Groceries Code Adjudicator Bill [HL]

Debate between Lord Browne of Ladyton and Lord Teverson

Thursday 28th June 2012 Grand Committee

[Lord Browne of Ladyton]

My Lords, my understanding of both these amendments is that they are intended to have the same effect. One may be more elegant than the other, but I think that they probably have the same effect, and I support both.

I do not intend to rehearse the arguments that the noble Baroness who moved the amendment made comprehensively. However, there are some other points that are worth making, and points that we have debated already this afternoon which are worth drawing on.

First, the noble Viscount, Lord Eccles, as we began our deliberations this afternoon, encapsulated the problem at the heart of the Bill in relation to penalties. He set out quite fairly the fine as a penalty and enforcement mechanism, and the choices that face the Committee and Parliament in relation to the Bill. Either we have a piece of legislation that includes financial penalties or we do not—or, because of the road that the Government have gone down, we have a piece of legislation that kind of includes financial penalties.

However, the decision on whether these financial penalties will ever become operative lies outwith the control of those who are being asked to legislate—other than that they will, by the interaction of Clause 9, Schedule 3 and, I think, Clause 23, get an opportunity, via a statutory instrument, to have a short debate which will probably be conducted with very few people in the room, in a comparatively short time and with no power to amend. If the Secretary of State comes to the view that the history of the adjudicator’s experience thus far reveals that the operative penalties—the recommendations and the naming and shaming—have proved to be insufficient, these financial penalties can be activated.

That means that, in terms of this Bill, we cannot have any debate on what level of penalty is appropriate, what sort of circumstances would trigger a penalty as opposed to one of the other enforcement mechanisms or whether we would like rules to be made so that violations of the code can be differentiated by their nature and attract different types of penalties. I do not think that that is constitutionally appropriate. Given the nature of the sort of penalty that we must expect, it is not appropriate for Parliament to be denied the opportunity to have such a debate if the penalty is to be meaningful. I say that because this code can be enforced only against the top 10 retailers in the country. These are enormous businesses. If financial penalties are to have any effect on them, they will have to be significant.

However, there is a much more concerning issue about this construction. I am sure that the noble Baroness—or those advising her—may say, or even be able to find, an example of where something similar was done in the past in order to support doing it again—although the example will probably turn out not to have been extraordinarily successful. I am sure that in responding the Minister will say that Parliament has supervision of this to the extent that it allows this mechanism and that it is entirely proportionate—and I am sure that the word “proportionate” will be used regularly in the response. Of course, the mechanism does not give Parliament any role if it disagrees with the Secretary of State’s persisting view that financial penalties are not appropriate.

The Secretary of State holds all the cards now. The Secretary of State is constrained by this to allow financial penalties only if he concludes that the other powers are inadequate. If the Secretary of State does not conclude that, how are they accountable to Parliament? How on earth can Parliament make the Secretary of State accountable in terms of these mechanisms for not triggering this power, other than the inadequate process of Questions or maybe a Question for Short Debate? There is no mechanism whereby Parliament can say, “This is not what we intended. There are egregious breaches of this going on and the Secretary of State is not willing to trigger this power”, and that is inappropriate. There is not even a continuing method for amending this legislation or a clause that can be resurrected in some fashion. There is just no method for making the Secretary of State accountable for a continuing failure to recognise what is going on and to leave a piece of legislation ineffective because a part of it has not been enacted.

[Lord Teverson]

My Lords, when first I was looking forward to reading the Bill, there were two areas that I felt were of key importance. One was that we managed to expand the number of people who could bring a case to the adjudicator for the adjudicator to judge from then on, and that was well satisfied by the Government and the Minister in our discussions on the previous Committee day. The other area is this one: is this an adjudicator that counts or one that is there merely for form? Yes, there may be a question of reputation, but not all retailers are that concerned about reputation in every sense. This is a powerful tool and we know that the restricted population of these retailers is going to be sensitive to it but, to show that Parliament and the Government are serious in this legislation, there has to be a direct ability on the part of the adjudicator to be able to make fines. It is a measure of whether this is a serious creation of an appointment. It is for that reason that the amendment put forward by my noble friends is important and goes to the heart of making the Bill something that the industry on both sides will pay attention to. On that basis, I hope that the Minister’s response will be positive.

