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Clause 5 - Investigation reports

Groceries Code Adjudicator Bill [Lords] – in a Public Bill Committee at 3:00 pm on 11th December 2012.

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Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills) 3:00 pm, 11th December 2012

I beg to move amendment 42, in clause 5, page 2, line 21, at end insert—

‘(d) any finding that an investigation should be referred to the Office of Fair Trading on the basis that a large retailer is believed to have engaged in anti-competitive practices.’.

Clause 5 is incredibly important. We are trying to find a mechanism that would allow the adjudicator to pass on to the Office of Fair Trading any appropriate evidence or findings relating to anti-competitive practices, which the adjudicator cannot investigate or enforce under their remit. The Groceries (Supply Chain Practices) Market Investigation Order 2009 was created following a Competition Commission inquiry and investigation, and the decision to implement remedies, including the groceries supply code of practice—GSCOP—was based on the existing supermarkets code of practice.

The competition authorities have held two major inquiries into the groceries market. The first, by the OFT in 2000, led to the creation of the code of practice to regulate the relationship between the largest supermarkets and their suppliers. In 2006, the OFT referred the market to the Competition Commission, which concluded its inquiry in April 2008. At that time, the Competition Commission said that

“the transfer of excessive risk and unexpected costs by grocery retailers to their suppliers through various supply chain practices if unchecked will have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers”.

That is the thrust of the amendment, which seeks to give the adjudicator the ability to pass information on to the OFT or, as it will be once the Enterprise and Regulatory Reform Bill becomes law, the competition and markets authority.

Open and vigorous competition is good for consumers, because it results in lower prices, new products of a better quality and more choice. It is also good for fair-dealing businesses, which flourish when markets are competitive. That is something that we have missed in our deliberations so far. If we are able to get the Bill correct, it will also benefit large retailers in the long run, since better supply chains create better innovation, better innovation creates better products, better products create happy consumers and happy consumers allow the tills to continue to ring.

Some of the supermarkets or large retailers do have good supply chain practices. The British Retail Consortium, which we met to discuss the Bill at great length, told us that many large retailers had put in place very robust procedures to deal with the groceries code. We want to ensure that those good practices are also rewarded. That is something that we need to bear in mind. This is not just about suppliers but about rewarding good and responsible retailers.

We do have to bear it in mind that the size, scale and scope of the large retailers could, whether through design or accident, become anti-competitive. The adjudicator will not be able to deal with those particular issues, but will be immersed in some of the problems around the supply chain, pricing and that relationship between the large retailers and the supply chain. The adjudicator may, in the course of an investigation, reveal problems in the way that the retail market operates that have to be referred to the OFT or the Competition Commission, as they could be classed as anti-competitive. The OFT has a vast range of powers to deal with such issues.

The amendment would merely add after clause 5(a)(b)(c):

“(d) any finding that an investigation should be referred to the Office of Fair Trading on the basis that a large retailer is believed to have engaged in anti-competitive practices”.

It should probably read “or a collection of retailers”. That would allow the issue to be dealt with quickly. The adjudicator would then have the power, as legislated, to investigate breaches of the code, but it would also allow the adjudicator to say, “There has been a breach of the code. We have dealt with the retailer in the appropriate manner according to the remedies available, we have asked for actions to be taken and perhaps changes to the relationship with the supplier and have provided reasons for the findings and actions that we have proposed.” In addition, the adjudicator should include in that report, “Incidentally, we have found through the course of our investigations that the OFT and the Competition Commission should look at various aspects of the relationship between the supermarkets or retailers and the supply chain.” It could also add anything it may find that may be anti-competitive by drawing on knowledge gained through investigations.

The adjudicator will be set up almost to be the eyes and ears of the supply chain in the large retailing industry. That is why we were quite keen for the adjudicator to have that knowledge base—that extensive, in-depth knowledge—of the industry. If the adjudicator’s office is working in that fashion, and we hope it works well, it will have an insight into what is happening with the large retailers and there should be a mechanism when dealing with the reporting of that to be able to ensure that the OFT is aware of the issues.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs) 3:15 pm, 11th December 2012

May I suggest a parallel to my hon. Friend? It is not a direct parallel, but it is helpful to look at the Gangmasters Licensing Authority, which very often through its in-depth knowledge of its sectors of forestry, farming and fisheries will reveal exploitation of workers, human trafficking and serious organised crime. Its ability to refer those matters on to the Home Office, Serious Organised Crime Agency and so on is a massive benefit, thanks to its day-to-day knowledge of the sectors it works in.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

My hon. Friends makes an important point with reference to the GLA. It is the case—this does not take too much of a stretch of the imagination—that if the large retailers told their supply chains that they would not provide contracts to anyone involved with the sorts of things dealt with by the GLA, that could, almost overnight, take away a lot of the exploitation of workers in such circumstances. As the adjudicator will be looking at the industry on a day-to-day basis, there may be other forms of referral that they could make. The amendment mentions recommendations to the Office of Fair Trading, but it could be a recommendation to the GLA or other bodies that deal with relationships with suppliers.

