§ 3.53 p.m.
§ The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)
My Lords, I beg to move that this Bill be now read a second time.
I am very pleased to have the opportunity to introduce this important Bill to the House. I shall start by putting the Bill into the context of the Government's overall strategy.
In our first term of government our economic priority was to establish economic stability—the essential precondition for wider prosperity and business success. In this second term, our economic priority is to build on the foundation of economic stability by promoting higher productivity and greater enterprise. To achieve this we will now match independence for our monetary authorities with independence for our competition authorities, and alongside tough rules for public finances we will put strong rules for competitive behaviour and consumer protection.
The purpose of the Bill is to strengthen the foundations of an enterprise economy—by promoting competition, protecting consumers and establishing an insolvency regime that fully supports enterprise. 139 These foundations need strengthening as soon as possible if the UK is to be equipped to meet the economic challenges of the 21st century.
The Bill has been widely welcomed. For example, recently Sheila McKechnie, of the Consumers' Association said that the measures will,put an end to the billions lost to consumers each year from rogue traders".And Digby Jones of the CBI said:We support [the Bill] in the round and we value a very tough competitive regime because it will enhance productivity".The Federation of Small Businesses said:We do not see anything controversial in these proposals and would urge all party support and speedy implementation through Parliament".There has also been support from competition, consumer and insolvency experts and other interested parties. The extent of support for the Bill reflects the fact that at every stage we have listened to the views of stakeholders. In 1999, we consulted on the measures in the consumer White Paper. In 2000, we consulted on personal bankruptcy and reform of the merger regime and last year on competition and insolvency. The responses to our consultations, along with our ongoing discussions with a range of interested parties, have been invaluable in taking forward our original proposals.
The Bill has also been improved as a result of the constructive debate that took place in another place, and I am sure it will be here as well. Honourable Members there asked about how much of a difference the proposals will make to people's lives in practice. They sought reassurance that the Bill will not create new burdens on business. They asked whether sufficient resources will be available to back up new powers given in this Bill. I believe that we were able to give convincing answers to all their questions and to persuade them of the importance of the measures in this Bill.
I shall start with the measures in the Enterprise Bill—in Parts 2 to 7—to promote competition. As a Government, we are unashamedly pro-competition. Effective competition provides opportunities for new firms to enter markets and grow. Strong, fair competition contributes to innovation and productivity growth and the diffusion of economic power. It maximises opportunities for all.
We are still behind France, Germany and the US in our productivity. Our productivity performance must improve to ensure the higher living standards that all of as want. The number one target in the DTI's Public Service Agreement is to close the productivity gap. We need a step change in domestic competitive pressures to help us both raise our productivity and compete effectively in international markets.
I believe that as our competition framework becomes more effective, markets will work more efficiently and fairly, and the less regulatory intervention will be needed in the long run.
140 The Competition Act 1998 started the process. It introduced into domestic law a regime which prohibited anti-competitive behaviour and which was closely modelled on the EC counterparts in Articles 81 and 82 of the EC treaty. But other areas of competition need to be addressed; for example, to modernise the mergers and markets regimes and to do more to deter cartels.
Our reforms are based on a number of key principles set out in the competition White Paper. The first principle is that we need strong, proactive and independent competition authorities that are able to deal with anti-competitive behaviour. So we are removing Ministers from the vast majority of decisions on mergers and market investigations, thereby removing a layer of regulation and streamlining the regime. We are ensuring that decisions are taken by competition experts, free from short-term political pressures. And by ensuring that those decisions are taken on the basis of a competition test, rather than a public interest test, we are improving the clarity of the framework for decisions, and the predictability of decisions made under it. This is good news for business.
The Bill also makes important procedural improvements to the regulatory framework for mergers and market investigations, ensuring greater transparency, and it makes changes to improve the accountability of the authorities. We will ensure that the competition authorities have the extra resources needed to carry out their functions effectively. The effect of the reforms will be a regime that operates predictably, consistently and proportionately. In short, better regulation.
The second principle of our reforms is to establish a strong deterrent effect for anti-competitive behaviour. The Competition Act introduced fines for firms which engage in anti-competitive behaviour—but did not provide a deterrent for those individuals who dishonestly engage in hard-core cartels. Hard-core cartels do serious harm to consumers, businesses and to the economy by forcing up prices or keeping them artificially high, and preventing new entrants gaining access to markets. US competition authorities believe that cartels raise prices by 10 per cent on average.
Examples of recent cartels include the global vitamins cartel that fixed prices for eight years and is estimated to have doubled the prices to consumers—resulting in a record European Commission fine—the carbonless paper cartel led by a UK company, and the Sotheby's/Christies cartel. As Andreas Whittam Smith wrote in Monday's Independent:The crime for which the former chairman of Sotheby's was sent to jail recently in the United States may have seemed like a breach of arcane rules about collusion in auction markets. But it was stealing … in the same way as having one's wallet removed by surreptitious fingers while pushing through a crowded street is stealing".The Director-General of Fair Trading's cartels investigation branch is uncovering evidence of cartel activity in the UK. There are currently around 40 significant cases under investigation. The possibility of fines on companies under the Competition Act does not create a real deterrent for individuals.
141 Therefore, we propose to introduce a new criminal offence of dishonestly entering into cartels, backed by sanctions including the possibility of up to five years' imprisonment. The offence is tightly drawn but will create a real deterrent effect. Not only is that measure vigorously supported by consumers, it has business support too from, for example, the British Chambers of Commerce.
Our third principle is that those who have lost out through anti-competitive behaviour—whether businesses or consumers—should have a genuine opportunity to obtain redress. Where a company has been found by the Office of Fair Trading to have breached competition law, the Bill will enable harmed parties to bring claims for damages before a specialist competition body—the competition appeal tribunal. They can already go to the courts in those circumstances but the change brought about by the Bill will establish a cheaper, more streamlined route to obtain redress from companies that have broken the law.
Representative bodies will be able to bring claims for damages in front of the tribunal on behalf of named and identifiable consumers. That will help consumers bring claims where a large number of parties have suffered a relatively small level of harm. These are specific claims for damages against a company that has already been found to have breached competition law, not the much broader US-style class action. As the Consumers' Association said:consumer organisations are hardly likely to engage in frivolous action that will cost them time, money and reputation".I turn now to the measures in the Bill specifically designed to protect consumers—in Parts 1 and 8. Because strong competition is the best form of consumer protection, all our competition reforms are good news for consumers. The stop now orders, introduced last year, were widely welcomed by consumer organisations. They significantly improved the powers available to enforcement authorities to stop breaches of the legislation implementing 10 consumer protection directives. The Bill will extend this regime to other areas—particularly in the service sector—where consumer interests are harmed by traders not meeting their legal obligations. It will allow effective public law enforcement action to be taken against traders who provide inadequate services—for example, cowboy builders, incompetent plumbers, and poor car servicing. By replacing Part III of the Fair Trading Act and the stop now orders regulations with a single coherent enforcement structure, the system will be clearer for businesses to understand.
We recognise the new demands that the stop now regime is placing on trading standards departments. My department has already provided additional funding for local authorities of £5 million over two years for implementing the existing stop now orders regime. We anticipate that a further transfer in the region of £10 million would be appropriate once the Bill is implemented and stop now orders are extended.
142 The Bill also includes measures to enable the OFT to give formal approval to voluntary industry codes of practice. They will help consumers identify reputable traders and benefit businesses by increasing consumer confidence in their products and services.
In another place there were some calls for the Bill to include a general duty not to trade unfairly. Cases of sharp practice were cited, which were argued to be unfair but not currently unlawful. I am sure we all agree that businesses should trade fairly. However, we are not convinced that enshrining a general principle of that kind in legislation is necessarily the best way forward. We must ensure that any new policies for new laws are founded on a robust evidence base, to ensure that they address the real issues of concern and are effective. We also need to bear in mind the importance of not imposing unnecessary burdens on business.
For that reason, my honourable friend the Parliamentary Under-Secretary of State for Competition, Consumers, and Markets is inviting key stakeholders to a seminar with her to explore the case details that they hold in more detail, and to help us assess properly to what extent the practices involved are not covered by existing law. We shall then consider what further action would be appropriate. Where necessary, that will need to take account of what is happening in the European Union in respect of plans to reform the consumer protection regime.
The Bill that I present today also modernises our insolvency regime—in Part 10. If we are to build a truly enterprising economy, we must ensure that our insolvency regime is one that supports, rather than stifles, the development and growth of new businesses, and helps reduce the stigma of failure. The measures contained within the Bill aim to do that, while at the same time striking a balance between the interests of debtors, creditors, companies and the public.
Our current individual insolvency regime treats all bankrupts the same, regardless of the bankrupt's conduct. Their assets are dealt with in the same way and in most cases they are discharged after the same period of time. The result of this one-size-fits-all approach is that the stigma associated with bankruptcy is applied equally to the unfortunate, the irresponsible, the reckless and the dishonest.
We want to introduce a fairer system that takes into account individual circumstances. Therefore, we are providing early discharge for those who have failed through no fault of their own and, by way of a counterbalance, introducing a stringent regime of bankruptcy restriction orders to take action against those whose behaviour poses a threat to the public and commercial interest.
The Bill does not promote bankruptcy as an easy option; indeed, we firmly believe that bankruptcy should be seen as a last resort. That is why trustees in bankruptcy will continue to be able to realise the same assets as now. Indeed, we are making it easier for them to do so by introducing income payment agreements and amending the procedure for applying for suspension of discharge. We believe that those measures will help provide a fresh start to those who 143 do not pose a threat to the public and commercial communities, take better account of the conduct of the bankrupt and reduce the stigma of failure.
In addition to those "fresh start" proposals, we want to help ensure companies facing financial difficulties do not go to the wall unnecessarily. In order to do so, we are restricting the use of administrative receivership where effective control lies in the hands of a single secured creditor, and creating a new streamlined administration procedure.
Although recognised as an effective rescue vehicle, administration has been criticised as too inflexible, too slow and too expensive. The Bill addresses that by streamlining the procedure and providing a clearer focus on company rescue and, where that is clearly not a viable option, a better return for the company's creditors as a whole. The Bill also provides clearer timescales to ensure that cases are not drawn out at the expense of the company and its creditors, and ensures that the administrator takes into account the interests of all creditors in his dealings with the company.
Following detailed discussions with a range of interested parties, we have agreed that the provisions of the Bill should not extend to registered social landlords. Therefore, we shall be tabling amendments that will provide exemption for all registered social landlords, whether they are companies or industrial and provident societies. Legislation relating to registered social landlords in Scotland is devolved and therefore we shall be consulting with the Scottish Executive with regard to any implications for Scotland.
We believe that those changes to the corporate insolvency regime will encourage wider use of the procedure as a rescue vehicle, and encourage smaller companies to make use of administration—not simply as a last resort, but before the situation becomes terminal.
Other insolvency reforms include abolishing the Crown's preferential right to recover unpaid taxes ahead of other creditors, reforming the Insolvency Service's financial regime to bring increased transparency and simplicity, and ensuring that the maximum possible investment return goes to insolvent estates. Together, those measures will make up to £115 million a year available for distribution to all creditors.
The measures contained in the Bill are radical and bold, but based on careful consultation. We have developed them to strike the right balance and to reform the existing framework of regulation for the better without creating additional regulations for business. We shall provide the necessary resources to ensure the measures are effective. Some of the measures involve complex areas of law and I am sure that noble Lords will want to scrutinise them carefully in Committee. But the objective of the measures is very clear—to make the UK a better place to do business and a better place to be a consumer.
144 The Bill has attracted widespread support—support that I hope will be reflected in your Lordships' discussions today and during the Bill's passage. Much expertise on these matters resides in this House. I look forward to hearing noble Lords' thoughts and comments on the Bill today and in Committee. Together, the package of reforms will make a real difference to this nation's prosperity. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord Sainsbury of Turville.)
§ 4.10 p.m.
§ Baroness Miller of Hendon
My Lords, I thank the Minister for his clear introduction to this long and complex Bill. I also thank those sometimes forgotten people in the departmental back room, the authors of the excellent Explanatory Notes, which will be helpful to all those who participate in the later stages of the Bill.
Before dealing with the substance of the Bill, I have two preliminary remarks. First, this is a long and technically complex Bill, covering competition, insolvency and consumer affairs, which could have been the subjects of three separate substantial Bills. They were the subjects of three separate White Papers. It is a matter of regret that, despite the fact that the main principles of the Bill are uncontroversial and are generally welcomed by commercial interests, the consultation period has been short. Even the CBI, which supports the Bill, has complained about,the inadequacy of the consultation period, given the complexity and novelty of many of the proposals".The consultation period allowed by the Government was a derisory nine weeks, including four during the August holiday season. It is also a matter of regret that the Bill should have reached your Lordships' House so late in the Session and with so little time allocated to it compared with the 18 sittings that it had in Committee in the other place. It is symptomatic of the contempt that the Government sometimes show for Parliament in general and for your Lordships' House in particular that, while as ever paying lip service to this House's unequalled reputation as a revising Chamber, they are clearly attempting to restrict the time for debate on any issues that may arise, because it is already so late in the Session.
Those of your Lordships who have not been following proceedings in the other place should know that a major section of the Bill dealing with cartels and market investigations was not debated on Report because of the operation of the guillotine. Those provisions have yet to come to the Floor of either House of Parliament.
Your Lordships will have noticed that the Bill is now 194 pages longer than as originally presented in the other place. As we have seen on other major Bills, this is an example of the Government legislating on the hoof.
145 The second minor preliminary matter that I have to mention is to declare a previous interest. I was formerly a member of what was then called the Monopolies and Mergers Commission, now the Competition Commission, from which I had to retire immediately on being elevated to your Lordships' House because of an obvious potential conflict of interest.
This is a complex Bill. I am glad to tell your Lordships that we shall be receiving the invaluable and expert assistance of my noble friends Lord Kingsland, who will deal with the competition aspects, and Lord Hunt of Wirral, who will deal with the insolvency provisions.
As my honourable friend the Member for Eastbourne wrote in the Conservative press release on the publication of the Bill:There is much to be welcomed in this Bill. Many of the proposed reforms to consumer protection and the competition regime are particularly welcome".However, like my honourable friend, I have to ask why the Government found it necessary to introduce the Bill so soon after the passage of the Competition Act 1998. Perhaps I should ask the question the other way round. Why did the Government take up valuable parliamentary time with the 1998 Act when the present Bill was clearly in the pipeline? The Government have already found it necessary to include amendments to that Act in this Bill.
