I’ve been wondering how, legally, the government will exempt the Lloyds TSB-HBOS merger from competition law; some of the reports about this are understandably fairly vague.
So long as both Lloyds TSB and HBOS receive over two thirds of their EU turnover within the UK – turnover in North America and Asia doesn’t count, note – then the merger does not have a Community dimension, and we only need be concerned about UK law. See article 1 of Regulation 139/2004, the Merger Regulation. A member state could ask the Commission to get involved anyway under article 22, if the merger threatens to significantly affect competition in its market, but I doubt that would be the effect of this merger in any member state – and anyway, the Commission would I think clear this deal, since under article 2 it must take into account the interests of “ultimate consumers” and economic progress. That deals with EU competition law.
Domestically, I think what the government must have in mind is an order under section 277 of the Enterprise Act 2002, perhaps amending Part 3 of the Act, which governs mergers and gives the OFT its regulatory functions in relation to them; the amendment perhaps providing that Part 3 doesn’t apply in the case of any merger the Secretary of State may specify.
The government would argue that ministers have power to make such and amendment under section 277 because it would be supplementary provision for the general purpose of making provision about mergers, and modifying “this Act” to use the wording of section 277.
The amendment would be made by statutory instrument, and would most likely come into force immediately. While normally the government would lay such an order before Parliament 21 days before it comes into force, to allow scrutiny by the Joint Committee on Statutory Instruments and the Lords Merits Committee, I imagine government lawyers have already been on the phone to Parliamentary officials to explain why this is an exceptional case justifying breaching the (non-legal) “21 day rule” – a view the Parliamentary authorities will surely accept. I also expect a draft order is being prepared right now by a lawyer at BERR, though the precise form of amendment will need a bit of thought.
When MPs get back to Parliament they’ll have 40 days in which to annul the order if they want to – it would cease to be law immediately. Something makes me think no MP will want to move annulment, though.
I’d have thought that the more likely legislative route would be to add to the list of public interest grounds for issuing intervention notices. If this is being done, all that has to happen is that the order come into force before the OFT has made any decision to refer. As the OFT has 4 months to investigate there would be plenty of time to do this. There would of course be some risk as my recollection is that the relevant SI for doing this requires positive affirmation by Parliament so couldn’t be done without debate.
Your interpretation of section 277 would be very harmful. As removing the political role in competition decisions other than in a limited class of reserve power cases (national security, media ownership and any extras subsequently approved by Parliament) was a major part of the rationale of the Act, it would be doing real violence to the legislation to interpret reversing this as a minor consequential amendment or one to give effect to the Act.
You may be right, Anon.
My concern with your approach, though, is that the OFT would still need to investigate, wouldn’t it, and report to the SofS taking into account the new public interest consideration? If I read the Act correctly, the SofS would then need to decide whether or not to refer the matter to the Competition Commission or whether to clear it.
If you want to actually by-pass all those decisions and tell the world right now that competition law isn’t in the way of this merger, you need to do something like what I’m suggesting, don’t you? – that’s why I got to where I did.
Don’t know much about the legal side of things, but I’m very angry about this. Surely the whole point of these laws is to stop big, powerful companies from abusing their power? And in this case they just seem to have been casually pushed aside in the blink of an eye without any consideration of what’s in the best interest of the people.
The net result is that we now have a monsterous mega-bank that holds so much power over the UK economy that the goverment can’t ever risk letting it fail, which essentially means that it can do whatever it likes because there will always be a tax-payer funded bailout if things go pear shaped.
The news report I heard stated that public interest grounds would cover any other issues.
What is in the best interests of the public?
And the earlier writer believes letting HBOS go to the wall would ‘be in the best interest of the public’? Where is he coming from? (I don’t belive HBOS shareholders should actually get the deal as currently propsed – they backed a management that did not seem to care about or understand the risks they were taking). But I would say that as I am a long time Lloyds shareholder!
I agree there may be competition concerns in the future – but thay can be dealt with after calm reflection, in the future.
This weeks events needed quick and decisive action to avoid a likely disaster for a large part of the public interest.
This time, it seems, that it has.