This approach works: the Office of Fair Trading has imposed fines totalling nearly £50 million on the UK’s leading supermarket chains and its most prominent dairy processors after finding them guilty of price fixing. To look at three instances of anti-competitive behaviour, the OFT has rebuked each of the large supermarkets—Tesco, Asda and Sainsbury’s—as well as the old Safeway brand and the dairy giants Robert Wiseman, Dairy Crest, the Cheese Company and McLelland on price fixing.

In the past, then, the Office of Fair Trading has undertaken investigations of supermarkets for anti-competitive behaviour. Such anti-competitive behaviour  could be found during an investigation by the adjudicator, so the knowledge that the adjudicator will have will be critical. Any report that the adjudicator produces at the end of an investigation should clearly give recommendations for referral to any relevant organisation, and certainly, in terms of the amendment, to the Office of Fair Trading.

Photo of Jo Swinson Jo Swinson The Parliamentary Under-Secretary of State for Women and Equalities, The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The amendment is interesting; as the hon. Gentleman has just outlined, it requires the adjudicator to include in their investigation reports any findings that an investigation should be referred to the OFT on the basis that a large retailer may have engaged in anti-competitive practices. I fully agree that we should not tolerate anti-competitive activity. Knowingly engaging in anti-competitive practices such as price fixing or abuse of a dominant position is illegal under civil law and, in the case of hardcore cartels, may also be a criminal offence. The OFT is, of course, vigilant in its efforts to stamp out that sort of activity.

However, it is important to come back to what the adjudicator’s particular role and remit are. They will not be investigating not breaches of the Competition Act 1998 but breaches of the groceries code. The adjudicator’s functions, resources and expertise will all be fitted to the enforcement of that code, not to the wider issues of competition law. The hon. Member for Edinburgh South said that we should also be recognising, rewarding and applauding good practice and proper behaviour. It would be somewhat unfair to suggest that there is evidence of a breach of the Competition Act by large retailers, because the Competition Commission’s report on the sector found absolutely no evidence to that end.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

Most of us on both sides of the House want the groceries code adjudicator to help change how the whole system works. Surely, therefore, anything we can do to make sure that the adjudicator passes on information to the Office of Fair Trading to highlight bad practice has got to be good. I feel we are getting ourselves a little bogged down in the legalities; I know that we need legalities, but the Minister could perhaps take a slightly broader approach.

Photo of Jo Swinson Jo Swinson The Parliamentary Under-Secretary of State for Women and Equalities, The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I understand what my hon. Friend is saying, but it is important that this measure is very focused. One of the reasons why we have broad agreement—not just cross-party agreement within this House but agreement across a wide range of stakeholders—is that we are dealing with a very specific consumer detriment, which is created by some of the relationships and the behaviours between the large supermarkets and their suppliers, as the Competition Commission report found. That detriment is what GSCOP and, ultimately, the code were put in place to deal with, and those arrangements are what we want to enforce through the adjudicator. When we start to try to expand the remit and go away from that focus, we run the risk of breaking some of the wide consensus on the issue. We also risk sending the wrong message, and suggesting that there is evidence of problems that are not actually there when we look at the facts.

Photo of Andy Sawford Andy Sawford Labour, Corby

In supporting the hon. Member for Tiverton and Honiton, I must say that, as I read it the amendment does not fundamentally redefine the role of the adjudicator, which remains specifically in relation to the groceries code. Rather, it would enhance the role in a way that is helpful and will give greater confidence to consumers, farmers, and all those who have high hopes for the role of the adjudicator. It is similar to our roles as Members of Parliament— I am learning that the issues I choose to refer to other authorities do not all fall within the scope of Parliament, but I seek to give some assistance where I find cause, as I am sure the adjudicator will wish to. That is the purpose of the amendment, and I urge the hon. Lady to listen to the wisdom of her own Back Benchers and accept the amendment.

