Groceries Code Adjudicator — [ Mr Roger Gale in the Chair]

– in Westminster Hall at 2:30 pm on 5th April 2011.

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Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire 2:30 pm, 5th April 2011

May I say what a pleasure it is to serve under such esteemed chairmanship, Mr Gale? You will bring an enlightened and seasoned touch to the proceedings. In many ways, I would have loved to entitle the debate “supermarket ombudsman” because so many people understand what that means. When I told my local paper that I had a very important debate on the groceries code adjudicator, there was a blank silence on the other end of the phone. I tried to ensure that the person concerned understood what an important debate it was, but I am afraid that a blank silence still greeted me on the other end of the phone.

This important debate is about so much more than just farming or processes; it is about our supermarkets and everything we do and rely on. I do not come to this debate as a farmer or with any great farming heritage. I confess that I spent a week helping out a friend on a dairy farm, which involved cows standing on me, sitting on me and doing something else on me. However, I will not go into those details because I do not hold that against either the dairy industry or cows. This is an important debate because we need to get to the bottom of making sure that the grocery market works fairly, impartially and in the best possible way.

I will not be making some rabid rant against the supermarkets or decrying what they do in wider society. In my constituency, supermarkets are a major employer, as I am sure they are in the constituencies of every hon. Member here. They are an important part of our social fabric and they contribute much—whether we are talking about Tesco, Waitrose, Asda, Sainsbury’s, Morrisons or the Co-op. I think I have covered them all.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

Marks and Spencer, indeed. Thank you, Minister, for that contribution. They all make a valued contribution but, as I said, it is about balance and fairness.

I called the debate because of a letter I received about a month ago. If you will indulge me, Mr Gale, I shall read it. The letter states:

“I am writing to you in sheer desperation, it’s 2 am, and I can’t sleep. The fact is we are dairy farmers and we cannot pay our bills. We need to buy more feed and don’t know how to finance it…The simple fact is we have been producing milk and selling it at the cost of production for about 3 years, and now we are below the cost of production, with large increases in the world’s wheat prices putting feed up and fuel prices having a knock-on effect on everything else.

We have had the worst winter for the weather, putting stress on the animals and equipment and severe stress on our own health.

About 3 years ago milk to the consumer went up about 3p per litre and ours to the producer went down about 3p. Cream has had a lot of very high prices, it’s never passed on. We are only getting 24p per litre and we are now talking of an increase for April of 1¼ p per litre”.

That does not even take them to break-even level. The letter goes on:

“When we have challenged the dairy they say the supermarkets are to blame and the cheap price war to sell milk as a loss leader…Supermarkets are making billions and are more powerful than the Government…The decision for us is so bleak. We may have to sell up. When an increase comes it will be too late.

This last year 400 dairy producers have gone out of milk. We will just be another statistic.

Yours, waiting for a miracle.”

Photo of Glyn Davies Glyn Davies Conservative, Montgomeryshire

I, too, have received letters very much along those lines—as I am sure a lot of other hon. Members who represent rural areas have. Does my hon. Friend agree that it is crucial for the ombudsman to have real teeth and power? As he said, supermarkets are very powerful, impressive businesses. However, the ombudsman must have genuine teeth and power if it is going to have any real impact and effect.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

My hon. Friend makes a very good point. That is certainly an issue I will move on to as I go through my speech. It is absolutely crucial that an adjudicator has teeth.

That letter states:

“yours, waiting for a miracle.”

We all understand that, as Members of Parliament, we cannot dispense miracles. We do not have that ability. If we did, I am sure we would all be re-elected. What we can do is effect change and make a difference to many people’s lives. I am not saying that, as politicians, we should be setting prices. However, we should be ensuring fairness in the marketplace.

Photo of Philip Davies Philip Davies Conservative, Shipley

Does my hon. Friend envisage that an ombudsman or adjudicator would apply only to suppliers such as small farmers, or does he think it should apply to the vast bulk of supermarket suppliers—companies such as Proctor and Gamble, Mars, Heinz and Coca-Cola? Those companies make huge profits and most people think that they are more than capable of looking after themselves in any negotiation. Does he envisage that the adjudicator will cover all companies or just small suppliers?

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

My hon. Friend makes a very valid point. However, the adjudicator has to look across the whole market. We cannot look at farmers in isolation because they are part of a process and a route to market. Farmers are at the very start of the process. The product does not go straight from the farm gate to the supermarket; in many cases it goes through a distribution chain. For an adjudicator to be effective, it has to look at the whole process. My hon. Friend makes the valid point that many of these businesses are substantial, major businesses that are present in our constituencies up and down the country. Whether someone is selling pigs or pizzas, the competitive market and the supermarkets have a major impact on that business.

Photo of Roger Williams Roger Williams Liberal Democrat, Brecon and Radnorshire

I congratulate the hon. Gentleman on securing the debate. In response to the comments of Philip Davies, I wish to say that there should be fairness in marketing practices across the board—whether we are talking about small or large companies. It just so happens that the smaller a company is, the less likely it is that it will be able to employ the legal means to ensure fair competition.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

My hon. Friend makes a valid point. I agree with him and I will try to touch on those points later in the debate.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

The hon. Gentleman is right to talk about fairness. I know that Philip Davies has made those points before and has been consistent on the matter. However, in the spirit of fairness, is it not also right that the large supermarkets should have access to an adjudicator—an ombudsman—so that we have true fairness throughout the grocery market industry?

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

The hon. Gentleman, who is probably one of the most knowledgeable people on the matter in this Chamber, touched on a valid point. When an adjudicator is up and running, which I hope will be in the near future, it will be of benefit to all sectors within the whole supply chain—as I say, from the farm all the way to the supermarket.

I remember almost a year ago, during the general election, speaking to many people in my constituency along the highways and byways of South Staffordshire. The subject was raised with me again and again by not just farmers but many people who are concerned about our countryside, our rural way of life and whether there is always balance and fairness within the system. When I was travelling along the highways and byways of South Staffordshire, I remember saying to many of those people that, in our manifesto, we were going to do something about the issue and that we would have a supermarket ombudsman—a groceries code adjudicator. That was a promise that I made in my manifesto. I accept that the Minister had a slightly different manifesto in his election campaign. I also accept that he might not have met many dairy farmers in Kingston and Surbiton, though he will be able to correct me if that is not the case.

Photo of Tim Farron Tim Farron Party Chair, Liberal Democrats

My hon. Friend makes a powerful case and I congratulate him on securing the debate. Just to inform him, the Liberal Democrat manifesto was also committed to what we called not a groceries code adjudicator but a supermarket regulator. Whatever the title, the critical point is not just about the powers, but whether it is a proactive body. The difficulty with the supermarket ombudsman, the ombudsman that we know and love, is that it is a reactive body. We do not want to be in a situation where dairy farmers—I meet many—are in a position where they fear, right or wrongly, that if they refer their case to the ombudsman they may then be a target for the supermarket. Surely the new body, whatever we call it, has to have proactive powers of its own to go out looking for trouble, to ensure that we have fair trade at home as well as abroad.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

My hon. Friend Andrew George is also keen to make a contribution.

