Groceries Code Adjudicator Bill [Lords]

Andrew George Excerpts

Monday 19th November 2012 Commons Chamber

[Jo Swinson]

I shall give way to my hon. Friend the Member for St Ives, who has worked on this issue for many years.

[Andrew George (St Ives) (LD)]

I very much welcome the measure, and I am content that it has the investigatory powers to address the issue raised a moment ago. Nevertheless, the code has been in place since 4 February 2010, so the question inevitably arises of whether the adjudicator has the power to take evidence on the period between 4 February 2010 and the establishment of that post.

[Jo Swinson]

The adjudicator will be in place and, as has been outlined, the code is already legally binding. The adjudicator can look at the evidence submitted, and will undertake more investigations. It is up to them to gather evidence on the basis of suggestions that things are not working as they should, and require supermarkets to comply with their legal responsibility.

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[Jo Swinson]

I understand the right hon. Gentleman’s point, which organisations such as Traidcraft have put forward forcefully. Of course, in my duties as Minister I have met Traidcraft and other organisations to discuss the matter, but I am not persuaded that it is necessary to have the fining powers from the start, and I will outline why. I think that the sanctions that are in place and that will be available immediately are robust and will be sufficient to achieve the change we require. The adjudicator will be able to take one or more of three possible measures, two of them from the beginning: first, to make recommendations; secondly, to require large retailers to publish information, the “name and shame” power; and thirdly, if we do not think that the other remedies are working sufficiently well, to impose financial penalties.

That range of measures will mean that the adjudicator can tailor his or her action to the nature of the breach in order to enforce the groceries code most effectively. For example, in the case of a minor or unintentional breach, the adjudicator might decide that a recommendation to change behaviour might be sufficient to bring the retailer back into compliance. In the event of a severe breach that had caused serious harm to suppliers, the retailer could also be required to publish details of its breach prominently in the trade or national press. If it is deemed necessary, they could then incur financial penalties, if the Secretary of State has granted that power to the adjudicator. It is also important to remember that the Bill allows the adjudicator to take more than one measure if that is appropriate in a particular case.

[Andrew George]

Although I appreciate that the adjudicator will have the power to recover their investigatory costs, fining is very much the issue for debate, as the Minister has already identified. If either the adjudicator or the Secretary of State recommends that a fine should be applied, how many months would it take to implement such powers?

[Jo Swinson]

I thank my hon. Friend for his question. If the Secretary of State decides that an order needs to be made to allow financial penalties, it is important to know that that would grant the power generally, not on a case-by-case basis, and, as a result of the amendment accepted in the other place, we believe that that could be done within six months. It would be fairly rapid if it was determined that things were not working.

I know as a result of interventions and, indeed, correspondence with the Department that some stakeholders and Members feel that financial penalties should be available immediately. What I would say is that the supermarkets operate in a fiercely competitive marketplace, so major supermarkets are, rightly, very careful about their reputations. As an illustration, in 2010 the four biggest supermarkets—Tesco, Asda, Sainsbury’s and Morrisons—spent £385 million on advertising, which is an indication of the importance that they attach to their brands and what they have to invest to promote them. They are fiercely protective of them and I think that they are likely to take very seriously the impact on their reputation of having to publish their breaches or take out an advert in the trade or national press.

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[Ian Murray (Edinburgh South) (Lab)]

I did not realise that we could bring toys to the Dispatch Box. If I had known, I might have brought my bear, Frosty, which I have had since I was a child, for everyone to see. Perhaps we can do that next time, or maybe a Scalextric for the Table would be exciting.

I pay tribute to those in the other place who have diligently gone through the Bill and sent it here. It is a significant measure, but it has been a long time coming. Labour Members can rightly claim some ownership of it. As Lord Grantchester said, the Bill

“has Labour’s fingerprints all over it.”—[Official Report, House of Lords, 22 May 2012; Vol. 737, c. 728.]

In government, we gained cross-party support for a supermarket ombudsman to ensure a fair deal for farmers and food producers from the major retailers, and to monitor and enforce the code of practice in the form of the groceries code. We were therefore pleased that the Bill was included in the coalition agreement in the heady days of May 2010.

