Baroness Wilcox
Main Page: Baroness Wilcox (Conservative - Life peer)Groceries Code Adjudicator Bill [HL]
Baroness Wilcox Excerpts
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
My Lords, the Bill received its First Reading on 10 May, the day after the Queen’s Speech. This reflects the high degree of importance that the Government place on this measure and our desire to establish the adjudicator as soon as possible.
The purpose of the Bill is to establish a groceries code adjudicator to enforce the groceries code and ensure that large supermarket retailers treat their suppliers fairly and lawfully. As a competition measure, this is not a devolved matter and will affect the entire United Kingdom. However, the Bill has been discussed with the devolved Administrations, who support the adjudicator’s establishment.
Before I turn to the detail of the Bill itself, I wish to explain why we must now take action. In its 2008 report on the supply of groceries, the Competition Commission found that in certain circumstances the buying power of large supermarkets was potentially a cause for concern. The commission found that at times retailers transferred excessive risks or unexpected costs to their suppliers. This in turn was likely to lessen suppliers’ incentives to invest and innovate, which could act to the long-term detriment of consumers.
As a result, the Competition Commission made an order that required large supermarket retailers—those with a turnover of more than £1 billion pounds a year—to incorporate the Groceries Supply Code of Practice into their contracts with suppliers. The code requires large retailers to treat their suppliers fairly and lawfully, and places limits on a number of practices, such as the retroactive alteration of contracts. It applies equally to British and overseas suppliers.
However, the Competition Commission recognised that, by itself, such a code would not achieve the desired change. Very few suppliers would be willing to take a retailer to arbitration or to court, due to the buying power of the retailers and the fact that the supplier will be dependent on them for future business. In consequence, the Competition Commission recommended that an independent groceries code adjudicator be established to enforce the code and ensure that it was effective.
I know that noble Lords on both sides of this House are eager to see the adjudicator introduced. As a former supplier to supermarkets myself, I am very aware of the concerns that the code and the adjudicator will address. However, I also know that in most cases large supermarkets act well, that they contribute to jobs and prosperity and that the groceries market overall is a highly competitive one, which has been very effective in delivering low prices and wide choice to consumers. The adjudicator’s powers must therefore be both adequate and proportionate, ensuring that he or she can uphold the groceries code while avoiding excessive burdens on retailers.
The adjudicator will investigate large retailers and hold them to account if they have broken the groceries code. There will be no restrictions on who can complain to the adjudicator, and all complaints will be kept in strict confidence. This means that the adjudicator can receive information from any source, potentially including direct and indirect suppliers, including farmers, whistleblowers within the large retailers and trade associations representing their members. If retailers do break the code, the adjudicator will have tough sanctions, including so-called “name and shame”, instructing retailers to publish information about a breach. We think that these sanctions are powerful enough to uphold the code. However, if this proves not to be the case, the Bill allows the Secretary of State to grant the adjudicator a power to impose financial penalties.
Aside from this investigatory role, the adjudicator will have a number of other functions. These are: to publish guidance on when and how investigations will proceed and how enforcement powers will be used; to advise large retailers and suppliers on the groceries code; to recommend changes to the groceries code to the Office of Fair Trading; to arbitrate individual disputes between large retailers and their direct suppliers, or appoint another person to do so; and to report annually on his or her work.
I emphasise that the adjudicator’s direct responsibility is restricted to enforcing the code, which concerns the relationship between retailers and their direct suppliers. By preventing retailers from passing on excessive risk and unexpected costs, the adjudicator will increase the stability of the supply chain as a whole, unlocking investment and innovation.
I recognise that in some sectors, some suppliers have concerns around the activities of intermediaries in the supply chain. However, any extension of the code or of the adjudicator’s role in this way would need to be based on proper evidence and due consultation. Extending the code down the supply chain would be likely to lead to over-regulation, restricting practices which are not problematic and placing an undue burden on business.
I will now discuss further two areas that I know are of particular interest to those who support the Bill: how the adjudicator will carry out investigations and what powers he or she will have to hold to account retailers who have broken the code. There will be no restrictions on who can complain to the adjudicator. In order to begin an investigation, the adjudicator must have reasonable grounds to suspect that the retailer has either broken the code or failed to follow a previous recommendation by the adjudicator. Investigations are central to the adjudicator’s role in enforcing the groceries code. That is why we have thought long and hard about what sources of information the adjudicator should be able to consider and have listened carefully to the views of the BIS Select Committee on this.
When the draft Bill was published last year, it provided that the adjudicator not only had to have reasonable grounds to suspect a breach of the code to begin an investigation, but that this had to be part-based on information either from suppliers or in the public domain. At pre-legislative scrutiny, this proved to be one of the most contentious points, with many who gave evidence arguing that the restriction on sources of information should be removed. A few also said that the adjudicator should be able to begin investigations “proactively”—in other words, whenever he or she wanted, based on no evidence at all.
