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Clause 9

Groceries Code Adjudicator Bill [Lords] – in a Public Bill Committee at 4:15 pm on 11th December 2012.

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Investigations: enforcement using financial penalties

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

I beg to move amendment 44, in clause 9, page 3, line 17, leave out from ‘penalties’ to end of subsection (1).

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

With this it will be convenient to discuss the following:

Government amendments 2, 3 and 4.

Amendment 45, in clause 9, page 3, line 26, leave out from subsection (c) and insert—

‘(c) that it shall be paid within 28 days.’.

Government amendments 5 and 6.

Amendment (a) to Government amendment 6, after subsection (7) insert—

‘(7A) The Secretary of State must make the order referred to in subsection (7) within 3 months of the Adjudicator making the recommendation referred to in subsection (8).’.

Amendment (b) to Government amendment 6, in subsection (8), leave out ‘or’ and insert ‘and’.

Amendment (c) to Government amendment 6, in subsection (9), leave out ‘must and insert ‘may’.

Amendment (d) to Government amendment 6, in subsection (11), at end add ‘unless the breach started before, and continues after, that date.’.

Amendment 47, in clause 12, page 4, line 22, at end insert—

‘(d) the criteria that the Adjudicator intends to adopt in deciding whether to impose financial penalties under section 9 together with maximum penalty that may be imposed and how the maximum penalty is to be calculated.’.

Government amendments 7, 8 and 9.

Amendment 48, in clause 12, page 4, line 31, leave out from beginning to ‘penalties’ in line 32.

Government amendment 10.

Amendment 57, in clause 15, page 5, line 37, after ‘under’, insert ‘section 9 or’.

Amendment 58, in clause 15, page 5, line 38, leave out ‘that’ and insert ‘the relevant’.

Government amendments 11 and 12.

Amendment 63, page 15, line 36, leave out Schedule 3.

Amendment 64, in schedule 3, page 15, line 39, leave out ‘if’ and insert—

‘(1) If the Secretary of State thinks that the Adjudicator’s other powers are inadequate; and

(2) has given due regard to the relevant Ministers in the Devolved Administrations.’.

Amendment 65, page 16, line 14 [Schedule 3], at end insert—

(h) consult with the relevant Minister in the Devolved Administrations.’.

Government amendment 14 has not been selected, because it relates to schedule 3, which the Government intend to withdraw. There is not much point debating an amendment on a provision that will then be immediately withdrawn.

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

I move on from a moral victory on an amendment to an actual victory on an amendment. We are absolutely delighted the Government have been able to include fines in the Bill. That is a pretty spectacular U-turn in such a short time, given what the Minister said on Second Reading, and perhaps I can indulge the Committee for a moment by reminding her of what she said. She said she was

“not persuaded that it is necessary to have the fining powers from the start, and I will outline why. I think that the sanctions that are in place and that will be available immediately are robust and will be sufficient to achieve the change we require. The adjudicator will be able to take one or more of three possible measures…If it is deemed necessary, they could then incur financial penalties, if the Secretary of State has granted that power to the adjudicator.”—[Official Report, 19 November 2012; Vol. 553, c. 332-33.]

The fundamental concern about the Bill as it was presented on Second Reading was that the adjudicator would become toothless. As I said at the start of today’s proceedings, we had a reasonable Bill before us, and the other place turned it into a good Bill with the introduction of anonymity and the ability of third parties to take action. We were looking for it to be turned into a great Bill, and now that the ability to fine is in it from day  one, I think we have a great Bill. We can now turn it into a fantastic Bill if the Minister will accept some of our well-intentioned amendments.

The Opposition always believed that the adjudicator should have teeth to tackle breaches in the code, which is why we and most other organisations, including Traidcraft, Action Aid and the Food and Drink Federation, all called for the power to fine to be included in the Bill from day one. Perhaps it was the embarrassment of the now Minister of State, Department for Environment, Food and Rural Affairs, the hon. Member for Somerton and Frome, who has responsibility for agriculture and food. We have mentioned him quite a lot this afternoon, and he was an Opposition spokesman in 1999, when he referred to fines, calling for an “ombudsman with teeth”. Well, his wish has come true, because he now has an adjudicator with teeth.

Last year, the hon. Member for Tiverton and Honiton, who is with us, and who has been incredibly helpful and magnanimous about some of our amendments, said in a Westminster Hall debate that he agreed with other Members that

“the adjudicator must have real teeth so that they can take action to stop abuses.”—[Official Report, 5 April 2011; Vol. 240, c. 526WH.]

