Lord De Mauley
That the House do agree with the Commons in their Amendments 1 to 9.
The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley)
My Lords, I beg to move that your Lordships do agree with another place in their Amendments 1 to 9. I shall speak also to Commons Amendments 11, 14, 16 and government Amendment 14A to Commons Amendment 14.
Commons Amendments 1 to 9, 11, 14 and 16 all together resolve what has been the most hotly debated topic of this Bill: whether the adjudicator should have the power to fine written on to the face of the Bill. As the Government have said throughout, and as the BIS Select Committee has also acknowledged, this is an issue that is finely balanced. However, at Second Reading in another place there was an overwhelming consensus that fines were necessary. This echoed sentiments expressed in your Lordships’ House. Accordingly, the Government have listened to the clearly expressed voice of Parliament and have tabled amendments to give the adjudicator the power to fine from the outset.
I would like to make clear that I expect fines to be used as a last resort, only for the most egregious or repeated offences. However, the very fact that the adjudicator has the power to impose them will send a strong message to retailers that compliance with the code is not optional. I am confident that these changes will mean that the adjudicator is able to ensure fair play in the food supply chain and keep the industry growing.
This will also benefit the farming industry. While many farmers are unlikely to be direct suppliers to retailers, and thus formally out of scope of the groceries supply code of practice, they will still benefit from increased trust and transparency in the supply chain. It is important to note that the adjudicator’s functions will not be a panacea for all the difficulties of the farming industry. She cannot set prices or address pay and conditions, but improved relationships between direct suppliers and retailers will have beneficial effects along the entire supply chain.
There have been suggestions that the power to impose fines from the outset would make Britain a less attractive place to do business. I would respond by saying that, other than retailers, almost all business groups, including the Federation of Small Businesses, the Food and Drink Federation and the National Farmers’ Union, support this amendment. I would further say that for retailers who comply with the code, an existing legal obligation, there will be absolutely no additional burden, as fines could only ever be imposed for a breach of the code. Retailers will also have a full right of appeal on the merits against the imposition of a fine or its amount.
The Earl of Sandwich
Having played a very small part in the early stages of the Bill, I want to congratulate the Government on listening. I am not in agreement with the noble Viscount, Lord Eccles. He knows that. I have listened to many NGOs in the farming community and I think he underestimates the feeling out there. It is important that the adjudicator is able to hear from anyone now. It is important that they can initiate investigations based on their own assessment as to whether there has been a breach, and it is also important they have a full set of tools to be able to change retailers’ behaviour. Retailers can be fined and required to take out a newspaper advertisement saying they breached the code. The GCA can provide clarification on how to interpret the code and can recommend changes in its scope. That is roughly the gist of it. I concur with the noble Lord, Lord Knight, that the Commons amendments have been just what was wanted.
Lord De Mauley
My Lords, I am grateful to all noble Lords for their contributions, particularly the noble Earl, Lord Sandwich, and the noble Lord, Lord Knight, although I warn the noble Lord, Lord Knight, that he should manage his expectations for the future.
The issue of whether to give the adjudicator the power to impose fines from the outset has always been, as I have said, a finely balanced policy decision. The BIS Select Committee acknowledged this in its 2011 report. We continue to believe that the sanction of requiring a retailer to publish information—the so-called name and shame—will be a powerful one and will suffice in the great majority of breaches. However, the Government have listened carefully to the arguments made in your Lordships’ House, at Second Reading in another place and by third parties that the ability to fine from the outset would help to give the adjudicator more teeth.
Turning to the questions raised by noble Lords, my noble friend Lord Eccles effectively asked why we need an adjudicator at all. He may not have said it in those words but that was the gist of it. I accept that he feels very strongly about this and he has argued his point eloquently here, as he has at previous stages in the passage of the Bill. I hope he will accept that the weight of opinion in both Houses, as well as that of the Competition Commission and the BIS Select Committee, is strongly in favour of the establishment of an adjudicator.
We recognise that supermarkets are a vital part of our economy and that they do much good through increased employment, consumer choice and their own commitment to corporate social responsibility. We also recognise that the groceries sector is generally very competitive.
My noble friend talked a bit about the suggestion that there is a climate of fear. Currently, complaints must be made to the supermarket involved and, given the purported climate of fear to which he refers and which has been indentified among suppliers, this could indeed limit complaints. Very few suppliers would be willing to challenge a retailer on which they are likely to be highly financially dependent. An independent adjudicator to whom suppliers can complain confidentially is therefore essential to enforcing the code.
