Wednesday 11 December 1985

Col 6, line 14, insert "Act" after "Practices"




Second Standing Committee on Statutory Instruments, &c.


Wednesday 11 December 1985



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The Committee consisted of the following Members:

Chairman: Mr. JOHN SPENCE

Cox, Mr. Tom (Tooting)

Deakins, Mr. Eric (Walthamstow)

Gould, Mr. Bryan (Dagenham)

Hayward, Mr. Rob (Kingswood)

Hordern, Sir Peter (Horsham)

Howard, Mr. Michael (Parliamentary Under-Secretary of State for Trade and Industry)

Hoyle, Mr. Dough (Warrington, North)

Hunter, Mr. Andrew (Basingstoke)

Litherland, Mr. Robert (Manchester, Central)

Morrison, Mr. Charles (Devizes)

Patchett, Mr. Terry (Barnsley, East)

Portillo, Mr. Michael (Enfield, Southgate)

Powley, Mr. John (Norwich, South)

Skeet, Mr. T. H. H. (Bedfordshire, North)

Squire, Mr. Robin (Hornchurch)

Thompson, Mr. Donald (Calder Valley)

Wood, Mr. Timothy (Stevenage)

Wrigglesworth, Mr. Ian (Stockton, South)

Mr. D. G. Millar, Committee Clerk

3 Second Standing Committee on Statutory Instruments, &c. Wednesday 11 December 1985

[Mr. JOHN SPENCE in the Chair]


10.30 am

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard): I beg to move, That the Committee has considered the draft Restrictive Trade Practices (Services) (Amendment) Order 1985. The order withdraws the exemption in The Restrictive Trade Practices (Services) Order 1976 for certain agreements relating to the supply of banking services in Northern Ireland. The effect of the order will be to require that existing and future restrictive agreements relating to the provision of banking services in Northern Ireland must be furnished to the Office of Fair Trading and entered on a register. The Director General of Fair Trading will then consider whether an agreement contains restrictions which are of such significance as to call for investigation by the Restrictive Practices Court. If there are no significant restrictions, the Secretary of State, acting on a representation from the Director General, can give a direction that the agreement should not be referred to the court. Otherwise, unless the agreement is terminated or the restrictions in it abandoned, it must be referred to the court for a judgment as to whether the restrictions are in the public interest. The Restrictive Trade Practices Act has applied in this way to banking services in Great Britain since services generally were brought within the scope of the Act in 1976. The decision not to apply the Act, at that stage, to banking services in Northern Ireland was taken against the background of the traditionally close relationship between the banking systems in Northern Ireland and the Republic of Ireland. Those relationships had led to a degree of harmonisation of banking services on both sides of the border. In particular, the Northern Ireland banks had entered into agreements on such matters as interest rates and closing hours which mirrored those in operation in the Republic of Ireland. It was argued by the banks concerned that application of the Restrictive Trade Practices Act would lead to the dismantling of those arrangements with a consequent risk to the financial stability of the banking system in Northern Ireland. The Government believe, however, that the exemption of such arrangements from registration and judicial scrutiny under the Restrictive Trade Practices Act is no longer justified. We share the anxiety expressed by the National Consumer Council in its 1983 report on banking services that the cartelisation of banking services in Northern Ireland 4 denies consumers in the Province the advantages of greater choice and more efficient and innovative service that have accrued from open competition between banks elsewhere in the United Kingdom. In the Government's view, there are no compelling economic reasons for the banks in Northern Ireland to agree one with another on the terms on which each does business. The building societies in Northern Ireland and the Trustee Savings Bank of Northern Ireland have offered banking services outside the cartel arrangements for some considerable time. Indeed, the banks themselves have now voluntarily abandoned their agreement on interest rates and other agreements are under review. We believe, therefore, that withdrawal of the exemption will reinforce the steps towards a more competitive banking system already taken by the Northern Ireland banks. Any risks that open competition between the banks will have destabilising consequences have been substantially reduced by the introduction of stringent prudential supervision arrangements in the Banking Act 1979. The Government have given the Northern Ireland banks a long period of notice of their intention to bring them within the scope of the Restrictive Trade Practices Act. The Northern Ireland Bankers Association has been in touch with my Department and with the Office of Fair Trading over the past year to clarify the effect of the Act on the residual agreements of its members. We believe that the banks concerned are now reasonably well prepared for the withdrawal of the exemption. Moreover, when the order has come into effect, there will be a three month period of grace within which existing agreements which have become registrable must be furnished to the Office of Fair Trading. The banks will be able to continue to operate those agreements after registration unless and until any of the restrictions in them are struck down by the Restrictive Practices Court. The withdrawal of the exemption at this point is not, therefore, likely to disrupt banking business in Northern Ireland. In conclusion, I would emphasise that the order does no more than extend to banks in Northern Ireland the competition disciplines that have applied to banking services elsewhere in the United Kingdom for the last 10 years. It is a modest measure which reinforces the Northern Ireland banks' own efforts to operate on a more competitive basis and is likely to be of benefit to consumers and industry alike. I therefore hope that the Committee will be able to commend the order.

10.34 am

Mr. Bryan Gould (Dagenham): I am grateful to the Minister for his explanation of the meaning and purpose of the order. I ought to say straight away that Labour Members fully support the general thrust of what it is trying to achieve. However, I could not help but raise a slight eyebrow when the Minister assured us that this was a good moment to dismantle the controls because of the prudential supervision now guaranteed by the Banking Act 1979. That seemed a rather curious point to make given that we 5 are even now awaiting a White Paper to remedy some of the deficiencies of that Act. I want to ask two questions. First, why now? The timing seems slightly odd given that we have only just debated in the House the Anglo-Irish agreement which was presumably designed to lead to even greater integration of the Republic of Ireland and Northern Ireland institutions. It seems an odd moment to move against that trend. Perhaps the Minister will assure me that this was not regarded as falling within the purview of that agreement and was not in any sense intended as a move towards distinguishing the two parts of the island of Ireland. Secondly, what does the EEC say about the agreement between Irish and Northern Irish banks and about this attempt to dismantle the effects of those agreements? Again, the Minister may simply be able to tell me that those are not relevant points.

10.36 am

Mr. Howard: It is true that a White Paper is imminent which will improve and add even greater strength to the supervision arrangements for banking generally. We believe that the arrangements which are in effect under the Banking Act 1979 are sufficient to secure the prudential supervision of 6 banking in Northern Ireland in a way which I hope will allay any fears that the hon. Gentleman or other hon. Members might have. The timing of this measure is due to factors which I identified in the course of my observations. Practices have begun to diverge between the banking systems in the Republic and in Northern Ireland. The currencies are no longer tied together and the reasons for the exemption no longer have any force. With regard to the EEC, the Commission is indeed investigating the banking arrangements generally, it welcomes the dismantling of cartels and, I surmise, would only approve the fact that we are making the Restrictive Trade Practices extend to the matters covered in this order. I hope that that adequately deals with the point raised by the hon. Gentleman. I am grateful to him for the welcome which he has extended to the order.

Question put and agreed to.

Resolved, That the Committee has considered the draft Restrictive Trade Practices (Services) (Amendment) Order 1985.

Committee rose at twenty-two minutes to Eleven o'clock.


Spence, Sir John (Chairman)

Gould, Mr.

Hayward, Mr.

Hordern, Sir Peter

Howard, Mr.

Morrison, Mr. Charles

Patchett, Mr.

Portillo, Mr.

Powley, Mr.

Skeet, Mr.

Thompson, Mr. Donald

Wood, Mr.