The BIS committee in the Commons advocated a middle way: that the sources of evidence should be extended but that proactive investigations should not be allowed. After careful consideration, the Government have decided not to restrict the information that the adjudicator can consider. We agree that it is possible that sources other than suppliers, such as trade associations or whistleblowers, may have information that would be of value to the adjudicator, and we have therefore decided that the adjudicator should be able to consider any information that he or she has available. The requirement for “reasonable grounds to suspect” a breach or failure will continue to provide a necessary check to prevent investigations being launched without cause.
We have some concerns that, if trade associations do not act responsibly, the adjudicator could be burdened with dealing with larger numbers of less direct and lower-quality complaints. The Government have therefore provided in the Bill that at each triennial review the Secretary of State must assess whether the involvement of third parties is helping or hindering the adjudicator. If the latter applies, he will be able to restrict the sources of information which the adjudicator can consider in deciding whether to commence an investigation. This will ensure that trade associations have a clear incentive to act responsibly, while still allowing them to play a full role.
The Government welcome the way in which pre-legislative scrutiny of the Bill has made the provisions on investigations stronger and better. The version now before your Lordships’ House strikes the right balance between preventing proactive investigations or fishing trips that could be burdensome to retailers and providing the adjudicator with the necessary freedom to begin investigations in response to genuine complaints, from whatever source.
The other major area worthy of discussion is what remedies the adjudicator will have to hold retailers to account. It is clearly critical that if the adjudicator finds that a large retailer has broken the groceries code, he or she has adequate enforcement powers that can be used against the large retailer in question. The Bill provides that the adjudicator will be able to take one or more of three possible enforcement measures: to make recommendations; to require the large retailer to publish information—so-called “name and shame”; or to impose financial penalties. I ask noble Lords to note that financial penalties may be used only if the Secretary of State makes an order allowing this, and an order would grant this power generally, not case by case.
The range of enforcement measures available will allow the adjudicator to tailor his or her action to the nature of the breach in order to enforce the groceries code most effectively. It will also allow the adjudicator to take more than one measure if appropriate. In some cases, it may be most appropriate, for example, both to make a recommendation and to require information to be published to inform the wider industry.
Some noble Lords may ask why imposing financial penalties is a reserve power only. The reason is that the Government believe that in a highly competitive market retailers will not risk reputational damage from unacceptable behaviour towards suppliers and that therefore the powers to make recommendations and to require information to be published will be sufficient to have a significant effect on behaviour. However, if they prove not to be sufficient, the Bill contains a reserve power for the adjudicator to impose financial penalties, subject to an order made by the Secretary of State for Business. This order would need to be made under the affirmative resolution procedure, ensuring a suitable degree of scrutiny by Parliament.
That last point raises a final very important issue: how will the adjudicator be accountable? I would like to assure the House that the Bill provides for a strong level of accountability. Every year the adjudicator will be required to publish an annual report setting out any arbitrations and investigations that he or she has carried out, any use of enforcement powers and, if recommendations have been made to large retailers, whether those have been followed. The adjudicator must also publish a report after each investigation. Two years after appointment and then every three years, the Secretary of State will be required to carry out a thorough review of the adjudicator. He or she will be required to consult interested parties, publish a report of the findings and lay that report before Parliament.
Finally, the Secretary of State may abolish the adjudicator if he or she considers that the adjudicator has not been sufficiently effective in enforcing the groceries code or that there is no longer a need for the adjudicator. The Secretary of State may also transfer the adjudicator’s powers to another public body. All these powers are subject to the appropriate degree of oversight by Parliament. The adjudicator’s work to uphold the code will support investment and innovation in the supply chain by stopping supermarkets passing on excessive risk and costs to suppliers. It is a proportionate, targeted and pro-growth measure that will act in the long-term interests of the consumer. I therefore commend it to the House. I beg to move.
Baroness Wilcox
My Lords, today’s debate has cast a great deal of light on the important issues addressed in the Bill. I thank all noble Lords for their contributions. I recognise the strength of feeling and depth of experience that we have heard in the debate. I have been asked far more questions than I thought I would on a Bill on which we all seem to agree, with two or three exceptions. I will do my best to answer as many questions as I can.
The noble Lord, Lord Myners, seemed to ask me 100 questions. I am grateful to him for telling me that I can reply to him in writing as long as I copy the response to everyone else. As I said in my opening remarks, the Bill has undergone substantial consultation and pre-legislative scrutiny. Wherever possible, the Government have attempted to find approaches that ensure that the adjudicator’s powers will be adequate while also keeping them proportionate. We intend to keep the costs to business minimal while ensuring that the adjudicator is fully equipped to fulfil his or her role. However, I will, of course, reflect on the comments of the noble Baroness, Lady Randerson, the noble Lord, Lord Teverson, and others, who have expressed their concerns about both those statements. We think that we have allowed tough powers to name and shame from the outset. We have kept back the last resort of financial penalties as a reserve power. I note that many, including the noble Lord, Lord Knight, have questioned this. I have no doubt that we will debate these questions further in Committee.
