Groceries Code Adjudicator Bill [HL]
Debate between Lord Knight of Weymouth and Viscount Eccles
Viscount Eccles
Does what the noble Lord said mean that he is not really moving an amendment at all?
Lord Knight of Weymouth
Yes, I am moving an amendment. But it is also a way to allow the Government to resolve an uncertainty around the role of the groceries code adjudicator, which is the subject of the Bill that we are hoping to pass today. I beg to move.
Groceries Code Adjudicator Bill [HL]
Debate between Lord Knight of Weymouth and Viscount Eccles(11 years, 10 months ago)
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Lord Knight of Weymouth
I apologise to the Committee. I should have set out what we are proposing as the streamlining. In essence, we are suggesting in Amendments 63 and 64 that the adjudicator could publish straight away the draft guidance about how they might use the financial penalties, so that we at least remove that stage in the process. I am looking forward to hearing what is said.
Viscount Eccles
Will the Minister make clear whether the consultation would necessarily include a 12-week period in which anyone who wanted to put in representations could do so? That is ordinary practice for the processing of a statutory instrument.
Viscount Eccles
My Lords, perhaps unsurprisingly, Clause 10 causes me quite a lot of concern. We are debating the anticompetitive effect of imposing unexpected costs on suppliers. Now, in this clause, we will impose unexpected costs on retailers, so Parliament is doing something that the Competition Commission considers to be anticompetitive. We are doing this because of a number of factors. As I understand it, it is not the intention that the adjudicator should mount an investigation when a supplier has lodged a complaint against a retailer. That matter will go its normal course under the code of practice. The complaints that trigger investigations come either anonymously or from a trade association. Of course, there are provisions in the Bill for people to agree that they can be named, but in general it might well be that they do not.
I have heard it said that one investigation that might take place and would be, as it were, between a dispute between a supplier and a retailer, and a full-scale Office of Fair Trading/Competition Commission inquiry, is an inquiry into pig meat. I am not quite sure where I heard that but it might have been at Second Reading or somewhere. I think that it was said at the time that if there were an investigation into some alleged breaches of the code of practice in relation to pig meat, then it might be sensible for the adjudicator to bring in other forms of meat—that might be lamb or beef. If that were to happen, the next question is how many suppliers and retailers he would bring into the investigation, and how far back up the supply chain he would go. My understanding is that the adjudicator is free to do whatever he or she considers is the best way to proceed. Eventually, a report will come out that, of course, respects anonymity. The adjudicator now sends out a series of bills, not necessarily just to an individual retailer, as the clause specifies, but possibly to three or even 10 of them, whatever the number may be. Those retailers are then responsible for meeting the costs.
There is a requirement to specify the grounds, how much is to be paid, and by when. The grounds must be quite tricky if anonymity in the supply chain is going to be preserved, so I do not think that they will be very detailed. Also, they might be quite historic in the sense that if a really thorough investigation is undertaken into pig meat and other types of meat, it could easily take around 18 months. There is an appeal process, which is absolutely as it should be, but it is quite difficult to appeal unless you are provided with information about how the costs were reached in the first place. I worry about this clause and I am looking for guidance.
I want to make one other point which is similar to something I said earlier. This kind of clause attempts to portray what is happening as if no one is suffering. The consumer is not paying, the taxpayer is not paying, but the supermarkets are paying—and of course they can afford to do so. It is a populist move. The trouble is that if the supermarkets pay and their net margins are, as is the case for the Co-op, 2.8%, they will pass the costs on by increasing their prices. They do not have much of an alternative because they need to make a return on capital in order to keep on refurbishing their stores and opening new ones, so they do not have many options. I would ask this: where is the right place for these costs to fall? My answer to that is that the less regressive place would be the taxpayer. I do not think that these costs should be passed on to the supermarkets—
Lord Knight of Weymouth
I promised myself that I would not intervene on the noble Viscount, but he has been speaking for about five minutes. Is he aware that Tesco, as the largest of the retailers in this country, will have made, in the time that he has been talking, a profit of around £22,500? Perhaps Tesco could afford to pay these costs out of some of its profits.
