessary degree of heavy regulation, I hope the Minister will spell that out.

The concern I express has been put to us from a wide range of business interests. Even if the Minister cannot indicate immediately that he will look again at the way these provisions interplay, I hope he will at least leave the Committee with an undertaking that before we return to the matter at Report stage he will have looked at it.

Lord Borrie

I should like quite strongly to oppose the amendment. I have wrestled with my conscience in case this was in part due to some long-standing affection for parts of the Fair Trading Act which, as Director General of Fair Trading, I, from time to time, employed in asking the Monopolies and Mergers Commission to make studies of particular industries under the scale monopoly or complex monopoly provisions of the Fair Trading Act. But I do not think it is just that view, which might be personal to myself.

The Chapter I prohibition, as stated several times when we were dealing with that part of the Bill, concerns agreements and concerted practices. Agreements have to be established in order to suggest that they should be prohibited. I suggest that there has to be evidence of concerted practices before one can say that there are such between two or more firms. Sometimes there is similarity of conduct of a fairly remarkable kind between firms in the same industry but no evidence of agreement, of meetings in hotel back rooms, or of anything to show that they have concerted deliberately in the activity of, let us say, keeping up prices. Nevertheless there is a parallel activity between the companies concerned which inhibits competition and is damaging to customers. At the present time and, indeed, for the past 40 years, it has been possible for that kind of parallel conduct between firms to be examined by the Monopolies and Mergers Commission on a reference of complex monopoly provisions from the Director General of the Office of Fair Trading.

It would be a pity to get rid of those provisions when there is a gap between what can be proved as an agreement or concerted practice under Chapter I and what can be regarded as an abuse of a dominant position of a single company under Chapter II.That is my case for suggesting that we should retain the possibility of complex monopoly references being made to the Monopolies and Mergers Commission which in future will be called the competition commission.

As regards scale monopolies, the case is less strong: nonetheless I make it because if one examines the remedies in the Bill where an abuse of a dominant position is established and proved one does not find among those remedies the possibility of a structural remedy such as a demerger or the separation of certain activities of one firm from another in order to create a more competitive situation. While being a remedy which, in this and other countries, has been very rare indeed, it is one which is available in our law at the moment. It would be a pity if it were lost in order to deal with the more extreme kind of abuse of monopoly power. What is wanted is not the simple imposition of a penalty for conduct but a much more sophisticated structural remedy imposed by the competition authority.

My final point is that this is a new Bill. I know that we are following the method of dealing with anti-competitive practices in the European Community. There is a great deal of experience there from the European authorities. But this is a new Bill for the United Kingdom. It seems to me undesirable that we should throw overboard the possibility of references under the Fair Trading Act in order to rely solely on what is for United Kingdom law something entirely new; namely, the prohibitions and their particular wording in Chapters I and H.

Lord Simon of Highbury

I am grateful to the noble Lord, Lord Borrie, for the voice of experience in what is quite a complicated and important part of the debate, as we recognised at Second Reading. There is no doubt that the new prohibition will be the principal weapon against abuse of dominance. It is also clear that the current regime under the Fair Trading Act and the Competition Act, as the noble Lord, Lord Borrie, has pointed out, based on his experience, has very significant failings and badly needs strengthening. I do not believe that we would wish to throw out the baby with the bathwater.

As the noble Lord, Lord Borrie, says, this is a new Bill and at this stage we believe there is a very strong case for retaining the Fair Trading Act monopoly provisions to enable investigations to be conducted into markets in cases where competition issues arise from the structure of the market rather than from anti-competitive agreements or specific abuses by a dominant company. The current regime under the Fair Trading Act enables wide-ranging and impartial investigation of such situations by the Monopolies and Mergers Commission. It also provides scope for a wide range of remedies—and that is important—to be imposed if matters are found to be contrary to the public interest. With that sort of approach it is right that the imposition of remedies should be subject to parliamentary scrutiny and that the responsibility should rest with Ministers.

I believe that it is widely recognised that the complex monopoly provisions fill a gap between the two prohibitions. The Chapter I prohibition will deal very effectively with anti-competitive agreements and the Chapter II prohibition with abuses by single dominant companies. But the complex monopoly provisions will continue to be a more effective tool for dealing with anti-competitive parallel behaviour by companies where there is no agreement between them.

We also believe that the scale monopoly provisions will continue to have value although we do not intend that their use should be limited with the introduction of the new prohibitions. In future we do not expect references to be made of scale monopolies except in circumstances where there has already been proven abuse under the prohibition and where the DGFT believes that there is a real prospect of future abuses by the same firm. In these circumstances the structural remedies available under the Fair Trading Act may provide a more effective means of preventing further abuses.