The noble Lord, Lord Knight, commented on the impact assessment of the draft Bill. That remains valid; hence there is no requirement for an updated impact assessment. The noble Baroness, Lady Byford, did not approve of the Bill’s “folksy” drafting and noted that the style of writing was unusual. I reassure the House that this is not a mistake. The Bill is one of the pilot plain English Bills that are intended to be easier for everyone to understand. That is what it is intended to be. However, I am happy to write to the noble Baroness on her question about the changes in clause headings and on the consultation.
My noble friends Lord Howard of Rising and Lord Eccles, and the noble Lord, Lord Myners, said that the supermarkets are currently bound by the Groceries Supply Code of Practice and questioned whether an adjudicator was needed as well. The Competition Commission has found clear evidence that the excessive use of buyer power could lead to adverse effects on consumers. The code has the commission’s recommendation, when it first introduced the code, that an adjudicator be set up to uphold it. At pre-legislative scrutiny, the BIS Select Committees in the Commons also concluded that a groceries code adjudicator was necessary. The code allows only individual cases to be resolved and only if a supplier is prepared to raise the issue with the large retailer involved. The adjudicator will be able to investigate suspected breaches involving many suppliers, not just adjudicate individual cases.
The noble Lord, Lord Myners, wishes to intervene. He did make a promise, and I have a lot of questions to answer.
Lord Myners
Is it the Minister’s belief that the supermarket sector is securing monopoly profits? If so, on what basis do the Government derive that conclusion?
Lord Myners
My Lords, I did not say that the Minister said that, but the assertion that there is excessive use of buyer power over a diffuse supplier community would be evidence of monopoly profits. Do the Government believe that our grocers are evidencing monopolistic behaviour through excessive returns on equity or sales?
Baroness Wilcox
We are basing this on the Competition Commission’s evidence.
A concern was raised about the creation of a new regulatory body and I mention in particular the noble Lords, Lord Haskel and Lord Plumb. The Government are committed to reducing the overall burden of regulation on business. We are not creating a new bureaucracy but appointing an individual to be the adjudicator. I hope I can reassure the right reverend Prelate the Bishop of St Edmundsbury and Ipswich and my noble friend Lady Byford that the small, agile staff will be effective. We will, however, be watching all the way through—this also relates to the point made by the noble Baroness, Lady Randerson—to see that the office has the capacity to work with such large supermarket chains.
The noble Lord, Lord Haskel, thought that arbitration was more vital than the adjudicator’s investigations. I can reassure him that the adjudicator will be able to arbitrate disputes concerning individual suppliers as well as investigate complaints.
In response to the concern of the noble Lord, Lord Borrie, it is correct that the adjudicator probably would not arbitrate himself or herself where he or she had previously carried out an investigation into a similar issue, due to the risk of a conflict of interest. However, in that case the adjudicator would simply appoint a different arbitrator, and the Bill provides for this in Clause 2.
My noble friend Lord Eccles suggested that the Competition Commission was lukewarm in its support for the adjudicator. The commission said clearly in paragraph 11.375 that all but one member of the investigation panel considered the adjudicator to be essential for the monitoring and enforcement of the code, but all six members of the Competition Commission group who investigated groceries agreed that,
“the transfer of excessive risks or unexpected costs by grocery retailers to their suppliers is likely to lessen suppliers’ incentive to invest in new capacity, products and production processes … if unchecked, these practices would ultimately have a detrimental effect on consumers”.
Viscount Eccles
I nearly accept the Minister’s description of what I said, but this Competition Commission finding was made in 2008. It is now 2012. I asked, and will ask again, whether there is any evidence that the adverse effect which they predicted in 2008 is in fact coming about.
Baroness Wilcox
I do not have the answer before me, but I will most certainly write to my noble friend.
The noble Lord, Lord Palmer, suggested that the adjudicator should more accurately be called an ombudsman. Such a description is not to be used in this case because it would be contrary to the guidance of the ombudsmen’s society, because ombudsmen deal with business-to-consumer disputes.
The noble Lord, Lord Knight, asked whether there should be a further investigation into the practices of intermediaries. A decision to refer a market to the Competition Commission for investigation is a matter for the Office of Fair Trading, and any concerns would be raised with it. However, the question of keeping the code a living document is a matter that I should like to continue to explore in Committee, if the noble Lord is happy with that.