I remind your Lordships of the claim made by the former Minister of State on Third Reading of the 1998 Bill in the other place. He said:Reform of the current regime is long overdue. The Bill will give us a really modern and effective competition regime at last".— [Official Report, Commons, 8/7/98; col. 1209.]The 1998 Act, which came into effect only on 1st March 2000, introduced one of the toughest competition regimes in the developed world. In reforming their recent reforms, as my honourable friend the Member for Maldon and Chelmsford East pointed out in the other place, the Government must feel that their modern regime has not proved as effective as they had hoped. The ethos in the department seems to have been to use time somehow to legislate about something, irrespective of whether there was something to legislate about or whether that legislation was fully thought-through.
It would be useful for your Lordships to note what the Government have previously said about the Bill. On the competition aspects, they promised a much reduced role for Ministers in decisions on mergers and competition policy. We can all welcome that without qualification, especially when we bear in mind recent events, such as the ministerial approval of the takeover of the Daily Express. Strengthened competition authorities operating at arm's length from government departments are to be provided with more resources and expertise, as the Minister mentioned, and are to make decisions on the competition-based test. Where is that expertise to come from? Will it be entirely from within the occasionally changing membership of the Competition Commission, or is the commission able 146 to continue to call for outside expert evidence whenever it feels that that is required? Will it be able to co-opt members for a particular inquiry?
Will the Minister define the competition-based test that the Government speak about? How does it differ from the current test, which is based on the public interest? In other words, is the public interest no longer to play any part in a decision about the acceptability of a proposed merger, or is it to be overridden by the competition-based test that the Government are creating? I have not been able to find anything in the Bill that explains the new competition test, which could mean anything. Any help that the Minister can give me on that would be appreciated.
The Government's description of the aims of the Bill included references to criminal sanctions. The Downing Street website said that they would include,a maximum penalty of 5 years' imprisonment to deter individuals who dishonestly operate hardcore cartels, including agreements to fix prices, share markets and rig bids".The same website claimed that the measures would extend to individuals the provisions in the Competition Act 1998 that related to companies. That is an example of the half-thought-out nature of some of the measures in the 1998 Act. which the Government are having to tinker with only four years on. It seems that individuals or companies who fix prices, share markets and rig bids from outside the United Kingdom or outside the EC are to be subject to extra-territorial jurisdiction, which the Bill will create.
However, despite the reference to fixing share markets in the Government's website, that does not appear to be covered in Part 6, especially in Clause 183, which creates the so-called cartel offence. Have the Government dropped those proposals or have I missed them?
Finally on the competition aspect, the Government have promised greater rights for individuals to bring damages claims for losses suffered due to anticompetitive practices. That is clear enough, hut, again quoting the No. 10 website, the Government are also proposing that,Consumer bodies can make claims for named individuals'".At the request of the CBI, we shall seek to look into the OFT's roaming brief to investigate markets to ensure that it does not cause firms or even whole industries unnecessary costs. It will be interesting to see how that discussion progresses.
We are also concerned about the power to be given to the OFT to disclose to overseas authorities information that it receives in confidence. Clause 208 will give the Secretary of State powers to designate the great and the good among consumer associations who, in addition to the OFT and the usual local authorities, will be given the right to enforce the consumer protection legislation. How will bodies qualify to be, in the worrying phrase of Clause 208, "a designated enforcer"? Apart from the obvious examples of the National Consumer Council or the Consumers' Association, could that include trade associations such as ABTA or manufacturers' associations such as the Engineering Employers' Federation? Could trade 147 unions be included? The Government probably already have something in mind. Without committing the Government to a list of names, perhaps the Minister will tell us in general terms the sort of organisation that will be granted special powers to police the Act.
We should bear in mind that some consumer protection bodies are self-appointed and are not necessarily governed by elected members. I do not say that in any way to denigrate any of them, because they do an excellent job in creating public awareness and are not merely special interest pressure groups. My honourable friend in the other place expressed concern at the possibility of a wholly innocent company facing the expense and disruption of a series of complaints launched one after the other as each one fails. He referred to the problems of the record industry, which spent an estimated £17 million to £20 million because of the 1993 Monopolies and Mergers Commission inquiry, yet despite that had to face a further five inquiries, none of which overturned the 1993 Monopolies and Mergers Commission report. I know how detailed the inquiry was because I was involved in it as a member of the MMC. I left before the final report was issued, as I explained earlier.
I trust that in licensing organisations under Clause 208 the Secretary of State will undertake to oversee them and to revoke their licenses if they are found to be harassing legitimate businesses or acting unreasonably. Perhaps Clause 208 could be altered to cover that point.
Another major segment of the Bill contains what the Downing Street website calls "insolvency measures". We welcome the long-overdue reform of the bankruptcy laws to distinguish between cases of genuine misfortune and culpable activity such as fraudulent trading in so-called phoenix companies. We also welcome the restrictions on administrative receivership where one creditor seizes all the assets and does what he wills with them, possibly to the detriment not only of the debtor but especially of the other creditors.
The receiver's activities are often far from commercially sound if the objective is to salvage the company as a going concern. Perhaps a measure along the lines of the American Chapter 11, which has given many ailing companies a breathing space to recover from a temporary setback, is needed. But the current ethos of some lenders is that they are not interested in preserving the assets or saving the company. It seems to be a smash-and-grab raid; they go in and get what they can and that is the end of the poor company.
But the solution must be approached with caution because there is a danger that banks, for example, will be reluctant to lend on the security of debentures and will insist on charges over fixed assets to the detriment of borrowers whose assets are mostly intangible, or will increase interest charges to cover potential losses, which will be to the detriment of small businesses in particular.
148 It is right that the Government should give up their iniquitous first preferential claim to taxes. The justice of that is self-explanatory. A creditor, possibly a small trader, who has supplied goods to a debtor, should not be made to watch while those goods are sold, not to pay a dividend to him along with other creditors but to be swallowed by the rapacious maw of the Treasury, which will not have contributed a penny for the benefit of that company.
We welcome the Government's intention to help those who set up in business and run into difficulties. But there is a difference between them and those who incur debt, either by reckless trading or by profligate spending. I am amazed by the adverts that appear daily on the television offering to help people to convert all their multiple debts into what they claim will be one single manageable monthly payment. As a selling point they point out that the debtor will then be able to afford a new car, a holiday, and so on, rather than learn a lesson from the feckless spending that got them into that state in the first place.
As my honourable friend John Whittingdale pointed out to the other place, it is not only the banks that suffer when a debtor goes bankrupt, but also family and friends and other small traders who may be forced into insolvency through a bad debt. The Bill does not distinguish between risk-taking entrepreneurs—albeit that the risks they take are often with other people's money—and reckless debtors. That is a point we may wish to look at later when considering Schedule 20, without detracting from the Government's good intentions. Schedule 20 seems to lack detail and emphasis between misfortune and profligacy.
Perhaps the experience in the United States of America is relevant. Relaxed bankruptcy laws encouraged a record 1.5 million personal bankruptcies in 2001, 97 per cent of which were consumer rather than business. That is due to the expanding use of credit cards, a trend which is also taking place in the United Kingdom. The losses incurred do not fall only on the banks, card issuers, and stores. It is the customers who pay their own accounts who ultimately pay for the defaulters in what in some cases is nothing more than a different form of shoplifting.
I am also concerned about the effect of the relaxation of the bankruptcy laws on the student loans scheme. Many graduates now leave university with a great burden of debt. Bankruptcy will be an easy way out if no stigma attaches and there are limited disabilities regarding the obtaining of credit in their future careers.
Downing Street's trailer of the Bill refers to "consumer measures". They include the extension of "stop now" orders, a welcome provision so that dishonest traders cannot continue with their activities while laborious legal processes are undergone. However, we will want to examine that aspect in detail to ensure that those necessary powers cannot be exercised arbitrarily on the basis of less than adequate evidence.
149 The OFT will be required to respond within 90 days to "super complaints" from designated consumer bodies, which would be good if it works in practice. We would want an assurance that the OFT will not accept and act on complaints only from those designated bodies, and refuse to countenance complaints from the public, even single members when appropriate. I do not suggest it should be bound to investigate every complaint, however trivial, from every disgruntled customer, or even from crackpots, because any business dealing with the public is bound to get a number of those sooner or later. But it must not create an exclusive regime where action is taken only on the complaint of selected bodies, even though they would doubtless carry out the useful task of screening out unsuitable complaints.
The OFT is to be given the task of approving business codes of practice. The DTI has under its wing an organisation called the United Kingdom Accreditation Service, which already performs that useful function. It would be interesting to know whether that organisation is to be transferred to the OFT, or whether there will be unnecessary duplication. If the Minister cannot tell us today perhaps he could write to me.
In general terms we welcome the Bill, even though it represents a second bite of the cherry after the Competition Act 1998. However, that welcome is not without reservations shared by the CBI and experienced lawyers practising in the field. I draw your Lordships' attention to some of the comments made by these non-political sources, which have not been addressed during the Bill's progress through the other place.
Mr Digby Jones, director general of the CBI, warned, as I have done, against compelling and,forcing good firms to defend themselves unnecessarily when their European rivals shelter under less rigorous regimes".The leading firm of solicitors experienced in consumer affairs warned against,adding to industry's costs making the then whole process more judicial, which will also add to the expense. By following the US approach Britain would be drifting away from the EU approach to competition".In fairness, the reaction of commerce and industry has generally been welcoming, as is ours, as I have made clear. That is despite the high-flown and entirely debatable hypothetical claims by the Secretary of State on the day the Bill was published, when she said thatMonopolistic behaviour costs the UK — around £4.5 billion-£9 billion per annum".That is a wide range of figures and I am not sure how she came to them. She also quoted a claim by the OFT that losses from,defective goods, inadequate redress or poor information",cost £8.3 billion per year.
That figure may have been plucked out of the air. I am sure that one statistician would say that it was extensive, while another would say it was inadequate. That is the problem with coming out with figures.
150 There is no need for the Government to gild the lily by using theoretical figures to support a Bill that is generally acceptable in principle on all sides. Equally, it was not necessary for the Secretary of State to indulge in pejorative language when she said that,Those operating cartels are guilty of theft".That is a hard word. It is not theft in any sense of the word from a legal point of view. However, it is clearly wrong, especially in the context of price fixing and market sharing, and is clearly against the public interest and must be stopped, which we hope it will be by the deterrent criminal penalties that the Bill will introduce in addition to the civil remedies available under the Competition Act 1998, although I have not seen instances of that remedy being enforced.
In her introduction of the Bill at Second Reading in the other place, the Secretary of State referred to the objectives of promoting higher productivity and greater enterprise, generation of wealth, job creation and other laudable and uncontroversial objectives. I will not take up your Lordships' time by quoting any more, nor will I repeat the quotations from the British Chambers of Commerce, the CBI or the Consumers' Association. We all share those sentiments and ambitions.
The only word of warning I want to introduce into this non-contentious subject comes from the Secretary of State's own speech, when she said,The United Kingdom … needs a modern, world-class competition regime and a regulatory framework that is designed to promote competition rather than perpetuate regulation".I look forward to seeing the Government converting that fine sentiment from words to deeds in framing the secondary legislation, because their record over the past five years has been to pile on one regulation after another. I fear that that might happen; we shall see.
Incidentally, I noticed that the Secretary of State claimed in her speech that the Competition Act introduced,a modern, more streamlined regime that addressed — abuses of dominant position".—[Official Report, Commons, 10/4/02; cols. 44–45.]Rather than claim the credit for that, perhaps the right honourable Lady should recall that that subject was comprehensively dealt with in the Treaty of Rome, to which the United Kingdom acceded when the Conservative Party took us into what was then known as the Common Market; it was a market, not more perfect union". We had some part in that effort.
One phrase in the Secretary of State's speech gives rise to a serious query, with which I hope the Minister will deal when he responds. In dealing with the changes to insolvency law and the priority of claims, she said, at col. 50, that they,will ensure that … there is more money available to the creditors, who may well include employees … because national Insurance contributions have not been paid on their behalf".I stress the phrase,the creditors, who may well include employees",and the fact that that is because of unpaid national insurance contributions.
151 Will the Minister assure the House that the Government will, as hitherto, continue to bear the loss incurred when an employer fails to pay over his and the employee's national insurance contributions and any PAYE that has been deducted, and that they will not ask the employee to pay again, even in return for the welcome concession that the Government will forgo their preferential claim for unpaid taxes? At present, an employee is not a creditor—not even an ordinary or deferred creditor—for unpaid national insurance or PAYE because the Government credit employees' accounts as if the payments had been duly made.
Will the Minister assure noble Lords in unequivocal terms that the Government and not the employee will continue to bear the loss caused by a defaulting employer? That assurance is essential in view of the somewhat ambiguous but, in my view, slightly ominous and significant phrase that I quoted from the Secretary of State's speech. If the Minister cannot put that assurance on the record today—I do not see why he cannot; my honourable friend in the other place, the honourable Member for Eastbourne, made a similar point, which was not answered then—perhaps he will write to me.
I apologise for the length of this speech. As I said, this 523-page Bill is really at least three Bills in one. Going into its complex details has not been helped by the fact that there have already been substantial additions since it was first introduced in the other place. Not having the benefit of officials to help us, I hope that the Minister will understand that we have to examine it thoroughly. As I said, we will support many of its measures but we will certainly need to examine others.
§ 4.33 p.m.
§ Lord Razzall
My Lords, I join the noble Baroness, Lady Miller, in thanking the Minister for the clear way in which he introduced a complex piece of legislation. I share her concerns about why the Bill has been introduced at this particular juncture and after a relatively short consultation period.
Those of us who have been involved with the Minister and trade and industry matters over the past year or two recognise that, among all of the Bills with which we have been involved, this Bill has probably received the largest amount of briefing from third parties. I shall name a few of the interested parties: the British Bankers Association, the CBI, the Consumer Credit Association, the Finance and Leasing Association, credit card issuers—not to be advertised—the National Consumer Council, the National Housing Federation and the Association of Business Recovery Professionals, let alone all of the law societies. It is of great concern that all of those bodies lobbied us strongly but often with conflicting recommendations. Dare I say, with some scepticism, that perhaps I detect the hands of the Chancellor of the Exchequer behind the Bill rather than the Department of Trade and Industry? I do not expect the Minister to rise to that point.
