Groceries Code Adjudicator Bill [Lords]

Jo Swinson Excerpts

Tuesday 26th February 2013 Commons Chamber

[Mr Bone]

I shall be brief, because under the programme motion we have only half an hour left to discuss the whole of the remaining stages of the Bill. The programme motion has been proved to be hopeless, as we will not even get to the next group of amendments.

I refer the House to my entry in the register. I cannot quite relate to the supermarket industry, but I can relate to the travel industry, where the margins are similar and the competition levels are as great, and there are a number of big suppliers who put pressure on smaller suppliers. In my day, I was one of those smaller suppliers, but I did not come across the practices that have been described as happening in the supermarkets, where there have been nasty attempts to force the use of the hauliers demanded by the supermarkets. I did not come across such things, so I accept that this is a very different case.

The whole House supports the small producers, who are unfairly penalised by the actions of very large supermarkets. However, the House should not be united in giving support to companies that may be even greater than the supermarkets. I am attracted by and minded to support new clause 2, unless the Minister—and a very fine Minister she is, too—can persuade the House that there is some fundamental reason not to support it. It is possible that having listened to arguments from all parts of the House, she will say that the Government accept new clause 2.

That is the sort of thing that I would like to see more often in Parliament when reasoned cases are made which do not in any way affect what the Government want. In fact, new clause 2 enhances what the Government want. If big companies are excluded from being able to use the adjudicator, that will allow the adjudicator more time and allow the adjudicator to reach decisions more quickly on the small suppliers that matter. That is why I intervened on the former Minister, my right hon. Friend the Member for South East Cambridgeshire (Sir James Paice). I wanted to see whether there was a reason why we should not adopt new clause 2. I see no reason why we should not go ahead and accept it. I hope the Minister will do that, but if not, I am minded to support it in a Division.

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

I thank all the hon. Members who have contributed to the debate on this series of amendments and for tabling the amendments, through which we have discussed and probed various issues.

It might be helpful to recap briefly on why we are here, which relates to the reasons why I may have to disappoint hon. Members and not be able to accept their amendments—that is, the purpose of the groceries code adjudicator and how we have come to the Bill before us. That relates to the Competition Commission report, which found that although the market was functioning effectively in delivering low prices to consumers, some practices by large retailers could have an anti-competitive effect.

The Competition Commission found that, through buyer power, the large retailers were engaging in practices that transferred excessive risk and unexpected costs to their suppliers, and that this in turn could reduce the incentive of suppliers to invest and innovate, which would act against the long-term interests of consumers. It is worth noting that all six members of the Competition Commission group who undertook the market investigation into groceries agreed that the transfer of excessive risks or unexpected costs by grocery retailers to their suppliers is likely to lessen suppliers’ incentives to invest in new capacity, products and production processes. If unchecked, those practices would ultimately have a detrimental effect on consumers. Paragraph 11.375 of the commission’s report states clearly that all but one member of the investigation panel considered the adjudicator essential for the monitoring and enforcement of the code and that the code on its own would not be enough. That relates to the points my hon. Friend the Member for Shipley (Philip Davies) raised earlier.

The Competition Commission’s report is absolutely key. It created the groceries supply order and the code is derived from it, and that is what needs to be enforced by the adjudicator. That is why the Government will resist the amendments that would encourage the adjudicator to deviate from the report.

It is worth mentioning that creating the adjudicator was in all three major parties’ manifestos. It has been endorsed by the Business, Innovation and Skills Committee in pre-legislative scrutiny. It is appropriate at this moment to report to the House that, following our discussions on Second Reading and in Committee and other representations, pre-appointment scrutiny by the Select Committee will now happen. I am delighted that the Government have been able to accommodate that request, because such scrutiny from a Select Committee is welcome, leads to better legislation and strengthens Parliament.

[Philip Davies]

Is the Minister saying that she is incapable of making her own decision and exercising her own judgment and that she believes that her role is simply to rubber-stamp what the Competition Commission and a Select Committee say and leave all other critical faculties at home?

[Jo Swinson]

No, but I think that it is very important to listen to Parliament, as I have outlined. Indeed, I think that was the point that some of my hon. Friend’s colleagues made earlier.