The final point I need to make to the Committee is that it should be aware that the use of the scale monopoly provisions as regards the regulated utility sectors is the subject of separate consideration in the context of the current utility review. As Members of the Committee will know, that is due for report and consultation at the beginning of the new year so we need to take into account the timetable for that review in considering the progress of our discussions on this Bill.

In summary, the monopoly provisions of the Fair Trading Act will essentially become reserve powers to deal with situations where the problem is market structure rather than abuse. It is for that reason that 1 mention to the Committee the issue of the utility review and the issues which surround it specifically in terms of those scale provisions. We believe that the provisions will continue to have value in such limited circumstances. I have listened very carefully to the noble and learned Lord, Lord Fraser—

6.45 p.m.

Lord Fraser of Carmyllie

I shall respond more fully to what the noble Lord has said, but there is one matter I am interested in in relation to the utility review. When does he anticipate the reporting? Is it likely that that will happen before the Report stage of the Bill? Is there a prospect of seeing it before then?

Lord Simon of Highbury

I think it is unlikely, but I shall confirm that point later. I am glad that the noble and learned Lord has noted our thought processes with regard to the issue of scale monopolies. I have tried to explain why I believe that it would be unwise of the Committee to throw out the baby with the bath water at this stage. I have listened carefully to the arguments that have been made and shall certainly reflect on them, but for the present I ask the noble and learned Lord to withdraw his amendment.

Lord Fraser of Carmyllie

I am grateful to the Minister for his response, which reveals a rather surprising lack of confidence in the efficacy of the two prohibitions which are at the core of the Bill. The noble Lord, Lord Borrie, seemed to be promoting not so much a belt-and-braces approach to the problems, but rather an approach based on handcuffs, manacles, shackles and leg-irons.

Although I listened to what the Minister said and we certainly do not intend to press the amendment this evening, we remain to be convinced that there is anything like the gap or the risk at which both the noble Lord, Lord Borrie, with his great experience, and the Minister hinted. If I understood the noble Lord, Lord Borrie, correctly, he was getting pretty close to conceding that, at least as far as scale monopolies are concerned, it is more difficult for him to advance any particularly obvious gap. If that is the case, we shall want to consider this more carefully. It will be unfortunate if we do not have the utilities review by the time that we return to this amendment at a later stage. We shall certainly want to examine whether there are any gaps to be filled, because if there are any gaps we want them to be filled.

For the sake of UK business we should not have unnecessarily heavy regulations and any duplication must be kept to the bare minimum. In our view, it is probably highly unnecessary to retain this set of complicated legislative provisions at the same time as introducing the two prohibitions. We shall want to return to this but, for this evening, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 agreed to.

Clause 18 [Abuse of dominant position]:

The Deputy Chairman of Committees (Lord Strabolgi)

I have to inform your Lordships that if Amendment No. 17 is agreed to, 1 cannot call Amendments Nos. 18 and 24.

Lord Fraser of Carmyllie moved Amendment No. 17: Page 10, line 18, leave out subsections (1) and (2) and insert— ("(1) Predatory pricing or price discrimination by a dominant firm, which is carried out with the intention and has the effect of eliminating a competitor or of substantially lessening competition in the relevant market, shall be prohibited.").

The noble and learned Lord said: As I said earlier, although we now come to a fairly extensive grouping it seems more desirable if I speak to my Amendments Nos. 17 and 24, leaving the other amendments for debate in another grouping. I hope that the reasoning behind my suggestion will emerge from what I am about to say.

Our concern is that the present basis of the introduction of a prohibition into the United Kingdom of abuse of a dominant position, if it is directly based on the wording of Article 86, means that there will be insufficient clarification and inadequate precision with regard to the type of conduct being prohibited. We are concerned that uncertainty as to the reach of the prohibition will not have the intended effect of deterring anti-competitive behaviour. I am sure the noble Lord, Lord Clinton-Davis, appreciates that we share his objective of deterring anti-competitive behaviour.

A further concern which I expressed on Second Reading is that where there is uncertainty there is a risk of a "chilling effect"—if I may use again the language of the CBI—on competition and commercial responses in the market place. If that were to be the case, it would be very unsatisfactory and ultimately damaging for the UK economy.

Our next concern is that business should be clear about exactly what type of behaviour will give rise to the use of the powers of investigation, including the potential for criminal penalties, and which will potentially be subject to large fines.