152 However, the Bill is now before us and it will not surprise the Minister that we on these Benches accept and welcome many of its provisions. However, it is extremely complex, as have been other Bills in relation to which I have enjoyed jousting across your Lordships' House with the Minister. We have the expertise of the noble Baroness, Lady Miller, to improve the Bill; she has experience from the competition area. I hope that she will not regard her conflict of interests as preventing her from giving us her wisdom. We also have the saturnine presence behind the Minister of the noble Lord, Lord Borrie. On most topics in the Bill, nobody knows more than he. Dare I suggest, however—more in expectation than in hope on this occasion—that interventions from the experts on the subject will not take quite as long as they did on the Employment Bill?
The Bill is extremely technical and one of the longest pieces of legislation that the Minister has presented—indeed, it had to be published in two volumes. On Second Reading, I can touch on only one or two areas on which we shall probe the Government and, I hope, improve the Bill. We do so against the background that we generally welcome its provisions. I make these points with a wish to improve the Bill.
The first area relates to parliamentary accountability. We have long supported the argument—we also supported the Government when they eventually came to this conclusion—that it is a good idea to remove the political direction from competition policy. As a party, we were the first to advocate the independence of the Bank of England from political direction. We support the Government in that regard. However, we feel that, having taken that step, significant issues of parliamentary accountability ensue. For example, we argue—we shall do so in Committee—that there should be a DTI Select Committee to veto nominees to senior positions in the Office of Fair Trading and the Competition Commission. We will also argue that there should be specific reporting on each major decision by the OFT to Parliament so that it can publish the rationales behind decisions, which can be used for performance measurement.
There are many ways in which parliamentary accountability can be achieved. A Joint Select Committee of the Commons and Lords might consider those issues. There are many ways in which that can be done. The Bill needs to be improved in order to give greater parliamentary accountability for the important decisions that will be made by the OFT and the Competition Commission.
The second area in relation to which we shall probe the Government relates to the general matter of competition policy reform. Our concern, which I am sure will be shared on all sides of the House, is that the introduction of the criminal offence for cartels is in danger of crossing one line—or of not crossing the correct line—with European Union competition policy. If we are not careful, we could find ourselves in a situation in which cartels that are illegal and a criminal offence under the Bill, which we welcome, and which are domestic only are punished, whereas 153 transactions that are caught under the European Union merger legislation carry only a civil offence, not a criminal offence. Bigger cartelisation would therefore not be punished with the criminal penalties that smaller cartelisation will be. We regard that as a significant issue that needs to be explored with the Government.
We will want to explore one or two other details relating to the mechanics of competition policy reform. For example, we believe that the investigation of offences should be assigned to the Serious Fraud Office rather than to the Office of Fair Trading. The noble Lord, Lord Borrie, may disagree. I look forward to hearing his views on that issue. We suspect that the SFO is better equipped for that sort of work than the OFT. We wish to explore that with the Government in Committee. We have reservations about surveillance powers which, in a cliché, can be described as a snoopers' charter. We wish to explore concerns on that matter.
We would welcome comments from the Minister when he winds up about the Government's proposals as regards what the noble Baroness described as the "Desmond issue". I understand that in the papers which are the subject for consultation on the communications Bill, the Government have indicated that they propose to put something into the Enterprise Bill to deal with the public interest element on newspaper mergers. I look forward to hearing what the Minister has to say about that. It is particularly unfortunate that this particular clause will always be named after Mr Desmond. There have been other occasions when newspaper mergers have had a public interest element, but I suspect that we shall spend the next month referring to it as the "Desmond Clause" and when the Minister explains how he proposes to deal with this issue.
Another area of concern is the proposed reform as regards corporate insolvencies. This Bill reflects a very considerable degree of amendment to the corporate insolvency provisions of our existing legislation. Concern has been expressed in a great deal of the lobbying and briefing which noble Lords will have received. There is a major concern that the Bill, as drafted, is designed to protect the company rather than the business. As the Bill goes through your Lordships' House we will argue that the Bill needs refinement to emphasise much more protection of the business rather than the company.
One example given to us in many of the briefs that noble Lords will have received is that it is not difficult to conceive of situations in which the preservation of the company itself could be achieved by a substantial debt write-off, which is prejudicial to the interests of creditors who might recover a better return from the sale of the business. In Committee we need to consider why it would be better to keep the company intact at the expense of the business and pay the creditors 20 pence in the pound whereas sale of the business would preserve jobs and the creditors could receive 60 pence in the pound. Second Reading debates are not the place to go into that degree of detail, but it is an important point which we would wish to pursue.
154 We also regard the time-scale on administration of three months as entirely unrealistic. The Government seem to have accepted evidence that most administrations are dealt with in three months. That may be the case as regards small administrations, but we are all well aware that On-Digital is unlikely to be free of administration in the next three months. Another example concerns a subject closer to my heart. Loftus Road Plc only came out of administration when the Football League said that Queen's Park Rangers would not be allowed to play in the Second Division next year unless it came out of administration, which was well after a year. The time limit is too short.
As regards the personal bankruptcy area, we have a concern which the noble Baroness touched on, namely, that the proposed regime is too lax. A great deal of lobbying has been directed at the Government during the consultation process regarding personal bankruptcy. We believe that very few of the points have been taken on board by the Government. We are concerned that the personal bankruptcy amendments, as drafted, will reward the feckless at the expense of the prudent and encourage the conman and the fraudster. We are not against the general principle contained in the Bill, but we shall want to look at the detail to ensure that, as far as possible, that does not happen.
Finally and, in a sense, most importantly, we want to consider consumer protection. It is no surprise that the CBI is unhappy with large elements of the consumer protection provisions in the Bill. We would expect it to say that, would we not? We do not agree. We believe that in some ways the Bill does not go far enough in enshrining in our law more detailed protection for the consumer. In his opening speech the Minister indicated that the Government are not persuaded of the necessity to enshrine in our law a general provision to trade fairly. He said that he is not persuaded. This is a safety net approach which has been adopted in the legislation of most industrialised countries including most EU member states, certainly New Zealand, Australia and the United States of America. In the course of debate we shall endeavour to persuade Her Majesty's Government that they are wrong on this issue and that they should have enshrined in our law a duty to trade fairly.
§ 4.47 p.m.
§ Lord Best
My Lords, 11 wanted to raise a problem which this otherwise excellent Bill has, I believe, unwittingly created for housing associations. It relates to Part 10 which is concerned with insolvency, and to the treatment of housing associations—so-called "Registered Social Landlords"—that get into financial difficulties. I was delighted to hear the Minister announce in his opening remarks that he understands the problem and intends to exclude housing associations from these measures.
To explain the importance of the Minister's commitment to amend the Bill as it stands, a few brief remarks may be in order. The current position on insolvency for housing associations is one with which everybody concerned is entirely comfortable, 155 including the Regulator, the Housing Corporation, the National Housing Federation and the housing associations themselves, the individual lenders and the Council of Mortgage Lenders.
The Bill, as currently drafted, would include changes to permit arrangements for administration to be extended to the majority of housing associations that are industrial and provident societies. The lenders—banks, building societies and others—see this as a threat to their security. If the Bill is not amended some lenders would not want to lend to registered social landlords at all; others would charge higher interest rates to cover the additional risks that they perceive. Much administrative complexity would be added to the transactions and there is even a problem that existing loans would have to be renegotiated on less favourable terms.
I declare my interests as the chief executive of a housing association although, thankfully, one with very high levels of security for its borrowing, not least because the Joseph Rowntree Foundation stands behind it. I was also a founder director of the Housing Finance Corporation which, on a not-for-profit basis, organises loans for housing associations and would be adversely affected by the Bill.
The difference between housing associations and other not-for-profit bodies lies in the existing legislative powers given to the Housing Corporation—the regulator-by the Housing Act 1996. The corporation is able to exercise tight financial scrutiny and intervene as necessary. Indeed, one of the main aims of the Enterprise Bill—provision of a 28-day moratorium—is already met by the housing associations by specific provision of the 1996 Act.
The proof of the effectiveness of the current system is seen in the results: £25 billion has been raised from private sector lenders and the Government are expecting many billions more to be raised in the future; yet no housing association has ever been closed down by the action of any lender. So the current system works well. It is excellent therefore that the Minister announced that he will exclude housing associations that are industrial and provident societies from the new power to extend administration to such societies.
I should add that in the case of housing associations which are companies—an important minority which includes a number of those taking over council housing as part of transfer arrangements—it is sensible to preserve administrative receivership as is already provided, for example, in the case of public-private partnerships
At a time when the sector is trying hard to attract more lenders into the market, I know that the Government do not want to jeopardise this source of funds or the very competitive terms on which they are currently available. Indeed, if lenders were to pull back or raise their interest rates, fewer homes would be produced, tenants would pay more and important social objectives would be thwarted. I congratulate the noble Lord therefore on his announcement that housing associations will be excluded from the 156 insolvency measures proposed and I look forward to studying the details of the new clauses he will be bringing forward.
§ 4.52 p.m.
§ Lord Borrie
My Lords, it was just 25 years between the first post-war competition legislation in this country and the Fair Trading Act 1973. By a curious symmetry it was another exact quarter century from the Fair Trading Act to the Competition Act 1998, which was another radical, substantial measure. Therefore it may seem a little surprising to have this substantial, certainly heavy and lengthy Bill, coming so soon after 1998.
To my mind it is not as far-reaching or as radical as the earlier pieces of legislation; rather, it is a follow-on of the Competition Act 1998, particularly in covering the important matter of mergers which was left unaltered in 1998. It was a clear gap that needed to be filled. Further, the Bill strengthens the law on hard-core cartels and modernises the way in which markets are investigated by the competition authorities, doing away with the old-fashioned technical distinction which few people really understood between scale monopolies and complex monopolies.
In consumer protection we will have the benefit of the voice of the noble Baroness, Lady Wilcox, in due course. No doubt she will express some welcome for broadening the scope of the stop now orders, which have proved useful weapons against traders who regularly abuse consumer rights but which have so far been confined to laws deriving from the European Community and have not covered laws that are entirely domestic. In my view—and I hope that of many of your Lordships—all those changes are welcome improvements. I cannot say they are fundamental, but, sadly, it seems to need a lot of clauses and schedules to bring them about.
The changes being made in the rules on mergers, removing the role of Ministers in most cases—no doubt in Committee we shall examine the exceptions— and replacing the broad public interest test by a test based on whether or not the merger will substantially lessen competition, have been widely welcomed. It will now be for the Office of Fair Trading to decide, not the Minister on advice from the Office of Fair Trading, whether or not a merger should be referred to the Competition Commission. In practice, compared with recent years, that will not make a great deal of difference because Ministers have normally followed the advice of the Office of Fair Trading. But it will clearly reflect reality and leave no businessman in any doubt that lobbying Ministers—which has often taken place in the past—for or against a reference to the Competition Commission, or for or against the judgment of the commission, will be a waste of time.
At this point I should declare an interest, though it has been hinted at by the noble Lord, Lord Razzall. It is an interest which expired 10 years ago of being Director General of Fair Trading for many years. It will be seen why I mention that at this point.
157 In the field of mergers more than in any other aspect of competition policy, swift, firm decision-making is particularly important for all concerned. It is in that context therefore that I am concerned at the changes made right at the beginning of the Bill to replace—in fact 10 abolish—the Director General of Fair Trading by a board of which he will be the chairman. If decisions to refer or not to refer mergers to the Competition Commission have to go routinely to the board, consisting in the main of part-timers and drawing on the advertisement in the Sunday Times two days ago—people normally putting in two-and-a-half days a month—I can foresee the risk of serious delays and a reduction in efficient decision-making.
I should like Ministers to reassure the House that the board of the Office of Fair Trading will not be involved in case-by-case, day-to-day decision-making with regard to mergers, cartels or market investigations, but only with strategy and broad principles. The advertisement to which I referred leaves that nicely ambiguous for the present moment.
The Competition Act, Chapter I, prohibition of cartels has been operative for just over two years. But within that relatively short period it seems to have worked well. One of the key features of it working well has been the so-called "leniency" programme whereby a whistle-blower from within the cartel may bring to light the existence of the price-fixing or market-sharing agreement, of which the Office of Fair Trading would otherwise know nothing, and the whistle-blower is able to escape the fines which would be imposed upon the other parties to the cartel.
The possibility of fines up to 10 per cent of turnover may sound like a powerful deterrent, and so perhaps it seemed to most of us at the time of the Competition Act 11998. But the key point I want to make is an obvious one. Fines only impact upon companies, not on the individual and to my mind there is a strong case, which the Government are beginning to make out in this Bill, for the criminal penalty possibly of gaol in the case of hard-core cartels to impact on those individuals who have been responsible or connived at the cartel.
Such a personal penalty, as all noble Lords will be aware, is possible in the United States. Most noble Lords again may recall the interesting sentence of a year and a day imposed not long ago on Mr Alfred Taubman, chairman of Sotheby's, in respect of a cartel agreement between what was supposedly and ostensibly rival auctioneers, Christie's and Sotheby's. The prospect of such a gaol sentence must be such a strong deterrent that the actual imposition of a gaol sentence will in practice rarely be called for.
I notice that a representative of the United States' Attorney-General's office came to a conference last month. He said:I have had numerous lawyers pleading with me to avoid a gaol term for their client and offering to pay any sum imaginable. I have never had anyone offering to spend another week in gaol in return for a lower fine".158 My only question to the Government is, should we not have a definition of the word "dishonestly" in the description of the new cartel offence in Clause 183? After all, this is a criminal offence. People must be entitled to know the exact ingredients of the offence.
In response to a point made by the noble Lord, Lord Razzall, I do not at present—and it will be an interesting discussion for us—have any settled view whether it would be better for the Serious Fraud Office rather than the Office of Fair Trading to have responsibility for the pursuit of a criminal investigation.
In the other place not long ago during the course of the debate in Committee on the Bill, a CBI-inspired Conservative amendment was tabled to alter the basis of a market investigation reference from the Office of Fair Trading to the Competition Commission from "reasonable suspicion" to "reasonable belief". Those of us who recall the passage of the Competition Bill four years ago may—as I did—have a sense of déjàvu on reading that. I recall the noble Lord, Lord Kingsland—he will be in his place in due course on the Bill—arguing likewise in relation to monopoly references.