A code without an adjudicator is, to borrow an analogy from my hon. Friend the Member for St Ives (Andrew George), like a sports match with a rule book but no referee. The hon. Member for Ogmore (Huw Irranca-Davies) described the climate of fear, which can mean that suppliers are unwilling to come forward, and that is why the independent adjudicator is necessary.

New clauses 1, 2, 4 and 5, which were tabled by a combination of the hon. Members for Shipley, for Christchurch (Mr Chope) and for Bury North (Mr Nuttall), would all restrict the operation of the adjudicator so that it would be less extensive than the coverage provided by the code, either by excluding suppliers above a certain turnover or excluding supplies from outside the EU. I do not think that in principle that is a sensible approach to take. As I have said, the groceries code was put in place by the Competition Commission, after a detailed and thorough investigation, to rectify certain features of the groceries market that were causing long-term detriment to consumers. The adjudicator’s prime purpose is to enforce the code, so it is sensible and coherent that they and the code should have the same coverage.

With regard to the suggestion in new clause 2 that suppliers with a large turnover should be excluded, it is important to point out that the Competition Commission and the Select Committee explicitly considered that and concluded that excluding certain suppliers would not be appropriate. The Committee stated in its report that such an approach “would be impractical” and that because GSCOP applies to suppliers of all sizes, so should its monitoring enforcement. The Committee stated that the adjudicator is the gateway to the dispute resolution procedure, so with no access to the adjudicator large suppliers would have only the courts for redress, not the arbitration process, which is also very helpful. If the evidence from large suppliers on whether retailers are complying cannot be taken into account, smaller suppliers—this point was made earlier by other hon. Members—might also lose out because the evidence might be crucial to the case. According to the Select Committee, large suppliers might be better able to bring widespread potential breaches to the adjudicator’s attention than small suppliers. For all those reasons, it is important that the scope of the adjudicator fits that of the code.

We had many discussions on whether we should restrict who can complain. In Committee and in the earlier pre-legislative scrutiny those discussions centred on whether trade associations should be allowed to complain. We have decided to allow evidence from any source whatever. Ruling out evidence from particular sources would weaken the adjudicator, which I suspect might be the intention of the amendment, given that it has been tabled by those who do not want the adjudicator to be in place at all.

[Mr Bone]

The Minister is quite wrong on that. I am not coming from that position; I came to that view after listening to the debate. Does she not fear that there is a danger that allowing large suppliers to go to the adjudicator will clog up the system so that it cannot look after small suppliers, which is what it is supposed to do?

[Jo Swinson]

I do not believe that is the case. The adjudicator will obviously be able to make their own assessments. The industry is confident that there will be very few complaints, and I wholeheartedly hope that will be the case, but if we find that there are many breaches of the code, and if the evidence comes from a variety of sources, the adjudicator will need to look at that and be empowered to make recommendations and requests, and they will need to be properly and adequately resourced in order to do so. Therefore, an arbitrary restriction on who can complain would actually make the adjudicator’s life harder and, indeed, could increase the risk of judicial review, so we will reject the new clause and encourage hon. Members to oppose it if it is pressed to a Division.

The hon. Member for Shipley seemed to suggest that the provision would cost consumers more money, but all the supermarkets that gave evidence on the matter said, when asked, that complying with the code had not caused them to raise prices, so his concerns are misplaced. This will not cost consumers. Indeed, surveys have shown that 84% of consumers support the adjudicator, and I am sure that hon. Members will be well aware from their mail bags that there is a great deal of public support for the adjudicator.

[Ian Murray]

The Minister is making a compelling case for the Bill, which we all support. I wonder whether she will reflect on the fact that some of the evidence we received in Committee and before showed that the groceries code and a well-functioning adjudicator will help innovation in the supply chain sector and therefore has the opportunity to lower prices for the consumer.

[Jo Swinson]

The hon. Gentleman makes an important point. The Competition Commission was very clear that innovation could be stifled by the potential anti-competitive practices in the sector, so it absolutely follows that encouraging innovation by ensuring that no anti-competitive practices are going on will allow consumers ultimately to get a better deal, and that is in their interests.

