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Wednesday, March 10, 1999 Published at 18:03 GMT


Business: The Company File

Watchdog bites back

The OFT's teeth have been sharpened

The government is concerned that UK consumers are being ripped off - and it is coming out fighting.

For a start it plans to identify industries which may be guilty of charging too much, and launch a full-scale investigation into high prices.

The Office of Fair Trading (OFT), the UK's competition watchdog, is also going to be given sharp new teeth to crack cartels and maroon monopolies.

The final part of the plan involves the government taking political interference out of big business deals - and avoid a storm of controversy in the process.

Together the three measures add up to a radical change in competition policy in a effort to give customers a better deal.

To understand the significance of the chances it is worth looking at the existing structure.

Fair play


[ image: Controversy surrounded Peter Mandelson's role in the BSkyB-Man Utd deal]
Controversy surrounded Peter Mandelson's role in the BSkyB-Man Utd deal
The OFT is a non-ministerial, independent government department.

It has a remit to protect consumers interest and promote competition. As such it can investigate high prices for High Street goods, evidence of companies colluding or the implications of big mergers or acquisitions.

It sits alongside regulators that look after consumer interests in certain industries such as electricity or telecommunications. That said, the OFT handles most of the country's competition issues.

Never has its role been so important.

The OFT has launched a spate of competition investigations recently into anything from groceries to new cars, amid fears that UK consumers are paying far higher prices than customers in continental Europe and the US.

Super powers

At the moment the OFT has limited powers to crack down on business malpractice.

If the OFT finds evidence of collusion it can refer the matter to the Restrictive Practices Court if wider competition concerns are raised, or the Monopolies and Mergers Commission (MMC) for specific business deals or where a monopoly appears to be in operation. But the process can be time consuming and frustrating.

Consumer champion


[ image: Power to the people: The  OFT is looking to crack down on monopolies]
Power to the people: The OFT is looking to crack down on monopolies
That is about to change. The OFT will get potent new powers to fight for the consumer.

The new Competition Act, which will come into force in March 2000, gives the OFT the power to enter premises, obtain information, and levy penalties of up to 10% of firm's turnover - a potentially hefty sum.

Chancellor Gordon Brown has also announced in the Budget that the OFT is getting a 20% increase its funding to help 'root out cartels and restrictive behaviour'.

Under investigation

As part of this new strategy Stephen Byers, Secretary of State at the Department of Trade and Industry (DTI), is taking a more pro-active rule in improving competition. The government has already signalled it is prepared to use its powers to order investigations into certain industries, such as electricity, where competition concerns have been identified.

It is launching a full scale review of how much UK consumers are paying compared to international prices.

The final part of the plan is a reform of the way big mergers are handled.

At the moment all big mergers are first investigated by the OFT. If the OFT finds that competition could be affected, then it will pass the matter on to the DTI, who can then refer the deal to the MMC.

Whatever the MMC decides, however, the DTI has the final say on whether or not the deal will go through.

Political pressure


[ image: Ladbroke's deal fell at the final hurdle]
Ladbroke's deal fell at the final hurdle
Mr Byers has said he would like to create an independent competition authority to deal with all mergers to reduce any political involvement in the decision process. He plans to publish a consultation paper on the changes.

The move comes following a series of controversial merger deals, which have raised serious questions about political interference.

One example is Rupert Murdoch's BSkyB and its proposed acquisition of Premier League football club Manchester United.

The fact that the deal would have been vetted by former trade and industry secretary Peter Mandelson caused a howl of protest given his close links with the Elisabeth Murdoch, Rupert's high-flying daughter.

The MMC set to give its decision on the deal in the next few days and even now the government faces a Catch 22 situation. If it decides to ban the deal it will incur the wrath of arguably the most powerful media barons in the country. If it lets the deal go through it will prove deeply unpopular with many Man Utd fans and Labour MPs.

That's the gamble

Betting group Ladbroke has also got good reason to feel dissatisfied with the current system.

It approached the OFT to seek informal advice about a proposed deal to buy rival betting chain Coral. The OFT gave it a preliminary green light.

However the acquisition was eventually blocked by the government amid suggestions that politicians, lead by keen horse racing fan Robin Cook, the Foreign Secretary, objected to the deal.

After a series of contentious mergers, the government is keen to avoid further controversy over blockbuster business deals, just as it has passed responsibility for managing interest rates to the Bank of England.



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The Company File Contents


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Monopolies and Mergers Commission

Office of Fair Trading

Department of Trade and Industry


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