To my mind, the Office of Fair Trading needs to be bold and proactive in competition matters. But, after all, it is only supposed to conduct preliminary investigations. To require it to demonstrate more than "reasonable suspicion" before it refers the question to the Competition Commission would be unduly inhibiting. It would be a "Catch 22" situation to require it to know the answer before it puts the question.
I am tempted to make Committee points. Instead I shall make what I might call a "Brightman" point. I refer to the noble and learned Lord, Lord Brightman, with, of course, proper respect. The Bill is substantial, heavy and detailed. Little of it can be understood except by reference to numerous earlier Acts, including the Fair Trading Act, the Competition Act and the Insolvency Act. Can the Government give an indication that we might look forward from this "legislation by reference"—as the noble and learned Lord, Lord Brightman, has said on many occasions of other legislation—to a comprehensive consolidation Act in this field to ease the task of businessmen, consumers and their advisers in working out their rights and duties?
Finally, I make a point which I flag up for Ministers in particular. A concern has been expressed to me by the regulator Ofgem. It deals, as your Lordships will know, with gas and electricity regulation. It believes that we should take the opportunity under Part 10 of the Bill, which deals with insolvency, to make provision for a special administrator in the event of the insolvency of a gas or an electricity network, Public safety is at risk if arrangements are not made to ensure that, in the circumstances of insolvency, the network is kept operational. In recent years the Government have made such provision in legislation for the railways and for the water industry.
159 Unfortunately, the amendment, which has been shown in draft to myself and to my noble friend Lord Peston—who is unfortunately unable to be in his place today—requires seven new clauses and two new schedules. In my judgment, it is much more suitable that a government should introduce those with the aid of parliamentary draftsmen rather than for two BackBenchers to do so. If the Government will consider that, we should of course be very happy to meet with Ministers before the Committee stage and the need to table amendments.
§ 5.5 p.m.
§ Lord Boardman
My Lords, I am happy to follow the noble Lord, Lord Borrie. His declaration of an interest in matters which are deeply concerned with the Bill can be distinguished from mine. I declare an interest, having been the chairman of a bank, but that was a long time ago. I express no special interest in the detail with which the noble Lord, Lord Borrie, was so familiar.
I support the Bill. Its objectives are right and ones with which most noble Lords are in agreement. There will be matters of amendment which we shall want to raise in Committee. But I hope that much of the motive for the Bill can reach the statute book with the minimum of alteration.
It is a vast Bill—three Bills. As my noble friend said, it should have been three separate Bills and it should have been considered much more carefully. It would have been appropriate for draft Bills to have been published and considered in detail by the experts before being placed before this House. The present Bill was partly considered in another place. A large part of it was put on one side by a guillotine Motion.
I wish to comment on the name of the Bill. This morning I looked up the word "enterprise" in the dictionary. It means boldness, courage and with imagination. I do not find that a good description of the Bill's objectives—insolvency, competition, consumer protection and so on. At any rate, I do not think that the restrictions that the Bill imposes on business—and there are many restrictions—make natural bedfellows with the word "enterprise".
I also refer to the costs that the Bill will incur. I know that they are relatively small against the total budget, at about £150 million, which the Government will say is nothing at all. But I wonder to what extent that question has been put into the scale. The Government have said that the costs which will fall on business are insignificant. But I believe that bureaucracy will come in as a result of the Bill. There will be people needed to look at the regulations. That will be a significant item.
Against that the Government say that the Bill will produce hundreds of millions of pounds. We shall see. But I believe that they are being unduly optimistic to think that the consequences of the Bill will produce hundreds of millions of pounds.
As I have said, the purpose of the Bill is good. It seems to be fair and reasonable. I am sure that improvements can be made in Committee. But the Bill, 160 despite what I have said about it being fair and reasonable, will add to the regulation, bureaucracy and to the costs of business, which is already overburdened by regulation and bureaucracy. I regret adding to the load which business has to suffer.
The Bill may deal with internal matters, but a large part of turnover in business is foreign. We must look at where foreign competition comes in. In Europe we tend to be going a different way and with different penalties. For example, much of Europe has prison sentences available for certain offences which come under the present Bill. But I understand that prison sentences are not generally applied in Europe for those offences. I have some regrets about that. The Competition Act 1998 has been in effect for only about a year. It should have had a further run to see whether we could avoid prison sentences for breaches under that Act and the Bill. It would have been wiser to have waited, instead of effecting laws that will produce new criminals. Such penalties as heavy fines and disqualification as a director would have been adequate deterrents.
The Bill also removes Ministers' powers over competition and mergers policy. In some ways, I welcome that. We have not been happy with many decisions made by Ministers. On the other hand, we shall suffer from not being able to ask questions about decisions or being able to summon those who make decisions before Select Committees. What we gain from not having Ministers involved we lose by not being able to challenge decisions.
On the question of price fixing, I understand the benefits to consumers. But many new businesses have gained ground from being able to have a stable price as a platform from which to build. Of course, the most effective means to tackle price-fixing is competition. But to enforce competition without some form of stability, some price from which one can start, is a penalty that is difficult to invoke.
I have in mind the case of two window cleaners who operated in a village. Between them, they found that the business of the village was just about right for two and they agreed to fix a price. No doubt, that would be illegal under the Bill. A smart entrepreneur realised what was happening and decided to come to the village to undercut both, which he did successfully. That is what I call being an entrepreneur and showing enterprise. I am not sure whether two window cleaners would fall under price-fixing provisions, but the principle is the same.
Turning to the matter of insolvency, I welcome the reduction of some of the penalties for unlucky but honest bankrupts. But there is a danger of making bankruptcy an easy option. The Minister said that it would not be an easy option, but there is a danger that it will become so. It has in the United States, which has considerably relaxed its bankruptcy laws. The number of bankruptcies there has risen massively. There is an awful temptation to obtain credit with little prospect of repayment unless some speculation or gamble comes off.
161 My noble friend Lady Miller referred to credit cards. These days, they are enabling young people to accumulate massive debts in the hope that something will turn up to enable them to pay them off. I am aware of one young man who managed to run up debts of £250.000. Surely it is impossible for any credit company—or series of credit companies; I think that about 20 credit card companies were involved—to allow a debt of £250,000 to be run up in that way. There is great danger unless we seriously consider that matter. Borrowing has become a habit, and the use of easy access to credit is creating a penalty that many of the young will have to face in years to come.
As I said, the United States' experience of the relaxation of bankruptcy laws is worrying. There has been a vast increase in personal bankruptcies as a result. A fear has been expressed that the Bill will lead to a 20 per cent increase in bankruptcy. That is worrying.
I welcome the release within a year from the penalties of bankruptcy for those who have not behaved badly, but I ask: what about the creditors? Awful anger is felt by a creditor who has lost his business, family fortune or whatever towards someone who has "done" him and is then declared bankrupt. It is most irritating for the poor chap whose family savings have been lost and who has ended up in hardship to see that man, within a year of being declared bankrupt, start up business again with much prosperity, as so often happens.
We should reconsider the provision for release within one year. It would be much better to leave the period at three years, with the right to apply for it to be reduced. Let people apply for a reduction from the three years to one year, so that the honest, well-meaning chap who unluckily goes bankrupt has a better chance to escape.
Overall, the provisions are reasonable. It is a fair Bill and I hope that it will secure the hoped-for improvements for business, so that business will be able to reap the benefit intended as a result.
§ 5.17 p.m.
§ Baroness Maddock
My Lords, as a consumer I welcome the purpose of the Bill; as a Liberal Democrat, I obviously support of much of what my noble friend Lord Razzall said; but as someone who speaks from these Benches on housing, I do not support the corporate insolvency proposals in the Bill. As drafted, they would severely affect the ability of registered social landlords—mainly housing associations—to continue to provide affordable social housing. That is key if we are to have a flexible economy. The lack of affordable housing in the South East and London is a severe problem, as is recognised by government and others.
So, like the noble Lord, Lord Best, I especially welcomed the Minister's statement today. I am grateful to the National Housing Federation, of which I am vice-president, the Council of Mortgage Lenders and the chief executive of Western Challenge Housing Association, of which I was once a board member, for 162 bringing the matter to my attention. The noble Lord, Lord Best, explained in detail how the matter rests, and I shall not repeat that, but I want to emphasise that until today, the Council of Mortgage Lenders, the National Housing Federation, the Housing Corporation and the Housing Finance Corporation had all been in touch with the Department of Trade and Industry but had not secured assurances that the Government intended to deal with the problems created by the Bill for the social housing sector.
All that they and I had heard was that the Government had undertaken to conduct consultation on whether to deal with the matter in secondary legislation. That would have been far too late. Lenders would have been able to impose floating charges the minute the Bill was enacted. By the end of the consultation period, the damage could already have been done.
To my knowledge, this is the third time that the issue has been raised in legislation. The first time that I was involved, we were considering the 1996 Housing Bill. I served on the Standing Committee in another place. That Bill contained a similar proposal; namely, that a housing corporation manager should have administration-like powers to deal with any registered social landlord in financial difficulty. I criticised that severely at the time—there was extensive lobbying, as there was today—as did Nick Raynsford, now a Minister in another place, then the Opposition spokesman on housing. I am pleased to say that that provision is not in the Housing Act 1996.
Nevertheless, in 1998, the Treasury and friendly societies issued a consultation paper that asked whether it would be appropriate to extend company insolvency procedures to registered social landlords and to industrial and provident societies. The answer from the National Housing Federation, the Council of Mortgage Lenders, a number of registered social landlords and a number of law firms was a resounding "No", and the suggestion was withdrawn. So, like the organisations referred to, I was at a loss as to why the Government had put the proposal forward yet again.
It is particularly important that we recognise the problems with house building in this country. The new Housing Minister, the noble Lord, Lord Rooker, has described chronically low house-building rates as a national disgrace. We know that new statistics on replacement levels for housing in Britain show that houses standing today would have to last for 1,500 years. Last year, we built 162,000 homes; the year before, we built 169,000. This year's figure represents the lowest number of houses completed in this country for 77 years. It is also the lowest in the European Union. That is why the situation is so serious. If the relevant parts of the Bill were enacted, it would be even more serious, as the damage would be concentrated in the affordable housing sector.
I welcome the Minister's opening comments. I shall examine carefully the amendments proposed in Committee. However, I must say to the Government that I do not want to stand here again in two years' time raising the same issue.
§ 5.22 p.m.
§ Viscount Astor
My Lords, this is a large, complex Bill with mammoth schedules, but I hope to be brief in my remarks and concentrate on one area— competition policy and, in particular, the effect of the Bill on the workings of the Office of Fair Trading. I have been involved with the broadcasting industry and, in particular, digital television. One of the main reasons that digital television has so far failed is the failure of the regulators, in particular the OFT, the Independent Television Commission, the Radiocommunications Agency and the board of governors at the BBC. However, I shall concentrate on the OFT and leave the others for another day.
In the case of the OFT, it was the length of time that the regulator took to make a decision that was so damaging. That does not help either side. The OFT has a duty to protect business from unfair competition, as, ultimately, it is the consumer who will suffer. Unnecessary delay is damaging for industry and damaging for the consumer. Fair competition is about benefiting the consumer. Delays are enormously disruptive to business and undermine the ability of business to operate. In the media in particular, the value of many companies' assets has exploded in recent years, only to implode later. Some companies—and, indeed, government—became obsessed with technical achievement without understanding whether it had a sound commercial application and whether there was consumer need and demand.
I believe in competition law, but it must work not only effectively but quickly. In broadcasting, the OFT has been reviewing the situation of BskyB for two and a half years. The original complaint by ITV Digital and others was that Sky was charging too high a wholesale price for its premium sports and movie channels to television and other distributors. I shall not go into the merits or otherwise of the case or comment on what the outcome should be. However, I want the Minister to consider the length of time that the OFT took to consider the issues. That was not fair to either side. It is not just one case. In September 2000, Sky and NTL reached an agreement on distribution by cable. That required OFT approval, but it took over a year for the OFT to make the courageous decision not to make a decision. One wonders how long it would have taken them to make a decision.
I have general and specific questions for the Minister. In paragraph (7) of Schedules 5 and 6 to the Competition Act 1998, there are powers for companies to seek direction from the courts to ensure that the director general of the Office of Fair Trading reaches decisions without undue delay. Yet those provisions have not been brought into force. Can the Minister explain why not? I should be grateful if he would write if he cannot answer me today. Can the Minister say whether the Government think that the provisions are still needed? Will they be made redundant by clauses in this Bill? Does the Minister understand the concern about the delays? Will he explain how the powers in this Bill and the proposed changes to the OFT will help to speed up the process?
164 The Bill will give new powers to the OFT to investigate markets and identify anti-competitive practices. We know that that can be a huge task, which often involves great expense to those in business—guilty or innocent—who get swept up in the net. What safeguards will there be to prevent the new powers from being used to drag out investigations for years? How will the OFT operate alongside the proposed new regulator, Ofcom? The Government made it clear that the best placed regulator would investigate alleged abuses and said that, in most cases, that would mean Ofcom.
The Competition Act 1998 makes it clear that only one body can use competition powers to investigate alleged abuses, so as to avoid double jeopardy. However, there is still a risk that Ofcom might use its regulatory powers to investigate supposed anticompetitive behaviour, with the OFT following up using its competition powers. How will the Government stop that double jeopardy? Do the Government consider that it will not be a problem? Concurrency between the two will not apply to mergers. The OFT will be solely responsible. Like other noble Lords, I welcome the decision by the Government to remove Ministers from the decision-making process concerned with the clearance of mergers. However, the Government should have waited before revisiting many aspects of the Competition Act 1998. After all, it has been in force for only a couple of years.
Like the curate's egg, the Bill is good in parts. However, it will place costs and burdens on business. There must be some limit on how the new powers will be exercised and how costs will be dealt with. We are all against cartels, but we must support enterprise. Can the Minister confirm that the OFT will be under a duty to act in a proportionate, transparent, accountable and timely manner? After all, those are the principles of the Government's Better Regulation Task Force. Should not those principles be set out clearly in Clause 1?
§ 5.28 p.m.