Photo of Andrew George Andrew George Liberal Democrat, St Ives

In relation to the history of how we got to where we are—I do not have time in an intervention to give a full history—it has been Liberal Democrat policy, as my hon. Friend Tim Farron expressed, for a number of years. I was pleased that the Conservatives adopted the policy in early 2010. Indeed, the previous Government also had a similar policy. All three main parties are pushing in precisely the same direction and it is time for us to push it to a conclusion as quickly as possible.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

I think that, in a single debate, I have created a grand coalition of bonhomie right across the political spectrum. That is to be welcomed. The points that my hon. Friends make are highly valid, because this is about getting it right. There is a coalition of interests, if I may use that phrase, right across the spectrum that includes politicians, producers, farmers and even some supermarkets, such as Waitrose, who are in favour of achieving this. My hon. Friends have made the important point that we have all put this policy in our manifestos and in the coalition agreement.

I want to see three key things in a groceries code adjudicator as a result of this debate. The first is timing. We have been waiting. It is almost a year since the general election. It was a clear commitment in the coalition agreement. I accept that there are many demands —very many demands—on the time of the Minister and his Department, but we need to deliver on this because we have made a clear commitment that we will do so, and we need to make sure that we do so swiftly.

When we talk about dispute, we all tend to think about price. It is not just about price. It is often about terms and conditions and how people operate. Before I entered this House I was a potter. I appreciate that being a potter is somewhat different to being a pig farmer, and I did not sell to the grocery multiples, but I did sell to many high street multiples. I always remember going into the factory one day and opening up a letter from a major high street store group. I will spare its blushes; I will not mention its name. We had reached an agreement that I would be paid within 30 days, at an agreed price that seemed to be fair, and it had given me a commitment to purchase from me at that price. The letter said quite clearly that, instead of paying me within 30 days, it would pay me within 120 days. If I wanted to be paid within 60 days, it would pay me within 60 days, but would take a 6% discount—take it or leave it. That is a difficult situation.

Whether it is pots or pizzas, it is still the same situation. I had the factory, and people’s wages had to be paid. A commercial agreement had been reached, which often involved making sure that we had the right packaging and designing certain specific products for that retailer. Then, with one fell swoop, suddenly everything changed. That 6% is often all the profit there is to be made on a product.

Photo of Simon Hart Simon Hart Conservative, Carmarthen West and South Pembrokeshire

My hon. Friend mentioned the coalition of interests, but did not mention where the public might come into this. Does he agree that, if the general public knew that supermarkets were making a 22p a litre profit on milk yet farmers were producing at a 4p a litre loss, public attitudes would change? If the general public knew his business experiences and what I have just described, would the ombudsman have a greater chance of success?

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

My hon. Friend is absolutely right. One of the greatest attributes of the British people is their fair-mindedness. People would like to see fair trade, not just abroad but in this country too. Many hon. Members will say that the Government are not there to fix prices. I could not agree more, but sometimes there are distortions in a market. When producers are so small and insignificant that they cannot argue on the issue of price, sometimes they are simple victims of that market, just like the farmer I mentioned earlier who wrote to me on this issue.

I urge the Minister to act swiftly to introduce a groceries code adjudicator Bill. A number of months ago, the aim was to bring a draft Bill before the House before the Easter recess. We are pretty close to that Easter recess. I understand, or I hope, that something will be brought to the House after the Easter recess. I appreciate that everything in government has the potential to slip, but I seek reassurance from the Minister that he will put all his effort into ensuring that there is no further slippage and that a Bill is brought before the House. We must ensure that the Bill will bring help and support right across the process, and bring the balance and fairness that not only we, as politicians, want to see, but the British people want to see.

The second vital issue is what the adjudicator is able to do. There has been much talk about the adjudicator being able to name and shame, and being able to issue a press release in order to embarrass those who act wrongly. I am afraid to say that I do not believe that a press release will be quite enough to make sure that we have an adjudicator that works well and works properly. As I say, this debate is not just about farmers, but about producers and supermarkets—all the way through the process. I would expect any adjudicator to have firm powers to fine. I would also expect, however, any adjudicator to use fines with prudence, rarely and only when it is required, because an adjudicator will, in many ways, have failed if it cannot sort out a situation through negotiation, discussion and bringing people together. We only have to look at other ombudsmen or regulators that have been set up in the past. Those organisations have been successful if they have some ability to enforce what they have found to be right and just. If we do not give an adjudicator that right, my fear is that they will be a mere fig leaf and an excuse of an organisation in which no one will have any confidence.

Photo of Philip Davies Philip Davies Conservative, Shipley

My only concern with my hon. Friend’s comments is that this appears to be a solution looking for a problem. We already have a supermarket code of practice that stops such things as retrospective changes to deals between supermarkets and suppliers. That is already overseen by the Office of Fair Trading. If anybody wishes to make a complaint, they can already do so to the OFT. The OFT did research, and it could not find any material breaches of the supermarket code. I am, therefore, not entirely sure what the problem is to which my hon. Friend is advocating a solution.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

I thank my hon. Friend for his comments. If one were to speak to many people, one would find that there seem to be continued abuses, sometimes at a small level and sometimes at a major level. I still believe that the confidence to report where abuses occur is not out there. As a producer myself, I would have been highly reluctant to make an official complaint against, potentially, one of my largest customers. I am not saying that the best in the industry would have a small-minded attitude but equally, unfortunately, there are some poor operators.

Photo of Andrew George Andrew George Liberal Democrat, St Ives

May I refer my hon. Friend to the Competition Commission report in 2008, which identified the unexpected costs and excessive risks as a problem in the supply chain? The commission used its power to establish a statutory code, rather than the voluntary code previously in place, but the situation is rather like a game of rugby which has the rules of rugby but no referee. That is why we need an adjudicator, because no one is keeping an eye on that code at the moment.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

The clear feeling among the whole industry, with the possible exception of the British Retail Consortium, is that an adjudicator is required. The code, which I am sure most Members, if not all, welcomed, did not go that one step further to ensure fairness.

Photo of Tim Farron Tim Farron Party Chair, Liberal Democrats

The great difficulty is that an adjudicator or a supermarket ombudsman who is too weak and a code that is not enforced act as a badge of respectability for supermarkets, which can pretend that they are being regulated and that producers are being protected when they are not. A weak ombudsman could be worse than none.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

It comes down to a matter of pride and respect. I have always been of the belief that we should legislate as little as possible, because it does not always bring goodness and greatness to everything, but when we do legislate, we must ensure that it is right and will lead to positive change and a positive influence for the good. Therefore, if we are to have an adjudicator, that adjudicator must have the ability to fine. I hope that the Minister can take that on board. I appreciate that there will be many siren voices whispering into his ear about how such a step would be retrograde, but I point to how rarely most ombudsman organisations use the ability to fine or to level penalties. It is incredibly rare because people never want to go down that route except as a last resort.