We agreed with that course of action.

All the organisations that represent suppliers said clearly from the beginning that the only way to give the adjudicator teeth was to allow fines from the beginning. That view was shared by a whole host of bodies related to this part of the Bill. They went to the extreme lengths—because these organisations do not tend to operate in this way—of submitting a letter to The Sunday Telegraph just before Second Reading. They said:

“Having got the Groceries Code Adjudicator Bill this far, the government will be scoring an own goal if it denies the supermarket watchdog the one tool that will make it effective: the power to levy fines from the outset.”

They went on to explain why that would be important.

The letter was signed by a cross-section of organisations, including ActionAid UK; the National Farmers Union; the Federation of Small Businesses; the chief executive of the Campaign to Protect Rural England; the National Federation of Women’s Institutes; the chief executive of Traidcraft; the chief executive of the Tenant Farmers Association; the president of the Country Land and Business Association; the chair of the British Independent Fruit Growers Association; the executive director of CAFOD; the executive director of Friends of the Earth; the executive director of War on Want; the director of RedOrange Ltd, an independent retailer that supplies large supermarkets; and a partner in Great Glemham Farms. That is quite a cross-section of organisations that took the time, effort and co-ordination to propose a robust case for including fines in the Bill.

We have always been clear that including fines in the Bill does not mean that fines should be imposed on retailers randomly. Now that fines will be included in the Bill, I hope that the adjudicator will think that that is enough of a deterrent for large retailers not to invoke the power. Allowing the adjudicator to have the power easily to hand may influence the actions of retailers and suppliers, and may go in some way to preventing serious  breaches of the code in the first place. That relates quite clearly to the comment made by the hon. Member for St Ives, who said that being able to return to when the code was put in place is something we should aspire to, and we will support him continually in probing the Minister on that point.

Clause 9 as it currently stands, notwithstanding the Government amendments that have not yet been made, states that the adjudicator will have the power to fine retailers subject to what would have been the Secretary of State’s permission. At the moment we support the Government amendments in principle, but I will qualify that by saying that we have not been able to analyse in detail the impact of the whole host of amendments that have been tabled, and we will do that and bring the matter back on Report. The reason for our support is that there could be a situation in which a breach of the code was so severe that the adjudicator decided to seek permission from the Secretary of State to remedy the breach through a fine, but the tools to remedy that breach would not be easily at hand, and it might be several months—if not running into 12 months—before the Secretary of State had consulted properly and given them the tools.

Many hon. Members have used the analogy of a football referee refereeing a match. The last defender pulls down the striker. The referee goes to his top pocket to pull out the red card, but all he finds is a set of instructions to ask the Football Association whether he can use the red card. By any stretch of the imagination, the game would be finished—in fact, the football season might have finished—by the time the referee got the ability to use the red card. It seems quite strange that the principle of being able to use the red card is in place, but yet the referee has no ability to use it until such time as a convoluted process has been gone through. It is quite right for the Government to include fines in the Bill, and we welcome that.

We discussed under clause 2 the roles of the BIS and EFRA Committees regarding the pre-appointment hearing of the adjudicator. That proposal was not accepted by the Minister, but the BIS Committee has said that the power to fine

“would allow the Adjudicator’s effectiveness to be evaluated on the basis that a full spectrum of remedies was available from the start.”

We now have a situation that is supported by all the organisations and most people on both sides of the House; I think 20 out of 21 contributions on Second Reading supported it.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton 4:30 pm, 11th December 2012

The EFRA Committee is keen to see fines included in the Bill. We are also keen to see the fines be commensurate with the scale of the offence and the size of the supermarket or perpetrator of the offence. As I have said before, it is no good imposing a small fine on a large company; it will not send the right message. If the right message is sent, hopefully many of the cases will not end up in the hands of the adjudicator.

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

That is a very valuable intervention, for which I am incredibly grateful, because the new provisions give the Secretary of State a power to consult on maximum levels of fines. It is important that the adjudicator has a spread of financial penalties available to be able to make sure that the punishment fits the crime, as we have  said before, because we might have a situation in which the retailer is found to have breached the code, and it is a severe enough breach for the adjudicator to say that they want to fine, and yet the fine might be well below what the loss to the supplier or the gain to the supermarket was over what may have been a long period of time. We are talking about substantial amounts of money, so I think that the Secretary of State will have to look clearly at the level of fines to make sure that the punishment fits the crime.