I could provide the Committee with a number of examples to demonstrate our concerns, but at this stage it may be sufficient for me to limit myself to the case of Tetra Pak II, with which I believe a number of your Lordships are familiar. It was concluded that if a company is dominant in one market it can infringe Article 86 by its conduct in other, separate markets which are linked to the first, but where the company is not dominant.

Following that through, let us take as an example a company which is dominant in one market and makes vehicles which rely on the internal combustion engine. Would there be a real risk of the company being severely constrained if it wished to innovate and enter a new market—again, providing vehicles, but where the movement was powered by electricity? In such a new market, the company will have to act from day one as if it were dominant. It would not, for example, be able to select its customers freely, establish prices freely or target discounts at particular sectors.

On the basis of what I understand to be a correct interpretation of the Tetra Pak II case, that would have the effect of reducing such a company's incentive to innovate and invest in the other market. Accordingly, we would suggest that a better way to achieve deterrence of anti-competitive behaviour would be to rely instead on the definition in my Amendment No. 17.

Perhaps I may turn now to my next amendment in the grouping, Amendment No. 24. The effect of the amendment would be to ensure that for the purposes of a Chapter II prohibition abuse cannot be found unless dominance is used to achieve it. It requires that dominance must be the cause of the abuse. We had some exchanges at Second Reading on this with the noble Lord, Lord Borrie. In our view, there is nothing wrong with a company being big. That should not make it subject to penalty or prohibition. The problem occurs when a company has dominance in a market place and abuses that dominance. We believe that the amendment would spell that out more clearly and thus improve the Bill. I beg to move.

7 p.m.

Viscount Waverley

Perhaps I may weigh in on these issues. What guides me is the underlying principle of there being a social duty to pay a fair value for a product and so, by extension, a general duty to prevent producers or providers of services going bankrupt or facing undue financial hardship through any particular buying or anti-competition strategy.

I have two principal areas of concern. I deal with one of them in a substantive way and touch on the other, not least to register a potential problem area. My first point stems from a circumstance that arose in 1995 with Asda supermarkets. I mention Asda simply to give relevance to my short case study. One of Asda's operations totally undermined the political efforts of the government of the day to defend the European Union banana import regime which honoured the Lome commitment to provide an accessible and viable market for traditional ACP producers. That policy has been confirmed by both the Lord Privy Seal and the noble Lord, Lord Whitty, on a number of occasions when I have raised this issue in your Lordships' House.

Asda took a marketing decision to offer certain heavily discounted merchandise to draw customers into their stores. Its rationale in taking that policy decision was to use bananas as a loss leader in an attempt to improve overall store revenues. My involvement arose when it became clear that Caribbean banana growers were suffering acutely as that policy placed immense downward pressure on retail and wholesale prices, and ultimately on the returns to those producers; in other words, ultimately the growers paid for this marketing strategy. I believe that Asda could have been charged with manipulating the banana market in a cavalier fashion without due regard to the consequences. I recall that the noble Lord, Lord Carter, while in opposition, put the matter in the following way in a Question to the noble Baroness, Lady Chalker, asking if the Minister was aware, that the situation involves apparent predatory pricing by powerful supermarkets?".—[0fficial Report, 2/11/95: col. 1501.] The previous Administration felt that it would be difficult for them formally to intervene as technically Asda was not operating outside the rules. A suggestion had been made that the Office of Fair Trading's rules on predatory pricing had been broken either by a breach of the Fair Trading Act 1973 or the Competition Act 1980. To test that would have meant taking initiating action in the courts similar to that initiated by the leading manufacturers of over-the-counter drugs. All of those major multinational pharmaceutical companies were able to secure an injunction which prevented Asda from selling over-the-counter drugs at reduced prices. It was with regret that the high cost of litigation dissuaded the Caribbean interested parties. I should like to be assured that that does not happen again. I should be grateful if the Government—and indeed the noble and learned Lord, Lord Fraser, if he were able—could assure me that my concerns will be appropriately addressed.

From a recent editorial it has come to the attention of many that British Airways is considering setting up its own low-cost carrier, with the fear that it is prepared to lose money to eliminate small competitors. Once they have been eliminated fares will be raised again. The European Commission has stated that it wishes to operate an open skies policy with free and fair competition within Europe. Article 86 of the Treaty of Rome already outlaws predatory pricing, with the effect that a dominant player in a market may not sell its products below cost price with the intention of eliminating a smaller competitor.