However, the Government have dragged their feet on creating the adjudicator, and on the powers to help food suppliers. As the hon. Member for St Ives (Andrew George) said,

“we look as though we don’t understand the urgency of this matter. Every week the Government fails to act, farmers are finding themselves in more difficulty.”

[Andrew George]

Of course, I also used those words when Labour was in power because, as the hon. Gentleman knows, the Competition Commission reported in April 2008, and for two years there were excuses and consultations, and a variety of reasons were given for the Government’s inability to go ahead at the time, despite the excellent private Member’s Bill that the hon. Member for Ynys Môn (Albert Owen), who is in his place, introduced.

[Ian Murray]

I am delighted with that intervention because we introduced the code, on which the adjudicator will now adjudicate. We are two and half years into the coalition Government, and the right hon. Member for Arundel and South Downs (Nick Herbert) said when he was a shadow environment Minister at an Oxford farming conference just before the 2010 election that,

“Conservatives are clear: we will introduce an ombudsman to curb abuses of power which undermine our farmers and act against the long-term interests of consumers”.

However, we are on the cusp of 2013, and the Bill has just been introduced.

[Andrew George]

I do not want the debate to degenerate into a party political spat, but to put the record straight, the Competition Commission had the power to introduce the code, and it, not the Labour Government, introduced it.

[Ian Murray]

The code is there for everyone to see, and was introduced before the general election. The next paragraph in my speech pays tribute to the hon. Member for St Ives for all his work. If I had my pen handy, I might cross that out, but I would not be so churlish. I therefore pay tribute to the hon. Gentleman, who chairs the Grocery Market Action Group. He has harnessed the support of organisations such as the Rural Shops Alliance, the Association of Convenience Stores, the National Farmers Union, the Farmers Union of Wales, the National Farmers Union of Scotland, the British Independent Fruit Growers Association, the British Brands Group, Traidcraft, ActionAid UK, Banana Link and many others in pushing the agenda from the early days of the Competition Commission inquiry, which he mentioned, in 2006 through to the establishment of the new groceries supply code of practice. He deserves great credit for continuing the fight, and I hope that he will support the Opposition in wanting to create a robust adjudicator.

I also take the opportunity to put on record thanks to my hon. Friend the Member for Ynys Môn (Albert Owen), who is in his place and has long championed the establishment of an adjudicator. It is now more than two years since his private Member’s Bill—the Grocery Market Ombudsman Bill. In the debate on Second Reading of that measure, he made it clear that the concept of a grocery ombudsman or adjudicator was not about being pro or anti any particular interest group, but about fairness, and the Opposition echo that sentiment. Nevertheless we are here now and, in a sense of cross-party support, we wish the Bill a swift passage on to the statute book. It is important, however, to get the legislation right, and although the Opposition are generally pleased with the current Bill, we will seek to strengthen it so that the adjudicator has the powers it needs to be effective from day one.

As the House will be aware, competition authorities have held two major inquiries into the grocery market. The first, by the Office of Fair Trading in 2000, led to the creation of the code of practice to regulate the relationship between the largest supermarkets and their suppliers. In 2006, the Office of Fair Trading referred the market to the Competition Commission, which completed a second inquiry in 2008. At the time, the commission said that,

“the transfer of excessive 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.”

It recommended a strengthened and revised code of practice to be enforced by an independent ombudsman—an unambiguous case for an adjudicator. As a result, in February 2010 the Labour Government brought in the groceries supply code of practice—GSCOP—to replace the supermarket code of practice, with the intention of putting the adjudicator on a firm statutory basis.

I am sure Members across the House will appreciate the work of the Business, Innovation and Skills Committee, which is brilliantly chaired by my hon. Friend the Member for West Bromwich West (Mr Bailey) who I see is in his place. He did a diligent job on the Bill during pre-legislative scrutiny—I should perhaps declare an interest as I was on that Committee at the time and have probably just patted myself on the back a little.

In its report, the Committee raised two concerns about the way the adjudicator’s office would operate. First, it was anticipated that the office would be able to launch investigations based only on evidence supplied by retailer or suppliers. The Committee argued that third parties such as trade associations or whistleblowers should be able to submit complaints about retailers. I am pleased that the Government made changes in that respect prior to Second Reading in the other place. They are to be commended on that alteration which the Opposition consider key to ensuring that individuals have the confidence to come forward with complaints under the cover of an industry group to protect anonymity and secrecy.