I will finish with evidence from BIS. If we go back to its consultation publication, “Taking forward the establishment of a body to monitor and enforce compliance with the groceries supply code of practice”—another snappy title for a BIS report—it said that it was more likely that compliance would be forthcoming with the groceries code if fines were available. That was the analysis from BIS back in February 2010. It was an interesting piece of work that shows that naming and shaming is unlikely to achieve the objective of encouraging customers to switch to other supermarkets.

There are only four or five large supermarkets—large retailers—and people get into the habit of using them for the purposes of location, brand or price. It is a very competitive market, so naming and shaming is unlikely to change people’s habits in terms of which supermarkets they use. If all large retailers were named and shamed for a particular practice, there would be very few places left to go. That is why ActionAid said, in its very useful response to the Committee, that it welcomes the inclusion of fines from day one, because naming and shaming is unlikely to achieve the objective, and naming and shaming is more likely to achieve the objective if fines are in the Bill. It also said:

“Fines are a normal and important part of enforcement in almost every other regulated industry and sector, such as water, energy, the environment and employment.”

It envisaged that the adjudicator might not use this particular power in terms of breach of the code, but it is in the Bill if they wish to do so. That was ActionAid’s response to the Committee.

The hon. Member for Tiverton and Honiton asked about the level of fines. A useful piece of work has been done by Traidcraft, which asks the Secretary of State to come back to consult properly on the level of fines and how those will be applied, rather than allow the level of fines to be marginalised. We are absolutely grateful to the Minister for seeing the light. She might have been in an even better mood that day when she decided that fines would be in the Bill, but we want them to be as robust as possible. We will come back to the details on Report.

We support amendment (a), which was tabled by the hon. Member for St Ives. It would reduce the amount of time from six months to three. He is absolutely right to try to put some haste into the process. It is a sensible amendment again from the hon. Gentleman. There is a seat next to us on the Opposition side of the Committee and he is welcome to take it up whenever he wishes.

I will finish with a proper thank you to the Minister for putting fines in the Bill. Many organisations—ActionAid, Traidcraft, the National Farmers Union and others who were involved in the subject—asked the Government to put fines in the Bill. The Minister has  listened and that will be welcomed by the organisations. It turns a good Bill into a great Bill. Perhaps by the time we get to the sun going down across the horizon on Tuesday we might even have a fantastic one.

Several hon. Members rose—

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

Order. It is reasonable to accommodate the hon. Member for St Ives and release him from the Committee to take part in business on the Floor of the House. I understand that, but I do not think it is reasonable for him to walk back in, straight into the middle of the debate, as I am sure he understands.

Photo of Andy Sawford Andy Sawford Labour, Corby

May I start by saying that the Minister should be commended on accepting the strong arguments for the fines? It shows the work of Parliament at its very best when Ministers take on board a good, strong argument that is presented not only in this House, but by a whole range of organisations, some of which my hon. Friend the Member for Edinburgh South mentioned. Those include the National Farmers Union and other well-known stakeholders, and also Unite the Union—of which I am a member and should declare an interest—which has made strong representations in respect of the fines. We should also pay tribute to my hon. Friends, the Opposition Front-Bench team, and to those in the other place who made a strong case for the power to fine consistently at each Reading of the Bill that I have looked over.

The critical thing for my constituents, who have faced rising food prices for the past two years, is to make the right judgment. I was struck by the views of dairy farmers, whom I and my hon. Friend the Member for Ogmore met recently in Corby and east Northamptonshire. They raised their concerns about the way in which the price they receive for providing milk to the industry is being driven down and down. We have to balance the squeeze on the living standards of consumers who walk into Morrisons or other supermarkets and see a pint of milk that is advertised on the telly—four pints for £1, which seems incredible to me—with the need to pay a fair price to farmers.

At the same time, it is important that we do not get into supermarket bashing through the course of the Bill, because we must recognise that supermarkets play an incredibly important role in our economy—certainly in my experience of local supermarkets. I shall be at a local supermarket that is opening on Friday in my constituency. It has taken on 100 long-term unemployed people to work in the newly opened store. That is absolutely fantastic, and it has made a commitment to the local community. There are many things to thank our supermarkets for, but as we balance the needs of consumers, suppliers and supermarkets, and the role that supermarkets play in our economy, we must ensure that we safeguard suppliers effectively. That is why the Bill is incredibly important, and why giving the adjudicator real powers and teeth is so vital.