Baroness O'Cathain

I thank the noble Viscount for giving way. I should declare an interest as a director of British Airways. I do not believe that the noble Viscount is fair in his comment about British Airways giving consideration to setting up a low-cost no-frills airline. I assure the noble Viscount that the last thing British Airways would do is to set up a no-frills low-cost airline with the absolute certainty that it would lose money in order to maintain its competitive position. That is certainly no part of the thinking of British Airways, and I believe that it is quite wrong for the noble Viscount to make that comment.

Viscount Waverley

I thank the noble Baroness for her remarks. I hope in turn that British Airways will not set up a low-cost airline that will have the effect of preventing other low-cost carriers from offering low prices within the European Union.

Baroness O'Cathain

I thank the noble Viscount for again giving way. In no way can the noble Viscount say that British Airways should not set up a low-cost no-frills airline. British Airways is not necessarily going to set it up, but it is thinking about it, and that is generally agreed. Why should British Airways be prevented from setting up a low-cost no-frills airline if it will lose money? It is in an open and competitive business. Certainly, it will not set up such a business necessarily to put someone else out of business, but it is an open market. The purpose of this Bill is to make sure that in the end the customer has greater choice and is not penalised by agreements.

Viscount Waverley

This has been a useful exchange. I look forward to seeing tomorrow in greater detail the comments of the noble Baroness. I should draw to her attention that such issues are covered by Article 86. Let us see how the whole gameplan unfolds. The Minister may wish to comment on a number of the points that the noble Baroness has made in relation to British Airways.

Lord Borrie

I have some difficulty in understanding the extreme width of Amendment No. 17 moved by the noble and learned Lord, Lord Fraser. If I understand it correctly, the amendment would remove altogether the Chapter II prohibition on the abuse of a dominant position. Among all of the abuses of monopoly power that can exist, including forcing people to take goods that they do not want in order to get goods that they do want, the noble and learned Lord has inserted merely one kind of abuse which is predatory pricing and given it a definition. If I am correct in what I say, I wonder about the definition of predatory pricing in Amendment No. 17. The noble and learned Lord will recall that the Chapter I prohibition concerns agreements which have the intention or effect of restricting competition. In the amendment the definition of predatory pricing or price discrimination by a dominant firm is that it must be both with that intention and effect. It appears to me that that is a much more difficult proposition to establish and that it removes a great deal of the mischief with which the Chapter II prohibition is intended to deal.

Lord Haskel

I believe that we are considering Amendments Nos. 17 and 24. It is not for me to enter into the argument between the noble Baroness and the noble Viscount. However, I believe that both should welcome the Bill since it sets up a mechanism for settling their dispute. I hope that those are words of comfort.

Clause 18 prohibits the use of dominant market position. That prohibition is closely modelled on Article 86 of the Treaty of Rome. By virtue of Clause 58 of the Bill the prohibition will be applied so as to avoid inconsistency with the interpretation of Article 86. As a result, the principles applied in interpreting what may constitute an abuse of a dominant position under European law will be applied in the same way under the domestic prohibition. This is of crucial importance because it will ensure that business can look to European Community jurisprudence as a guide to the interpretation of abuse under the domestic prohibition and that business will not have to deal with differing prohibitions at European and domestic level. I hope that that deals with the concerns of the noble and learned Lord, Lord Fraser.

For that reason the illustrative list in Clause 18(2) is drawn directly from Article 86. It would be wrong to tinker with the list. To have a different list would seriously risk creating a divergence between the domestic and European prohibitions. For the reasons I have explained, that would be highly undesirable. As to the specific changes proposed they add nothing in practice to the prohibition.

Turning to Amendment No. 17, this removes the general prohibition from the Bill and replaces it with a narrow prohibition directed solely at predatory pricing and price discrimination, as my noble friend Lord Borrie said. This undermines the objective of the Bill to introduce a general prohibition of abuse of dominance in line with European jurisprudence.

Amendment No. 24 relates to abuses based on economic strength in another market. Again, EC case law shows that in certain circumstances Article 86 may apply where an undertaking that is dominant in one market commits an abuse in a different, neighbouring market.

The list in Clause 18(2), like the one in Article 86, is illustrative and not exhaustive. Depending on the circumstances, different types of behaviour might constitute an abuse. However, behaviour of the type set out in the list would not necessarily be an abuse because each case will turn on the structure of the market and the effect of the conduct in question. This will deal with the noble Viscount's question regarding the bananas, about which he was so obviously concerned. It is, after all, the effect that is important to customers and to other firms.

