Viscount Eccles
Main Page: Viscount Eccles (Conservative - Excepted Hereditary)Groceries Code Adjudicator Bill [HL]
Viscount Eccles Excerpts
Viscount Eccles
My Lords, I have no current interests to declare, but for 49 years I was a supplier of goods to businesses larger than my own—in particular, for a long time, to Marks & Spencer. I was also, for a time, on the Monopolies and Mergers Commission, the predecessor of the Competition Commission, and the noble Lord, Lord Borrie, used to receive reports that I had signed. Fortunately he never sent any of them back.
I have doubts about the Bill, quite complicated doubts, and I hope that the House will indulge me as I go through them. Before I start on the doubts, I would like to talk about anonymity. When someone is accused of something, under our system—whether it is codes of practice or law—we would assume that they had a right of reply. I simply do not understand how a serious complaint, which might lead to some enforcement, can be handled without the retailer knowing who made it. I would also say, just as a practical matter, if there had been a complaint about something, for example a line of clothing, that Courtaulds had supplied to Marks & Spencer and Courtaulds had wanted to remain anonymous, we would never have been able to do so. There is far too much knowledge within the buying organisations about whose product is being talked about. If we try to pursue anonymity, there will be endless bickering. I thought that we lived in an open and transparent society.
I am not at all clear that the Bill is in the public interest or what the public reaction will be. The public are largely disengaged from the Westminster village and its lobbyists, and this is a Westminster village and lobbyists’ Bill. I think many people who shop in supermarkets would conclude that the theory of how you deal with difficulties in competitive markets precludes the exercise of common sense. I have been struck by the way in which several noble Lords have dismissed £200,000 as a sum of no importance. Well, I do not know how your Lordships have lived, but to me £200,000 remains quite an important sum of money.
It has been a habit of many people to hate supermarket power. That has gone on for a long time and indeed 30 years ago, when I was a member of the group in the MMC, we did a very long report on differential discounts to retailers and we studied supermarket power. Exactly as the 2008 Competition Commission report concluded, we found that they were not abusing their market power per se. That has been the conclusion of all the inquiries into supermarkets: they do not make monopoly profits. They do not charge prices that are higher than they should be, which is the classic way of making monopoly profits.
Now we have to look at what happened in 2008 in some detail. My noble friend on the Front Bench referred to the finding that is the base of the pyramid of what we are talking about. It is worth quoting again what the commission said:
“we found that the transfer of”,
economic risk,
“and unexpected costs by grocery retailers to their suppliers through various supply chain practices if unchecked will have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers.”.
That was not a conventional Competition Commission adverse finding. It was quite a complicated one, being conditional and about the future—there will be an adverse effect but it has not happened yet. The commission concluded that there was no declining trend in innovation and, at the same time, no shrinking of suppliers’ margins. Could my noble friend on the Front Bench provide us with any precedent for a finding of this type about an adverse effect on competition that would enable us to think about what happened previously?
It is worth noting that one member of the commission dissented from the remedy that came up. The commission of 2008 was not unanimous but it decided to beef up the code of practice. I see no objection to that; it seems an entirely sensible thing to do. The commission drew up a rather humdrum list of things that should be remembered when—as I think has not been said this afternoon, although my noble friend Lord Howard came close to it—the terms and conditions of purchase and sale were being freely agreed between the supermarkets and their suppliers, and would become legally enforceable. Of course, a code of practice is not legally enforceable.
I will refer to just two of the humdrum things. One is shrinkage. A supply agreement must not include provisions under which a supplier makes payments to a retailer as compensation for shrinkage. However, the question of shrinkage would turn on when, for example, the property passed. If the shrinkage happened while the goods were still in the possession of the supplier, that would be one thing. If the goods are in the possession of the retailer, that would be another. All that the code of practice does is, quite properly, to remind the supermarkets and their suppliers that they must have a proper clause about shrinkage in their legally enforceable contracts. It is exactly the same with payments for wastage. You might have some yogurt on the shelf that, for some reason, goes off two days before the sell-by date. That cannot be unambiguously set out in a legal document, because it would probably depend on who left it out on the pavement when the temperature was 26 degrees, on what day, and so forth. As the noble Lord, Lord Haskel, said, these matters can become very complicated when you are dealing with detailed disagreements under terms and conditions of purchase and sale.
From February 2010, the beefed-up code of practice has been the subject of self-regulation. I am sorry that there is such a unanimous opinion that we should give up on self-regulation. I have read the compliance reports of several of the big supermarkets—the first ones that they wrote, as they were required to, in their annual report and accounts. Marks & Spencer recorded that it has had two; one it has settled and one it has not. Sainsbury’s reported that it had a small number; they were all settled and none of them had to go to the compliance officer. Morrisons reported much the same and Lidl very much the same. Close attention should be paid to how this self-regulation has so far worked. What is the evidence that tells us that it is not working and that the adverse effects predicted by the Competition Commission about innovation and investment are actually taking place? I do not think that they are. I have asked a lot of the representative bodies to give any evidence that innovation and investment are being damaged, as predicted. I have had none back at all.
We seem to depend on this climate of fear. Because suppliers might lose a contract if they put their heads above the parapet, they are prevented from providing evidence. Several people have been quite complimentary about Waitrose. Do your Lordships really believe that a supplier would not be brave enough to raise a complaint about the code of practice with Waitrose? It is supposed that if we appoint an adjudicator and let anybody talk to it—that seems fine, as we have freedom of speech—in some way this climate of fear will disappear and we shall get to know all sorts of things that we do not know now. I seriously doubt it. This is a highly competitive industry. There are 10 big retailers. If you have a row with one, there are nine others. Innovation and investment interests are held in common. The supermarkets have progressed in what they offer because of what their suppliers have done to enable them to offer it. There is no shortage of investment or innovation that I can detect.
As the noble Lord, Lord Borrie, said, the Office of Fair Trading is already there, monitoring such things as the code of practice. What is the purpose of setting up another cost centre? I do not think the public will understand why we need another one. Do we want to exacerbate the disengagement of the public from the political system? If we believe that common sense, shared interests and fair dealing under the law are not enough, I do not know what the public will conclude. I have not heard a case made for the Bill today. If there is one thing that it needs, it is a sunset clause.
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.