Viscount Eccles
It is certainly true that Tesco has a higher margin than the Co-op. Its net margin before tax is around 5%. It also just happens that its margin in the UK is slightly lower than its average margin because it achieves somewhat better margins abroad. The size of Tesco’s profits is, in my view, irrelevant. Tesco is running a business that needs to achieve a margin on which it pays taxes, and it needs to make a return on the capital employed, which of course is very large. The Tesco store around the corner from where I live has just been completely reconfigured, perhaps I may say, to the advantage of the consumer. There are now more goods in the store and there is not much room to move around. In fact, if you go there between 12 pm and 2 pm, you are mown down by members of the Civil Service buying sandwiches for lunch. Nevertheless, in its broadest sense, Tesco provides an extremely good service to the public. Quoting arbitrary sums of money does not recognise the reality of life. It is to take a mythological position to say that because people are making quite a lot of money, they can always afford to pay all the costs that are thrust upon them.
If Parliament wills that there should be an adjudicator, that he or she should sit in the Office of Fair Trading, conduct investigations, have a staff and cost money, then rather than having an endless argument about how it defends invoices it has sent for investigation costs, it would be much better if they were paid out of taxes—out of the combined OFT and adjudicator budget—and do not fall on the elderly ladies with their small shopping baskets whom I see in another supermarket, called Sainsbury’s, who cannot afford to pay more for what they are getting there. The taxpayer has broader shoulders than the consumer. I beg to move.
Groceries Code Adjudicator Bill [HL]
Debate between Lord Knight of Weymouth and Viscount Eccles(11 years, 10 months ago)
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Lord Knight of Weymouth
I am most grateful to the noble Viscount for giving way. Has he seen the briefing that has been provided by the National Farmers’ Union, particularly the second point in the section on myths and misconceptions? It states:
“Suppliers do already have the right to independent arbitration under the code. However, this requires suppliers to make the details of their grievance known to the retailer they believe has breached the code. The Competition Commission explicitly referred to the climate of fear in this sector preventing small suppliers from complaining about unfair treatment. The current system of arbitration clearly makes no provision for this serious problem”.
Viscount Eccles
My Lords, I am grateful for that intervention, and no doubt we shall come on to discuss the climate of fear. The concern of the National Farmers’ Union is a pretty difficult issue because very few farmers are direct suppliers to supermarkets and so they are not covered by the code. Indeed, the detriments identified by Professor Lyons, to which I shall come in a moment, include the extended chain of supply to the supermarkets. Perhaps I should say at this point that I owned some cows for a while, but maybe it is not an interest I need to declare on this occasion. It is a difficult issue and we shall come on to it. I do not accept that the problem of indirect suppliers and the question of arbitration so torpedoes the present regime that it is necessary to change it. It may be necessary to do so and I am here to be persuaded, but at the moment I would not change it.
Of course, with regard to farmers, I think that we are going to talk primarily about milk and cheese production. Some 53% of milk finds its way into fresh milk, 27% into cheese and the remaining 20% into manufactured products. While I think we will be talking about that, I do not believe it quite lies within the remit of where Professor Lyons was finding detriments, except on the point of indirect supply.
The first detriment that Professor Lyons worried about was that he thought that the third-party intervention—however that was structured, but at the time the description was “ombudsman”—would be counterproductive. I suppose that was based on “two’s company and three’s a crowd”, or some such version of it. He thought that independent arbitration with the addition of monitoring by the Office of Fair Trading was a better option than the intervention of a third party for the interests of the industry.
Secondly, Professor Lyons worried very much about anonymity. He did not believe that it could be maintained and he cited the German experience. I have no doubt that we will discuss anonymity in more depth as we go along. Thirdly, he thought that justifiable investigations had a very limited potential because he did not see the third party intervening in disputes or discussions between supermarkets and suppliers about a particular contract. Her Majesty’s Government do not think that that is the way that the adjudicator should work. Professor Lyons thought that finding justifiable investigations would be quite difficult because of the length of the supply chain and the lack of ability to look into actual disputes. I am sure that we will want to discuss that more.
Next, Professor Lyons thought that any third party—an ombudsman or now an adjudicator—could be seen to be in support of suppliers, and of them throughout the supply chain. He thought that that itself could become anti-competitive. He saw difficultly in dealing with complaints from suppliers about buyers and at the same time achieving benefits for the public, particularly long-term ones. The successful outcome of intervening in a contract between suppliers and supermarkets would presumably be that the suppliers got better terms. It was difficult to link that to a benefit to the public—that link was pretty weak.