Secondly, the draft Bill allowed the adjudicator to impose fines on retailers that had breached the code, but only if the Secretary of State made provision for that by order. The Committee rightly argued that the adjudicator should be allowed to impose fines from day one—I shall return shortly to that crucial point.

There is little doubt that this legislation is necessary, and it is important to emphasise that supermarkets and retailers support the adjudicator in principle. One such retailer wrote to me privately earlier this week and stated:

“The groceries code adjudicator will encourage fair and robust regulation of supplier-retailer relationships.”

That speaks volumes.

We will scrutinise the Bill to ensure that it delivers on three key tests—that it promotes innovation and investment in the supply chain; ensures a fair deal for farmers and producers; and delivers better outcomes for consumers in terms of prices, quality and service.

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[Andrew George (St Ives) (LD)]

It is a pleasure to follow the Chair of the Business, Innovation and Skills Committee, the hon. Member for West Bromwich West (Mr Bailey). It was interesting that in his introduction he declared an interest as a Labour and Co-operative party Member. It has been my privilege over many years to chair the Grocery Market Action Group, which has been mentioned in this debate. Reflecting on the discussion about naming and shaming, I should perhaps name and fame the stores that indicated that they would support the measures proposed in the Competition Commission’s report of April 2008 when we wrote to the stores that would be affected. Marks and Spencer, Waitrose and Aldi were the three stores that indicated that they would support the measures, with some reasonable conditions. In spite of my efforts to talk to the Co-op, I was surprised that it was not prepared to sign up at that stage. However, the regulation has been in place since February 2010, and there are opportunities now for all those stores to reflect on that.

Like others, I want to commend many people who have been the architects of this extremely welcome measure. The hon. Member for Ynys Môn (Albert Owen) has already been mentioned—indeed, I mentioned him in an intervention. His private Member’s Bill did a great deal to pave the way for the measure. Former Members, too, made significant contributions. In 1998, Colin Breed, the former Member for South East Cornwall, made a valiant effort to put the matter on the agenda. He undertook an inquiry, which stimulated a further inquiry by the Competition Commission, entitled, “Checking out the Supermarkets”. He stimulated much activity, which is reaping the appropriate reward today on the Floor of the House. The former Member for Stroud, David Drew, was also a significant contributor to the debate, as was the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski), who is not in his place, but was present earlier. I have had many conversations with the hon. Member for Tiverton and Honiton (Neil Parish), who has been a strong supporter of the proposal for a long time. I also commend the Minister for an excellent exposition of the purpose of the measure, and the Government’s strong support for what is now Government primary legislation, even though its origins were a private Member’s Bill under a previous Government.

I do not need to repeat much of the background to what we hope will be legislation in perhaps weeks—certainly not many months. It is worth reflecting on the fact that, when I was originally involved, and certainly when the former Member for South East Cornwall engaged in the work, there was no party political support for regulation, even among Liberal Democrats, who subsequently adopted the proposal in their 2005 manifesto. In those days, the proposal that there should be any regulation was advanced only against all the odds. Even the National Farmers Union proposed a buyer’s charter and set its face against regulation, even though I and others had proposed it. It has therefore taken many years and a glacial pace to achieve progress. To be in the position whereby the proposal had all-party support at the last general election was remarkable. The larger parties clambered on board at the last minute, only months before the election. However, we had almost created a “who blinks first” scenario as we went into the general election, and all parties came on board and supported the proposal.

Significant commendation should be given to Peter Freeman, chairman of the Competition Commission, and the whole commission, for an excellent inquiry, which commenced in 2006 and concluded in 2008. It considered all the evidence that many of us had been encouraging the competition authorities to scrutinise for many years. It reached the telling conclusion that, in some cases, as the Minister said, the supermarkets were guilty of transferring excessive risk and unexpected costs to suppliers, with the consequent detrimental knock-on effect on not only suppliers and their capacity to continue trading, but consumers and, indeed, innovation in the retail sector.

I do not approach the matter from the position that supermarkets are wicked. Their activities are entirely rational. Had all of us been in the same position, and we had not maximised all our market muscle to advance the interests of our company, and we had therefore lost market share in a cut-and-thrust market, we would have failed in our duties. However, the question is, “When does effective, clever and successful use of power become abuse?” The Competition Commission rightly identified that we have long passed the point at which that use of power has become abuse, as the many examples that have been given today show.

