Lord Myners
Main Page: Lord Myners (Crossbench - Life peer)Groceries Code Adjudicator Bill [HL]
Lord Myners Excerpts
Lord Myners
My Lords, I declare an interest as a former chairman of Marks & Spencer. Unlike many other Members of the House, I have not been lobbied on this Bill. That may well be because I never open my parliamentary e-mail box and therefore do not read the e-mails that other noble Lords have been receiving. Perhaps I am in error in doing that.
As my noble friend Lord Grantchester said, the Bill has the fingers of the previous Labour Government all over it, although the right reverend Prelate the Bishop of St Edmundsbury and Ipswich also claimed some credit for the General Synod. The Bill was promised in the manifestos of the three main parties, but I am not persuaded of the need for it. I am certainly unpersuaded that the Bill as presently constructed will deliver the outcomes that the Government promise. In short, I believe that the Government are strong on assertion and light on evidence. The Bill shows a profound distrust of markets to produce good outcomes, which is extraordinary coming from a Minister who is a Member of the Conservative Party. The Government’s hesitancy in putting this Bill forward is evident in the fact that it has taken two years for it to appear. Its most effective sanctions are in reserve powers that are initially not going to be actioned. The Bill is quite explicit in creating an ease of repeal that suggests a half-hearted adoption of its central intention by the Government.
I propose to make half a dozen or so points. I think the voters of this country might reasonably ask whether this is a priority. The challenges facing our economy now are those of inadequate demand, a lack of available credit, both in amount and in cost and terms, and a loose monetary policy and consequent financial repression that is clearly not working.
There is no overarching coherence to the Bill as presented to your Lordships’ House today by the Minister. Grocers have delivered on customer expectation. We have a choice of goods now of a quality that would simply have been beyond the belief of the parents of most Members of this House. I remember when salmon was a luxury in our home, and my father was a fisherman. It came in a John West tin. Salmon and exotic fruits from hot climates are now available at incredibly attractive prices to the consumers of this nation. There is no evidence that voters or consumers have any sense that they are not getting choice, quality and value for money from a highly competitive retail industry and a highly efficient market as well.
I have a number of questions for the Minister. Perhaps the noble Baroness will answer the questions now. If she does not, I hope that she will answer them by writing to all Members of the House who speak in this debate and that we will receive that answer before the Bill goes to Committee.
I start by asking why we are focusing on groceries. Why, for instance, are we not asking the questions that the Bill asks about banking? This would surely be what voters would like us to do. They would like us to ask questions and to introduce an adjudicator to an industry that by any definition is highly concentrated, operates with cartel-like pricing and is generally typified by poor service and an absence of differentiation and a dearth of innovation. Surely these are the prima facie symptoms of poor competition, on which voters would expect the Government to be taking action. However, as we know, this Government have been supine in the face of the banks, with the failed Project Merlin now being followed by a policy known as credit easing, which does not actually benefit the end borrower at all; it benefits the banks by reducing their cost of borrowing.
I ask your Lordships’ House whether, if there is a case for a grocery industry adjudicator, there is not an even stronger case for a banking industry adjudicator. Is there not an equally strong case for an adjudicator of the energy industry, where people of this country again feel themselves at the wrong end of abusive industry practices by a very concentrated industry that is expert at absence of transparency in pricing and product differentiation?
The Minister, in her opening address, said that the need for financial penalties was unlikely because grocers would recognise the reputational risk of being found at fault by the adjudicator. This is a woefully optimistic assessment of how business operates, and it is certainly not borne out by the way in which the banking industry has responded to regular and constant criticism by various regulators and consumer bodies of its own behaviour. Indeed, if the House is invited to focus on an area in which there is a potential abuse of the weak by the strong—the supermarket suppliers by the supermarkets—how does the Minister reconcile that with Mr Adrian Beecroft’s proposals to allow employers to dismiss at will? On one hand we are reducing the legislative and regulatory protection for the weaker party in a market-based transaction. On the other, we are seeking to introduce even greater regulation.