1. It is being suggested that the government will legilsate to deal with the Uk Competition issue
2. Curiously, Lloyds was effectively denied a bite at Abbey some time back on ‘competition’ grounds. it is unlikely that they put this deal together in 24-48 and must have been working on it for some time – commentators have, of course, picked this up.
It is likely therefore that the board of Lloyds was given the nod on those one some time ago – it is suggested by Guido and others – and if that is the case there may be breaches of secrecy legislation.
The US letting Lehman go – and, quite possibly, Morgan Stanley to come?, raises the question of the wisdom of the government propping up Northern Rock.
4. Has the promised £100,000 guarantee on bank deposits been legislated. I do n ot believe so – still at 35k
Interesting times we live in
I am not sure whether the same legal regime existed at the time of the 2001 proposed LLoyds/Abbey merger. Isn’t it the Enterprise Act 2002 which now governs the situation in English law?
As a mere “magistrates court hack” I do not have the detailed knowledge of this convoluted area of law which some commentators on this blog clearly have. However, the newspapers tell me that the government plan to issue a notice under section 42 and, if necessary, will amend the law so that there are grounds in the Act to issue such a notice. If I read it correctly, section 277 seems to allow them to amend even the Act itself! However, there seems to be an argument – referred to be Anon above – that section 277 should not be used in this way? Surely, the last thing needed here is any legal uncertainty.
The outcome will be one institution (based, I believe, in Scotland) controlling about one-third of all savings and mortgages in the UK. That cannot be in the longer term interests of consumers. However, I have not seen any criticism of the merger at this point in time in what are very serious economic circumstances. The competition issues will still remain however and will need to be addressed at some stage.
Charon raises a question re £35k deposit guarantee protection. I’d like to ask HoL if this provision can be removed by Statutory Instrument?
It doesn’t even require one of those, Anon.. The FSA sets the limits to the scheme, and can alter it under section 213 of the Financial Services and Markets Act 2001.
Last time the limit was raised, back in October, the FSA did this by an instrument amending its “Compensation Sourcebook”.
As I understand it, the Treasury is consulting about raising the limit, but the consultation paper makes clear it’s the FSA who makes the rules.
I forgot to make clear – it is still a maximum of £35,000 at the moment.
I’ve been extremely confused about this (particularly since everyone has been talking about the OFT when as I understand it it’s the Commission who have the final say. Not that I know more than sodall about competition law).
But the bottom line is surely that necessity will find a way: Brussels doesn’t want to see HBOS go down any more than the UK Govt does and I have a funny feeling that none of Lloyd’s TSB competitors, either in the UK or throughout Europe, are going to rock the boat on this one right now either.
I think the government might be thanking their lucky stars that they prevented the LloydTSB takeover of NorthernRock – but kept them as a backstop for a far more important rescue when required?
Comments?
On re-reading your post realise that post being in trial all day and then drinking all evening prob not quite making any point I may have well… never mind…
It’s the OFT who investigate and decide whether to refer a merger to the Competition Commission I think, Liadnan, so yes, they have the final say (depending on how the government amends the Enterprise Act). I agree with you that this is certainly going to get through, though, whichever way. I’m just interested in the mechanics out of pure legal nerdery.
That, and a slight feeling that the method lots of other people are suggesting (just broadening the grounds on which ministers can “intervene” in a merger appraisal) may lead to people thinking again in a few days, realising competition issues have not yet been cleared, and losing confidence in the deal. Of course that’s exactly the way the government’s messed up a few things recently – announcements not being what they first seemed – but I’d have thought they’d be desperate to avoid that here.
I think you’re right about Lloyds, Anon.. I’m not sure they stopped the NR takeover though, did they? But the Bank of England couldn’t secretly arrange a deal or give financial support, as Mervyn King explained at the time.
No one is going to rock the boat in the current climate. The government made a rod for its own back with the bail-out of Northern Crock and has no option but to actively support this merger to prevent a run on HBOS.
If they had to they could get a one-line Bill through Parliament in a morning giving approval and overriding any current legislative hurdles, but it won’t be necessary because hurdles have a remarkable ability to fall when there is a political need for them to do so.