In short, the prohibition introduced by Clause 18 fulfils the Government's commitment to bringing forward stronger legislation to prohibit abuse of dominance in the economy as a whole. In view of this explanation, I ask the noble and learned Lord to withdraw his amendment.

Lord Fraser of Carmyllie

It will be clear that at this time of night on a Thursday we do not intend to press amendments to a Division. But the night is still young. Certainly, just before dinner, I do not propose to press this amendment to a Division.

This amendment seeks to achieve a clear separation or distinction between the Article 86 provisions in the treaty and what is in this Bill. It may be that it could be expanded to cover another set of clearly identified types of abuse, but what it is intended to do is to highlight two matters; one of which is, as I said at Second Reading, that there is a clear concern expressed by British industry that the effect may be to have a chilling effect on innovation in the market place. I am sure that the noble Lord agrees that such a consequence would be undesirable.

We are disappointed that there seems to be little acknowledgement from the Government that any such risk might exist. If it does exist, I hope that there will not be a shrug of indifferent shoulders from the Government on such an important matter.

The second matter is this. In my example I highlighted the case of Tetra Pak II. I hoped to tease out from the Government whether they had any concerns about the way the jurisprudence of the ECJ had developed; that it was going too far to say that if you are dominant in one market it has far greater significance on how you have to act in another market. That seems to be the consequence of Tetra Pak II and it is undesirable and going too far. What we and organisations such as the CBI wish to highlight is that that might have an effect on the innovation expected in the market place and introduce a greater degree of uncertainty than is desirable.

I am not going to press these amendments but before this Bill leaves this House we want to be satisfied that the concerns that I and organisations such as the CBI have expressed are unfounded. We also want to be satisfied that there is a clearer and greater confidence about the way that the jurisprudence of the ECJ is developing and that the Government believe, at this time and at this stage, that none of it is prejudicial or undesirable in the development of the United Kingdom market.

We shall undoubtedly return at a later stage in an attempt to obtain answers to those two issues. I beg leave to withdraw Amendment No. 17.

Amendment, by leave, withdrawn.

7.15 p.m.

Lord Simon of Highbury moved Amendment No. 18: Page 10, line 19, after ("position") insert ("in a market").

The noble Lord said: The purpose of Amendments Nos. 18 and 27 is to ensure that Clause 18(3) is not read as limiting the relevant geographic market for assessing dominance to the United Kingdom. It has never been our intention that it should do so, but it is important that the drafting of the legislation is not ambiguous on this point.

In order to assess whether an undertaking holds a dominant market position it is necessary to establish what the relevant market is. Clause 18 is modelled closely on Article 86 of the Treaty of Rome. There is considerable EC case law concerning the principles for defining the relevant market. By virtue of Clause 58 of the Bill these principles will also apply in determining whether an undertaking is dominant for the purposes of the UK prohibition.

In addition, the director general is required under the Bill to issue guidelines as to how he intends to apply the prohibitions. The definitions of the market and the interpretation of dominance is a key issue which we would expect to be covered in the guidelines. That, I hope, will go some way to removing the chill of the chilling effect; although it does not seem to have chilled our competition on the Continent, which has been operating under these conditions for some time and competing very strongly. As currently drafted, Clause 18(3) defines a dominant position as, a dominant position in the market within the United Kingdom".

It is necessary to specify that there must be dominance within the United Kingdom to ensure that the legislation does not catch firms which are dominant in markets wholly outside the UK. However, Clause 18(3) is not intended to limit the relevant market to the UK.

As a person who has practised business, and with particular responsibilities for single market issues, I am very well aware of the challenges and opportunities presented by increasingly global markets. Indeed, we wish to encourage our companies into them and many of them compete in those markets which extend considerably beyond the UK.

The competition that these companies face in these markets, both at home and abroad, must be fully recognised in assessing whether or not these companies are dominant. In the interests of clarity, therefore, Amendment No. 27 deletes the reference to the market within the UK in Clause 18(3). Here we are interested only in market dominance, not any other sort of dominance which one might conceivably think of. That is why we originally included the reference to the market in Clause 18(3). Because Amendment No. 27 would delete this reference, Amendment No. 18 inserts "in a market" in Clause 18(1). The amendments are to define dominance in the wider market place, and separate that out as a test issue, and then to refer to the UK as a specific instance outside that. I beg to move.

On Question, amendment agreed to.

Lord McNally moved Amendment No. 19: Page 10, line 23, at end insert ("or deliberately accepting losses in order to reduce competition").