The Bill cites no evidence that a regulator or adjudicator of the sort proposed has been successful or necessary in other countries. Nor are any arguments cited to suggest that there is something about the grocery trade in the United Kingdom, such as excessive concentration, that means that we need an adjudicator where other geographies do not. In comparison with most markets, we have a relatively fragmented grocery market, with very intense competition among the top 10 or so firms in the business. As the noble Viscount, Lord Eccles, said, if a supplier is not happy with one of the 10 firms to be covered by the adjudicator, there are nine other potential customers to whom they can turn for business.
The Minister also asserts that supermarket behaviour at the moment reduces the incentives and abilities of suppliers to innovate in new product lines and production processes. Where is the evidence for that assertion? How has the Minister concluded that markets do not lead to appropriate innovation and investment? The impact assessment says that the proposal “could ultimately”—in brackets, I would add, “Civil Service: most unlikely”—
“lead to improvements in quality and choice for consumers, as well as lower prices in the long run”.
No evidence is cited to support that conclusion. However, the impact assessment says that the Government will monitor improvements in investment and innovation. Am I correct to say that we will see civil servants opining on whether a competitive market has led to improvements in investment in innovation? If so, will the Minister tell us how civil servants will form that view and what experience they will bring to that task?
Next, there are some very woolly words in the detail of the proposed Bill. Setting aside for the moment the fact that the term “grocery” is not defined, there are terms such as “deal fairly” and,
“pay suppliers within a reasonable time”.
Will the Minister tell us how a market process does not lead to fair outcomes? Can she explain why reasonable times are not part of the agreement reached between the supplier and the supermarket, which is entered into openly and willingly by both parties? Which civil servants will agree on fairness as a judgment on market outcomes, or on the reasonableness of terms of payment?
On reasonable behaviour, am I not correct in my recollection that Sir Philip Green recommended, in his report on government procurement, that the Government should do many of the things that the supermarkets are being accused of doing here by applying pressure to suppliers? Sir Philip Green’s report was for the Department for Business, Innovation and Skills, so no doubt the Minister will be fully informed and able to explain how Sir Philip Green’s recommendations lead to acceptable behaviour while the behaviour of the supermarkets is not acceptable.
I do not expect the Minister to speak on defence matters, but I note that last week the right honourable Philip Hammond, the Secretary of State for Defence, also suggested that the Government would seek retrospectively to amend agreements with suppliers. My point is that there is a complete absence of consistency in the Government’s thinking. Why do the Government not have confidence in the market to produce the right outcomes?
The Bill also evidences a very poor understanding of the supply chain, particularly the activities and presence of intermediaries within it. This will need a lot of attention in Committee. I agree with the noble Viscount, Lord Eccles, that anonymity is almost certainly one issue about which we deceive ourselves. As for major suppliers, the specificity of the terms of a contract is such that, when an issue is raised with the adjudicator, the identity of the supplier will almost certainly become evident in a very short period, so it is hogwash for the Government to suggest that anonymity in some way gives this Bill some superior attraction.
There are many other areas that the Committee is going to need to spend a lot of time examining. The Bill as proposed suggests an adjudicator who definitely will not be independent of government. It is quite clear and is in the explanatory document that the intention is that the adjudicator’s department should be staffed by people from the Department for Business, Innovation and Skills and should be collocated with the OFT. As the noble Lord, Lord Razzall, said in his contribution, the process as described is inordinately cumbersome.
I also fail to understand, and perhaps the Minister can explain, why the penalties imposed by the adjudicator, if penalties are to be activated, should be paid to the consolidated funds while the penalties paid to the Financial Services Authority are paid to the FSA. Can the Minister explain why the Government appear not to have consistency?
Finally, the Explanatory Note to Clause 15 says:
“The Secretary of State”,
may,
“restrict the information the Adjudicator may consider to four specific classes of information, which are those that might be expected to be most useful in determining whether or not a breach of the Groceries Code had occurred”.