Photo of Jo Swinson Jo Swinson The Parliamentary Under-Secretary of State for Women and Equalities, The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I thank the hon. Gentleman for his intervention. He makes a good case that the adjudicator will have much wisdom to impart; indeed, there will be nothing to preclude them including something in their report. However, clause 5(2) states:

“An investigation report must, in particular, specify—”,

after which the amendment would add:

“any finding that an investigation should be referred to the Office of Fair Trading on the basis that a large retailer is believed to have engaged in anti-competitive practices.”

We could add to that list—we could add that it must also include any finding that a retailer should be referred on the basis of fraud or criminal activity. There is an endless list of things we could add that must be reported, but we should trust in the discretion of the adjudicator to know what is relevant to their report. Therefore, the specifics that we have said must be included are the findings, the actions and the reasons. Those are the absolute essentials. There is nothing to stop an adjudicator including further information they believe will be helpful.

As I have said, there is no evidence that such anti-competitive practice is going on, so it is highly unlikely that the adjudicator would, for example, discover that a cartel was operating. However, in the unlikely event that they did discover something of that nature, of course they would disclose the information to the competition authorities as a matter of course, just as they would if they found any evidence of fraud, bribery, or any other activity, or anything that was criminal in nature. Any public-spirited person would do the same if they found any evidence of something that needed to be brought to the attention of the relevant authorities.

Indeed, I can make a public service announcement to the Committee right now— the OFT operates a cartel hotline for that very purpose. If anybody here has any evidence of any cartel activity, they can call 0800 085 1664, or, alternatively, email cartelshotline@oft.gsi.gov.uk. I would make the point that, if such—[Interruption.] The hon. Member for Edinburgh South said from a sedentary position said that there should be more than one cartel hotline, and I felt that that was too good not to end up in the record of the Committee’s proceedings, so I credit him with that line. Or perhaps it was the hon. Member for Vale of Clwyd.

It is also worth pointing out that, should such information be found, I am sure we would not want the adjudicator to wait until they had finished their investigation and published their report before passing on that information  to the relevant authorities. The point is about whether we want to specify this in the Bill as something that they must report on, even if it is only to say, “We have found no evidence of anti-competitive practices to include in our report.”

Andy Sawford rose—

Photo of Andy Sawford Andy Sawford Labour, Corby

The Minister makes a very important point about how widely available the contact details for the Office of Fair Trading are, and how she would encourage the public to use that important body. However, will she acknowledge that the adjudicator may not be expected just to call the public telephone line? By virtue of their expertise and the position they hold, they may have an acknowledged role in referring complaints on, which is all that the amendment allows for.

Photo of Jo Swinson Jo Swinson The Parliamentary Under-Secretary of State for Women and Equalities, The Parliamentary Under-Secretary of State for Business, Innovation and Skills 3:30 pm, 11th December 2012

The hon. Gentleman makes a good effort, but I am not quite convinced.

It was mentioned earlier that the groceries code adjudicator may be in the same building as the Office of Fair Trading, and so may not even have to pick up the phone to make such a report. I return to my point that such an occurrence is pretty unlikely. Of course they are entirely able to pass on this kind of information, but that is different from an obligation to report the information. It is highly likely that if they did come across something—given that it would be very unlikely and would therefore be quite an intense issue—it would be included; however, the OFT might want to investigate the matter and not want it to be made public before it concluded its investigation. There may be other unintended consequences to including such a provision.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

I fully appreciate that this may be extending the scope of the adjudicator into areas that they may not want to look at, but in this case is not prevention better than cure? Having such a provision on the face of the Bill says to the supermarkets, “Okay, there’s no anti-competitive behaviour going on at the moment”—as the Competition Commission’s extensive report says—“but actually, there may be something in the future, and the adjudicator can look at that and report on it.” Why do we not have the carrot in this case, rather than the stick?

Photo of Jo Swinson Jo Swinson The Parliamentary Under-Secretary of State for Women and Equalities, The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The hon. Gentleman also tries valiantly, but I remain unconvinced. The same argument could be applied to fraud, bribery or anything else, and we could end up with a big Christmas tree of things that would have to be in the adjudicator’s report. We should remember what the purpose of the report is: in the same way as the Government want to strengthen corporate reporting, we want to make sure that when the adjudicator publishes reports, the information is clear, focused and to the point. If there is information that the adjudicator believes should be included, they are absolutely permitted to include it, but I think being too prescriptive risks having a report that is unwieldy and less accessible to the public because of copious additional sections. I know  that the hon. Gentleman is suggesting adding only one; my point is that the argument for adding that one section could apply to many other issues.