My final point is about anonymity, which is vital. My hon. Friend the Member for Shipley pointed out that there is a grocery code and asked why more and more people were not coming forward. However, there is a real fear about doing so. Often, if people do come forward, it is so easy to identify who they are. As I mentioned earlier, I am sure that 99% of our best and greatest supermarkets would never dream of taking recompense from a supplier, but there is a fear that that might well happen. Therefore it is vital that, as part of the Bill, if and hopefully when it is published, trade bodies, organisations and associations will have the ability to put forward concerns, and the adjudicator will be able to initiate an investigation.

Such a process would have to be done on the basis of evidence. No one in the farming or processing industries or the supermarkets wants to see an excess of investigations, which cost time and money and are distracting to business. I do not want to see that, and nor would many other Members. However, that ability to have an investigation has to be available. We will not always have a producer who is brave enough to go to the adjudicator and say, “This is the problem.” Sometimes, quite rightly, producers might want to hide behind—that is probably the wrong phraseology—or be protected by the trade association or organisation, which would be making representations to the adjudicator, with the adjudicator instigating an investigation.

Many problems are associated with our supermarkets, but so much more about them is absolutely fantastic and works incredibly well. I hope that the Minister can take on board the three principal issues: to ensure the introduction and progress of the Bill, so that it becomes a reality and we have a supermarket adjudicator; the importance of anonymity and that we must protect suppliers from the worst excesses; and, most important, to ensure that the adjudicator can enforce its actions and levy fines.

None of us wants a weak, ineffectual, pointless adjudicator which will cost everyone something but achieve nothing. Neither I nor the Minister, I am sure, want that. Many people throughout the processing, farming and agricultural industries firmly believe that those three principal things are required. I have no doubt that the Minister will deliver on what so many are expecting.

Photo of Albert Owen Albert Owen Labour, Ynys Môn 2:56 pm, 5th April 2011

It is a pleasure to serve under your chairmanship, Mr Gale, and to follow Gavin Williamson, who made a very good contribution to the debate. I will not go into the details, because the hon. Gentleman has summarised where we are today and the history of the call from across the House and the parties for an ombudsman—I will use that term, because it is appropriate.

I am the hon. Member who promoted a private Member’s Bill on a grocery market ombudsman, which had all-party support in the previous Parliament. Importantly, the Bill received not only cross-party support but support from across the regions and nations of the United Kingdom. The promoters of the Bill brought to the debate deep knowledge of different parts of the industry and of the United Kingdom. From the outset, it is important to say, as the hon. Member for South Staffordshire has done, that I support supermarkets. However, I also support suppliers and consumers, and it was in the spirit of fairness that I sponsored the Bill in the previous Parliament.

I pay tribute to Andrew George for his work on the issue over a long period. As the able chair of the grocery market action group, he brought together a big coalition including not only the farming unions, which were prominent with their calls for fairness on dairy and other produce, but non-governmental organisations, which are important in fair trade issues in this country and throughout the world, community groups and consumer groups, including the Women’s Institute. No politician, including the Minister, can ignore the WI, which was a member of that broad coalition of supporters of an ombudsman. Another member was the Association of Convenience Stores, which represents the small shops that bear the brunt of the situation.

The power of the supermarkets was deemed too much, not by politicians but by a proper inquiry by the Competition Commission. Its recommendations in the 2008 report called for a new code, because the existing voluntary code was not working. The new code came into effect in 2010, but it needs a referee—an adjudicator or ombudsman—to ensure that it stands credibly for the fairness that we all want.

I pay tribute to all the other parties as well. When I set off on the track of the private Member’s Bill, what the parties stood for on an ombudsman was a grey area. When my party was in government, I remember approaching Conservative Front Benchers, who said, “Well, we are not really sure how this will work in practice,” but all of a sudden there was great movement and strong lobbying with an election in view. It was exactly the same in my party—I am not making a partisan point; I am giving the details.

The Department for Environment, Food and Rural Affairs was 100% supportive of the Bill, but the Department for Business, Innovation and Skills was less supportive. To be fair to the Liberal Democrats, they used different words, but they said exactly the same thing. They wanted an ombudsman, and at one time there was a proposal to introduce a food standards ombudsman. They wanted the fairness that the hon. Member for South Staffordshire has discussed. We have moved a long way.

My Bill received a Second Reading. There were some strong arguments against it, and I pay credit to Philip Davies for his consistency. I respect his standpoint, and it was good to have the debate. The Bill went into Committee, but it did not make the wash-up, although the issue made it into all the manifestos, which is important. All the major parties went into the general election calling for an ombudsman with real teeth to enforce the code of practice for the grocery market. The previous Government conducted a consultation from February 2010 to April 2010. When the coalition Government were formed, they made their commitment clear at the start, and they followed through on the consultation. When the executive summary was published, the Minister was gracious enough to give me a copy of it and a copy of the Government response, which was thorough in its conclusions as well as in its overview.

There was, rightly, a commitment in the coalition agreement to introduce an ombudsman adjudicator at the first possible opportunity, and I remind hon. Members that during the general election the introduction of an adjudicator was a priority for the major parties. A priority should go into the first Queen’s Speech after an election, and that is what should have happened, but the issue drifted. I want the Minister to explain why the issue is so difficult. It has cross-party support and consensus, and a broad coalition of groups outside the House supports it. A priority issue should go ahead quickly.

The Government’s response was positive in many ways. I have referred to “the ombudsman”, but I was lobbied by the British and Irish Ombudsman Association, which said that it did not want the word to be used. Fair enough, we can live with a different title, and adjudicator or enforcer would be adequate. I am comfortable that that post will be housed with the Office for Fair Trading, because that is sensible and will keep costs down as long as it does not interfere with the OFT’s consumer work. However, it must be independent of the Government and the OFT, if it is to do its job properly, which we all want.

Time is moving on, and there is talk of a draft Bill. As the hon. Member for South Staffordshire has said, the draft Bill was to be published before Easter, but now it will be published after Easter. Will the Minister clarify whether there will be another Queen’s Speech before it can make progress through the House? I think that it will make progress, but time is moving on. The group to which I have referred still wants an ombudsman. The farming unions, consumers and fair traders want an ombudsman to ensure that the code of practice is adhered to.

We are fast approaching the second anniversary of the code coming into being following the Competition Commission’s report. Cynics will say that if a gap is left, the supermarkets will behave for a period. As Tim Farron has said, they will use the code as a badge of honour, and people will question whether an ombudsman or adjudicator is needed. It is not only cynics who think that, because concerned farmers, businesses and suppliers have written to me to express their worry that the coalition Government have lost interest in the matter. Perhaps the Minister will respond to that.

Let us remind ourselves why an ombudsman is needed. The Competition Commission’s inquiry and report in 2008 contained clear recommendations. There was a long period of consultation under the previous and current Governments, but we are now seeing long-grass politics. It is no longer a priority, and it has been kicked into the long grass. I know that the Government are faced with big issues, but every new Government face issues that are not of their making, and they must deal with them. When a political party forms a Government saying that it has a priority to introduce something, it should do so as soon as possible.