To be clear, the Minister will be setting the criteria and will set the criteria to four. Again, no reason or explanation is given as to why it should be four and how those would be narrowed or broadened; nor is any understanding given of the basis of expectation or the criteria of utility. What one can clearly see here, tucked away towards the end of the Bill, is that this adjudicator will have very little independence at all.
When we get to Committee we are going to have to look very closely at this Bill, because I do not think it is going to achieve the purpose that has been set out. If we have done our work in Committee and conclude that the Bill will never deliver the purposes intended, it should be withdrawn, otherwise we have a recipe for further bureaucracy and red tape, which is the last thing the country needs at the moment.
Lord Razzall
The noble Lord quite properly disclosed his interest in Marks & Spencer at the beginning of his remarks. Bearing in mind his attack on the coalition Government’s policy on the banks, would it not have been appropriate to disclose that he was a senior Minister between 2008 and 2010, with responsibility for banks?
Lord Myners
My Lords, I think the House is aware of that. The noble Lord, Lord Razzall, has often impressed me with his skill on the Floor of this House —his debating approach and his wit. Today he has fallen well short of the House’s expectation.
Baroness Wilcox
My Lords, today’s debate has cast a great deal of light on the important issues addressed in the Bill. I thank all noble Lords for their contributions. I recognise the strength of feeling and depth of experience that we have heard in the debate. I have been asked far more questions than I thought I would on a Bill on which we all seem to agree, with two or three exceptions. I will do my best to answer as many questions as I can.
The noble Lord, Lord Myners, seemed to ask me 100 questions. I am grateful to him for telling me that I can reply to him in writing as long as I copy the response to everyone else. As I said in my opening remarks, the Bill has undergone substantial consultation and pre-legislative scrutiny. Wherever possible, the Government have attempted to find approaches that ensure that the adjudicator’s powers will be adequate while also keeping them proportionate. We intend to keep the costs to business minimal while ensuring that the adjudicator is fully equipped to fulfil his or her role. However, I will, of course, reflect on the comments of the noble Baroness, Lady Randerson, the noble Lord, Lord Teverson, and others, who have expressed their concerns about both those statements. We think that we have allowed tough powers to name and shame from the outset. We have kept back the last resort of financial penalties as a reserve power. I note that many, including the noble Lord, Lord Knight, have questioned this. I have no doubt that we will debate these questions further in Committee.
The noble Lord, Lord Knight, commented on the impact assessment of the draft Bill. That remains valid; hence there is no requirement for an updated impact assessment. The noble Baroness, Lady Byford, did not approve of the Bill’s “folksy” drafting and noted that the style of writing was unusual. I reassure the House that this is not a mistake. The Bill is one of the pilot plain English Bills that are intended to be easier for everyone to understand. That is what it is intended to be. However, I am happy to write to the noble Baroness on her question about the changes in clause headings and on the consultation.
My noble friends Lord Howard of Rising and Lord Eccles, and the noble Lord, Lord Myners, said that the supermarkets are currently bound by the Groceries Supply Code of Practice and questioned whether an adjudicator was needed as well. The Competition Commission has found clear evidence that the excessive use of buyer power could lead to adverse effects on consumers. The code has the commission’s recommendation, when it first introduced the code, that an adjudicator be set up to uphold it. At pre-legislative scrutiny, the BIS Select Committees in the Commons also concluded that a groceries code adjudicator was necessary. The code allows only individual cases to be resolved and only if a supplier is prepared to raise the issue with the large retailer involved. The adjudicator will be able to investigate suspected breaches involving many suppliers, not just adjudicate individual cases.
The noble Lord, Lord Myners, wishes to intervene. He did make a promise, and I have a lot of questions to answer.
Lord Myners
Is it the Minister’s belief that the supermarket sector is securing monopoly profits? If so, on what basis do the Government derive that conclusion?
Baroness Wilcox
I am sure I did not say that they were securing monopoly profits.
Lord Myners
My Lords, I did not say that the Minister said that, but the assertion that there is excessive use of buyer power over a diffuse supplier community would be evidence of monopoly profits. Do the Government believe that our grocers are evidencing monopolistic behaviour through excessive returns on equity or sales?
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”.