A few red herrings were put forward on the question of whether Esso and tobacco companies would be protected in some way by this. I refer hon. Members, as the right hon. Member for South East Cambridgeshire (Sir James Paice) did, to the Groceries (Supply Chain Practices) Market Investigation Order 2009, which is very clear. It states, on page 3:

“Groceries means food (other than that sold for consumption in the store), pet food, drinks (alcoholic and non-alcoholic, other than that sold for consumption in the store), cleaning products, toiletries and household goods, but excludes petrol, clothing, DIY products, financial services, pharmaceuticals, newspapers, magazines, greetings cards, CDs, DVDs, videos and audio tapes, toys, plants, flowers, perfumes, cosmetics, electrical appliances, kitchen hardware, gardening equipment, books, tobacco and tobacco products”.

That is what was found to be relevant through the Competition Commission’s investigation. I think that it is important to note for the record that some of those earlier red herrings were just that.

The hon. Member for Ogmore said that the adjudicator’s office would not involve huge costs. It is estimated that the costs of running it, including all running costs and staff salaries, will be £800,000 a year. As for how much of that is for the adjudicator themselves, they are currently acting as adjudicator-designate for one day a week on £23,000 a year, going up to three days a week on the same rate once we have Royal Assent and commencement, as we very much hope we will.

On new clauses 4 and 5, it is fundamentally right that large supermarkets should treat their suppliers fairly wherever those suppliers are located. The Competition Commission’s finding of decreased innovation and investment in the supply chain is likely to result from unfair treatment of suppliers and to cause detriment to consumers, regardless of whether those suppliers are outside the EU or the UK. Excluding overseas suppliers would therefore not be helpful to the fundamental purpose of the provision and would, indeed, undermine it. The code and the adjudicator complement each other and so they need to have the same scope. I resisted in Committee amendments that would have expanded the adjudicator’s role beyond merely enforcing the code, but I must now also resist amendments that would limit the adjudicator’s scope to being narrower than the code. I hope that my hon. Friends will withdraw their amendments, but if they choose not to do so I will advise colleagues to vote against them.

--- Later in debate ---

[John McDonnell]

Does that mean, then, that the Minister can now place it on the record that the Government expect the OFT to respond in a public, open, transparent and timely manner to any requests or recommendations by the adjudicator?

[Jo Swinson]

I absolutely give that assurance. If a body such as the OFT receives information, particularly from a respected public servant, we would expect it to respond appropriately as part of its general duty, but we do not want to be overly prescriptive in how we set that out in legislation. I hope that that reassurance is helpful to the hon. Gentleman and I urge him not to press his amendment.

Amendment 28 would require the adjudicator to set out in guidance which laws will apply to arbitration and where it will be conducted. The amendment is superfluous, because it would duplicate information that is already in the groceries supply order. We discussed arbitration in Committee, as did the other place when it debated the Bill. Article 11 of the order sets out the rules that will apply and the fact that

“the seat or legal place of arbitration will be London…or such other city within the United Kingdom as the Supplier nominates.”

Of course, the adjudicator may choose to publish guidance on arbitration, but we do not believe that it is necessary to make that a requirement under the Bill.

[Mr Bone]

Is my hon. Friend at all contrite about the fact that we will not reach the second and third group of amendments?

[Jo Swinson]

No, I am not. We have had an interesting debate, although I suspect it could have been more concise; nevertheless, we are where we are.

The hon. Member for Christchurch (Mr Chope) tabled amendment 27 on commencement. I am happy to make a commitment that the Government intend commencement to take place two months after the Bill receives Royal Assent. It is, however, usual procedure not to set that out in legislation, but to allow the Secretary of State discretion to commence an Act by order.