I want a proactive and independent adjudicator to look at the entire grocery market and to provide safeguards and protection for small companies. If those companies do not want to be named, they should be allowed anonymity, so that they can take their complaint forward positively. I want the ombudsman to be able to levy penalties for abuse of the code. As Glyn Davies has said—he is no longer in his place—the ombudsman or adjudicator must have teeth.

We are already 12 months into the new Parliament, and I am worried about the Bill’s slippage. I would like to see a draft Bill as soon as possible. I will not detain the Chamber by going over the arguments that I have summarised, but I hope that the Minister will tell us today a specific date for the draft Bill, although I do not understand why it needs to be in draft form. During previous Parliaments while I have been a Member of the House, I have wanted draft legislation on difficult issues, but the matter before us has been debated to death and there is near consensus. I do not understand the need for draft legislation. The Bill could have been introduced with the good will of the political parties, all of which included the issue in their manifestos. There has been proper consultation, and everyone has had the opportunity to be consulted and to put their views. I hope that the adjudicator that the Minister has talked about will come into being very soon, that we achieve the fairness that everyone wants, that we obtain a grocery market that we can all be proud of, that each and every part of the grocery market is included in the code and that the adjudicator has the licence and the teeth to ensure that there are no abuses. I hope that we can move forward on that.

This has been a good debate. There is consensus, so let us retain that consensus. As the hon. Member for St Ives has said, we are all pushing in the same direction, but we must push the Minister a little harder so that his Department delivers the adjudicator.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton 3:07 pm, 5th April 2011

I welcome this debate, introduced by my hon. Friend Gavin Williamson, because it is so necessary that the question of an adjudicator should be discussed. Many hon. Members have made the point that the issue has cross-party support, and with other hon. Members I urge the Minister to give a clear timetable of exactly when the grocery adjudicator will come into being. It is essential that we send the right message to the industry, supermarkets and consumers.

Many hon. Members have said that we are all champions of the consumer, because our constituents and voters are all consumers, and they are keen to get a good deal. They are keen to ensure that when they buy from supermarkets, a fair amount of the money goes back to those who produce the goods—the meat, milk, vegetables and so on. They want a fair share to go into the pockets of those who produce the goods.

Photo of Philip Davies Philip Davies Conservative, Shipley

My hon. Friend will know that the supermarket industry is worth about £130 billion a year. If the outcome of having an ombudsman is that a bigger slice of the cake goes to producers, and they receive perhaps only 1% more income, that will add £1.3 billion to food bills. Given that people are already struggling to pay their bills at this difficult time, why does my hon. Friend want to add another £1.3 billion to people’s food bills, including those of his constituents?

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

Quite the opposite. I do not want to add another £1.3 billion to consumers’ bills, but to make sure that the supermarkets are not taking £1.3 billion extra in profit from the overall trade when they are not entitled to it. They have used their muscle in the marketplace to drive down the price that they pay producers. To be perfectly honest, I have no sympathy with my hon. Friend’s position. Tesco has 32% of the retail trade, and if that is not a huge monopoly position, I will eat my hat.

Photo of Andrew George Andrew George Liberal Democrat, St Ives

Is it not telling that, in the teeth of the most recent recession, the largest supermarkets were posting record profits?

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

Absolutely. I welcome the hon. Gentleman’s comment. Again, to take a wonderful, if perhaps slightly overused, word, this is all about fairness. The supermarkets have huge investments, and they are entitled to a fair profit, but if they use their situation to drive prices down for the producer and keep prices up for the consumer, they are taking too much out of the market.

Those of us who represent rural constituencies very much want agriculture and the growers to get a fair deal from the marketplace. I spent 10 years in the European Parliament; we can talk about the common agricultural policy and about whether we should be subsidised. In the end, however, it would be far better if farmers did not have to be supported through a subsidy. What they actually want is a fair deal from the marketplace.

Historically, the previous Government held an inquiry in their early days into Milk Marque, a large co-operative that bought 37% of the milk in this country. Subsequently, the Office of Fair Trading split the organisation up because it was considered a monopoly. We now have a supermarket with 32% of the trade in this country, but it is not considered a monopoly. I am not going to push the Government to go to war with Tesco, and nor do I want to go to war with Tesco, but I want to put clearly on the record that we must stop being so mealy-mouthed about these things, because, in the end, these guys have huge power.

My hon. Friend the Member for South Staffordshire put it very well when he talked about his pottery business. He said he had a large buyer, who had come along and said, “I’m not going to accept the deal that we’ve done. I want to pay you less. I want to pay you late. That is the deal. Take it or leave it.” That is what the adjudicator needs to sort out as far as food production is concerned. They have to make sure that buying power and scale do not drive prices down.

When the supermarkets decide to have a price war, all consumers are grateful. I would be the last to say that such things should not happen, because that is competition. However, when the supermarkets go into that price war, they must not turn around and tell producers, “Okay, we’re having a war with our neighbouring supermarkets, so we will drive down the price we pay you.” They then drive prices down to below the cost of production. Milk prices are now 3p or 4p below the cost of production. Pig prices are £20 per pig below the cost of production. Cereal prices are probably the highest we have seen for many years, if not the highest we have ever seen. That is adding to industry’s costs, but it is not reflected in the price that the supermarkets and big buyers pay producers. That is why we are so keen to have an adjudicator.

I agree with my hon. Friend and other Members that the adjudicator must have real teeth so that they can take action to stop abuses. I do not think that there will be a huge bureaucracy and a huge problem, provided that the adjudicator has the right muscle and teeth. If they do, they will not need to be used in most cases, because the producer, processor or whoever will be able simply to threaten to go to the adjudicator. That is when the system will really work—not when people have to go through the whole process. People need to be able to go to somebody who can check what is happening.

Smaller producers, in particular, do not need necessarily to declare exactly who they are. I know that that is a more difficult issue, but there is such huge pressure on smaller producers to avoid being targeted by those with power in the market. Edward Heath, who was perhaps not always the most popular man in the world, spoke about the unacceptable face of capitalism, but is what we are talking about perhaps not the unacceptable face of the market? As a Conservative, it is perhaps dangerous for me to talk of such matters, but if there are huge, dominant players in the market, smaller producers can be pushed out of business.

I am sure that the adjudicator will be welcomed across the House, but I have one final point for the Minister, to which I am sure he will respond when he sums up. I thank my hon. Friend the Member for South Staffordshire for raising this essential issue, but I wonder whether we can have a real time scale for the Bill. It was to have been published before Easter, and I accept that Easter is coming and that we are obviously not going to see it. When will it come out? How long will the draft stage take? One or two Members, including Albert Owen, asked whether we need a draft and whether the issue is being kicked into the long grass. I do not believe that it is, but the Minister needs to reassure us of that, because many people are pinning great hopes on the adjudicator.

Photo of Roger Williams Roger Williams Liberal Democrat, Brecon and Radnorshire 3:17 pm, 5th April 2011

I will try to keep my comments relatively brief so that the Minister can address many of the questions that have been asked.