The previous Government rightly supported changes to the common agricultural policy, which forced farming to become much more market facing. Price support policies were done away with, the protections that farming was so used to in this country were no longer in place, and the industry needed to live or die by the marketplace. However, how could farmers and growers succeed or survive in that climate? I appreciate that many growers, pig farmers and others struggled to survive long before those changes. Nevertheless, leaving that aside, how could farmers survive when, as Prime Minister Tony Blair said, the supermarkets had got them in an arm lock? One could argue that they had got them in an even more painful position at times. The supermarkets were able to control market conditions, which was a conclusion of the previous Competition Commission report.

What are we trying to achieve? It has always been my view that if supermarkets have nothing to hide, they have nothing to fear from embracing the Bill. I have said to the supermarkets that, if they are clever, they should embrace the proposal and see it as something good. The hon. Member for Camborne and Redruth (George Eustice) suggested that there should be a panel to review the supermarkets’ success in applying the code. My view is that, if the supermarkets are prepared to embrace and invest in the proposal, there would be a fair trade regulator, which could give a mark to each supermarket to show whether it was a fair trader and grade it accordingly. Supermarkets could then perceive the code as a promotional tool rather than a stick with which to beat them.

Fining has predominated today’s discussions and will doubtless do so in Committee. After all these years, I do not want to risk any further delay in implementing the proposal. I would not like any amendment to the Bill to cause such delay. Will the fear of reputational damage be sufficient to persuade supermarkets to apply the code effectively and not to engage in the sort of practices that got us into the current position? Of course, I am on the side of those who want fining on the face of the Bill, but I believe that reputational damage has an impact. I remember the days when genetically modified technology was introduced and available to the supermarkets. Non-governmental organisations undertook a lot of campaigning, which dissuaded the supermarkets from putting GM products on their shelves. If there were adverse reports, the campaigning bodies—if they were doing their job—would draw the attention of customers and the public to the failure of those supermarkets.

[Mr Spencer]

On that point, there cannot be a more passionately felt issue than animal welfare. Does the hon. Gentleman acknowledge that the British pork industry had much higher standards of animal welfare than its counterparts in Europe, but that that made no difference to whether consumers bought British or foreign pork?

[Andrew George]

There is evidence and evidence to counter it on all sides, and that takes us to a point that the hon. Member for North Antrim (Ian Paisley) made earlier. Providing that customers who are buying British are reassured that it genuinely is British and not some kind of subterfuge, the point about animal welfare is relevant. Customers understand that significantly higher animal welfare standards have been in place in the UK for many years, particularly in the pig industry, and that is one of those reassuring messages. I agree, however, that it does not always work, particularly when the message becomes confused.

When I intervened on the Minister, I said that there was likely to be a lot of evidence of contraventions of the code from the time it was first put in place on 4 February 2010. My concern is that the position of adjudicator will be such that they will operate for only one day a week from the Department for Business, Innovation and Skills, and when they are fully operational, they will work three days a week with three or four members of staff. I also understand that the Gangmasters Licensing Authority already wants to present 1,000 pieces of evidence to the adjudicator, and I am concerned about whether sufficient resources will be in place to deal with all the work, cases and evidence that may be brought forward.

[Jo Swinson]

Let me clarify to the House that the adjudicator will look at breaches of the code from when it comes into force. It may investigate evidence of problems that have been ongoing, but if a breach stopped before the adjudicator was established, it would not be able to impose sanctions. Because the code is already legally binding, other legal routes are open to suppliers that fall into that category. The Government want to ensure that this measure is successful, and we have outlined what we think will be its initial budget. We will, of course, keep that under review and work closely with the groceries code adjudicator when it is established.

[Andrew George]

I am grateful to the Minister for that clarification, although I am also disappointed. A lot of people—certainly suppliers—want to ensure that we have an adjudicator that can look at breaches of the code that have taken place from the introduction of that code, not from the point at which the adjudicator is established. I hope that we can explore that a little further in Committee. We want to ensure that the adjudicator has the time and resources to investigate matters properly.