The noble Lord said: The most hostile audience I ever addressed when I was a Member of Parliament for Stockport was when I was introduced with the memorable words: Before we start the bingo, we will have some words from our Member of Parliament".

The last mover of amendments before the dinner hour faces an equally hostile audience. So perhaps I can calm the Committee by saying that I intend to move only Amendment No. 19, and to use the opportunity to speak to Amendments Nos. 22, 23 and 28 which I shall not move.

As was indicated earlier, my intention in moving the amendment is to deal with issues within a particular industry—the newspaper industry. The amendments are couched in general terms. As the noble Viscount, Lord Waverley, said, some of the issues raised may relate to other sectors and other industries. In short, the purpose of Amendment No. 19 is to prevent a firm from purposely making a loss to damage weaker competition.

Amendment No. 21 replicates the wording used in the US Sherman anti-trust laws. Amendment No. 22 addresses the problem of predatory pricing which, as currently defined, requires the predator to be the dominant undertaking in the same market in which the abuse is carried out. Amendment No. 28 is similar to Amendment No. 22 in that it would redefine the use of "market" to refer to a firm being dominant in just one particular sector of the market.

My clear intention in moving the amendment is to deal with the particular problems of the newspaper industry. We in this country are proud of the diversity of our press and of the high level of readership. We see such diversity as underpinning our democracy. The relationship between a free Parliament and a free Press should never be comfortable but they should be mutually supportive. That is why I want to use the opportunity of the Competition Bill to enable us to consider what I believe to be a deep malaise in the newspaper industry, which stems from weaknesses in our competition law and which threaten its diversity and choice.

It is only to be expected that the amendments may be seen in terms of being anti-Murdoch or anti-News International. Indeed, yesterday in his own paper, The Times, Mr. Murdoch is quoted as saying: No way will I call a truce. No one else wants to call a truce. They insult me everyday. so they can go to hell. People do not much seem to like competition in this country".

Mr. Murdoch is an aggressive competitor. He steps on a lot of toes, but I am not in the business of protecting anyone from fair competition from the Murdoch press. What I am concerned about is that we have allowed to grow up in the newspaper industry a competition regime more lax than anywhere in the world. That laxity is based upon the definition of "dominant position", which takes no account of the ability of major media conglomerates to cross-subsidise, loss-lead, and predatory price in a way which would not be tolerated in any other industry.

I hope sincerely that the Minister will respond constructively to the amendments. In opposition, the Labour Party showed itself to be most robust in these matters. I could delay the Committee by giving some long quotes from Mr. Nigel Griffiths. I would recommend to the Minister that he looks hard and long at his speeches, because I fear that he will have them quoted at him ad nauseam over the next few months and years. I think I would ask to move to the Foreign Office in the next reshuffle.

The problem is that in the newspaper industry it seems that it is not enough for a victim to be bleeding. Apparently our present legislation requires a corpse before the OFT will act. Such a response is just not good enough if we are not to see irreparable damage done to the newspaper industry. Let us look around. The Independent is no longer independent, but needs the support and protection of larger groups. The idea of a similar venture being attempted against the background of present day newspaper economics is unthinkable.

Not one of our major broadsheets operates on anything like a commercial basis. Yet The Times sells regularly on Mondays at a price which is blatantly below cost. Media analysts believe that that aggressive price cutting is aimed at undermining the Daily Telegraph. It certainly seems to be working, with Daily Telegraph profits down from over £60 million to under £1 million. It is estimated that The Times itself is losing £30 million a year, financed through cross-subsidy by other parts of News International. That is a publication which has, over the past four years, regularly sold at less than half its true costs on Mondays.

There is something rotten at the heart of our newspaper financing. What other industry, which generates revenue of over £700 million, produces overall losses of £50 million, and is still supposed to be operating commercially? Big issues and powerful forces are at work here. They go to the heart not just of the economics of our newspaper industry but the functioning of our parliamentary democracy. This is a government who came to office with a powerful mandate to improve our system of government in all its aspects. Included in that programme of reform must be a healthy and truly competitive press. I urge Ministers to accept the amendments, not just as good competition law, but as a fulfilment of that wider mandate to reform. I beg to move.

Viscount Astor

Amendment No. 23 is grouped with the amendment moved by the noble Lord, Lord McNally. My amendment has a similar purpose, but is slightly different. If I may describe it as such, it is the vertical approach rather than the horizontal one. With great respect to the noble Lord, my amendment may be preferable as it would clearly not reach other sectors of business. The horizontal approach could apply to other businesses, and so it could be argued that that could produce unacceptable curbs on price competition in other industries.