I want to place on the record my entries in the Register of Members’ Financial Interests. I am a producer of beef cattle and sheep. My beef cattle go to the St Merryn slaughterhouse in Merthyr, which supplies Tesco and McDonald’s. My sheep go to Farmers Fresh—and where they go afterwards, I do not really know, but I suspect that some end up in supermarkets.

Many of the arguments that have been used to reinforce the proposal for a grocery code adjudicator have been made before. However, it is useful that Gavin Williamson has been able to secure this debate so that we can put the issue under the Minister’s nose, to remind him that it has not gone away, that Members are still pursuing it with great vigour, as we have seen today, and that there is a great appetite for it outside the House.

I have great admiration for supermarkets, which have been the star performers of the retail sector over many years. They have done a lot to ensure that there is a sense of quality about their products, although some people would argue that we could do with more traditional products. None the less, supermarkets set a standard on quality, and they have increased the variety of foodstuffs available to the consumer.

Over the past 10 or 15 years, food price inflation has been very low and often negative, which has made a contribution at times when we have had low inflation figures. This country’s food producers have contributed to low inflation figures, which has been to the consumer’s benefit.

Of course, we are talking about not just producers, but retailers. The argument that we are having today is that the producer rather than the retailer has borne the burden of keeping prices—until quite recently—low. My limited knowledge of economics tells me that in a perfect market, there are many sellers and buyers and everyone in the market has a real understanding of the quantity and quality of the commodity being traded.

As far as food production and retailing are concerned, the perfect market does not exist. There are a small number of very large buyers in the market and a large number of small producers. Although the large buyers probably have a good idea of the state of the market, the small producers do not and are therefore unable to take advantage when a possible advantage occurs. We are talking about anti-competitive practices and we have plenty of competition law that should support us in this matter.

I am a generous man and have often said that the supermarkets are so large that they sometimes do not even realise that they are acting anti-competitively. Every move they make and every step they take affects the market. I sometimes compare them to a large person in a narrow corridor. However well behaved that large person is, they are bound to affect the people coming and going. They could act not so politely and have a terrible effect on the passage of people, but even when they are acting politely, they can have an effect, and supermarkets can have an effect. That is why we need somebody external—an objective force—to look at the supply chains and ensure that they are not being abused.

I would like to give a little economics lecture on the profitability of supermarkets, although I am sure that Philip Davies understands it a lot better than I do. The profitability of supermarkets is determined by two things: one is the margin of the product and the other is the turnover. If they are multiplied, we get the gross profit of the supermarket. Out of that, it has to fund its overheads, labour and financial costs and all the other costs attributed to businesses.

The margin times turnover is key; one could argue that it does not matter at what price a supermarket buys its product, as long as it can get the margin. However, its turnover depends on how competitive it is with other supermarkets. That is when price pressure comes in. People tell me that quality is required and must be delivered, so often the only competitive advantage that people can have is on price. The sheer size of some of the organisations—the 32% share that we heard about—affects the marketplace. They can go in and abuse their dominant position in the marketplace.

I would like to put on the record my appreciation of the wonderful work that many hon. Members, including Albert Owen and my hon. Friend Andrew George, have done on this subject. Some of us have followed in their wake—and we are still here, still pressing the Minister to take some action, because in the long run that will be to the advantage not only of the producer but of the consumer as well.

We want to ensure that the quality product that the consumer wants is available in the supermarket. We are very worried at the moment that constant cost pressure, particularly on milk and milk products, is driving quality out of the supermarkets. When customers go in them, they will not be able to buy the British product that they so want.

Photo of Philip Davies Philip Davies Conservative, Shipley 3:24 pm, 5th April 2011

I will speak as briefly as possible, because I know that Andrew George, who has done a lot of work in this area, wants to speak as well. Not for the first time, and no doubt not for the last time, I appear to be in a minority of one in a debate, but speaking up for unpopular causes is something that I enjoy doing, so I will make the most of it.

It is always chastening to see my hon. Friends leaping up to advocate an extra quango, and an expensive one at that. My hon. Friend Neil Parish seems to think that it would have a minimal cost, and I admire his enthusiasm and, perhaps, naivety. I have never known any of these quangos to have a minor cost. He seems to think that the ombudsman would not have anything to do and that the fact that they are there will be enough to pull everybody into line. I may make an early bid for the job. No doubt, a well-paid position with no work to do sounds like the ideal kind of job for most people.

I have no interest to declare, but, hopefully, I have some experience, both as someone who worked for a supermarket chain for the best part of 13 years and as someone whose stepfather was a dairy farmer who went out of business because it was no longer viable. I like to think that I have seen the problems on both sides. Rather than being anti-competitive, the supermarket industry must be the most competitive industry in this country. It is not only competitive, but one of our most successful industries. I never know why politicians always see a successful industry and feel that the best way to treat it is to clobber it over the head as much as possible and to try to take as much money out of it as possible. We should celebrate our successful industries, not try to clobber them all the time.

Supermarkets have been successful for one reason and one reason alone, which is that they deliver what their customers want at a price at which they want it. All successful businesses have two things in common: they look after their customers and they look after their staff. All failed businesses in the world have two things in common: they do not look after their customers and they do not look after their staff. Supermarkets are successful, because they look after their staff and customers, and we should celebrate that.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

As always, my hon. Friend speaks incredibly eloquently. Yes, a successful business is absolutely about looking after staff and, most importantly, customers, but it is also about developing the supply chain. Every one of the major retailers will talk about the importance of their supply chain all the way through. This is about getting that supply chain right and ensuring that there is fairness all the way through.

Photo of Philip Davies Philip Davies Conservative, Shipley

My hon. Friend is right. I was going to come on to that point later, but I will mention it now since he has raised it. A supermarket’s success cannot work on the basis of the supermarket versus the supplier. For a supermarket to be successful, it needs products on the shelves just as much as the supplier needs the supermarket to sell its products. A supermarket without Heinz baked beans and Kellogg’s cornflakes would not be much of a supermarket. The idea that the whip hand is always the supermarket’s is not one that I recognise.

Some suppliers are so powerful that they have the whip hand over the supermarkets, because it is so important that their products are on the shelves.

Photo of Neil Parish Neil Parish Conservative, Tiverton and Honiton

My hon. Friend has referred to household names, which, of course, have a great deal of marketing power when dealing with supermarkets. However, a lot of the smaller producers, especially of goods such as vegetables, which are seasonal and have to be sold at a certain time, do not have the same power to trade with a supermarket and the supermarket can then push down the prices.

Photo of Philip Davies Philip Davies Conservative, Shipley

The ombudsman, as envisaged, would apply to all suppliers, so even those that are more powerful than the supermarkets would benefit. It would be a boon to big multinational businesses at the expense of the consumer and the supermarkets. In reality, it would do very little to help small suppliers.