§ Lord Haskel
My Lords, I thank my noble friend for explaining the Bill. We will all benefit from a more competitive economy, which will put downward pressure on prices. I welcome the intention to encourage a more enterprising economy.
I also congratulate my noble friend on the timing of the introduction of the Bill into your Lordships' House. Recent events have made our Second Reading extremely topical. The recent financial scandals in the United States have shaken people's confidence in the business world. Such fraud and dishonesty undermines our confidence and trust in business. As the Minister explained, the Bill is designed to deter and punish dishonesty. In those circumstances, the Bill is especially welcome.
The blow to our confidence in business not only raises concerns about pension schemes, savings and investments but questions the productivity gains achieved in the United States by the so-called new 165 economy. The Bill borrows heavily from the experience of regulation in the United States to raise productivity. I am reliably informed that, fortunately, much of the US productivity data comes from surveys and not from company accounts. I hope that we can be reassured by that.
The troubles in the United States are all to do with share price—share price as a symbol of shareholder value. This concern has been raised several times in this House. During a debate on corporate regulation—on a Motion moved by my noble friend Lord Brennan in March—we discussed how regulation alone would not be sufficient to discourage corporate excess, and how business leadership must also provide lasting moral values. It is difficult to legislate in this area. However, we must continue to bear it in mind during our debates on the Bill.
Nevertheless, we have to keep the faith and retain our confidence in the market system. It is the pressure of competition and the greater uncertainties of the global economy that contribute to such failures. Because the Bill is about making markets work better, it is to be welcomed at this difficult time. The invisible hand of the markets is preferable to the long arm of government and regulation.
Setting these concerns aside for a moment, the Bill must be judged in the way in which we have judged business legislation since Labour came to power in 1997. Does the Bill deliver fairness with enterprise? Will the legislation stifle creativity and will it be unfair to the consumer? That is the basis on which we should judge it.
It is a big Bill. It touches many key areas of business life. Ii encourages competition, provides stiff personal penalties for operating cartels. It provides the rights for injured consumers to claim heavy damages. It addresses failure by categorising responsible and irresponsible bankrupts.
I do not share the conclusions of the noble Lord, Lord Razzall, and others. It is possible to personalise business too much. Good businesses work well because they are successful organisations, made up of customers, suppliers and employees. No one controls all the areas. It is wrong to hold good people responsible for failures and mistakes by others outside their control. Of course we need to look carefully at how the authorities will differentiate between worthy and unworthy bankrupts, but the fast-track bankruptcy approach is a move in the right direction.
The Bill also takes the politics out of competition and merger decisions and bases such decisions on economics. A public interest consideration can be slipped in—a matter that needs examination. I look forward to my noble friend's reply to the questions put by the noble Baroness, Lady Miller. Based on the experience of taking the politics out of interest rates, this approach is greatly to be welcomed.
All this means that the Bill places more work and responsibility on the shoulders of the Office of Fair Trading. It goes into considerable detail about the work of the OFT. So it must be asked whether the OFT will be able to do the job. It is, after all, responsible for 166 the application of the Competition Act 1998, and only now are the provisions of that Act beginning to bed down. The Minister told us that the Office of Fair Trading was investigating 40 cartels, and the Financial Times recently reported that it was uncovering one new cartel a month. Investigating a cartel is much more complicated and difficult than simply looking at an agreement. As I understand it, the Government have increased the budget of the OFT, but it is the quality of the people there that really matters. Recruiting better people is the key. The presence of more competent people is the real deterrent. In reality, we cannot expect the OFT to uncover every cartel. Its purpose is also to deter. Therefore, pay and career prospects at the OFT are crucial.
We must ask whether the Bill will make companies unduly cautious. After all, many mergers are initially based on an arrangement for sharing out customers. But this never lasts for long unless it is artificially maintained, and that is what the OFT must concentrate on deterring. This must be taken into consideration together with the other steps in the Bill to encourage enterprise. Abolishing the Crown's preference rights and the lenient attitude towards the not dishonest bankrupt will, I believe, encourage enterprise, and I welcome these provisions. On balance, I do not think that the Bill will lead to excessive caution. It may well just mean bigger fees for lawyers.
As well as encouraging enterprise, does the Bill encourage fairness towards the consume? I believe it does. As Adam Smith pointed out, competition forces manufacturers to respond to the consumer's preferences, and in a competitive economy the benefits of great efficiency go to the consumer. The Bill allows the OFT to use fines to compensate consumers and ensures that fewer companies will fail unnecessarily. Indeed, the consumer will now have representation on the board of the OFT. Professional services will be included in the Bill. More competition in professional services is bound to help the consumer. Looking after the consumer contributes to a fairer society and I welcome that aspect of the Bill.
Shall we have to pay for these benefits with more tiresome red tape? The noble Lord, Lord Boardman, believes that we shall. Of course, one person's regulatory red tape is another person's protection. The Office of Fair Trading can approve voluntary, independent codes of practice by various industries or groups of companies, and in this way it should be able to avoid some red tape. The invisible hand of the market requires less red tape than the long arm of government. The OFT will have to produce an annual regulatory impact assessment so that each year the red tape will be under review. On balance, that will help to keep red tape to a minimum.
I return to the fraud and dishonesty to which I referred at the beginning of my remarks. It see ms to me that recent events have shaken our confidence in accountants, analysts, businessmen and bankers—in the very people needed to carry out the spirit of the Bill. That means that there are now others to whom we must look in the commercial front line and on whom 167 we shall have to rely more. Trading standards officers immediately come to mind. I agree with my noble friend the Minister; they are going to have to be more alert than ever. Although they are employees of local authorities, I hope that my noble friend will encourage local authorities to raise their number and standard of training, as well as increasing their budget.
Whistle-blowers, too, become more important—a point referred to by my noble friend Lord Borrie. In 1998, he steered through the Public Interest Disclosure Act to protect whistle-blowers. With our confidence in their bosses somewhat shaken, perhaps we should be encouraging whistle-blowers to be rewarded with promotion rather than with the sack. The Enron and WorldCom frauds were exposed by whistle-blowers— incidentally, both of them women. So obviously whistle-blowers can be an effective way of detecting illegal commercial arrangements and apparently dubious accounting. Perhaps in the Bill the Minister should be paying more attention to encouraging and legitimising them.
Another ally in maintaining high standards is corporate governance. I know that my noble friend's department is looking at this matter, but surely recent events in the United States push this further up the agenda. I realise the difficulties of policing ethics, but higher standards of corporate governance go together with deterring fraud and dishonesty. I wonder whether in some way this could become part of the Bill.
In conclusion, like many other noble Lords, I welcome the Bill. I believe that together with an encouraging nod towards trading standards officers, whistle-blowers and higher standards of corporate governance, it will contribute towards a more enterprising economy and a fairer and better society.
§ 5.40 p.m.
§ Lord Phillips of Sudbury
My Lords, I, too, welcome the Bill, but with less acclamation than other noble Lords. In view of the somewhat critical nature of my remarks, I should perhaps explain that I am not some blue-sky idealist about business. I have been in it all my life, having started my own business 32 years ago, which employs 100 people and goes along merrily. I sit on a number of boards as a non-executive director, which is a dangerous thing to do these days, but I thought that I should clear the decks.
It is interesting and worth mentioning en passant that only one right reverend Prelate is in his place for this debate, which says something about the way in which business has somehow retreated into a little world of its own. That strange isolation of business from life at large, or the apartheid between Monday to Friday and Saturday and Sunday is accepted by the Church itself. A great deal of social and cultural disadvantage flows from that separation.
It is ironic that the Bill is a good deal longer than the New Testament—I do not think that it is quite as good a read, or as wise. It is also worth noting the paucity of Peers sitting on the Government Benches. I wonder whether that has something to do with the fact that 20 168 years ago such a Bill would have been viewed as an impossibly Thatcherite imposition at a time when those now in government were worshipping nationalisation and Clause 4 as much as they apparently now worship untrammelled free-market forces. It is all very confusing to a simple country boy.
The timing of the Bill is unlucky, as immediately preceding it we have had Enron, Arthur Andersen, Tyco, Worldcom, Merrill Lynch and now looming in the United States a series of earth-shattering litigation around laddering or initial public offerings. The first of these lawsuits, eToy v Goldman Sachs, is expected to reveal an appalling state of conspiracy by those introducing initial offerings, whereby for certainty and by contract, they cream off huge capital gains at the start of those offerings at the expense of the market and the public at large.
My first, and perhaps most important point, is to ask whether it is safe to examine the Bill on the basis of its own separate ideology. In my marriage service, I was subject to the Book of Common Prayer, which talked about marriage being "enterprised". There is not much sense of enterprise these days beyond the narrow confines of business. The Enterprise Bill refers to the Office of Fair Trading, and I wonder how rich and diverse a meaning the Bill will allow to the word "fair"—very little, I suspect. I strongly oppose eliminating the role of Ministers from the various parts of the Bill from which they have been extracted—the issue of mergers is one example.
As has already been said, the Bill is a charter for lawyers and accountants. They have largely driven it and will be the main and only certain beneficiaries of it. Indeed, big business will be a beneficiary as only big business can afford the lawyers and accountants to cope with it. That is not a trite point. The ever-increasing regulation of business represents an anticompetitive element in business life. Small and medium-sized businesses cannot get near the sort of advice necessary to understand the Aladdin's cave of complexity.
The Bill flies in the face of experience. I should have thought that we were past believing that the ills in the world of free-market capitalism can be contended with solely and simply by the passage of more and more complex laws. I am sure that I need not remind the House that two of the most crucial provisions in the whole of the already massive and ramshackle array of protections for citizens against fraudulent and dishonest trading are honoured in the breach. When did we last hear of a prosecution for insider trading, which is rampant? How often have there been prosecutions for trading while insolvent? That, too, is rampant.
Limited liability has become a scandal. We may not be touched by it, but ordinary people suffer from the regular and shameful ignoring of the provisions of limited liability in small companies. Tens of thousands of small companies go bust every month of every year. How many directors are ever called to account in the civil let alone criminal courts? I am completely unimpressed by the panoply of new powers. I should 169 be much more inclined to listen to the Government if the very basic protections in business were upheld. I repeat that they are not. Perhaps the Minister will tell us when he winds up how many prosecutions have been brought for insider trading or under limited liability provisions. I am sure that we would be shocked by the figures.
Any reference to the construct of limited liability is absent from the Bill. It is a man-made privilege par excellence. The assumption is that it is an irremovable, untouchable part of the edifice of success and affluence in commerce today. If we were doing our job properly, we would undertake a major investigation into the way in which limited liability works—for ill as well as good. We all know about its beneficial effects, but a consequence has been the growth in giant companies. Without limited liability there would not be massive, multinational companies. I believe that many of the failings with which we are all contending have to do with scale. There is a breakdown of internal cohesion or culture and a lack of individual philosophy or morals in containing or constraining the activities of such corporations, of which there are many current examples.
I shall say a word about the role of non-economic considerations in some of the matters with which we are dealing. The attempt to separate economic and political issues is a farce—as much of a farce as the Government repeatedly saying that entry to the euro is a purely economic issue. They say that there are five economic tests, as if there were no non-economic considerations or consequences of entry. That separation is just as futile in the Bill.
I have no confidence in the ability of a few accountants, however well read or well bred to deal with the non-economic consequences of the matters covered by the Bill. What do I mean by non-economic consequences? We all know that free-market economics is rather like the Ritz. The equality of choice and purchasing power in the marketplace, which are upheld as two of the great aims of the Bill, are as long or as strong as the size of the purse of the person concerned. If one has no money, one has no protection. When the Bill is passed, market regulators need have no regard to issues of social divisiveness and basic social need. That makes the removal of the public interest element more than dangerous. It makes it foolhardy.
What about the role of village shops in our society? Everyone agrees that they are far more than merely economic entities. What about cultural goods? Shortly we shall consider the communications Bill. What about pornography? There is Mr Desmond's recent take-over and the fact that the Government said that they could not intervene, even under the present law. I believe that those are all examples of the need for the public interest, broadly defined, to have a role in considering, for example, mergers and take-overs.
I shall touch briefly on one or two further points. The provision of information arrangements under Clause 6 could so easily be propagandist. They speak only of informing the public about the benefits of 170 competition. I believe that an excess of competition is antisocial. One cannot unleash uncontrolled aggression, uncontrolled greed, uncontrolled insatiability as a stimulant to market and competitive effectiveness and not expect it to infect the rest of our body politic and our body social. It is one of those strange misunderstandings that bedevils us. Therefore, I hope that provision of information to the public, as it is called, will be balanced by information on social responsibility, on the ethics of business and on others matters.
§ 5.51 p.m.
§ Baroness Wilcox
My Lords, there is much to welcome in the Bill. Many of the proposed reforms to consumer protection and to the competition regime are particularly welcome, although, as has been expressed already, to seek legislation so soon after the 1998 Competition Act shows a depressing lack of foresight. However, we are where we are. I declare an interest as president of the National Consumer Federation and president of the Trading Standards Institute.
The noble Lord, Lord Borrie, is right to say that generally I welcome the broadening of the scope of the stop now orders. I am heartened to hear of the associated funding of which the Minister spoke and I support the comments of the noble Lord, Lord Haskel, regarding the new burdens on the service.
I am sorry that I cannot agree with the noble Lord, Lord Borrie, that a strategy board to support the Director General of Fair Trading is a bad idea. In my view, if it sticks to its intended brief, it should be an asset.
I support many of the provisions that set out to deal with a number of very significant matters in the pursuit of maintaining a fair trading environment and the promotion of a competitive market economy. Powers to outlaw rogue trading practices are vital to honest traders and to maintain consumer confidence. The ability to deal with such matters will be a key test of the Bill's effectiveness.
Of particular interest, therefore, is the Bill's stated objective of amending the law relating to the protection of the collective interests of consumers—a praiseworthy objective. So it is disappointing to note that the Bill does not seek to address a significant anomaly in the Trade Descriptions Act 1968, which has been the cause of consumer detriment since that Act came into force.