From the people of Corby and east Northamptonshire, I express heartfelt appreciation to the Minister that she has taken the arguments on board. They will be very pleased, but I hope that, in responding to the points made by my hon. Friend the Member for Edinburgh South, she clearly sets out the position. My understanding  from her announcements is that within six months of the Bill’s publication, the adjudicator would be required to set out the level of fines. Clearly, as my hon. Friend has said, it is critical that those fines are substantial enough for the major supermarkets to take heed. He made the point powerfully on a number of occasions that prevention is the most important thing in the role of the adjudicator. We want supermarkets to want to engage effectively with the adjudicator to avoid being fined, or to avoid being named and shamed. In the spirit of co-operation, we want them to improve their practices with suppliers in their interests and in consumers’ interests. I hope that the Minister assures us that the fines will be at an appropriate level, and that she will use her influence to ensure that that is the case, six months down the line from the Bill’s publication.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 4:45 pm, 11th December 2012

It restores one’s faith in some of the parliamentary processes to feel that something has changed, because we all spend a great deal of time debating issues on the Floor of the House and in Committee, particularly in opposition. Government Members who were in the previous Parliament obviously experienced lengthy periods in opposition. Sometimes, we look back on spending three hours of an afternoon in a Bill Committee and, when asked, try to answer the question, “What did you achieve?” The answer is usually that we debated amendments, but we did not win votes. To people outside, we seem to spend a lot of time not achieving a lot. It is good for everyone—those who were taking part in the campaign long before the Bill came about and those outside who campaign on other issues—to know that it is possible to effect a change of heart and of mind, and see something come through. That is how it should work. If the Government constantly feel that having put words on paper, they cannot move, we will get bad law, and we all know that bad law is unhelpful.

Licensing of houses in multiple occupation is an important issue in my city, and a small example of a related field in which not getting financial penalties and so on right, can go very wrong. The fine level initially set for breaches of the rules was so low that some landlords said openly that they could save more by not applying for a licence for a year or two until they were caught up with. They were not paying the licence fee and did not have to pay for the safety changes, for example, required to get the licence. It therefore paid them not to apply for the licence until they were caught up with, because the fines were cheaper than doing the right thing.

That is obviously on a different scale, but it shows that it is important to get the penalties right. Although some have expressed concerns that the cost of the fines will simply revert to the consumer in prices, which we will obviously have to watch for, the purpose cannot be to extract maximum fines, as some think government at  all levels try to do. That is the view of parking fines in my city, where people are sure that the intention is just to extract money. The intention is not to plug holes in the Government’s finances through fining companies.

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

My hon. Friend makes a compelling case on the level of fines. May I take her back to the point about the potential detriment for consumers of higher prices if a fine is too high? Is it not the case that if a supermarket passes on to consumers a fine levied on it, one consequence may be that their customers go somewhere else for a cheaper price? The consequence of the fine for breaching the code is therefore amplified.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

I thank my hon. Friend for that. It is potentially an issue because, although we are dealing with a relatively small number of large retailers, which is one problem in this field, they are competitive and want to retain their position in the market. They would perhaps respond in that way and not wish to pass a penalty on. The main aim is to change behaviour, and ensure that retailers behave as they should behave under the code, which ultimately will be to the benefit of all of us. Let us consider the notion that, if prices are constantly driven down, it is somehow to the consumers’ advantage. That is to ignore the fact that, if our suppliers go out of business, prices might rise in any event. However, we will also have lost employment in this country and all sorts of other benefits that come from our own farming and food production industry.

For many of us as consumers, ultra-cheap prices are sometimes tempting, for example milk, which seems ridiculously cheap. However, if we do not have milk producers in the country, our prices are likely to rise. We should not accept the argument that it is not good to have a punishment. We want retailers to say, “We will not behave badly towards our suppliers”, as a result of which no fines would have to be levied.

Huw Irranca-Davies rose—

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

Order. Just before we adjourn, I want the Committee to understand where we are. Mr Irranca-Davies was about to speak. I shall be in the Chair on Thursday morning and, to be fair to everybody, I propose to call Mr Irranca-Davies and then call the Minister to reply to the bit of the debate that has taken place so far. At that point, Mr George, if you then still wish to move your amendments to amendment 6, we shall be very pleased to hear from you.

Ordered, That the debate be now adjourned.—(Stephen Crabb.)

Adjourned till Thursday 13 December at half-past Eleven o’clock.