I come back to the point that this is a solution looking for a problem. We already have a supermarket code of practice that prohibits any retrospective changes to agreements, which is one of the big beefs that people had. It imposes a prohibition on charging suppliers for shrinkage, which is another cost that supermarkets have to factor into their prices. It has an overarching fair-dealing provision, which the Competition Commission believes balances the need to curtail unreasonable behaviour and to allow some commercial flexibility. I must stress that the code already makes it clear that a retailer may only delist a supplier for genuine commercial reasons, and expressly not for exercising its rights under the code. If any supplier at the moment wants to make a complaint to the OFT, which oversees the supermarket code of practice, it can do so without any penalty. It does not need to have anonymity, and I object to the principle of anonymity.

If somebody were accused of an offence in court, but they had no idea who was accusing them or what they were being accused of, it would be completely unfair.

Photo of Philip Davies Philip Davies Conservative, Shipley

I must press on because the hon. Member for St Ives also wishes to speak. The point is that we already have an existing code. Why we need an ombudsman on top of that when such matters can already be enforced is beyond me.

What does the Minister envisage the cost would be of establishing a grocery ombudsman, and who would pay for it? I think it would be expensive, and that will lead only to higher prices. If we pass on higher returns to the supplier, the only possible consequence in a market that is already incredibly popular—margins for supermarkets are already low—will be an effect on the consumer. In an industry worth £130 billion a year, 1% of that is £1.3 billion, 2% is £2.6 billion and so on. I have no idea how much extra people expect suppliers to get, but even if it is only in that region, it is a massive cost to pass on to consumers at a time when people cannot afford to pay their bills. Constituents who are struggling will not thank hon. Members when they find out that huge increases in cost have been passed on.

Photo of Philip Davies Philip Davies Conservative, Shipley

I cannot give way, because we have not got time. The idea that everyone agrees on this matter is not correct. The economist, Professor Lyons, who is one of the two Competition Commission panel members working on supplier issues, concluded that the ombudsman would be counter-productive and opposed its being set up. The commission’s report stated that he

“believed that the Ombudsman would be counterproductive...He was concerned that the Ombudsman may find a role ‘proactively’ representing the interests of suppliers, including global manufacturers and large intermediaries, which he considered would reduce the benefits of competition.”

There are a large number of myths about the relationship between supermarkets and suppliers. The idea that all buy one, get one free promotions are insisted on by supermarkets and paid for by suppliers is completely wrong. When I was at Asda, we tried to stop suppliers from offering such deals and have an everyday lower price. Buy one, get one free deals are promoted to supermarkets by suppliers, many of which have huge marketing budgets. They use such deals as a way to market their products and get people to buy them in the future. Most of the big supermarket suppliers, such as Mars and Proctor and Gamble, have marketing budgets that supermarkets could only dream about. That is the reality of the situation. The ombudsman will do nothing to help the consumer or the small supplier. If anything, it will benefit only the bureaucracy that is set up, which will be self-serving, and big, multinational corporations, which can fend for themselves.

I believe in the free market. For me, the free market means allowing people to make deals themselves. There may be bad deals, but I hope the Government will not interfere in every commercial discussion between two companies and try to fathom out who has got the best arrangement. That should be left for the free market to decide, because the people who benefit most from supermarkets are those who work in them and the consumers.

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

Order. I would like to call the Front-Bench speakers at 3.40 pm.

Photo of Andrew George Andrew George Liberal Democrat, St Ives 3:33 pm, 5th April 2011

I will be brief, Mr Gale. It is a pleasure to follow Philip Davies. We disagree, but not in every respect, and I passionately agree with his concluding remarks about the operation of the free market.

The issue is about what happens when the market fails. We have always had the Monopolies and Mergers Commission—now the Competition Commission—and other regulatory bodies to ensure fair dealing, and that is fundamentally what the debate is about. It is not about price setting or protecting large and powerful supermarket suppliers such as Kellogg’s and the producers of baked beans and other similar brands. In 2008, the Competition Commission raised a concern about the transfer of

“excessive risk and unexpected cost.”

Gavin Williamson should be congratulated warmly on securing this important and timely debate as we look forward to the publication of the Government’s draft Bill. He should also be congratulated on the balanced and considered manner in which he introduced the subject.

The report from 2008—three years ago—came after years of inquiries by the Competition Commission and the Office of Fair Trading going back to 2000, after which the first voluntary code was established. I will not go into the history of it all.

I will quote from that report, because it fundamentally explains why we are in our position today, and there is great disappointment that we are not further forward. The report concludes:

“We found that all large grocery retailers, wholesalers and buying groups have buyer power in relation to at least some of their suppliers. This buyer power is of benefit to consumers since part of the lower supplier prices arising from this buyer power will be passed on to consumers in the form of lower retail prices.”

That agrees entirely with the hon. Member for Shipley.

“However we found that when, in the hope of gaining competitive advantage, grocery retailers transfer excessive risks or unexpected costs to their suppliers, this is likely to lessen suppliers’ incentives to invest in new capacity, products and production processes. If unchecked, we conclude that this will ultimately have a detrimental effect on consumers, by leading to lower-quality goods, less choice of goods and product innovation.”

I am grateful to Albert Owen for his major contribution to this debate both today and over the years. His private Member’s Bill helped to stimulate and provoke more rapid progress, although not rapid enough. From his party I also remember the former Member of Parliament for Stroud, David Drew, who was a great champion for this issue.

In the remaining minutes, I would like to emphasise that I entirely sympathise with the hon. Member for South Staffordshire on the issue of the name; given the circumstances, the name is a bit like something put together by Frankenstein. I did not like the word “ombudsman”, because that implies something reactive and we want something that will proactively keep an overview on what is going on throughout the supply chain.

As I said, this issue is about fair dealing. If the adjudicator were called the “supermarkets ombudsman”, the assumption would be that all wrongdoing was on the part of supermarkets. If it were called a “grocery supply adjudicator”, that would recognise that fair—or unfair—dealing might work both ways. In future years, we must keep an open mind as to how that power relationship might play out.

Previous reports have found that supermarkets are so powerful that they can dictate market conditions. They also identified that when suppliers were depended on to complain in order to stimulate an investigation into the breaking of the code, there was a climate of fear among them because of possible retaliatory action.

I do not know the precise answer to the question from the hon. Member for Shipley about how much the adjudicator will cost to set up, but it will be small numbers of millions of pounds, and the cost to the taxpayer should be nil; it will be done through an industry levy, as I hope the Minister will confirm. Ultimately, I hope that the adjudicator will be used as a badge of pride for supermarkets if they get a clean bill of health on an annual basis. I hope it will provide a service to the retail trade in awarding a badge, a tick, to a supermarket because it was found to have done nothing wrong during the year.

As the Minister is aware, I have raised a number of issues with him about the industry levy, which should be based on a formula to reflect the size and turnover of the supermarkets that are regulated, as well as the extent to which they are found to comply—or not comply—with the code. The capacity of the adjudicator should be sufficient for it to be capable of undertaking its own independent, proactive investigations. The powers of the adjudicator to undertake enquiries should be sufficient to nullify the risk of retaliatory action being taken against the supplier in a range of circumstances.