Professor Lyons also saw any third party intervening in this market as being subject to external pressures and to the almost inevitable regulatory creep. Regulatory creep has been a feature of our lives in recent years, as noble Lords have seen in the amendments to secondary legislation which have tended to make legislation more complicated and severe, not lighter or less severe. Finally, Professor Lyons said that this would be a much more expensive system than leaving things as they are.
Quite a lot of these points have been discussed but I submit that they have not really been properly dealt with and therefore, as I am probing and as we go through, I am sure that these subjects will recur. It will be interesting to see where the argument leads us. I very much agree with Professor Lyons. Sometimes, minorities can turn out to be right. His minority report was very good and absolutely on the ball. I am still left with the question: why have we got this Bill? I beg to move.
Lord Knight of Weymouth
My Lords, I am sure that we are all extremely grateful to the noble Viscount, Lord Eccles, for giving us the opportunity to test at this early stage some of the principles behind establishing an adjudicator. He used the phrase, “As far as I can tell, it is working.”. The core of this debate is whether having just the rules of the game in place is enough or whether we need a referee alongside the rules at this stage.
My strong view is that we need a referee now in order to enforce the rules and to make sure that everyone who is a part of this market and supply chain understands that if they break the rules, there will be consequences. In preparing for Committee stage I have spoken to a number of suppliers to supermarkets and to people in the supermarket supply chain. The anecdotal evidence I have received is that there are still some considerable problems. If there is a belief that it is working, that may be correct technically in terms of the OFT’s analysis, as we have just heard from the noble Lord, Lord Curry, but the reality for people who are trying to operate within this market is that it is not.
As regards notice periods, in some aspects of this business there are no contracts. Thus, the supermarkets often give very short notice—for example, one week for the complete stopping of ordering goods. A minimum of three months’ notice should be given for changes. There are short-term changes to forecasts. The current system is that suppliers get the forecast from the retailer, which is not binding, and then receive the order generally on the day of dispatch. The supermarkets then charge a penalty for not supplying the volumes on the order—shorting—even if they are massively different from the forecast. For example, the sale of salads on a hot weekend can go up fourfold or the supermarket can choose to do a promotion and not tell the supplier. If the supplier fails to supply the larger volume, it could get a penalty charge.
On the flip side, if a supermarket decides to cut back its orders massively, the supplier can be left with big stocks to write off because, often, these goods are on the supermarket’s own label and cannot be sold elsewhere. Consequently, the supplier loses out. I see the noble Viscount, Lord Eccles, wants to intervene, which will be a pleasure.
Viscount Eccles
Perhaps I may ask the noble Lord a short question. What part does he think that the public plays in the salad sales on a hot weekend?
Lord Knight of Weymouth
I am grateful to the noble Viscount for his intervention. Clearly, the public are the consumers. I am certainly aware that not every supermarket is guilty of abusing its power. The competition between supermarkets generally has been very good for consumers but that does not mean that they should continue to be able to use that power to exploit their relationship with suppliers.
To give another example, I heard about a company which was developing an innovative low-sugar jam. It took the product to a very large supermarket because, having invested in developing this new product, it needed to get the volume of sales that could be achieved only by using one of the large supermarkets. The supermarket was very interested and said, “Leave it with us. We will give you a call.”. It gave the company a call and said, “Do come in. We want to talk to you about the low-sugar jam that you showed us.”. The supermarket called the company in just to put on the table its own product which it had developed in response to that company’s innovation. Therefore, that investment was a loss for that innovator. Similar stories of abuses of market power by some supermarkets—not all of them—are legion. I referred to the helpful briefing from the National Farmers’ Union. We have had similarly helpful briefings from the Country Land and Business Association and the Federation of Small Businesses. All were extremely supportive of the establishment of this adjudicator because they agree that we need a referee.
I know that we will go on to talk about some of these things throughout the proceedings of the Committee. In response to my intervention, the noble Viscount, Lord Eccles, said that not many farmers supply retailers directly. The NFU tells us that some do and, what is more, the Competition Commission has identified an adverse affect on competition whereby grocery retailers pass unexpected costs and excessive risks down the supply chain. Ultimately, those risks, in the form of extra costs, are passed on to producers, even when they do not deal directly with retailers.
Viscount Eccles
I am grateful to the noble Lord for his intervention, but I doubt whether a state-appointed sole corporation will generate more confidence.