We heard complaints, including from the noble Lord, Lord Knight, that the Bill has been delayed. I know that it has been keenly anticipated and I recognise noble Lords’ eagerness for it to have been introduced. However, we have not delayed in this. The 2008 report did not lead to an immediate Bill, but I would not criticise the previous Government for that because they were attempting to get the retailers themselves to create the adjudicator. That is why there seems to have been a delay—it was not in our time. Since the election, we prioritised this measure for pre-legislative scrutiny during the first Session, and introduced it on the first day possible of this new Session. I hope that noble Lords will work with us on the Bill and that we will see an adjudicator in place next year.
The noble Lord, Lord Grantchester, and my noble friend Lord Razzall suggested that the way in which the levy to fund the adjudicator is divided between retailers should be reconsidered by annual review. The Secretary of State will be able to assess, as the evidence unfolds, how the levy should be divided to ensure that those who create most trouble pay more.
Concern was raised by my noble friends Lord Razzall and Lady Byford about the few instances where confidentiality might not be completely guaranteed. We believe that confidentiality will be vital to the adjudicator’s investigations. The circumstances in which the identity of a complainant might be revealed without their consent are strictly limited by Clause 18. We believe that this would happen in exceptional circumstances. That will perhaps become more apparent when we go through the Bill in Committee. The Government will be engaging with suppliers to ensure that they understand the rules on confidentiality. We are confident about their ability to complain.
The noble Lord, Lord Grantchester, expressed concern over the Secretary of State’s power to restrict the sources that can complain to the adjudicator. We believe that it is important that trade associations are incentivised to act responsibly for the sake of both suppliers and retailers. I will be happy to discuss this further in Committee.
Noble Lords, including my noble friend Lord Plumb and the noble Lords, Lord Palmer and Lord Grantchester, demonstrated a close interest in the question of sanctions. I agree that getting right the sanctions available to the adjudicator is critical. I know that we will continue to explore this issue.
The noble Lord, Lord Grantchester, the noble Earl, Lord Sandwich, my noble friends Lord Razzall and Lady Randerson, and the right reverend Prelate the Bishop of St Edmundsbury and Ipswich suggested that the process of consultation on fines could be streamlined. Our intention is for the fining power to be introduced promptly, if necessary, but also to ensure that its introduction is based on proper consideration of the evidence. I shall be very happy to discuss with noble Lords how the details of the Bill can ensure that such a power is delivered.
I seem to be answering a lot of questions from the noble Lord, Lord Grantchester, and my noble friend Lord Razzall. Perhaps it is because they asked them early on. I have a lot of answers here. I shall try not to respond to them too much again because I am not responding to some other noble Lords.
An important question was asked about what consumers think of the adjudicator, I think by my noble friend Lord Eccles. A poll by War on Want last year found that 84% of consumers support the establishment of the adjudicator. The general public have a keen sense of fair play and do not like to see farmers and suppliers being exploited in any way by anyone. At the same time, they, too, wish to see fairness in our dealings. Consumers are, of course, the ultimate beneficiaries from a stronger and more competitive groceries market.
Many thoughtful and incisive points were raised today, and I hope that I have been able to address some of them. Obviously, I will write to noble Lords on any of the questions that I have not been able to answer. I am sure that we will continue to explore these and other issues in Committee and on Report.
I have in my time supplied supermarkets with chilled food, before any code or the prospect of an adjudicator. In those days, the 1980s and 1990s, there was no written contract for chilled food, and I had no written contract to go to the banks to raise money. It was not easy to get them to say that they would buy something for you at that time, so I would have loved to have had a code and an adjudicator. Yet it was very exciting to supply to a large supermarket group. We were only a small to medium-sized company. At that time the supermarket groups were very worried about having very few suppliers, and they did the best they could to make sure they had a large range of suppliers and to help us to overcome the barriers to supplying so much.
However, I also remember the dreaded special offers. When they arrived, it was extremely difficult for us to fulfil them without having to work through the night and putting on extra shifts. Any profits that we made in those two weeks went out of the door with all the staff we had to engage. That was the price of having contracts, not even written ones, with very large supermarket groups. If I had to give any advice to a company starting to deal with them, I would say that the excitement of a contract should be resisted until you fully recognise the terms and conditions and the implications of what they mean to you, because they are very big contracts that you are taking on and they happen regularly every week.
This Bill appeared in three major parties’ manifestos. I hope that those of all parties and noble Lords on the Cross Benches will wish to ensure that the adjudicator protects suppliers, including farmers, from any unfair dealing, and does so without needless disruption to commercial arrangements. I look forward to my noble friends Lord Howard and Lord Eccles and the noble Lord, Lord Myners, taking part in Committee so that together we can ensure that this Bill delivers on our aims and achieves the best possible outcome for the grocery supply chain as a whole. Fair market practice from the supplier through the retailer to the consumer is exactly what we want from the biggest industry in this country.
Bill read a second time and committed to a Committee of the Whole House.