I do not believe that the law can prohibit the acceptance of losses, deliberate or otherwise. Market conditions can sometimes force all the participants in an industry into loss and give them no alternative but to accept the result. If a market is overcrowded, prices are likely to fall until the surplus is eliminated. In such conditions it will be hard to set prices that did not have the result of possible losses.

It could be argued that my approach is contrary to the statement made by the Secretary of State in her White Paper in August, that there was a good case for excluding most vertical agreements. It is important to stress the word "most" with regard to vertical agreements. I agree with the sentiments. That is why my amendment, unashamedly, signals that the press is different. I make no apologies for making an exception of it. It is different. Competition, plurality, and diversity in the press are even more important than they are in other industries. They are part of the fabric of democracy, and the Government should recognise that.

That is, of course, not a new concept. There is a precedent to accept that the press is a special case in competition legislation. The Fair Trading Act 1973 has different monopoly and merger conditions for the press and for other sectors of industry. Predatory pricing is accepted as an abuse, whether or not financed by cross-subsidy, but there are differing ideas of what it is. Dominance can be in one sector, and abuse can be in another. It is unlawful only if a company prices its goods below cost in the market in which it has dominance, not in other markets. That is the nub of the problem which is not addressed by the Bill.

If one is dominant in an industry there may be no need to embark on a predatory price war. Perhaps the only companies which do so wish to become dominant. I believe that in those cases such action should infer a presumption of dominance, whether in the same market or a separate one.

A recent editorial in the Evening Standard put the case well when it stated that newspapers, like other businesses, have competed by persuading the consumers that their product was better or better value for money. Bad competition is where those who distort the market while trying to eliminate competition entirely force their rivals to fight dirty to stay in the business, a problem that has recently been much in evidence in the press.

Interestingly, News International, despite having such a large share of the newspaper market, is reported to be sceptical that this type of amendment to the Bill, if it were accepted, would make any difference to its company's pricing policy. It denies that its pricing policy is predatory, but claims that it is market promotion and not a permanent feature. If that is its view it has nothing to fear from the amendment. However, I find its defence of its pricing policy difficult to accept. It is true that by lowering prices it has increased readership, but at a huge cost. This promotion looks pretty permanent to me!

I am not anti-Rupert Murdoch—I admire him. He sorted out the problems which afflicted Fleet Street when I worked in that industry 20 years ago. He created BSkyB, which is a huge success. News International is rightly exploiting a gap in the competition law. Murdoch likes to be successful and who can blame him? We all accept that plurality is beneficial to industry and to consumers. For this industry and for this country, it is vital.

I hesitate to bring a note of politics into the debate, but I ought to point out to Ministers opposite that Robin Cooke, when shadow Secretary of State for Trade and Industry, said in another place that Murdoch was able to cut prices only because of his profits from other interests and that we were now faced with blatant predatory pricing. That line was echoed by Mo Mowlem, when shadow Heritage spokeswoman, who said that unless action is taken Murdoch will weaken his British competitors to the point where he will dominate the market.

The noble Lord, Lord Simon, opening for the Government on Second Reading, said: The Bill shows our commitment to ensuring effective and fair competition. It would benefit both consumers and business".—[Official Report, 30/10/97; col. 1144.] If the Minister really believes that, then he ought to be able to consider my amendment favourably, or will this be the case of another government U-turn?

7.30 p.m.

Lord Borrie

In taking part in this debate I must declare an interest in that I am a non-executive director of Newspaper Publishing plc, which is the publisher of the Independent and the Independent on Sunday.

One of the most important areas of competition law which the Bill leaves untouched is the law relating to mergers between companies in general and newspapers in particular. As the noble Viscount, Lord Astor, rightly said, the Fair Trading Act 1973 makes special provision for newspaper mergers. Then the swallowing up of a major newspaper by another newspaper or newspaper group was properly considered to be of particular significance in a democratic society beyond mergers and takeovers in general because newspaper mergers could seriously reduce the availability of a diversity of opinion. Under the Fair Trading Act it is mandatory for reference to be made of a major newspaper merger. The Monopolies Commission is specifically required to take account, of the need for accurate presentation of news and free expression of opinion". Over the years, the Monopolies Commission in a variety of reports on newspaper mergers has frequently emphasised the importance it attaches to choice of newspaper and diversity of views. All that is existing law, but I suggest that the continued availability of diverse organs of news and opinion can be ended not just by merger and takeover but by a persistent campaign of below-cost price cutting on the part of one newspaper group which is well able to cross-subsidise from other businesses to the detriment of certain newspaper groups.