It is vital that we move with maximum speed towards a conclusion on this matter. It has all-party support, and I wish the Minister well. I know that with one or two exceptions, he has full backing across the Chamber to move the legislation forward.

Photo of Nia Griffith Nia Griffith Shadow Minister (Business, Innovation and Skills) 3:39 pm, 5th April 2011

I congratulate Gavin Williamson on securing the debate and reminding us of this very important issue. It is now more than a year since my hon. Friend Albert Owen led the Second Reading debate for his private Member’s Bill—the Grocery Market Ombudsman Bill. In that debate, he made it clear that the concept of a grocery ombudsman or adjudicator is not about being pro or anti any particular interest group. It is about fairness to all those involved, whether they be farmers, small producers, local suppliers, suppliers from developing countries, small shops, convenience stores, supermarkets or, most importantly, consumers.

I pay tribute to the work that my hon. Friend and Andrew George, who chaired the grocery market action group, did in harnessing the support of organisations such as the Rural Shops Alliance, the Association of Convenience Stores, the National Farmers Union, the Farmers Union of Wales, the British Independent Fruit Growers Association, the British Brands Group, Traidcraft, ActionAid UK and Banana Link and in pushing the agenda forward from the early days of the Competition Commission inquiry in 2006 through to the establishment of the new groceries supply code of practice, which came into force on 4 February 2010. They gathered cross-party support, which led to the inclusion of the concept of an adjudicator in each of the three big parties’ 2010 general election manifestos.

In the Labour party manifesto, we said that we would ensure

“fairness for food producers through EU reform and a Supermarkets Ombudsman” and that

“to protect farmers and food suppliers from unfair and uncompetitive practices by major retailers”, we would

“create a Supermarket Ombudsman.”

The Conservative party said in its manifesto:

“To ensure the grocery supply code of practice is applied fairly, we will introduce an independent supermarket ombudsman.”

The Liberal Democrats promised in their manifesto to create

“a legal Supermarket Code and a powerful independent regulator of Britain’s food market.”

It is remarkable that three parties should have had such similar wording on a topic.

Then the coalition was formed and the coalition agreement committed it to introducing,

“as a first step, an Ombudsman in the Office of Fair Trading who can proactively enforce the Grocery Supply Code of Practice and curb abuses of power, which undermine our farmers and act against the long-term interest of consumers”— strong words indeed. The reason why hon. Members are here today and why the Minister was asked a question on this topic just last Thursday is that hon. Members are wondering what has happened to that commitment. They are wondering whether the commitment in the coalition agreement to introduce an ombudsman has gone the same way as the commitment to create a post bank and whether it could become yet another broken promise.

It was encouraging, therefore, to hear the Minister confirm on Thursday that he expects to publish a groceries code adjudicator Bill “soon after Easter”. We look forward to that. Perhaps the Minister will today give us a more precise indication of what exactly “soon” means and what is likely to be in the Bill. Will he give us more detail of exactly how he envisages the role and work of the groceries code adjudicator and how proactive the adjudicator will be in enforcing the code? As hon. Members will know, the new groceries supply code, which came into force on 4 February 2010, applies to all companies that are active in the sector and have an annual retail groceries turnover of £1 billion or more.

As a number of hon. Members have reminded us, suppliers are reluctant to make complaints for fear that they will be identified and that retailers will subsequently stop trading with them. So the new groceries code introduced independent binding arbitration and made it clear that retailers could stop trading with suppliers only for genuine commercial reasons, not because the supplier had complained that the retailer had not respected the conditions of the original trade deal. Can the Minister confirm that, in keeping with the Government response to the 2010 consultation, the proposed Bill will give the groceries code adjudicator the power to receive anonymous complaints?

The new code also placed the burden of proof on the retailer to demonstrate that the supplier had voluntarily complied with the requests made. It introduced a fair-dealing provision, requiring retailers to act in good faith in both formal and informal agreements. However, proper enforcement of the code is essential in ensuring its effectiveness, which is why an adjudicator is so important.

Will the Minister tell us how his Bill compares with the private Member’s Bill promoted by my hon. Friend the Member for Ynys Môn, in which he mentioned investigating and adjudicating on alleged breaches of the code, and powers to gather information, enforce penalties and award costs? Will the Minister confirm that, as expressed in the Government response to the 2010 consultation, the Government do intend to provide in primary legislation the powers to introduce financial penalties?

I welcome the wording of the coalition agreement, which speaks of an ombudsman who can “proactively enforce” the code. Can the Minister confirm the proactive nature of the adjudicator’s role as he envisages it? Does he envisage the adjudicator’s having the necessary powers and resources to instigate proactive investigations when he feels that those are likely to be justified? What sort of investigative powers will the adjudicator have? Will the adjudicator’s powers to request information be backed up by a power to create offences for failure to comply with requests for information?

We have the new groceries supply code of practice, a commitment from hon. Members on both sides of the House and plenty of material on which to build—the Competition Commission evidence, my hon. Friend’s private Member’s Bill and the 2010 consultation. There is general support among the public. The role of the adjudicator is to ensure fairness. That is to the benefit of all.

The very existence of an adjudicator with real powers will be an incentive to good practice and fairness and will focus minds on the groceries supply code. It is important to have powers that can be used, although it is often more desirable to sort out difficulties without having to resort to the full force of those powers. Whatever we call the office—a supermarket ombudsman, as some would say, or a groceries code adjudicator, as the Government now prefer to say—its existence will be good for the consumer and good for all those players in the sector, be they supermarkets, small retailers or suppliers, who want to play by the rules.

We look forward to hearing from the Minister about the progress that he has made to date on the proposed groceries code adjudicator Bill and, in particular, what the time scale is for introducing it. Without further ado, I thank all hon. Members who have brought this very important topic to the Minister’s attention and I ask him to deal with the issues that we are interested in hearing about.

Photo of Edward Davey Edward Davey The Parliamentary Under-Secretary of State for Business, Innovation and Skills 3:47 pm, 5th April 2011

It is great to speak under your chairmanship, Mr Gale. I congratulate my hon. Friend Gavin Williamson on securing a debate on this very important subject. It gives me a chance both to answer hon. Members’ questions and to back up what we have already said about it.

Let me come immediately to the timing of the groceries code adjudicator Bill, as almost every hon. Member who spoke is keen to hear about that. I am not quite sure about my hon. Friend Philip Davies, but nevertheless I shall deal with it. I can assure hon. Members that we are not taking a long-grass approach. We said in the Queen’s Speech for the first Session that we would introduce a draft Bill in this Session, and that is what we will do. I confirmed in questions last week that we were not able to publish the draft Bill before Easter, as I had originally hoped, but that we would publish the draft Bill soon after Easter to allow time for pre-legislative scrutiny in the current Session.

Photo of Roger Williams Roger Williams Liberal Democrat, Brecon and Radnorshire

I hope that the Minister realises that Easter is very late this year.