Finally, I cannot accept, in fact or in spirit, new clause 3, which was tabled by the hon. Member for Shipley. I agree that we do not want statutory offices to continue when they are not needed, and the Government have been working according to that principle. Indeed, in accordance with our general policy on sunsetting, the Bill’s sunset clause—clause 15—means that the Secretary of State must review the adjudicator every three years and may decide, if appropriate, to abolish the office. However, proposing an arbitrary end to the Act is not appropriate. If, in seven years’ time, the problems with large retailers that have led to the creation of the Bill and the adjudicator persist, we would not want the Act to be repealed automatically. I reassure Members that the Secretary of State will be rigorous in reviewing this matter. I believe that that is a much better way to ensure that statutory offices do not continue unnecessarily.

I hope that hon. Members are satisfied with my assurances and explanations, and that they will not press their amendments. If that is not the case, I urge hon. Members to reject the amendments before us.

[Philip Davies]

We have had a good debate. I am grateful to my hon. Friends who have supported my proposals. I am particularly grateful to my hon. Friend the Member for Wellingborough (Mr Bone) who, as he has made clear, came to listen to the debate before making his mind up. He has decided that if new clause 2 was not accepted, we would be in the ludicrous situation whereby retailers with a turnover of more than £1 billion will be subject to the code, but can be taken to the adjudicator by suppliers with a turnover of more than £1 billion who are perfectly big enough and capable of looking after their own interests and taking any disputes to court.

Unfortunately, while my hon. Friend the Member for Wellingborough came to the debate with an open mind, the Minister did not. She made it abundantly clear that she had already decided what the Government’s view was and that the Report stage of the Bill was a completely pointless exercise. Perhaps that is why we have had only three hours to discuss all of today’s proposals. She made it abundantly clear that she was not prepared to listen to the debate or to any arguments because the Competition Commission had told her what she should say and she was not prepared to deviate from that. That makes a farce of having Report stages of Bills. I will allow her to reflect on that.

We cannot allow it to stand that we will be setting up an adjudicator to which multinational companies with a turnover of more than £1 billion will be able to go to make complaints against retailers that also have a turnover of more than £1 billion. We should deliver the best deal for our constituents, not add to the bottom line of big multinational corporations. For that reason, I wish to withdraw new clause 1, but to press new clause 2 to a vote. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

New Clause 2

Supplier turnover

‘Suppliers are not allowed to refer cases to the Adjudicator and cannot have cases referred on their behalf if their turnover exceeds £1bn per annum.’.—(Philip Davies.)

Brought up, and read the First time.

Question put, That the clause be read a Second time.

--- Later in debate ---

[Huw Irranca-Davies]

I applaud the Minister of State, Department for Environment, Food and Rural Affairs, the hon. Member for Somerton and Frome (Mr Heath) and the Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson), for their handling of the Bill. They gave way in areas where there was compelling evidence and pressure to do so; they resisted in areas where they felt it appropriate to do so. That is what Ministers should do while we keep pushing hard on issues that we think they should listen to and argue strongly against. They have been sympathetic. They have not given way on everything, but the Bill is improved and I commend them for the way that they have stewarded it.

[Jo Swinson]

I thank the hon. Gentleman for giving way in his thanks to me to allow me to put on the record my thanks to the officials Iain, Heeran and Richard, who have served us so excellently, and to thank them also for their Christmas present to me of some plastic teeth to go with the cuddly dog and tiger for my office.

[Huw Irranca-Davies]

I am glad I gave way to give the Minister the opportunity to convey her thanks to the officials.

I thank our Front-Bench spokesman, my hon. Friend the Member for Edinburgh South (Ian Murray), whose role has been significantly underplayed. He has worked extremely hard both on the Front Bench and behind the scenes to get us to where we are today. I thank the Committee members, many of whom volunteered to serve on the Committee because of their specific interest in the Bill. That is highly commendable. Tribute has rightly been paid to the contribution down the years of the hon. Member for St Ives (Andrew George) and of my hon. Friend the Member for Ynys Môn (Albert Owen). It is a great day that they now see the Bill going on to the statute book.

The external organisations that lobbied so hard are too numerous to mention, but the British Retail Consortium, Action Aid, War on Want and all the farmers unions from every part of the United Kingdom all played a tremendous role, as did many others that I do not have time to name.

We wish the adjudicator well and hope they never have to name and shame, impose fines or carry out an investigation. We hope their very presence will instil a discipline within the supply chain, but if not, the remedy now exists.