The Lowdown: 'Who wants to be second?'

Melanie Johnson tells Clayton Hirst why her cartel-busting Enterprise Bill can take Britain to the top of the productivity league

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Monti feels heat on mergers

Melanie Johnson sits forward in her chair and glances up at the clock in her tidy Westminster office. In just a few minutes, the labours of more than a year's work will come to fruition when the Enterprise Bill gains Royal Assent.

It's Thursday afternoon and the Government's competition minister and architect of this mighty piece of legislation is ebullient. "The whole philosophy of the Bill," she says, "is to raise productivity in the UK. We know competition drives productivity higher, as it pushes companies to innovate and be more efficient."

Languishing fourth in the world productivity league table – behind Germany, France and the US – the UK has some way to climb. So what's her aim? Third? Joint second? "I mean, come on, who wants to be number two? We want to be out in front. You know, I'm the minister for competition here. We want to be a winner."

Johnson can be forgiven her desire to sing the Bill's praises. Its one of New Labour's most complex laws, and its final days through the House of Lords were fraught. Under pressure from Tory and Liberal Democrat peers, the Government was forced into a series of 11th-hour concessions. Most significantly, it had to agree to split the roles of chairman and chief executive of the Office of Fair Trading (OFT), though not before the current incumbent, John Vickers, steps down in 2005.

Johnson has another reason to enjoy seeing the Bill near the end of its journey. While she was working on the legislation, the MP for Welwyn and Hatfield was also battling with breast cancer. "I found it a salvation to carry on working. I am very pleased to have done the Bill. I coupled it with three operations, one lot of chemo and one lot of radiotherapy. I was very happy to come to work and get on with it. And I am pleased to have got something so positive out of the year."

Johnson, who has now got the all-clear, adds: "It ought to give a message to people that a lot of the treatment today is much better and easier to live with. It is possible to carry on doing quite a lot of things – if you want to."

The centrepiece of her Bill, which will come into force next year, is the removal of political influence over company mergers. Instead, the OFT and Competition Commission will be beefed up, and given independence in reaching decisions. The rulings will be based on a new test: If a merger creates a substantial lessening of competition (SLC) then it should be rejected. The SLC test replaces the old "national interest" criteria.

This, however, is at odds with the "dominance" test applied by Mario Monti, the European Competition Commissioner. In recent weeks, Mr Monti has suffered a series of embarrassing and damaging legal defeats to his rulings on company mergers. Critically, the European courts overturned his decisions to reject the merger of Tetra Laval and Sidel, Schneider and Legrand, and Airtours' proposed marriage with First Choice.

Mr Monti outlined a series of draft reforms to his competition policy on Thursday. They included changes to the dominance test, but ruled out its replacement with an SLC-type test.

Nevertheless, Johnson reveals that the British Government is putting pressure on the Commission to make sweeping changes. "I have had discussions with Mario Monti and his officials. We would rather they move to an SLC test. They are interested in it, but I think it is fair to say that they have concerns about moving away from their test where they have a track record of legal judgments."

Nevertheless, Johnson says that if the SLC test had been applied to the proposed merger of Airtours (now called MyTravel) and First Choice then "you might have had a different judgment". She also criticises the European Competition Commission for lacking "analytical clout".

But reform begins at home and the UK authorities have had a hard ride too. They've been described as toothless, particularly in cracking down on cartels. Critics point to the fact that it was US investigators, not British, who exposed the price-fixing scandal between London-based auction house Christie's and New York-based Sotheby's. By comparison, perhaps one of the OFT's biggest victories was in exposing collusion between two bus firms in Yorkshire.

The Enterprise Bill will give the OFT new powers – tapping phones, snooping on emails – to investigate cartels, which Johnson says can "affect prices by as much as 10 per cent".

Those found guilty of being involved in a cartel could be locked away for five years.

Johnson is now preparing the ground for what could become a new set of accounting laws in the wake of the Enron scandal. She is chairwoman of the Co-ordinating Group on Audit & Accounting Issues, which will publish a report in the new year. This is likely to recommend new rules that, for example, would force companies to change their auditor on a regular basis.

"I don't think we can guarantee that there won't be an Enron in the UK. We feel we have a good regime here, but we are looking at improving it. It may be necessary to have new legislation. Whatever, we'll do it quickly."

Johnson's report will also help to determine whether the OFT launches a full investigation into the dominance of the "big four" accountancy firms: KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte & Touche.

As the interview draws to a close, Johnson glances up at the clock again, and confirms with a smile: "We should have it now". So, with new merger controls and cartel-busting powers in the bag, will Britain begin its ascent to the top of the productivity league?