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[Lord Teverson]

I congratulate the Government on this clause. It is balanced, it puts the costs where they should be and acts as a break on frivolous claims and complaints. I do not understand the argument about it putting up prices, because if that is the case it is because we have an oligopolistic market. The way that markets work is that the price is set not by the cost of fines but by competition in the market and the crossing of supply and demand. If we have competition in that market—that is a big “if” and I will come back to it in a minute—the individual firm takes a hit on the fine, but it cannot put up the price because there is competition in that market. That sector argues very strongly that there is strong competition in that market, so it does not affect price. That is fundamental capitalist economics. If there is a problem, it is because there is insufficient competition in the grocery market. Frankly, if that is the case, the remedy is not here, but is clearly somewhere else altogether—in the Competition Commission or whatever follows it following any legislation this year.

As I said at Second Reading, I am a great advocate of multiple retailers. They have brought a great deal of benefit to this country, although there may be downsides as well. It is clear that if people cause the costs of an investigation, it should take responsibility for them. That is absolutely the right way to do it, and the clause reflects that. If you believe that fines will put up costs, you have to go to something other than fines. What do you go to? I do not think you go back to taxpayers. That is impossible. You would have to go back to an FSA-type system where you have approved people and you disqualify them from being in the grocery trade, but there is no way that that would work. Otherwise, I suppose you put them in jail under the criminal code, and that is clearly utterly inappropriate. I congratulate the Government on the clause. It is absolutely balanced and correct.

[Lord Browne of Ladyton]

I am pleased to follow the noble Lord, Lord Teverson. I think his answer to the noble Viscount, Lord Eccles, was exactly correct about the interaction of financial penalties and the truth of the noble Viscount’s arguments about the efficiency of competition. We cannot make a decision about these issues based on an entirely arbitrary judgment about what aspects of the finances of this business are relevant to this decision and ignoring the others. The noble Viscount is right about that, but he has to apply that logic to himself. He cannot say that it is all about margins and not about the scale and nature of these businesses and the amount of profit that they earn, because they are relevant to this.

That having been said, this is a very odd clause given other parts of this legislation because, however you dress this up, this is a financial penalty. I asked the noble Baroness a simple question: what scale of financial penalty are the Government prepared to countenance in relation to this legislation? The answer that I got was, “Without the experience of the adjudicator working, we have no idea”. The adjudicator has been given a blank cheque without any experience.

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[Lord Browne of Ladyton]

I do not know if I am grateful to the noble Viscount for asking me that question. If I were standing where the noble Baroness is, then I would feel I had to answer it. The only answer I can give the noble Viscount is that I will think about it. However, I suggest that for the purposes of the Committee, the fact that it is not easy to answer makes the point that he wishes to make.

There are all sorts of complexities about this legislation, many of which are necessary. I believe that anonymity at the heart of this process is necessary to build confidence in it and ensure that people come forward in this unequal bargaining position. The noble Viscount himself said that the consequences of people being exposed may be significant for them as suppliers to the retail industry. However, all of these complexities are going to keep the adjudicator awake at night in any event. This complex structure that we are creating—and we are all now willing participants in this if we do not speak out against it—is taking a reasonably good idea, which could be delivered simply, and complicating it beyond all belief. It is so complicated now, and I have taken such an interest in this over the last couple of weeks, that I might go back into practising in the legal profession, because I can see opportunities here that were not there when I practised before, and niche practices are places to make decent money now in the legal profession.

I do not support the argument that the noble Viscount puts forward, because I think costs should fall. The nature and scale of what we are dealing with here is such that if people cause this draconian step to have to be taken, then they deserve all they get in my view. They should then have to go out and compete in the market in order to make that money up in some other way.

There is another point about this clause that disturbs me, which is the part that the noble Lord, Lord Teverson, likes and is designed to avoid vexatious complaints. This is entirely the wrong way to go about this. We should be saying that the adjudicator should stop vexatious complaints and not pursue them. I cannot believe that we will be satisfied if we appoint somebody to be the adjudicator who has to resort, after an investigation, to imposing the costs of the investigation on to a vexatious complainer. I want an adjudicator who says, “I have looked at this, it is vexatious and I am not doing it”.