He asked about how it could help farmers. The adjudicator has a very tightly defined remit. She will enforce the Groceries Supply Code of Practice based strictly on the Competition Commission’s findings that retailers were transferring excessive risk to their direct suppliers. She will therefore not be able to set prices for produce. Similarly, issues arising between farmers and processors will be out of scope. She can only consider interactions between retailers and their direct suppliers. It is important to note that most farmers are not direct suppliers to retailers. Most farm produce tends to be sold to wholesalers, processors or other intermediaries. However, we are confident that by reducing the pressure on direct suppliers the adjudicator will allow them to make longer-term decisions and to increase innovation and investment, which will benefit the entire supply chain including farmers.
My noble friend was also naturally concerned about the prices paid by shoppers when they go to supermarkets, and he said that he would not wish to see the adjudicator’s work leading to increased costs for hard-pressed consumers. I reassure him that the retailers themselves, when giving evidence to the BIS Select Committee, said that the cost of compliance with the code had not led them to raise the prices paid by consumers. Ultimately, this is a pro-consumer measure. The Competition Commission’s 2008 report clearly identified that the supermarket practices that the adjudicator will confront could have a detrimental effect on consumers if left unchecked.
The noble Lord, Lord Myners, raised a question about the financial sector. It was an interesting point, if I may say so. I have a feeling that the financial ombudsman has an important role to play, and I am sure that the noble Lord will make his point again on a perhaps more relevant occasion.
The noble Lord, Lord Knight, essentially raised the issue of a living code. If the adjudicator considers that the code should be changed, then he or she is required by the Bill to make a recommendation to that effect to the Office of Fair Trading. It should be emphasised that this is a narrow duty on the part of the adjudicator. Under the existing provisions of the Enterprise Act, it would then be for the OFT to decide whether to advise the Competition Commission that a variation of the code was appropriate by reason of a change of circumstances. However, these provisions allow for the code to be adapted to changing circumstances in the groceries market to ensure that suppliers are treated fairly.
I hope that that addresses most of the issues raised and I recommend these amendments.
Lord De Mauley
That the House do agree with the Commons in their Amendment 10.
“(5) The review must also consider whether it would be desirable—
(a) for an order to be made under subsection (10A) (if no order under that subsection is in force), or
(b) for any order under that subsection to be revoked.”
Lord De Mauley
My Lords, I beg to move that your Lordships do agree with the Commons in their Amendments 10, 12 and 13. New subsection (10A) enables the Secretary to State to restrict the sources of information that the adjudicator can consider when deciding whether to carry out an investigation. This is a reserved power, and it can be exercised only after a triennial review has been completed.
This is a contingency measure and it was introduced in case the adjudicator becomes overwhelmed by a high volume of complaints of variable quality. She will have only a small office. This provision will enable her office to focus on enforcing the code effectively in the event that there is a flood of complaints. It also acts as a reminder to trade associations to use the adjudicator responsibly and to ensure that they ask the adjudicator to consider only issues that are likely to fall within the scope of the Groceries Supply Code of Practice. We do not think it is likely that trade associations will behave irresponsibly, but it provides an incentive for them to behave well and not to swamp her office.
As set out by my honourable friend the Minister for Employment Relations and Consumer Affairs, we think it is very unlikely that this power will ever be used, and we hope that it will never be necessary. The power could also be invoked only after a triennial review, as I said, and only if that review revealed that poor-quality or irrelevant complaints were affecting the adjudicator’s ability effectively to carry out her functions.
Concerns were none the less raised in the other place about the scope of this power. Government Amendments 10, 12 and 13 were therefore introduced to respond to those concerns by putting additional safeguards in place regarding when the power can be exercised.
Amendment 10 provides that the ability to restrict sources of information should be reversible. The amendment means that if circumstances change so that, for example, it is beneficial to the adjudicator to again allow wider input from trade associations and others, the Secretary of State can revisit his decision at each subsequent triennial review.
Amendment 12 provides that the power can be exercised only if it will make the adjudicator more effective. It cannot be used on a whim.
Amendment 13 makes the power subject to the affirmative rather than the negative procedure. This gives Parliament the opportunity to scrutinise and positively approve the exercise of the power.
I hope your Lordships will agree that these additional safeguards make it clear that sources of information will be restricted by the Secretary of State only if it is felt absolutely necessary to do so.
Lord De Mauley
That the House do agree with the Commons in their Amendments 11 to 13.
“( ) A review may consider whether it would be desirable to amend or replace the order for the time being in force under section 9(7).”
Lord De Mauley
That the House do agree with the Commons in their Amendment 14.
Lord De Mauley
Lord De Mauley
That the House do agree with the Commons in their Amendment 15.
Lord De Mauley
My Lords, Amendment 15 removes the privilege amendment passed in your Lordships’ House at Third Reading. I beg to move that the House do agree with the Commons in their Amendment 15.
Lord De Mauley
That the House do agree with the Commons in their Amendment 16.