There are all sorts of problems. I used to supply power steering pump casings to Delphi in Strasbourg on a schedule. One week it would be three container loads and the next week it would be one, then suddenly in the middle of the week it would be four, but the following week it would be none. That is the way that just-in-time supply works. There is no escape from it, and it does not matter whether it is the supply of lettuces or steering pump housings, where we were the only people who made them for Delphi.
Lord Knight of Weymouth
For how long did the noble Viscount’s steering pump parts last if he had to store them? What was their shelf life?
Viscount Eccles
We did not know how soon Delphi would change its designs because there was a range of power steering pumps. Let me assure the noble Lord that there was no question of storing them. Delphi wanted them to come in and be fitted straight on to the machines. For many years I was a supplier to Marks and Spencer. The schedules changed every two or three days. That is the way of the interaction between suppliers and the retail market, particularly for anything that has a short shelf life. The noble Lord is quite right, if it has a longer shelf life, one can be a little more relaxed.
I do not therefore see that the problems raised by the noble Lord will come at all easily within the purview of the adjudicator. We shall shortly consider the investigations clause, and I am not at all confident, even if they do come within the adjudicator’s purview, that any substantial progress will be made from the point of view of those who want the supplier’s life made easier and the returns made greater. I do not see it working.
My noble friend is quite right to say that the Competition Commission stated that if there was no satisfactory agreement with the supermarkets it would be necessary to introduce an ombudsman. We should note that we are actually proposing to introduce something quite different to an ombudsman, and we should not therefore pray in aid the Competition Commission without any qualification.
I should add that the decision was, I suppose, made in 2007—it takes quite a long time for these decisions to get into a final published report—which is almost five years ago and the circumstances are different. The high street is under tremendous pressure that is much greater than it was when the report was written. The shares on the London Stock Exchange of the four British-based supermarkets on the list are all languishing near the bottom of their 12-month range.
I therefore feel that anything we do to erode the highly successful competitive model of the supermarkets and their suppliers—including, I may say, Nestlé, Kellogg’s, and Unilever and its subsidiaries—is not going to serve the public well. However, at this stage, and I may come back to this matter—
Viscount Eccles
I will try to be brief. I start by coming back to Professor Lyons, whose views were set out in paragraph 11.347 of the Competition Commission’s report:
“However, he believed that the Ombudsman would be counterproductive and strongly preferred rapid, independent arbitration of disputes, combined with OFT compliance”.
On the question of independent arbitration, I hope that we will investigate what is happening. It is very normal in conditions of supply and sale for there to be arbitration clauses. I suspect that if we were dealing with a large supermarket and somebody like Nestlé, Kellogg’s or Unilever, there would be arbitration clauses in the supply and purchase agreements. Are we saying that the adjudicator will override those clauses in some way because of the provisions of the Bill? That is one of my main reasons for suggesting that the adjudicator should play no part. That is why Clause 2 should come out of the Bill—and with it, under my Amendment 16, subsection (1) of the following clause. The adjudicator will not be at all well served by having the duty to administer arbitration or, if not being the arbitrator him or herself, to appoint another. That will override a lot of the existing and quite normal arrangements that are set out independently in contracts.
My noble friend said in different terms that the adjudicator will be neutral and fair between suppliers and retailers. I say with some regret that that is not the expectation. The expectation of the adjudicator, and those lobbying for the appointment of one, is that he or she will be in support of suppliers. I do not think that we should blink at that in this Committee. There has been no argument by the retailers of the kind that there has been by the suppliers. I quite accept that that is something to do with the gearing of perceived market power between the two sides, but if the adjudicator does not serve the interests of the suppliers, there will be a lot of disappointment.
Lord Knight of Weymouth
I am grateful to the noble Lord. As we have already heard, Waitrose, as one of the big retailers, is fully supportive of the establishment of not only the code but the adjudicator as well.
Viscount Eccles
I am grateful to the noble Lord, Lord Knight. I have looked at that with some care and he is quite right that the things said by Waitrose during these procedures have been more positive than some of the things said by other supermarkets. If you read the compliance reports in the supermarkets’ annual reports and accounts—those that are available—you will find that they are all complying, and doing so in cheerful and positive way. That is why I want the OFT, under paragraph 7 of the code—it gets all the reports and it has all the information—to give its assessment and judgment of the extent to which the supermarkets are complying in a cheerful and positive manner with this code. My belief is that they are complying. I have sought to find out the views of the supermarkets and all their responses have been 100% positive; not one has put up any kind of negative response. Their trade association’s response has been, “We are going to make this thing work. We are making this thing work. We do not really think that an adjudicator will help, but we may have to have one”. That is perhaps the attitude I am taking—if we have to have an adjudicator, we will get on with it. I do not think the argument that Waitrose stands out as an exception runs.