The matter to which I refer concerns the requirement to prove mens rea—guilty knowledge—in order to establish an offence in relation to mis-described services. As the Minister knows well, that Act forms the backbone of consumer protection legislation in the United Kingdom and establishes the most fundamental principles for the development of legitimate and fair practice in business dealings between traders and the public. Perhaps the most significant sections of the Act are Sections 1 and 14. Section 1 prohibits false trade descriptions in relation to goods and Section 14 deals with false statements 171 made in connection with services. Section 1 does not require proof of guilty knowledge, whereas Section 14 does. The two sections of the Act are clearly inconsistent. Gathering evidence to prove mens rea is fraught with difficulty and causes significant problems for those who are tasked with enforcement.
The consumer does not readily distinguish between statements made in relation to goods and statements made in relation to the provision of services. It is as easy to be misled by one as by the other. Indeed, in an economy such as ours, which relies more and more heavily on service industries, it becomes increasingly important that appropriate sanctions are in place to deal with occasions when consumers are taken in by false statements relating to the services that they buy. Furthermore, services and goods are increasingly available for purchase remotely and electronically, so the importance of accurate descriptions is paramount. Members of the public are frequently at a loss to comprehend the reasons why the protection offered in law differs depending upon whether they are purchasing goods or services.
The 1976 review of the Trade Descriptions Act, conducted by the then Director General of Fair Trading—it could not possibly have been the noble Lord, Lord Borrie, in those far off days—reported on those deficiencies in the Act and recommended that changes were introduced to align the two sections. More recently, the DTI consumer White Paper, Modern Market: Confident Consumers, gave an indication that that was the way the Government were going. But is it?
The Enterprise Bill presents Her Majesty's Government with an ideal opportunity to address this important and relevant issue. I shall listen carefully to the Minister when he responds to my concern in this area. I believe that the Government's intentions are good, but I hope that the raft of new ideas will not distract them from putting right the underlying law which remains unsatisfactory.
§ 5.56 p.m.
§ Lord Brennan
My Lords, the Bill is notable, not only because of its volumetric contribution to our law, but also because of the quality of some of its proposals. I shall praise and question some of those proposals.
First, I strongly welcome the role that the Bill gives not only to the interests of consumers, but also to organisations that exist to protect those interests. The idea of super-complaints—an inelegant word—is welcome. They can be brought by such organisations in the interests of consumers.
It will be extremely important that the designation of organisations that can so protect consumers, and the regulations and systems through which they can seek to protect the consumers are kept simple and as far as possible within the means of what are likely to be non-profit-making organisations.
I particularly welcome the 90-day response by the Office of Fair Trading. As I read the Bill, that department must respond with a decision to act, or not 172 to act, with reasons, within 90 days, with no backsliding. The Bill is mandatory. That should produce an ethos of consumer protection different from that which we have experienced in the past. In addition to those enforcement measures, for consumers there is the important function of the OFT in promoting good consumer practice and the investigation and, where necessary, advice to be given on codes of good practice. Those are welcome changes.
I move to the second of my two points of welcome, which is to note the powers and the structure of the competition appeal tribunal. I hope that many disputes will be resolved without the need for reference to that tribunal. However, it is essential that the tribunal is not constituted with the same degree of formality, delay and control by lawyers that is the usual litigious process in this country. The tribunal should work as well informally as formally, seeking to mediate between competing interests to achieve quick and effective results—especially when it has to deal with consumer protection.
It is of concern that the disclosure provisions of a Bill that promotes enterprise and seeks to make it a major part of corporate and market activity are so restrictive. The Secretary of State can exclude from published documentation that which he or she considers to be inappropriate, which is a loose control. If transparency is to be encouraged, the public will want to know why action has or has not been taken. When we examine Clause 240 in Committee, it will be extremely interesting to know why material can be kept confidential from the public where the authority thinks that publication "might"—not will or be likely to—adversely affect a commercial interest. That is overprotecting the corporate system. If competition is to be promoted and rules enforced where they are abused, the public will expect to know the whole truth.
I find to my dismay as a professional man that Parliament is about to consider again legislation in which the phrase "a business" includes a professional practice. I have no hesitation pursuing my practice in a businesslike fashion but I hesitate to describe my profession as a business. My clients would feel concern if they thought that my primary motivation in giving advice and representation was making profit rather than serving them and the community.
How do my noble friends on the Front Bench envisage that part of the Bill being used towards professions? Any decent profession requires its members to be properly educated, observe decent ethics and serve the public well. That costs money. People have to contribute to their profession and must charge fees that embrace those costs. Are we to place a premium on mediocrity and conclude that people who are less educated and less ethical but cheaper should be favoured in competition practice? I think not. I hope that the definition of market concerns in Clause 126 will not subjugate professional standards to the level of mere profiteering.
This is the first legislation of its kind that can be said to be a pure competition Act. Public interest does not figure in clear terms as it has in the past, although 173 under various chapters the Secretary of State will have special powers to refer where certain public interest matters may be affected. I ask rhetorically, if this needs further thought by my Front Bench colleagues, what role will public interest play in the enforcement of competition under Clause 126? Will pure market-force economics or some extraneous factors play their part in determining enforcement of competition laws that in fact go against the public interest? One can well imagine circumstances in which they might. A small sector of society providing a significant public service that does not have a substantial asset base but exists on its income may charge for its goods or services at a rate that preserves its existence, yet serves the public interest. I would be adverse to such a case resulting in the institution concerned, be it private or professional, finding that its standards and services were to be reduced at the altar of competition.
The word "competition" simply embraces an economic concept. It has no greater theological significance—as one sometimes imagines, talking to proponents of competition in Brussels. I am sure that our Ministry has its feet on the ground. This is a competition. Bill named the Enterprise Bill. I hope that its content will not become a vehicle for frustrating competition, nor for damaging matters that are properly pursued in the public interest.
I hope for reassurance that the Office of Fair Trading, with so many vitally important public objectives to achieve, will be fully financed in its ability to achieve them and will not fall down—especially when protecting consumers because of inadequate resources. Subject to all those matters, I welcome the Bill.
§ 6.7 p.m.
§ Lord Hodgson of Astley Abbotts
My Lords, it is not so much the weight and length of the Bill that concerns me—though it is long and weighty enough—but its unintelligibility as a stand-alone document. It is all very well for parliamentary draftsmen to flick between different Acts of Parliament but when the Bill is enacted it will have practical implications for large and small businesses. We owe it to our fellow citizens to make legislation as comprehensible and intelligible as possible. I hope that the Government will find time for some consolidation, so that business people throughout the country who have to live with the Bill's consequences will be able to learn all its implications in one place.
There are clearly some welcome aspects, such as the plan to insulate the competition authority from political interference. It is not just that the judgments of politicians about business matters can be fallible. More important, different Secretaries of State can reach different conclusions about the same subject. Business needs above all a stable framework. Given that the average term of office of a Secretary of State is less than a couple of years, stability has been lacking in the present arrangements.
I wonder whether Members of another place have realised some of the proposal's implications. Presumably a delegation to a Minister to lobby against 174 a takeover will become a thing of the past. If it does not, a critical element of the proposals will have been undermined. I hope that we are given the chance to explore in Committee how the authority's independence will be buttressed against everyday political pressures. The structure, make-up and terms of the new authority will be critical—as will Government thinking on the nature of the competition test lying behind Clause 21 and on the special public interest test in Clause 51.
One of the most useful aspects of the present regime is the ability of a firm seeking to engage in a takeover to approach the OFT for confidential guidance as to the acceptability of the course on which it is about to embark. It can prevent a huge diversion and waste of resources for both the bidding and the target companies. I hope that the: Minister will be able to say something of the Government's thinking on this matter.
Secondly, on the review of personal bankruptcy, as the White Paper points out, bankruptcy is for most people an appalling personal tragedy, not just in financial terms although that is bad enough hut, more importantly, in the loss of self confidence and self esteem. As a country we need to encourage risk takers, people who will put their financial assets including their house on the line and go through the sweaty days and nights of building up a business.
Therefore, I understand and welcome the attempts to distinguish between "good" and "bad" bankrupts. But as many noble Lords have pointed out, it is distinguishing one from the other that is so difficult. I am not sure that the provisions in the Bill do that well enough. It may be unpleasant to say this but we need to remember always that every bankruptcy—good, bad or indifferent—represents a loss to the creditors who very often are themselves small and vulnerable businesses. The relevant clauses will need careful consideration in Committee.
Reference is made in the White Paper to the Company Directors Disqualification Act 1986 as providing a mechanism or procedure for distinguishing "good" from "bad" bankrupts. From my experience—I hasten to add that it is not direct experience—the legislation has not been satisfactory except in the most obvious cases. Often it is operated by people with no real experience of business and appearing to have quotas to fill in each financial year. I do not believe that that is a happy example. I hope that the Minister is aware of the concerns among insolvency practitioners about weaknesses in structure and technical detail in this section of the Bill. No doubt we can revert to that in Committee.
On the abolition of Crown preference, while that obviously increases the fairness and equality among creditors and must be welcomed, I fear that it may have the opposite result from that which so many have anticipated. Crown preference really only impacts once the firm or individual has gone into receivership or bankruptcy. It impacts at the expense of the other creditors. But it is what happens before receivership that is equally important. The Inland Revenue and 175 Customs and Excise are notoriously hard-nosed and unsympathetic to a struggling business. But from time to time they can be persuaded to help by delaying a demand for payment in the way that other trade creditors are prepared or forced to do.
I suspect that they do so safe in the knowledge that the existing Crown preference will safeguard them. If it is withdrawn, they may have no reason not to enforce their position to the day, the letter and the penny. Therefore, to make the change of real impact the Government need to find a way to encourage a fresh attitude by the Inland Revenue and Customs and Excise to struggling businesses which are taking risks. I wish the Minister well in that task.
Perhaps I may raise a number of issues on the philosophy underlying the Bill. As the noble Lord, Lord Phillips of Sudbury, said, this is a misnamed Bill. It is not an enterprise Bill. It is a regulation of competition Bill. It is a consumer Bill. It is an insolvency Bill. One of the three White Papers is entitled, Productivity and Enterprise: A World Class Competition Regime. This Bill will probably not harm productivity although it will represent another series of bricks in the regulatory burden borne by firms. But it will not do much to enhance it either. This country has a lamentable productivity record. The supply side reforms introduced by my noble friend Lady Thatcher may have had a beneficial impact, but we are now back on the familiar path. In the 12 months ending in the fourth quarter of 2001 output per job went up 0.8 per cent; unit wage costs went up 3.3 per cent. Why is that? We do not invest enough. We do not manage our enterprises well enough. We have a hideously complex tax system, as my noble friend Lord Saatchi said earlier; and we have a burden of regulation originating here but also consisting of Brussels' regulations which have been gold-plated in Whitehall. Despite the Bill's alluring title, nothing will tackle these fundamental underlying problems in any way.
Secondly, it is not clear to me how the Government will reconcile their wish to see the emergence of world class and world-leading companies based in the UK with their desire to preserve and enhance competition. The UK is a small market. To build a company within the UK strong enough to take on European and world competitors will almost certainly require a degree of dominance of the UK market at odds with the provisions of Clause 126. Let us take as an example an emerging industry, the biotechnology industry, which will be almost certainly at the leading edge of innovation and productivity over the next 25 years and which offers a richness of opportunity to mankind. Currently only 10 per cent of UK biotechnology companies have more than 50 employees. To undertake the necessary research and development these companies will need scale and in a market the size of the UK that means market dominance. What will the OFT say about that?
When the Minister replies, it is no good his praying in aid the US example as his colleagues the Chancellor of the Exchequer and the Secretary of State for Trade and Industry are inclined to do. It is a false 176 comparison. The US is a market of 220 million with a GNP 10 times the size of ours. Their market can accommodate a range of specialist companies. I am not clear that ours can do so. The implications of Clause 21(2)(b) will need careful probing in Committee.
Finally, on this section there is the issue of whether the Bill brings us closer to or further away from practices on the continent of Europe. The noble Lord, Lord Razzall, raised the point in his opening remarks. There seems to be a dispute as to whether criminalisation of cartels is in line with continental Europe. What seems clear is that this will give us a competition regime which is as far-reaching on each count as every European country and, taken overall, is more stringent than any. That in turn raises issues about level playing fields in the UK's competitive position. We struggle with the implications of the prospectus directive— drawn up with the requirements of the weaker financially regulated EU member states—which, with its one size fits all, will greatly impede the access to public capital for smaller companies in the UK. Think, my Lords, about the productivity implications of that.
Meanwhile the German Government have been able successfully to stall the Takeover Directive so that the German industry continues with its old practices of poison pills, unequal voting rights and other devices which afford artificial protection to German management and deprive German shareholders of what is rightfully theirs. That is clearly an anti-competitive position.
Finally, there is the issue of resources. The Minister was keen to trumpet the advantages of criminalisation. But I am sure he will remember—I am no lawyer—that this will change the burden of proof from the balance of probabilities to beyond reasonable doubt. Reaching this standard of proof will be far from easy. The difficulties of getting convictions under the insider dealing rules, when those were criminal, come to mind. So does the poor conviction record obtained by the Serious Fraud Office.
The Government may find that they have aroused public expectations which they cannot subsequently fulfil. Most importantly, if attempts are made to obtain convictions and they fail, there is a danger that the legislation will fall into disrepute. The Government will need, therefore, to ensure the adequacy of legal resources and support to make that happen.
I make one point about consumers. I support the Government's attempt to afford greater protection and redress against rogue traders. But I am disappointed that there appears to be no effort in the Bill to deal with consumer fraud and malpractice arising from bases overseas. It is an increasingly important and difficult matter. I give a simple example. Noble Lords will have received through the post letters from the Netherlands. They look very official. They are content-security sealed, with tamperproof alert. When opened, they contain a facsimile cheque informing you that you have won the princely sum of £361,681. The catch is that in order to get it you have to send £26 transfer fee. That is fantasy.
177 However, people are not mailing these just for their health. They are mailing them because they are getting £26 over and over again. It is the most gullible and vulnerable members of society that respond to those sort of entreaties. As a matter of urgency, if the Government are serious about protecting consumers they need to find a way to tackle this.
To conclude, I find parts of the Bill which are worth while, parts which are inoffensive but unnecessary, and parts which are seriously flawed. There is much work to do in Committee and I hope that the Government will approach that stage with an open mind.
§ 6.21 p.m.
§ Lord Sharman
My Lords, it falls to me to wind up this debate from these Benches. I can do no better than to begin by echoing the remarks of my noble friend Lord Razzall about the clarity of the Minister's introduction to the Bill.