Photo of Edward Davey Edward Davey The Parliamentary Under-Secretary of State for Business, Innovation and Skills

My hon. Friend is very impatient for the adjudicator. He has campaigned with many others for it. I can assure him that we hope to be able to publish the draft Bill soon after Easter. Our objective is to introduce a final Bill in the Second Session, although we will look at the opportunity for introducing the Bill earlier if parliamentary time allows. One reason for publishing the draft Bill as soon as possible is that if parliamentary time allows, we may be able to make it a first-Session Bill, but that is not within my control. I should also make it clear that the timetable even for publishing the Bill is subject to the necessary Cabinet clearances and the outcome of pre-legislative scrutiny. I hope that hon. Members will understand that, but I can assure them that we are working hard to get the draft Bill published.

It is worth putting our debate into context. A persuasive case for an adjudicator has been made by all parties. As others have done, I remind the House of its genesis. The groceries supply code of practice was recommended by the Competition Commission following its market inquiry into the supply of groceries. Its final report was delivered in April 2008. The commission concluded that, although the exercise of buying power by grocery retailers was in general a good thing for consumers, it could raise concerns in certain limited circumstances. For instance, if retailers transfer excessive risks or unexpected costs to their suppliers in the hope of gaining competitive advantage, it is likely to blunt suppliers’ incentives to invest in new capacity, products and production processes. That is bad for consumers, and the code of practice is intended to remedy the problem.

Like my hon. Friend the Member for Shipley, I believe in the free market and in competition; and like him and others, I believe that our supermarkets do a fantastic job. The Competition Commission has inquired into the matter and made its recommendations, and we are not going outside those in establishing a groceries code adjudicator. Bearing that in mind, it is clear that it is not some sort of dramatic interventionist policy; I believe that it goes with the flow of ensuring fair dealings in that market.

The groceries supply code will apply to all companies active in the sector with an annual retail groceries turnover of £1 billion or more. Its provisions are now included in all retailers’ contracts with their grocery suppliers. It gives suppliers greater security, which should encourage them to invest in their operations. The code sets out a clear and overarching requirement for fair dealing, and bans retailers from imposing retrospective changes to terms and conditions agreed with suppliers. It also limits the extent to which suppliers are required to foot the bill for listings, promotions, inaccurate forecasts by retailers, or customer complaints. In short, the code is about introducing clear standards and greater certainty. As a result, those parts of supply agreements that may subsequently change are discussed up front, and both parties are agreed on how costs and payments will be allocated in such situations.

The Competition Commission concluded that the code would be far more effective if it was enforced by an adjudicator. That should dispel the climate of fear among suppliers, who felt that they risked being de-listed by their buyers if they invoked the previous code of practice. The commission does not have the power to establish new bodies. After failing to win universal agreement from retailers to establish such a body on a voluntary basis, it asked the then Government to act. The present Government agree that the code of practice needs to be independently monitored and enforced if it is to succeed.

The groceries code adjudicator will act as arbitrator in disputes arising under the code. He will receive complaints about potential breaches and, when appropriate, conduct investigations. The adjudicator will have the power to accept complaints about retailers’ treatment of primary suppliers from anyone in the supply chain, at home or overseas. That will include indirect suppliers who, like many farmers, may not supply the large supermarkets directly. The adjudicator will have the power to require information from retailers in the course of an investigation so that conclusions are based on reliable evidence. He will also take account of other evidence in the public domain, but will not be obliged to investigate every complaint.

I emphasise that last point, because it deals with questions about how the adjudicator will act. The adjudicator can take complaints from suppliers directly, as I said, but it can also take account of other evidence that has been published. That is important; in my judgment, it strikes the right balance between preventing the adjudicator going on fishing trips and enabling him to consider information that is available to others.

Photo of Gavin Williamson Gavin Williamson Conservative, South Staffordshire

If a trade organisation or association has made a study of a certain part of the market, would that information be admissible as the Minister states?

Photo of Edward Davey Edward Davey The Parliamentary Under-Secretary of State for Business, Innovation and Skills

That is exactly the sort of information that I would expect the adjudicator to consider. If such a report or study gave the adjudicator cause for concern, it would be a reason for it to investigate.

The adjudicator will publish guidance on the code and make recommendations to retailers on improving adherence to it. It will also have to publish an annual report summarising its activities; that will include monitoring and commenting on compliance with the code.

My hon. Friend the Member for South Staffordshire raised the question of anonymity for complainants, as did others. I make it absolutely clear that the adjudicator will be able to deal with complaints confidentially. That is an important provision; suppliers can be confident that retailers will not be able to retaliate by discriminating against them, as their identities will be protected. The adjudicator will have a duty to protect suppliers’ identities, and will need to consider whether any of its actions could jeopardise matters before proceeding.

Another issue raised during the debate was whether the groceries code adjudicator would have teeth. I believe that the code will help the adjudicator to impose the necessary sanctions on retailers guilty of breaching it.

The initial sanctions include the naming and shaming of individual retailers, and I believe that the ensuing negative publicity will be an effective deterrent. In a highly competitive market, retailers will not want to risk customers going elsewhere in protest at their shoddy behaviour towards suppliers. However, I make it clear that the draft Bill will include a reserve power for the Government to introduce financial penalties if experience shows that recommendations and negative publicity do not work.

Photo of Andrew George Andrew George Liberal Democrat, St Ives

What my hon. Friend says is extremely helpful. As for naming and shaming or the application of financial penalties, it is important that we do not have to come back to the House again, and I hope that there will be sufficient flexibility in the legislation. Further, I hope that the industry levy takes account not only of compliance with the code but of the size and turnover of the supermarkets caught within its ambit.

Photo of Edward Davey Edward Davey The Parliamentary Under-Secretary of State for Business, Innovation and Skills

On my hon. Friend’s last point, about the funding of the groceries code adjudicator, there are a number of options and he mentioned one. However, he is right to say that the taxpayer will not be funding it; it will be the industry. My hon. Friend the Member for Shipley asked about the cost. We estimate that the total cost will be about £1 million a year, which will come from the industry. Once the Bill is published, he will see that it will not be a quango. I know that he is interested in working for it, but given his commitment to the free market I suggest that he applies to the Competition Commission or a similar body.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

May I return to the timetable? Will the Minister explain why we needed a draft Bill if we are not going beyond the premises of the Competition Commission report of 2008? What is the blockage? I understand about Cabinet clearance, but surely his Department has all the evidence to introduce a draft Bill now?

Photo of Edward Davey Edward Davey The Parliamentary Under-Secretary of State for Business, Innovation and Skills

As I said, we are close to publishing a draft Bill. The hon. Gentleman asks whether it was necessary to publish it in draft form. In the battle for legislative space it was a good tactic to produce a draft Bill, because that ensured that it was in the Queen’s Speech. We are ready if a slot appears; if parliamentary time opens up towards the end of the Session, we have a Bill ready to go. Rather than dragging our feet, I hope that the Department and I have been boxing rather intelligently, thus putting ourselves in a position to do what Members wish. I hope that the House is reassured that I and the Department wish to take this important matter forward.