Lord Knight of Weymouth
Given that the noble Viscount had said that there were no suppliers, I merely wanted to offer the information to the Committee that clearly there was one.
Viscount Eccles
I am only talking about expectations. It is up to Members of the Committee to make up their minds as to where the expectations that might arise as a result of this Bill being enacted lie. We all make up our own minds. In conclusion, I would much prefer it, and I think that it would be much in the public interest, if Clause 2 did not stand part of the Bill.
Education Bill
Debate between Lord Knight of Weymouth and Viscount Eccles(12 years, 10 months ago)
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Lord Knight of Weymouth
My Lords, I support my noble friend Lady Massey and others who have described this as a bit of a can of worms. With all respect to the Minister and his colleagues, I know how this comes about: you hear of difficult incidents in individual schools, you want to satisfy the perception in certain parts of the media that behaviour in schools is dreadful and you want to be seen to be doing something about it, so you move to legislation. As we have discussed, though, once we start to explore the issue we then see that there is a need for training, be it enforced through guidance or through legislation, and we soon arrive at the notion that there needs to be whole-school training. Once you get into training the whole school workforce, if they are going to use these powers, I imagine that many head teachers looking at their budgets would say, “Well, I probably won’t use these powers because I can’t afford the training of the whole school”, and then the legislation would become largely redundant. There are many other cans of worms that could wriggle out, which we could explore if we had time.
What will the powers do that the current powers do not? Paragraph 61 of the Explanatory Notes explains that the current powers under Section 550ZA of the Education Act 1996 allow other prohibited items to be searched for as specified in regulations. I would be interested to hear what Clause 2 does to extend the list of prohibited items from what would have been prohibited previously under regulations that the Government could have deployed using current powers.
I say in passing that it is easy in this debate to write off mobile phones as things that should be confiscated. However, mobile phones in classrooms can be used as very powerful computing devices. I would not want this debate to pass without standing up for the use of mobile phones as handheld computing devices that need to be managed. When I was at school, the pen was abused by many pupils who wrote nasty things about teachers and other pupils, yet nobody suggested that we ban the pen, because it was an important learning tool. Some electronic devices are also useful learning tools in the current century.
My final question to the Minister is: how will an appeals process work if the powers are used by a school? Will the process be governed by the school rules, with pupils and parents being able to go to the head teacher and then, as a final recourse, to the governing body? Many schools will be academies, so there will be no referral to a local authority if parents are dissatisfied with what the governors say. Will there be an appeal to the Secretary of State, or will the parents have to go to court, if they have the resources to do so? It would be helpful to understand how the appeals process will work.
Viscount Eccles
My Lords, I have listened very carefully and tried to think, if I was the head teacher of a school, how I would approach the problem and what I would say to my governors and to the political system. Clearly it is a deeply cultural issue which carries an enormous content of expectations. The idea of the noble Lord, Lord Sutherland, needs to be followed up.
I would try to turn this into a routine exercise—something that is as emotionally and culturally unloaded as it can be. We all go through a form of search whenever we go to an airport. I do not think that we like it. In fact, I remember one or two famous occasions when people did not behave very well when they were crossing borders or going through airports. I have knocked about a lot in the third world, where things can feel very undignified. I remember trying to get into Brazil from Paraguay. The queue was held up for a very long time while all sorts of unpleasant things were suggested by the people at the border. I think they were looking for money, which of course was a different circumstance.
Perhaps we should turn our minds away from bad expectations. Do we not talk too much about disadvantage and vulnerability? Are we really sure that many of the circumstances in which people bring the wrong thing to school are the result of disadvantage or vulnerability? It could be the result of many other things. I urge the Committee to urge the Minister to think hard about the best advice that could be given to head teachers and governors about how to cope with the particular circumstances in which they find their school, and how they could turn the question of controlling the arrival of unsuitable things in their school into a routine matter, so that the measure referred to by the noble Lord, Lord Sutherland, which is terribly important, can be confined to emergencies. I suppose that as a head teacher, one would hope to find no emergencies and no searches resulting from emergencies.