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Melanie Johnson MPCompetition and Enterprise |
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| I am grateful to the IFS for hosting this conference on the Enterprise Bill, which will be introduced to Parliament soon. Discussions about the Bill are always interesting and I am sure that today will be no different. I hope that I will be able to set the scene and the background to some of those discussions, to tell you where we in Government are coming from, and to put the Bill in the context of our wider economic objectives of promoting enterprise and raising UK productivity and competitiveness.
The case for competition Open, dynamic markets are good for business, consumers and the economy. This is common sense. With strong competition firms are forced to work hard to win and keep their customers. Firms face downward pressures on prices and upward pressures on the quality of goods and services that they provide. They have an incentive to improve productivity. And increased productivity leads to greater prosperity. It also encourages firms to innovate – to develop new products and services to win customers. I do not see any tension between competition and innovation. So competition favours the efficient at the expense of the inefficient, encourages development of new and better ways of doing things, and helps to advance productivity. Academic research confirms this commonsense analysis. For example Professor Paul Geroski has found evidence that market power tends to reduce the rate of innovation and productivity growth. Professor Michael Porter has found that firms which face strong domestic competition perform best in international markets. In an ideal world the market would work efficiently and fairly by itself and there would be little or no need for regulators. But we are not yet in an ideal world and we need a strong competition regime both here and in Europe that promotes competition and combats unfair trading. This protects business from firms that provide unfair competition through abusing market power and operating cartels; and protects consumers from being ripped off. In markets that lack effective competition, consumers do not get a good deal. For example, until May last year, over-the-counter medicines were exempted from the general ban on resale price maintenance. The OFT challenged this exemption. Within hours some supermarkets announced price reductions on leading brands of 25 per cent or more – prices were cut by half in some cases. And lower prices have continued. In Europe, since telecom markets were opened up, we have seen price cuts of up to 70 per cent on international calls. And a recent European Commission study showed that the impact of these price cuts has been felt most amongst lower income groups. Competition is the single best way to protect consumers, but we recognise that specific consumer protection measures are needed as well. The Enterprise Bill therefore includes measures to improve consumer protection. Enterprise Competition is a foundation of enterprise. It empowers consumers to demand new and better products and services. It allows new opportunities for entrepreneurs to enter markets. As Irwin Stelzer has said "competition is the deadly enemy of class rigidity ". We need to encourage entrepreneurs to take such new opportunities. Research [by the Global Entrepreneurship Monitor in 2001] has shown that in the UK 31.5 per cent of people say that fear of failure would prevent them from starting a business. In the US that level is just 21 per cent. Our proposed legislation will break down the barriers to entry through stronger competition. And it will support enterprise and encourage responsible risk-taking through a modernised, pro-business insolvency regime. The reforms will help reduce the stigma associated with honest failure. And they will help ensure that failing companies do not go to the wall unnecessarily whilst retaining a framework in which investors have the confidence to continue supporting British business. Across the board our measures are pro-enterprise and pro-business – pro "good" businesses. Good businesses recognise the need to focus on their customers, improve productivity, develop workforce skills, and learn from the best. Good businesses welcome strong competition in domestic and world markets – because they recognise that open markets open the door to a world of opportunities. And all these enterprise reforms need to be seen alongside our review of company law, our reform of employment law, and the various measures to improve education and skills, protect intellectual property and encourage research and development. The challenge Few would disagree with my assessment of the importance of enterprise and competition. It is now widely accepted both here and in Europe. The question is whether our competition regime is good enough for the challenges of the early 21st century. The Government's objective is to make the UK the best place in the world to do business in a strong and competitive Europe. We believe that in order to achieve this we need a world-class competition regime. In 1997, the regime had remained largely unchanged for almost 20 years, even though it was clear for most of the period that our competition laws were out of date. They had become, according to Richard Whish, "Byzantine" in complexity. So in 1997 we began the process of modernising our competition regime. We have already made progress. The Competition Act 1998 introduced a modern, more streamlined regime that addressed anti-competitive agreements and abuses of dominant position. But more needs to be done. There are lessons we can learn from the US and Germany. DTI's Public Service Agreement target is to have 'the most effective competition regime in the OECD'. Our proposals So what are our proposals? Competition authorities In order to root out anti-competitive behaviour we need effective, proactive competition authorities. Since 1997, decisions have been taken increasingly by competition authorities rather than Ministers. This brings the UK into line with most other industrial countries. Under the Enterprise Bill proposals, decisions will be taken against a competition based test - rather than the less precise public interest test as at present. Ministers will be taken out of nearly all competition decisions. The regime will be more transparent and predictable giving business greater certainty. We recognise that any regulation, including competition regulation, needs to be sensibly applied. The OFT already has an increased budget which has helped to improve the number and quality of its staff and has a new advisory panel. We are further improving the resources available to the competition authorities to enable them to exercise their new powers and duties effectively. And only those with expertise relevant to competition will be