As many Members of your Lordships' House have said, it is a long and complex Bill. Generally, on these Benches, we welcome it. The objectives are highly laudable. Who could question the need for higher productivity? Who would question a desire for a better enterprise culture? However, it is a compendium Bill—others have referred to its title. It is a mixture of measures. I do not believe that what we call the Bill matters, although others may. What is in it and whether it will achieve those laudable objectives is the key issue.
The Minister mentioned in his introduction that the Bill has widespread support. That is true. As my noble friend Lord Razzall mentioned, we have had briefings on this from many and varied organisations. They use phrases like "support in the round" or "generally support". I hope that the Minister has not taken too much comfort from those words in the sense that there is much that we shall need to deal with in Committee.
I should also make it clear that we welcome the removal of political direction from the Office of Fair Trading. We supported it in another place and we support it here. However, that does not mean that we shall modify in any way our concern about what we perceive to be the lack of parliamentary accountability of the hugely powerful new quango that is being created by the Bill.
In Committee we want to explore whether we can find a way of exercising appropriate parliamentary scrutiny—whether that is through a joint Lords and Commons Select Committee; whether it is through the DTI Select Committee approving membership of the boards; whether it is through reports to Parliament to justify specific decisions; or whether it would be better to impose a public interest mandate, in addition to the body's other responsibilities, to which other Members of your Lordships' House have already referred.
In general, we welcome the provisions for competition policy reform, which represent a valuable and useful step forward. My noble friend Lord Razzall referred to a number of our concerns in this area. In terms of the review of decisions, we shall want to 178 explore whether it is sensible to have an extension where any aggrieved party can apply for what is essentially a judicial review. I am concerned that the provisions leave far too open the decisions on mergers. Other noble Lords have referred to the need for certainty in business. It seems to go through a whole investigation, to come to a conclusion and then to say that another three months must pass before anyone, on any grounds, can ask for a review. That will create too much uncertainty.
Many noble Lords have commented on the issue of cartel offences. I share the concern of the noble Lord, Lord Borrie, about the definition of dishonesty. I believe that a definition appears in the Bill for the first time—to do something dishonestly. It worries me and we shall need to define it carefully. I worry also that the criminalisation of cartel offences in this country will catch only the small fry. I want to be assured that we shall also catch some much bigger fish. It would be a terrible shame if we ended up with the window cleaners of the noble Lord, Lord Boardman, inside, and the big fish operating under only civil penalties in Europe. We should look at that carefully.
My noble friend Lord Razzall raised the issue of whether the investigation of offences should be the remit of the Serious Fraud Office or, as is contemplated by the Bill, the Office of Fair Trading. The noble Lord, Lord Borrie, said that he had an open mind, based on his vast experience in the field. From my perspective, we are dealing with an investigation which it is hoped will lead to a criminal conviction. That requires forensic skills. Those seem to be more readily present in the SFO than in the OFT— unless the OFT is going to be equipped with new skills. We would do well to examine that in Committee.
On competition reform, we should look at the use of surveillance powers in some depth. I am not yet in a position to agree that powers introduced originally to combat serious crime and terrorism are appropriate for a competition authority. That should be looked at very carefully.
Finally, a small point. The issue of disqualification on the grounds of competition offences is very widely drawn in the Bill. If we are about encouraging enterprise and bringing back entrepreneurs into an entrepreneurial stage, we would do well to look there again. It seems that an offence of any nature in competition could lead to disqualification. We should look at that carefully.
As regards the issue of insolvency reform, it is notable that in that part of the Bill we have had more briefing from more and varied organisations than on any other issue. At the core of our concerns here is the differentiation between preserving business or dealing more fairly with business bankruptcy, and preserving the company in the case of corporate, or distinguishing between consumer—if I can use that phrase—bankruptcies, in the case of the individual.
I feel strongly that preserving the business in the case of a corporate insolvency is more important than preserving the company. I shall not repeat the remarks of my noble friend Lord Razzall in the example of how 179 one can structure the preservation of a company at the expense of business and employment. However, at the core that is the key, and it is an important issue.
I echo the words of a number of noble Lords that the time scales—certainly on the corporate insolvencies—are not realistic. We need to look at those again and think about extending them. It is hoped that many will be completed sooner than the limit, but a limit that is sensible and viable is needed.
I mentioned the issues on personal bankruptcy and the distinction between personal and business bankruptcy. I believe that saving the business and helping that person back into business is more important than helping people who might want to manage their debt in a different way. That leads to the issue of the unfortunate versus the reckless bankrupt, which was mentioned by several noble Lords. The Bill does not distinguish sufficiently between the two.
I add my congratulations to the noble Lord on doing something about industrial and provident societies. That was clearly a concern. As my noble friend Lady Maddock said, I hope that we have now put this one to bed and will not come back to it.
Finally, we welcome most if not all of the procedures on consumer protection. In his introduction, the Minister explained why the Government had not seen fit to introduce a requirement not to trade unfairly. I wonder whether they have been courageous enough. I would encourage them to think again and to be courageous by considering an amendment to introduce that provision, which is sorely needed in this country.
We have had a good debate. Questions have raged long and hard and for once the accountants came in for only a mild drubbing rather than a thorough one.
§ Lord Sharman
My Lords, I look forward to the Committee debates, which my noble friend Lord Razzall hopes will not be drawn out by experts. As one who thinks that he knows a little about some of these things, I promise not to do so.
§ 6.31 p.m.
§ Lord Hunt of Wirral
My Lords, we have heard some valuable contributions in the 14 speeches so far. Substantial points have been raised that I trust the Minister will answer. I see that he is slowly going through the well written briefs that he has been given. I echo the tributes paid to his advisers. It is 23 years since I spoke from the Opposition Front Bench, but I had 16 years speaking from the Government Front Bench and I recall the outstandingly good briefs that I was given by the independent and impartial civil service of which we have every right to be proud. I am sure that some of the questions put by my noble friend Lady Miller of Hendon will be covered in the file that the Minister is going through carefully, but I anticipate that some of them will not be covered. I invite the Minister to break with tradition and give an off the cuff response to those penetrating questions.
180 Since I entered this House I have never ceased to be impressed by the noble Lord, Lord McIntosh, and his mastery of so many varied briefs. He is a man of many public parts and roles, which he plays with great expertise. I pay tribute to him for that.
We have had an interesting debate about the title of the Bill. I applaud my noble friend Lord Boardman, who has consulted the Oxford English Dictionary, but I doubt that his suggestion will be taken up. He found a definition of enterprise as courage. During my period as a Minister, if any of my advisers said that a policy would be courageous or labelled any initiative as having considerable courage, it was often an argument for not going down that road.
Here we have a Bill covering now two volumes containing 277 clauses and 26 schedules. As my noble friend Lady Miller said, it is in effect three Bills. That was echoed by a number of speakers in the debate. I hope that Ministers recognise the call for the Bill to have undergone pre-legislative scrutiny. It was ideally suited for that process.
A number of points have been made about the timing of the Bill. Only the noble Lord, Lord Haskel, congratulated the Minister on the timing. He said that it was well timed because of all the financial scandals. I am not sure whether he attributes any credit to the Government for that timing, but I hope that he recognises that he was the only one who thought that July was the right moment to introduce the Bill in this House, leaving very little time for proper scrutiny.
I agree with the noble Lord, Lord Razzall, that there has been inadequate consultation. The Bill has been rushed. I hope that we shall have time to scrutinise its provisions properly. As the CBI said, it is a curate's egg. The CBI has been quoted in support of the Bill, but it also said that it failed to see how the Bill could boost enterprise.
The Minister said that the Bill was radical, that there had been proper consultation and that the provisions were bold. I echo some of the comments of noble Lords who have called that into question. First, I commend again my noble friend Lord Boardman for his criticism of the prison sentences that have suddenly leapt to prominence for those guilty of anticompetitive behaviour. The recent Competition Act—some parts of which have not yet been brought into effect—did not suggest that penalty and the rest of Europe is moving in the opposite direction. Ministers need to explain why they are introducing these provisions.
My noble friend Lord Astor made a number of key points about the need to speed up procedures. In many ways, our system works well. My noble friend made some valuable points on that. He also asked, given that some of the provisions of the Competition Act have not yet come into effect, why the Government are proceeding in this direction. He carefully laid down a good argument for not doing so.
We have all without exception welcomed the fact that Ministers are moving to put distance between the Secretary of State and decisions on mergers. My noble friend Lord Tebbit produced guidelines heading in 181 that direction, so it is hardly surprising that we welcome this further step in relieving Ministers of the tendency to "block it, Beckett", or whoever the Minister might be pursuing a particular political course. It is very welcome that that will no longer be possible.
One could have expected the noble Lord, Lord Borrie, to object to the abolition of the post that he held with such distinction for many years, reappointed constantly by Conservative governments. That may send a message to him—it certainly does to me.
My noble friend Lady Wilcox, however, supported the concept of the board. In Committee we must examine how it would work. The noble Lord was right to draw our attention to the advertisement that has just appeared. I have not yet scrutinised it, but I look forward to doing so. He said it spoke of two days a month, which hardly suggests the board will move at the speed with which the noble Lord used to move in his previous capacity.
I also support what the noble Lord, Lord Razzall, said about the Desmond clause and the question of public interest in mergers of newspapers. My noble friend Lady Miller of Hendon has already referred to this key issue.
Looking generally at the consumer side, the noble Lord, Lord Razzall, asked whether there should be a duty to trade fairly. I have heard from Deirdre Hutton of the National Consumer Council that we should consider whether there should be a duty not to trade unfairly. We share some of the Government's misgivings in trying to put that statement into legislation. It would be extremely difficult and would fall foul of some of the tests that my honourable friends have been imposing on the Bill to relieve regulation.
The speech of the noble Lord, Lord Phillips of Sudbury, hears considerable scrutiny. He has a lifetime of public service and is a lawyer well known for his initiatives on pro bono work. I recall that he was a legal eagle for some time. He pointed out some deficiencies of the existing free enterprise system which we should do well to consider carefully. Although I did not agree with much of what he said, we must ensure that we consider the issues with great care.
My noble friend Lady Wilcox talked about the difference between misdescribed services and misclescribed goods. I am not sure I agree with her, but it is necessary to scrutinise the guilty knowledge element in these matters. I would not want consumers to find that it is impossible for them to pursue redress. Equally, it is important to pay attention to the good faith of those selling services.
The noble Lord, Lord Brennan, referred to a number of key points, particularly on Clause 240, to which I had not paid much attention until he pointed out its deficiencies. I found persuasive some of the principles that he enunciated, but I will need to see how he translates his suggestions into specific amendments before deciding whether we agree with him.
182 The noble Lord, Lord Best, and the noble Baroness, Lady Maddock, shared with us their experience of social housing, although the Minister pointed out at the start of the debate that the Government will be tabling clauses to exclude housing associations.
I was amazed to hear the noble Lord, Lord Borrie, refer to the Bill as not being very fundamental, although wordy. I regard some of the measures as very fundamental and on this side of the House we will question their detail. He added that he would table a couple of proposed schedules and a series of clauses. We can only be taken aback by his courage and we look forward to scrutinising that additional proposed legislation.
On the provisions relating to insolvency, my noble friend Lord Hodgson rightly said that we must encourage risk takers. It will be important for us to try to find a way of differentiating between business debt and personal debt. My noble friend Lord Boardman was right to point out that borrowing has become a habit. It is a worrying development. We would not want any provisions in this legislation that suddenly released many people who often take credit beyond their means from the significance of facing up to that borrowing at some stage. We are often dealing with debts owed to small businesses in that respect.
I am not sure that we have paid enough attention to student debt. I was assured by a Minister that there was no need to worry about students seeking the new procedure to relieve themselves of student loans because the student loans legislation had already excluded such opportunities. I now discover that a further measure has put students back into potential bankruptcy proceedings. We need to think about that carefully. There have been a number of important press articles on the subject.
The Association of Business Recovery Professionals, which was referred to earlier, has highlighted the difference mentioned by several noble Lords between preserving the corporate vehicle as opposed to the economic entity. Schedule 16 states that,The administrator of a company must perform his functions—(a) with the objective of rescuing the company".I cannot understand why it does not say "rescuing the whole or part of the business", which is the existing practice. I hope that the Minister will explain why the Government have decided to refer to the company, and whether they are moving away from the definition of whole or part of the business.
As R3 points out, speed is virtually always critical to the rescue of a business, but so is flexibility. The unrealistic and arbitrary timescales imposed by the Bill to which the noble Lord, Lord Sharman, referred, will complicate the process and add to expense. With the changed definition of company rather than business the objectives may be defeated. We need to spend time on these points.
It has been an interesting debate. The House will have to spend a substantial amount of time in Committee. Clauses 205 to 228 were not considered by the other place in Committee. On Report, there was no 183 debate whatever on the provisions dealing with market investigations and cartels and only a short interrupted debate on mergers. It therefore falls to this House to spend considerable time on this important but complex Bill that will certainly need extensive scrutiny. As the noble Lord, Lord Sharman, said, the Government should not be misled by the general welcome in principle, because key areas of detail remain to be scrutinised. We await the Minister's response.
§ 6.47 p.m.
§ Lord McIntosh of Haringey
My Lords, I do not know whether I am more warned by the comment that the Government should not be misled by the general welcome or by the number of noble Lords who have said how much they look forward to Committee. Those seem to be threats rather than promises.
I begin with a certain amount of housekeeping, as did the noble Baroness, Lady Miller. She complained about some of the procedures, particularly the lack of consultation and the short time period for the final consultation. I hope that she will recognise that all the Bill's elements were subject to extensive consultation before the final consultation. In 1999 there was consultation in the consumer White Paper and on merger reform; in 2000 we consulted on personal bankruptcy; and last year we consulted on competition and insolvency. It has been a three-year process and there has been plenty of opportunity for people to comment, which has certainly been taken up.
In response to the comments on lack of scrutiny in the Commons, it is true that there has always been a limitation on the time allowed for scrutiny there. Whenever Bills have been guillotined in the past it has had the same effect as programming, but the division of time within the time allowed is a matter for the Opposition. If they choose not to debate certain matters, that is their responsibility, not the Government's.