The pricing policy of The Times newspaper, referred to by the noble Lord, Lord McNally, regularly to sell at 10p on Mondays, has repeatedly threatened the continued existence of the Independent. That distorts competition with the Daily Telegraph and other broadsheet newspapers and, I have no doubt, has a serious exclusionary effect because it is likely to deter those who might otherwise think of entering the market. Who today, I ask, would dare to start a new broadsheet newspaper, as was done by Mr. Andreas Whittam Smith and others when the Independent was started in 1986? It seems to me that such persistent conduct should be regarded as seriously damaging to the competitive process and as an abuse of dominant position. Therefore, I feel favourably disposed—and I hope that the Minister will feel favourably disposed—towards either or both of the amendments that have been proposed today.

Lord Ackner

I support everything said by the noble Lord. Lord Borrie. It must be a fundamental purpose behind Clause 18 that abuses of power should be prevented. What has been described seems to me to be a most blatant indication of power being abused. As has been stated, competition has been distorted and the diversity of opinion among the press is threatened. There is a threat to the very freedom and variety of expression. I should have thought that it would be remarkable if this Government were not prepared to see such a situation properly catered for. That is not the case as Clause 18 now stands.

Lord Haskel

The concern of the noble Lord, Lord McNally, for predatory pricing in the newspaper industry has been well documented and I have a great deal of sympathy. He has conducted the campaign well and with a great deal of ability. However, it would be quite wrong of me to comment on the specific complaints relating to the newspaper industry as discussed. The purpose of the Bill is to establish a legal framework under which the Director General of Fair Trading, the Competition Commission and the courts can assess whether individual agreements and conduct are anti-competitive. I shall therefore restrict my comments to the issues of principle raised by the amendments. Perhaps I may remind Members of the Committee that when Sir Bryan Carsberg was Director General of Fair Trading he rejected previous complaints, taking the view that the decision of The Times to reduce its prices was a reasonable commercial strategy.

The amendments relate to predatory pricing tactics; that is, price cutting designed to force competitors out of the market or to discourage new competitors from entering the market. However, it is perfectly clear that such practices carried out by a dominant undertaking may constitute an abuse under Article 86 of the treaty, depending on the particular circumstances of the case. This Bill introduces stronger legislation on abuse of dominance and that, depending on the circumstances, also covers predatory pricing.

As well as referring specifically to the newspaper industry, the noble Viscount spoke also about vertical agreements. That is proper territory for the Director General of Fair Trading, the tribunal and the courts. This amendment carries the same risk as other amendments which seek to depart from the illustrative list in Article 86. Over and above that, it would be especially undesirable to refer in the list to any particular sector of the economy. Clause 18 is a general prohibition on abuse of dominance modelled on Article 86 and it provides a clear legal framework against which to assess whether any particular conduct is abusive and likely to restrict competition.

In view of the fact that this Bill introduces stronger legislation on abuse of dominance and covers predatory pricing, I should have thought that the noble Lord would support the Bill as drafted and withdraw the amendment.

Viscount Astor

Will the noble Lord confirm that if a company is dominant in one market but the abuse is in an entirely different market, that will be covered by this Bill when in the past, it has slipped through the gap?

Lord Haskel

As I said on the previous amendment on abuse of economic strength in another market, EC case law shows that in certain circumstances Article 86 may apply where an undertaking that is dominant in one market commits an abuse in a different market.

Lord McNally

I thank the Minister for his kind comments. I ask him to observe that in a fairly lightly attended Chamber, speeches of support have been made from Conservative, Labour, Liberal Democrat and Cross Bench Members of the Committee. Therefore, I hope that Ministers do not underestimate the strength of feeling on this issue. There is some disappointment that there has been such a spectacular U-turn from what the party spokesman was saying in opposition.

I shall not press the amendment this evening. However, I shall consult the noble Viscount, Lord Astor, to see which of us can come up with the best course for the next stage of the Bill. We shall probably seek the advice of the noble Lord, Lord Borrie, and even of the noble and learned Lord, Lord Ackner, if he is not too expensive.

Lord Ackner

There will be cut prices on this occasion only!

Lord McNally

I am even more encouraged. However, I warn Ministers that we may well test the opinion of the House on this matter on Report. However, at present, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Haskel

I beg to move that the House be resumed. In moving this Motion, I suggest that the Committee stage begins again not before 8.40 p.m.

Moved accordingly and, on Question, Motion agreed to.

House resumed.