[Lord Teverson]

I am not going to present the Minister’s case, but it seems that the whole way that the early part of the legislation is written, which we dealt with in the previous sitting, was that the adjudicator is under no obligation to pursue anything that he or she feels is vexatious. That is inherent in the Bill, hence you then move on to this. I take the noble Lord’s point.

[Lord Browne of Ladyton]

I am grateful to the noble Lord and I think he has got my point. It seems to me that we ought to front-load the assessment of vexatiousness and not leave this bit at the end, as if somehow it balances everything and makes it appear much better than it is. We should give the adjudicator the power to say to people who bring complaints that are vexatious or without merit—and that will be revealed very quickly—“I am not taking these any further and that’s it”. People have to have confidence in this. The decisions that we want the adjudicator to make in relation to this issue will be decisions of moment and will have to be serious and important points. We do not want an adjudicator running around doing lots of small investigations. We want one or two key investigations that go to the heart of the inequities in this market, which people want the Government and Parliament to address. The previous Government started to do that. I am uncomfortable with this particular clause for a number of reasons but am grateful to it because it exposes the false logic of a lot of the rest of the provisions of this Bill.

Groceries Code Adjudicator Bill [HL]

Debate between Lord Browne of Ladyton and Lord Teverson

Tuesday 26th June 2012 Grand Committee

[Lord Browne of Ladyton]

My Lords, the purpose of this amendment is to give the adjudicator a basis for investigating an alleged breach of the groceries code. Perhaps I may say at the outset that, if it is of concern to the noble Baroness or the Government, I do not intend to undermine in any sense the requirement for reasonable grounds of suspecting a breach of the code before an investigation can take place. Clause 4 enables the adjudicator to investigate in those circumstances, and I think that that is the appropriate test. However, we will have a debate about whether it is the appropriate test in response to other amendments before the Committee.

There is a perception that proaction on the part of the adjudicator and reasonable grounds are inconsistent with each other. I do not believe they are, and this amendment makes that clear. There is no provision in the Bill that allows the adjudicator to form the reasonable grounds for an investigation, so providing a route for complaints to the investigator is the best way to achieve reasonable grounds. This amendment provides in a simple way for the adjudicator to take his own initiative, on receiving a third party complaint, to begin an investigation. That is straightforward, and if we are legislating in plain language to indicate what we intend, we should spell that out. I beg to move.

[Lord Teverson]

My Lords, I should like to speak to my own amendment in this group, Amendment 26. Something that particularly interested me in the speech made by my noble friend the Minister at Second Reading was that, following the considerable work carried out on this Bill in its preparation stages, the provision allowing bodies to make a complaint was widened. In her opening statement, the Minister set out a list of bodies that could bring complaints before the adjudicator. The major change was that instead of only suppliers themselves being able to complain, the Bill specifically opens up the ability to do so to trade associations and third parties. I want to use the amendment moved by the noble Lord, Lord Browne, to ask whether that is absolutely the case.

I note that Clause 4(1) states:

“The Adjudicator may investigate whether a large retailer has broken the Groceries Code if the Adjudicator has reasonable grounds to suspect that”.

While I do not have the depth of knowledge of the noble Lord, Lord Browne, on these issues, which he has demonstrated so well, I want to be clear that what it means is that whoever reports a reasonable suspicion that there has been an abuse, the adjudicator can get involved. In fact, I was slightly concerned by his Amendment 23 as it seems restrictive, although I am not sure that that was his intention. It refers to,

“either at the Adjudicator’s own initiative or following a complaint by a third party with an interest”.

To me that almost excludes a farmer or a supplier, which I would say is the second party. It seems confusing, but perhaps I do not understand it completely.

I am also aware that Amendment 27, which is in this group although the noble Lord, Lord Howard, has not spoken to it yet, seems to be even more restrictive. The Minister’s assertion that we should be as broad as possible in terms of the adjudicator is very important, not only in his being able to take evidence—which is my own amendment—but also in his being able to have a wide range of people reporting problems to him. That is fundamental to the proper working of this Bill.

As regards my Amendment 26, it is important to emphasise that the adjudicator can consider any information that it seems appropriate to consider. I am not certain but that may well be covered by default by the Bill. I would like to test that and to ask the Minister to respond on whether that will exist within the wording of the Bill.