The purpose of the resolution is to confirm an order which I have made under the Mergers, Take-overs and Monopolies (Control) Act, 1978 relating to the financial criteria which apply to mergers, take-overs and monopolies for the purposes of that Act.
Under the 1978 Act, any proposed merger or take-over which meets certain financial criteria must be notified to me. These criteria, which are specified in section 2 (1) (a) of the Act, are, where the value of the gross assets of each of the two or more enterprises to be involved in the proposal is not less than £1,250,000, or where the turnover of each of those two or more enterprises is not less than £2,500,000. In addition to requiring notification, a proposed merger or take-over must be the subject of a reference to the Examiner of Restrictive Practices and, ultimately, may become subject to an order prohibiting it absolutely or conditionally. Different provisions apply to monopolies under the Act. These do not require notification but may be the subject of an inquiry by the Restrictive Practices Commission and, subsequently, may be prohibited or broken up by order. The provisions of the Act relating to monopolies apply where a single criterion is met, that is, where the annual sales or purchases of the monopoly of the goods or services concerned exceed £1,500,000.
The 1978 Act made special provision, in section 2 (4) for increasing, by order, the amounts specified in the financial criteria relating to mergers, take-overs and monopolies. Any such orders also require confirmation by both Houses within 21 sitting days after presentation. The present order, which is the first order providing for any increase in these amounts, was made by me on 8 July 1985 and was laid before each House on 11 July 1985.
When the limits were fixed by statute in 1978, the intention was to exclude from the scope of mergers and monopolies control small to medium sized enterprises. These limits reflected that approach. With the passage of time, however, those limits were affecting a considerable number of enterprises in the small to medium sized sector by virtue of inflation. One indication of the position may be obtained from the number of firms to which, by virtue of the limits, the provisions of the Mergers Act applied. At the time of enactment, in 1978, it was estimated that the Act would have applied to about 200 firms. At present, it is certain that at least the 500 top firms in the country—and probably more— would, by virtue of these limits, be subject to the Act. Another effect of the lower limits was to cause an increase in the volume of administrative work involved in dealing with merger/take-over notifications. The number of formal proposals notified under the Act each year increased from 45 in 1978-79 to almost 80 in 1984.
In these circumstance,s it was, in my view, necessary and desirable that the limits fixed in the 1978 Act should be increased and I made the order accordingly. The new limits, as set out in the order, are £5 million and £10 million for gross assets and turnover, respectively in merger/take-over cases and £6 million in the case of the sales or purchases of a monopoly. It is estimated that the new merger/take-over limits would apply to about 300 enterprises at present. The figure of £6 million in relation to monopolies is also a reasonable one. In fact, no inquiry or order relating to any monopoly has taken place under the Act since it was enacted. The new limits proposed in the order generally should ensure that the provisions of the 1978 Act apply only to the types of enterprises for which it was intended and therefore I commend the motion to the House accordingly.
Really, what this is all about is taking account of inflation. Many companies that were not intended to be subject to the administrative costs of having to submit an application to me to merge with another enterprise are, as a result of inflation that occurred in the late seventies and in the early part of this decade, now in the net. Mercifully, inflation has come down to a very low level. It is unlikely that we will have to raise these limits again for quite some time.
We now have a situation where one of the big demands is for lifting the burdens imposed on business by administrative requirements of all kinds. Obviously, where two companies want to merge there is no real threat by their merger to competition, because once we are in the EC if any company is getting too dominant a position, a foreign company from another part of the EC can move into the market anyway and ensure that it does not overcharge except in certain services where the structure of the market is one that imposes a protection of its own. In such circumstances it is rather a waste of resources in the firms themselves and in my Department to have to go through the rigmarole of applying for approval. For me in 90 per cent of the cases, it would be granted without any great qualms at all. Nonetheless, to comply with the Act, a lot of paper work has to be gone through to reach a decision. The final analysis would probably to taken in about 60 seconds flat. That is not the best use of anyone's time. By raising these limits we are really lifting the burden not just off business but also off the people sitting behind me here, which is no bad thing either. I hope that it will command the support of the House.