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Monday, 18 June, 2001, 11:54 GMT 12:54 UK
Q&A: Brown targets cartels

The Chancellor Gordon Brown has announced that the government's priority in the second term will be boosting enterprise and fostering competition. BBC News Online examines how successful these measures are likely to be.

What new powers is the government proposing to tackle "rip-off Britain?"

The government plans to "radically reform" the UK's competition policy to ensure that consumers get a better deal.

It plans to give more powers to the competition authorities to investigate complaints concerning monopolies and price-fixing, and it wants to take decisions about mergers out of the political process.

It is also planning consultation over proposals for criminal penalties as well as civil penalties, such as fines, for those convicted of operating cartels.

Are there any examples of price-fixing that could now be punished more severely?

One case that is often cited is the cartel in the car industry, which was the subject of a monopoly investigation last year.

UK car prices are the highest in Europe, and one reason is that cars are sold through captive dealers who are prevented from cutting prices.

For example, it was discovered that Volvo dealers in the South East of England all charged the same price for their cars, and anyone who tried to cut prices was denied a supply of new cars by Volvo.

No action could be taken against Volvo, although they agreed voluntarily to stop the practice.

Now, such actions could potentially be the subject of a criminal investigation.

How will taking the politics out of competition policy work?

At the moment, it is the Trade Secretary (currently Patricia Hewitt) who decides whether big mergers should go ahead, after receiving recommendations from the Office of Fair Trading.

This has led to accusations of political bias, for example when bus and rail mergers were blocked by a previous trade secretary.

Now it will be up to the Competition Commission to decide whether mergers reduce competition too much and so would be against the public interest.

Normally, the government says that any merger which gives the combined company a market share of more than 25% would be uncompetitive.

What is the government's aim?

The government believes that stronger competition laws will not only be good for British consumers, but they will be good for the British economy as well.

They argue that stronger competition laws will make British companies compete more effectively at home and abroad, lowering their costs and becoming more efficient.

That should make the British economy more productive and boost living standards in the longer term.

What other measures are they taking to boost productivity?

Gordon Brown has unveiled a raft of measures, from tax changes to encouraging entrepreneurs in the education system, to further his aim of encouraging entrepreneurship and boosting business.

Small companies in particular will be encouraged by reductions in capital gains and corporate taxes, and a simplification of VAT rules.

There will also be changes to the planning system, more regional aid grants to companies, and easier bankruptcy laws to encourage more risk-taking.

One of the main overall aims is to increase productivity and so bridge the gap between the number of workers it takes to produce a given amount of goods in the UK and among our main competitors, such as Germany and the US.

How does industry view the changes?

British businesses are broadly in favour of the measures, especially the cuts in business taxes and the plans to reduce red tape in the planning process.

But the main employers federation, the CBI, is sceptical about the criminalisation of price-fixing, which it claims could be incompatible with EU law.

"UK firms would have the disadvantage of competing in a market where Britain would be the only large EU country with such draconian legislation," Digby Jones, the CBI's director-general, said.

Will they work?

Successive governments have made it their aim to boost the productivity of the UK economy, with mixed results.

In the 1980s Mrs Thatcher argued that she was creating an enterprise culture that encouraged people to succeed and become wealthy.

The Labour government has built on those reforms - keeping higher tax rates unchanged, for example - but has added more tax incentives for companies.

However, international evidence suggests that such incentives do not have a major impact on company investment decisions.

And cultural attitudes towards setting up your own business and taking risks vary between the United States and the UK - whatever the school system teaches.

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