Will competition meet its match?

Peter Rodgers asks if Labour will succeed in making business supervisio n more effective
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The Independent Online
There was a rash of rather curious stories last week claiming Tony Blair was about to abandon long-standing plans to merge the Office of Fair Trading and the Monopolies Commission into a single competition body. Curious, because Mr Blair's industry policy-makers in effect abandoned the idea last autumn, and said so at the time.

The alleged U-turn was supposed to have sprung from the recommendations of the Commission on Public Policy and British Business - that group of eminent business people set up by the left-leaning Institute for Public Policy Research, which prompted tantrums from Michael Heseltine last week.

Instead of a single body, the commission said "the responsibilities of the OFT and the Monopolies and Mergers Commission should be realigned to make the OFT the principal agent of investigation and prosecution, with the MMC concentrating on adjudication."

Well, here's a "spot the difference" competition. Who said the following in a formal policy document last autumn? "There is a case for merging the present OFT and the MMC into a single competition and consumer standards office, and having a separate powerful appeals body, perhaps based on the present MMC, capable of reviewing the decisions taken by the new competition office."

The answer is the Labour Party, in "New Labour, New Life for Britain". There are minor differences of emphasis, in that Labour prefers to keep the idea of a merger in the text of its policy document. But essentially, if you keep the MMC as an appeals body, you have already abandoned the idea of a unitary competition authority.

But why all the fuss anyway? Quite simply because the current UK regulatory framework is too weak and cumbersome to promote effective competition.

Business realises that change is long overdue. Indeed, a close reading of the Confederation of British Industry's policy document on competition, published last summer, confirms it is in the same camp as Labour and the commission. The employers' body also proposed a strengthened OFT and the use of the MMC basically as an appeals body. Yet for some curious reason, the CBI still seems to give the impression that it is at odds with Labour over this important structural question of how to reform the competition authorities.

A narrower appeals function might avoid the MMC's inconsistencies, misunderstandings and backfirings of the past few years, of which the inquiry into the brewing industry in the late 1980s was perhaps the most spectacular. The Government and the MMC thought they were prompting brewers to open up their pub networks to other suppliers, but the result is beginning to look like a brewing duopoly, quite different from what was expected at the time.

It is hardly exciting news that the CBI, the commission and the Labour Party secretly agree, but it does tell us something interesting about the evolution of Labour policy in these complex and highly technical areas. Just as in taxation and public spending, there is unwillingness to introduce proposals that step outside the limits of what you might call establishment debate.

Thus, Labour sounds rather more radical on reforms of competition law than it does on restructuring the institutions. It wants to move to a continental-style prohibition approach across the board, allowing the reformed OFT to ban anti-competitive activities by companies and levy large fines. This is a "shoot first and ask questions after" policy, rather similar to that operated by the European Commission, and differs starkly from present British law, which specialises in shutting the stable door after the horse has bolted.

At present, we must first have an investigation and an adjudication by the authorities, then an order has to be made, and only if it is broken can a company be fined, for contempt of court.

A move towards a prohibition approach in fact has wide support, both from the employers and many competition lawyers.

Indeed, up to a point the Government agrees that prohibition is good, and has said it should be extended to restrictive trade practices, though not to wider competition issues. The Government's worst failure has been its inability to find parliamentary time to carry out the promise.

Since Labour is moving so cautiously (and sensibly) in this area, it is worth asking if it would ever enact its most radical proposal - to "shift the onus of proof in hostile takeovers to require the company seeking control to demonstrate it would be in the public interest for it to succeed".

The commission came out against it and, if I were to place a bet, I would say the enormous range of legal and practical obstacles to be overcome to make a consistent public-interest test for mergers will probably defeat this proposal.

The idea may well appear in Labour legislation. But the question is, will it end up in practice as any more than a requirement to publish a public-interest statement, rather than actually proving the matter to the authorities?

The chances are that merger policy under Labour will still lean heavily towards judgments made on competition grounds, because nobody has yet been able to draft a really workable public-interest test.