Photo of Huw Irranca-Davies Huw Irranca-Davies Shadow Minister (Environment, Food and Rural Affairs)

May I invite the Minister at least to encourage the adjudicator to take a positive approach to any infringement, whether of competition law or any other form of law, in their live reporting of that incident, rather than to be blinkered? I know she wants, quite rightly, to ensure the independence of the adjudicator, but she is using words such as “may”, “could”, “should”, “perhaps” and so on. I would like to hear the Minister say, “We want this adjudicator, where they see any infringements, illegality, or bad practice, to report that and take positive action on it.”

Photo of Jo Swinson Jo Swinson The Parliamentary Under-Secretary of State for Women and Equalities, The Parliamentary Under-Secretary of State for Business, Innovation and Skills

I am happy to give that assurance. If the adjudicator finds any evidence of illegality or of any practice that needs to be reported to the authorities, I want the adjudicator to do so. I would say that not just to the adjudicator, but to any member of this Committee and to any person within the public realm. Where an infringement, a crime, or an offence has been committed, it is absolutely right to report it. We all have a moral duty to do that. I am delighted that through this Committee and the no doubt wide readership of its proceedings, the cartels hotline, for example, will be brought to a wider audience. People will know that it exists and that, whether they are the adjudicator or not, they will be able to report any such infringements.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

The Minister says we could end up with a “Christmas tree” of recommendations or referrals, but I cannot see why there would be a difficulty in the report having a section dealing with the questions: has the adjudicator any grounds to refer to another body, or has the adjudicator referred any of these grounds to another body? That would seem a fairly simple and short paragraph, and the adjudicator could refer at the time, or indeed could make the referral after the report had been produced.

Photo of Jo Swinson Jo Swinson The Parliamentary Under-Secretary of State for Women and Equalities, The Parliamentary Under-Secretary of State for Business, Innovation and Skills

The hon. Gentleman makes his point and it could be in there. My point is that there should be discretion for the adjudicator to decide what is in the report beyond the specific information that we need regarding their role of enforcing the code. That is what their primary function is and that is what the report should primarily discuss, but if, for reasons that are clear to the adjudicator, they would like to have more in their report, the freedom is certainly there for them to do so.

It is important to focus on the report and what the adjudicator’s role is. It is not their job to look for competition law breaches. Yes, if they come across them, they should, just like anyone else would, make sure that the relevant authorities know, but that is not their job. We would also run the risk of creating an expectation that they would be doing so. If the amendment were made, we might have the perverse outcome that, a groceries code investigation having taken place in which nothing was found and mentioned in the report, a clean bill of health might be given, when actually the adjudicator did not have the specific expertise, was not looking for a  particular breach or simply did not happen to come across one. That would not necessarily mean that one was not there.

There are many reasons to resist the amendment. It would send the wrong message—it would imply that we think breaches happening. It would do an injustice to retailers if we implied that Parliament thought they were breaking the Competition Act 1998 when that is not actually the case, so I hope that the hon. Gentleman will withdraw his amendment.

Photo of Ian Murray Ian Murray Shadow Minister (Business, Innovation and Skills)

We have had a lengthy debate on a probing amendment. If the adjudicator is the eyes and ears of the public in the retail sector and the supply chain, and he or she comes across anything that they feel should be referred, it is important that they do so immediately, just as I would hope that if they came across a circumstance of workers’ exploitation and modern-day slavery, they would report that immediately to the Gangmasters Licensing Authority. There is no reason why such a referral could not be included in the report. It would highlight and be transparent about some of the practices that may or may not be going on. I do not think it is scaremongering to suggest that any referrals to the Office of Fair Trading should be in the report. There are no anti-competitive practices that we are aware of in the retail sector at the moment, but there might be in future, and it would be useful to have the provision in the Bill. However, given that the Minister’s good mood is still holding high, I will not press the amendment and beg to ask leave to withdraw it.

Amendment, by leave, withdrawn.

Clause 5 ordered to stand part of the Bill.

Photo of Roger Gale Roger Gale Parliamentary Assembly of the Council of Europe (Full Member)

I am sorry that we do not have a caption facility to enable the cartel hotline number to be displayed, but I am sure Hansard will have got the message.

Clause 6 ordered to stand part of the Bill.