Clause 10 of the Bill concerns the power of the adjudicator to apportion investigation costs. I hope that will reassure supermarkets that the adjudicator can also apportion costs against those who make vexatious complaints or claims that are without merit. To a certain extent, that answers the point made earlier by the hon. Member for Camborne and Redruth—such powers already exist. I would be concerned about my hon. Friend the Minister’s proposal because the Bill is quite clear that such matters should be at the discretion of the adjudicator, and not at that of a self-appointed panel that might produce a survey report by which the adjudicator would then be bound.

Overall, the Bill is extremely welcome and not before time. I would not wish to get involved in a discussion with the hon. Member for Edinburgh South (Ian Murray), whom I thank for his kind words earlier. There is no point in looking to the past for an explanation of why it has taken so long for the Bill to proceed. We must now ensure that it is implemented effectively and properly as quickly as possible, so that suppliers get the protection that they richly deserve.

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[Mr Heath]

I will inevitably return to that point a little later, as it was raised by so many Members. Let me first, however, cover the other specific points mentioned in the debate.

The hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart) asked about companies outside the big 10. He is absolutely right that they are not specifically included in the Bill as levy payers, but let us recognise that the big 10 represents 95% of the grocery trade. If we are successful in the application of the adjudicator in improving standards of contract compliance, that will feed through to the rest of the sector by competition alone, if nothing else. The hon. Gentleman also mentioned length of contracts. That is not specific to the code of conduct, but the matter can be properly investigated in the context of an abusive relationship. Where such a relationship exists, that will be laid bare by the process.

The hon. Member for Bristol East made some good points about food waste. She knows that we have engaged with her on that issue and will continue to do so. I think I have a meeting with her in the near future to talk about that.

A number of Members spoke with a great deal of experience of the sector from having worked on the producer side. The hon. Members for Camborne and Redruth (George Eustice), for York Outer (Julian Sturdy) and for Sherwood (Mr Spencer), my hon. Friend the Member for Brecon and Radnorshire (Roger Williams), and the hon. Member for Tiverton and Honiton all have direct experience of working in agriculture and could tell us about the sort of downward pressures that they know suppliers regularly experience. The hon. Member for South Down (Ms Ritchie) spoke about trade associations. I hope I have been able to put her mind at rest about that.

My hon. Friend the Member for Ceredigion (Mr Williams) raised a number of important points. He spoke about access to the code and, as I said, I hope I have given him some reassurance on that. He talked about changes to the code. That is an important point. According to the process set out in the Bill, the adjudicator can put forward for consideration changes to the code, but that proposal goes back to the Competition Commission for consideration before being put before the House. It is important that we maintain that linkage because fundamental to the Bill is the abuse that the Competition Commission identified between major retailers and their suppliers. It would be a great mistake for the House to substitute our opinion for the evidence adduced by the Competition Commission.

My hon. Friend also mentioned retrospectivity. Let me underline the point again. If an abuse is continuing at the time that the adjudicator is appointed, it is proper that he or she should investigate that abuse, but we have a strong principle in British legislation that we do not apply retrospectivity to something that occurred before the date that a particular statute comes into effect. Therefore it would not be entirely proper for the adjudicator to look at complaints within the terms of the code that pre-dated that appointment if they no longer continue.

[Andrew George]

My hon. Friend says that the code would not apply retrospectively, relative to the date of the statute. Of course, the statute came in on 4 February 2010. The Bill merely provides for the referee to enforce the code. Retrospectivity in respect of the statute therefore does not apply.

[Mr Heath]

I understand the point that my hon. Friend makes. If he would care to engage with Government lawyers on that point of law, I am sure we would be happy to engage with him. We can return to the subject in Committee or on Report.

The hon. Member for Llanelli (Nia Griffith) queried clause 15(10), and the hon. Member for Hayes and Harlington (John McDonnell) also thought it was a bit odd. Let us debate that in Committee. What is proposed there is a safeguard which we hope will not be used. It is designed to deal with the circumstances in which the adjudicator was swamped with spurious complaints which hindered him or her from doing their work. The adjudicator would be required to pare those complaints down to the categories set out there. It would not stop them taking information from any source, but it would stop them taking complaints from any source. As I have said, I do not envisage that that will be necessary and hope that it will not be, so it is a reserve power, but I completely understand the point made by the hon. Member for Hayes and Harlington that it is in some ways an unusual provision. It is certainly something we can discuss properly in Committee.