If we agree to go into Committee, my understanding is that four days in Committee have been agreed. They may be long days; let us see. My experience has been—
§ Baroness Miller of Hendon
My Lords, perhaps I may make one more point on housekeeping. The four days were agreed on provisionally; not finally. I believe that that could be confirmed.
§ Lord McIntosh of Haringey
My Lords, that is news to me. But we shall have to work hard, bearing in mind the complexity of the issues before us.
I shall deal separately with competition, consumer affairs and insolvency. I want to introduce my remarks on competition with a little of my own experience. In the early 1960s I was market research manager for one of the largest lamp and lighting companies in the country. We belonged to an organisation called the Electric Lamp Industry Council. It had magnificent premises in Bedford Square with an Angelica 184 Kauffmann ceiling above the magnificent staircase and a splendid boardroom where the committees met. On the mantelpiece was a motto from John Ruskin:There is hardly anything in the world that some men cannot make a little worse and sell a little cheaper, and the people who consider price only are this man's lawful prey".That was the most blatant excuse for price fixing and cartelisation that I have ever known. In the electric lamp business in the 1960s the price of every single lamp was determined by agreement by all the manufacturers. There was a red book which set out the discounts which might be allowed to super wholesalers, wholesalers and small wholesalers. That went on, rampant and unchecked, and nobody did anything about it until Mr Heath did something with resale price maintenance. I am sure a lot of that still goes on and I am sure that we shall be learning more about it as the cartel provisions come into effect.
In the competition section I shall start by talking about the competition test because the noble Baroness, Lady Miller, questioned whether the competition test was the right alternative to the public interest test. I think that a competition test is more practical. I believe that the phrase, "public interest test", sounds good, and it works in some areas—for example, the Crown Prosecution Service—but in this case surely it is more realistic to be talking about competition as a principal factor in UK merger policy that should now be a legislative requirement. It is time to bring the legislation into line with practice. That is what the competition test in effect does. The test will be whether the merger is expected to result in "a substantial lessening of competition". That is the nearest to the competition analysis which is applied at present and that will be the concept which will guide the Office of Fair Trading and the Competition Commission and they will have to explain that in guidance.
Perhaps this is housekeeping, but we were criticised for not allowing the Competition Act enough time to bed in. The point here is that the Competition Act 1998 did not address merger and monopoly powers and many of those were seriously dated. My noble friend Lord Borrie gave evidence on that point. When he said that this legislation follows on naturally from the 1998 Act I think that is the correct way to look at it.
A number of comments were made about the Office of Fair Trading itself, a general welcome for it being established as it is rather than as a creature of the Director General of Fair Trading. I was asked for some assurances about that. In particular my noble friend Lord Borrie asked me to ensure that we would not have the part-time members of the Office of Fair Trading board undertaking individual investigations. I can certainly give him that assurance. The conditions for the board are very clear, although they are to be found in the "consumer" section of my briefing notes. They are that the board should focus on the OFT's strategic vision and direction, prioritisation and monitoring progress against targets. We expect the board to delegate most operational decisions to the Chairman and OFT officials. I hope that that will give my noble friend the assurance that he needs.
185 The noble Viscount, Lord Astor, expressed great concern about the existing delays in the Office of Fair Trading and I hope that he will be reassured by the need for the new OFT to approve a service delivery agreement, objectives and targets on which it will have to report on a regular basis to Parliament, because of course the OFT will be a body responsible to Parliament.
I may be skipping around a little but the noble Lord, Lord Hodgson, asked whether companies would be able to continue to approach the OFT for confidential advice about mergers. The answer is that they certainly will.
The noble Viscount, Lord Astor, was concerned particularly about delays in broadcasting decisions, and I sympathise with him about that. He asked particularly about double jeopardy for sectoral regulators. The answer is that we are extending the concurrency working party agreements which have worked well under the existing Competition Act regime. The principle is that the best body to act should do so and if there is no agreement it goes to the working group to decide who should take it forward. There ought not, under those circumstances, to be a problem of double jeopardy.
There was a general welcome, although muted in the sense that it was hardly mentioned now I think about it, for the competition appeals tribunal. The noble Lord, Lord Brennan, made the valuable point that it needs to be as informal as possible. Of course, it has to be an independent tribunal and for that reason the chairman and the president will be appointed by the Lord Chancellor and appointments will be for a single longer term so that there are no issues raised by reappointment. I agree with him that the proceedings have to be informal and that is the basis on which ordinary members of the tribunal will be able to hear appeals.
Inevitably there were questions about the cost of the market provisions increasing cost to business, raised by the noble Lord, Lord Boardman, and my noble friend Lord Borrie. It is not necessarily the case that more markets will be referred to the Competition Commission than at present. The reference criteria are no more permissive than under the current monopolies regime. The Office of Fair Trading refers only when it thinks that there is a real likelihood of a serious competition problem and this is demonstrated by the fact that the Competition Commission has recommended remedies in all but one of the last 12 monopoly cases which have been sent to it.
Everybody except the noble Lord, Lord Phillips, welcomed the diminution of ministerial involvement in decisions about market investigations. We shall no doubt hear from the noble Lord, Lord Phillips, on that subject in Committee and I look forward to that. He made the only really radical speech in the whole debate, if he does not mind my saying so.
I have dealt with the issue of the competition test. There was considerable discussion on the criminal offence and the issue of dishonesty. The noble Lord, Lord Razzall, welcomed it. The noble Baroness, Lady 186 Miller, was concerned that it should not be thought of as being the same thing as theft and she objected to the use of theft. I am not sure that I agree with her. The dishonesty element will ensure that only people who are entering into agreements which they know to be wrong may be charged with a criminal offence and dishonesty will be tested against standards already established in case law. Juries will ask themselves whether what was done was dishonest by the standards of reasonable people and whether the defendant understood that that was the case.
It has not been defined in existing legislation but the relevant legislation is of course the Theft Act 1968. I think there is a reasonable balance between the civil offences and the criminal offences just as I believe there is the same reasonable balance in the Financial Services and Markets Act. The working together of the OFT and the Serious Fraud Office means that the OFT will be collecting evidence to different standards for civil and criminal cases. For criminal cases it will need to follow the Police and Criminal Evidence Act criteria and procedures because it will have to hand that over to the Serious Fraud Office. Incidentally, I would say to the noble Lord, Lord Phillips, and the noble Lord, Lord Hodgson, that the SFO conviction rates, which admittedly were lower in earlier years, have risen to 87 per cent in 1997–2002. My judgment is that my noble friend Lord Borrie was right in approving the decision to have those matters dealt with by the Serious Fraud Office.
Finally on the issues involving competition, there was concern about disclosure and information. I heard what my noble friend Lord Brennan said about overprotecting the corporate system. I was interested in the fact that implicitly the noble Lord, Lord Phillips, made similar points. If that issue is raised in amendments, I shall consider them with interest.
I turn to consumer issues. I am glad to say that to some extent I have already pre-empted myself by discussing the accountability of the OFT. It will be accountable to the Secretary of State, Parliament and the public. The chairman could be summoned by Select Committees. It will have to follow the general principles of good governance for all bodies corporate. It will have to publish an annual plan and an annual report, which will inevitably cover some of the elements of a regulatory impact assessment. It may or may not decide to publish minutes. The appointments will be in accordance with Nolan principles. I must resist the idea that comes up from time to time that there should be prior approval of appointments by a Commons committee. If that is to be done, we should do so knowing what we are doing rather than introduce the practice piecemeal. However, I have said that before and I guess that it becomes less convincing each time that I say it. The noble Viscount, Lord Astor, was concerned that the OFT should act in accordance with the principles of good governance. We believe that it will do so.
I have answered the issues raised by my noble friend Lord Borrie and, to some extent, by the noble Viscount, Lord Astor, about the role of the board. The noble Baroness, Lady Miller, asked for the assurance 187 that the OFT would still have to give proper consideration to complaints from members of the public, not just super-complaints. The OFT will have to consider any complaint that it receives that raises issues that are relevant to its functions. The special procedure for super-complaints does not affect that. She also asked for further information about what sort of bodies could be designated enforcers in relation to Part 8 for consumer protection purposes. The private bodies will be designated by the Secretary of State in a statutory instrument. They must have as one of their aims the protection of the collective interests of consumers and they must fulfil criteria that are set out by the Secretary of State, which will be designed to ensure that they act impartially, independently and with integrity and that they have the ability to take action under Part 8. The criteria will be based on the criteria for designation that are set out in the stop now orders, on which we will consult fully. If those bodies behave in a way that does not meet the criteria, we could take away the designation.
I did not hear many complaints about the super-complaints procedure, although there were concerns about the time of response. My noble friend Lord Brennan welcomed the 90-day period. I believe that the noble Viscount, Lord Astor, thought that it would be difficult to keep to 90 days in view of the bad experiences that he related.
On the stop now orders, the main issue is the general duty to trade fairly. The consensus, I gather, is that we should not go towards a general duty to trade fairly. The European Commission is looking into those issues. Of course we believe that businesses should trade fairly but we are targeting our new laws on the areas of real concern, which are those that should be concentrated on at the moment.
The noble Baroness, Lady Wilcox, asked about Section 14 of the Trade Descriptions Act and the issue of mens rea; the noble Lord, Lord Hodgson, raised the same point. Misdescriptions by traders in relation to goods and services will usually constitute a misleading advertisement under the Control of Misleading Advertisements Regulations. Mens rea is not a consideration under those regulations and the provisions can already be enforced by stop now orders and will be covered by Part 8. I heard the doubts of the noble Lord, Lord Hunt, on that matter and was to some extent encouraged by his comments. I also heard what the noble Lord, Lord Hodgson, said about postal scams from abroad. That is covered by the same misleading advertisements regulations. The cases that he gave would be more a matter for the Financial Services Authority than for this legislation.
There has been a considerable degree of misunderstanding about the insolvency provisions. The impression has got about that somehow bankruptcy is becoming an easy option. Our policy is and remains that if bankrupts can pay, they should pay. On entering bankruptcy, a debtor's assets are liable for sale for the benefit of creditors, just as is the case at present. Bankruptcy has a wide-ranging impact on the lives of those who enter it. They risk losing their 188 homes and possessions and they face severe restrictions on their finances, such as availability of bank accounts and their ability to obtain future credit, including mortgages. If a bankrupt has earnings, he is likely to be subject to an income payment order or an income payment agreement. They will apply to all bankrupts, regardless of their culpability. They will not be affected by early discharge, and they will continue to run after discharge for the full three-year period.
The noble Lord, Lord Boardman, raised the concern that the one-year period was not long enough. I hope that he will be reassured if I repeat the fact that income payments orders will extend beyond discharge and will run for three years. That, from the creditor's point if view, is the important point.
We are introducing a new and tougher regime of bankruptcy restriction orders for those bankrupts who represent a risk to the public or commercial community. That involves those who fail to account for losses and incur a debt where there was no reasonable expectation of being able to repay it, fraud and failing to co-operate with the Official Receiver. Those orders can apply for between two and 15 years. Any previous bankruptcies will be taken into account when considering bankruptcy restriction orders. The present regime allows for criminal action against bankrupts only where there is misconduct. We believe that that regime will allow the Insolvency Service more flexibility with regard to the way in which it deals with those who represent a risk to the public, which is what really matters. That applies in relation to what a number of noble Lords, notably the noble Lord, Lord Razzall, said about rogue bankrupts. The noble Lord, Lord Hodgson, who was concerned about this, was right to suggest that the loss to creditors is the important consideration. That is still the case under the regime that we are pursuing.
There was concern about the proposed timescales in the streamlined administration procedures. One of the key points that is coming out of consultation is that administration takes too long. It does not provide any certainty for creditors about when they might get paid. We need to address that issue in order to reassure the lending community. With the changes that will be introduced elsewhere in the Bill, administration will become more accessible and attractive, particularly to smaller firms. The costs of running a lengthy administration can be a barrier to entering the existing administration procedure. Let us have more debate on timescales in Committee.
I was interested by the comments of the noble Lords, Lord Razzall and Lord Hunt, who is expert in this area, on "business against company" rescue. We would not want the administrator to rescue companies that are empty shells at the expense of rescuing viable businesses, especially when that would mean that the creditors would suffer. We want to put company rescue at the heart of insolvency procedures because we want to save companies which have a decent chance of survival so that they are not driven to the wall unnecessarily. I do not make a distinction there between business and company. If they carry on it is 189 the business which does so by means of the company surviving. But I am sure that we can return again to this matter in Committee.
The noble Baroness, Lady Miller, made a point about employees' claims. Under the Employment Rights Act the Government meet, and will continue to meet, the redundancy payments of employees where the employer has become insolvent. That does not mean that the employee cannot make additional claims. It is a statutory provision and the Bill enhances the position of employees. Where the Secretary of State and the employee both have a preferential claim in insolvency proceedings, it removes the Secretary of State's priority over that employee.
I believe that noble Lords could have been a little more welcoming about the abolition of Crown preference, which is a rather important matter which has bugged many of us over a number of years. I did not hear much of the welcome which I believe we were entitled to.
§ Lord McIntosh of Haringey
Thank you very much! I shall write to the noble Lord, Lord Borrie, about Ofgem. The Government's policy on student loans is, and always has been, that student loan debt should not be written off with bankruptcy.
I am delighted to have heard the noble Lord, Lord Best, and the noble Baroness, Lady Maddock, speak about social housing. We look forward to the necessary amendments to the Bill.
I believe that I have reached the end of the notes I have made on particular points. I am sure that I have missed a great deal. I shall write to noble Lords where necessary.
§ Lord Razzall
My Lords, before the noble Lord sits down, he has failed to answer one point which has caused enormous interest, and not on the technical side. What are the Government's proposals, if any, regarding newspaper mergers and do they intend to bring forward amendments to the Bill?
§ Lord McIntosh of Haringey
My Lords, I must have flipped over that quite unintentionally. This matter will have to be resolved between the communications Bill and this one. The House will be informed further before we go into Committee.
As I believe has been generally recognised, the intention of this Bill is to stimulate productivity improvements through stronger competition and promote enterprise. I know that people do not like the name of the Bill, but there it is. The Bill is to increase opportunities for business by opening up markets and, through the insolvency reforms, create a business environment in which companies can confidently take advantage of these new opportunities. I believe that the provisions in this Bill, disparate as they are, and though they could or should have been in three Bills 190 rather than one, nevertheless, they will make a real difference to people's lives. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.