appointed to the Competition Commission. Increased powers and independence require greater accountability. This will be strengthened in a number of ways. The OFT will be required to publish an Annual Plan. Alongside the OFT mission statement which it has already published, this will provide a clear basis by which Parliament and others would be able to assess its performance. Those who have to deal with the competition regime will have a clear idea of how the legislation will be applied. The OFT and the Competition Commission, for example, will have obligations to publish information and advice on how they will make and consider references. This will cover matters such as the application of the new competition test. The competition authorities will also have to give reasons for all their important decisions. For example, the OFT will be required to publish reasons why a merger has or has not been referred, and the reasons - where this is the case - why undertakings in lieu of a reference are being sought. There will be a right of appeal to the Competition Commission Appeal Tribunals in mergers and markets cases. The Tribunal will have a judicial review jurisdiction and consider issues like procedural unfairness, irrationality, lack of adequate reasoning and whether decisions are disproportionate. Deterrence US competition authorities have found that cartels raise the prices of the goods and services affected by 10 per cent on average. The Competition Act introduced fines against companies who engage in unlawful anti-competitive behaviour. So there is now a deterrent for firms, but not yet for the individuals who operate cartels. The Enterprise Bill will correct this, introducing criminal sanctions for individuals who enter into cartel agreements, with the possibility of up to five years in prison. The definition of the offence will be based on the concept of "dishonesty". This approach is designed to ensure that no bona fide activity, or activity which might be exempted under Article 81, is criminalized. The narrowly defined offence will catch only the most serious and harmful forms of anti-competitive activity: agreements to fix prices, share markets, limit production and rig bids. The UK is not sailing into uncharted waters. In the USA criminal penalties for antitrust offences have been on the statute book since 1890, Canada and Japan have criminal sanctions for competition breaches, and elsewhere in Europe France, Norway and Ireland all have a criminal offence for cartels. The new measures against cartels would benefit consumers who are harmed by higher prices in markets affected by cartels and those businesses that are harmed by unfair competition. As David Lennan of the BCC said "I want to see a business environment that is fair for all businesses. I will not defend the indefensible and will be supporting the government and its bill". Redress The Competition Act opened the way for those harmed by unlawful anti-competitive behaviour to seek redress. Previously awards for damages were only possible where firms failed to comply with certain legal obligations rather than anti-competitive behaviour itself. But there have been no successful court actions for damages for nearly 30 years. We need a more accessible route than normal courts. Under the Enterprise Bill proposals, the Competition Commission Appeal Tribunals will be able to hear claims for damages in competition cases. This will mean a cheaper, quicker and more streamlined route for third parties, both consumers and businesses, to get the compensation they deserve for the harm they have suffered as a result of anti-competitive activity. Representative bodies will be able to bring damages actions in front of the Competition Commission Appeal Tribunals on behalf of named and identifiable groups of consumers. We are not proposing US style class actions. And any proceedings that have no valid grounds can be thrown out. As the Consumer Association has said, "consumer organisations are hardly likely to engage in frivolous action that will cost them time, money and reputation." International consistency and co-operation Our drive to boost competition needs to be matched in the EU. Europe is the main market for UK business. More than half our trade is with Europe. Three million jobs are linked to this trade. A prosperous UK needs a strong, competitive and dynamic Europe. Two years ago at Lisbon, Tony Blair and other European Heads of Government agreed an ambitious programme of economic reform to make Europe the most competitive and dynamic economy in the world by 2010. Last week, Heads of Government met in Barcelona to discuss this agenda and I am delighted to say that some very real progress was made. They agreed a timetable under majority voting to complete the single market in financial services. They also achieved a breakthrough on energy liberalisation. Markets in all non domestic gas and electricity will open by 2004. This is 60-70% of the market. In addition, it is clear that the overriding majority of EU countries are now ready to open up their domestic markets as well. It was agreed that a decision on the relevant Directives will be taken by majority vote, at the latest by end of 2002. This means that a single market in energy is now attainable. The Competition Act mirrored the EU competition regime. This has helped improve international consistency. The Enterprise Bill will ensure that as we develop our world-class competition regime we can take account of European developments including changes from the Commission modernisation proposals. Mario Monti has welcomed our proposals, in particular the provisions which give greater independence to the competition authorities. Overall - a better market for consumers and business We believe in strong competition for a reason. As the OFT's mission statement says, we want to make markets work well for consumers. Markets that work well for consumers are open, dynamic and innovative. Such markets are good also for entrepreneurs and businesses generally. And good for the prosperity of us all. I believe that ultimately, the more effective the regulatory framework, the more markets work efficiently and fairly. They become stronger, more vibrant and dynamic. In the longer term one result of these measures should be less of a need for regulatory interventions. I am confident that the UK will be a significantly better place to do business and to be a consumer as a result of our enterprise reforms. The measures will stimulate improvements in productivity, promote an enterprise culture, and improve the UK's competitiveness by making businesses fitter to compete in world markets. I have a few minutes in which I can take questions. |
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Other speeches by Melanie Johnson MP
(the following are available from the archive) |
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