Viscount Eccles
Main Page: Viscount Eccles (Conservative - Excepted Hereditary)Groceries Code Adjudicator Bill [HL]
Viscount Eccles Excerpts
Viscount Eccles
Viscount Eccles
My Lords, Amendment 37 would knock out Clause 9, or elements of Clause 9, so I will confine myself to speaking to Clause 9, which provides for enforcement using financial penalties. The clause is very important. It is probably the most important debating issue during the progress of the Bill. There is a wide range of views within the Committee about the clause, from my suggestion that it should be taken out altogether to the Government’s position that it should be discretionary, given the right amount of evidence, for the Secretary of State to introduce financial penalties and, on the other hand, that that discretion should be removed and that penalties should start as soon as the Bill is enacted.
Before Parliament agrees to a regime of fines—administrative or quasi-judicial fines—it is incumbent on us to give it careful thought and have sufficient evidence. It is a serious matter to give any regulator or adjudicator the power to impose fines. The clause comes against the background that the industry as a whole—the retail industry and its suppliers—has been enormously successful. If we want evidence of that, we have only to look at the Food and Drink Federation’s evidence, which says, look how wonderfully successful our members have been and what a fantastic contribution they are making to the economy. I am sure that that is right. As the Competition Commission stated, the general public have benefited hugely from the growth of the supermarkets, because of not only price but also choice. All sorts of things are available at reasonable prices to the general public which would not be there if it were not for the supermarket industry.
I quite accept that there have been bumps and glitches along the road, and no doubt there will continue to be. It is a very big industry with very tight margins. The Co-op’s net margin before tax is 2.8%. There is not a lot of room there and it is clear that, from time to time, there will be arguments about sums of money which we might not think considerable but which to a supermarket working on narrow margins are indeed considerable.
There is in our body politic a certain distaste for competition. We do not have many really competitive markets in this country—take a look at banking and quite a lot of other industries. Within the political body politic, there is also wariness about competition. It seems rather distasteful that people should fight so hard for business and to make that business more efficient. What type of behaviour by the supermarkets in breach of the GSCOP, the code of practice which is imposing excessive risk and unexpected cost on suppliers and leading to the ultimate disadvantage of the public—which is a straight rendering of the Competition Commission’s position—justifies the imposition of a system of fines?
In our last sitting the noble Lord, Lord Knight, very helpfully cited some examples of things that do not go as well as they should. His most striking example was the matter of delivery schedules. He started with a reference to notice periods, reasonable notice and the vagaries of supply. This matter is covered in the code of practice to this extent. If you will forgive me, I think that we should take note of what is in the code of practice. In part 1, under “Interpretation”, it states:
“Reasonable Notice means a period of notice, the reasonableness of which will depend on the circumstances of the individual case, including:
(a) the duration of the Supply Agreement to which the notice relates, or the frequency with which orders are placed by the Retailer for relevant Groceries”.
In his presentation the noble Lord, Lord Knight, said that there were some people with no contract. I think that that is absurd. I cannot understand why the representative bodies of the suppliers do not pull themselves together and make sure that their members do have supply contracts. If there is anything that a trade association could contribute to its membership, it would be good advice on how to get a contract that is enforceable. If suppliers are entering into contracts that are not enforceable, they had better get up to speed. I started taking orders for steel castings when I was 25, and the idea that I would have ever entered into a contract to supply anyone—the British Steel Corporation, for example, a very powerful body at that time—without anything written, is unthinkable.
The code goes on to state that,
“(b) the characteristics of the relevant Groceries including durability, seasonality”—
we are back to lettuce—
“and external factors affecting their production; (c) the value of any relevant order relative to the turnover of the Supplier in question; and (d) the overall impact of the information given in the notice”—
that is, the “reasonable notice” notice—
“on the business of the Supplier, to the extent that this is reasonably foreseeable by the Retailer”.
While the Competition Commission has taken this matter into account, it has had to handle it with what might be described as a certain amount of flexibility, because of the variability of the circumstances.
Part 3(3) of the code—and this of course is binding within all supply agreements—states:
“Variation of Supply Agreements and terms of supply
(1) Subject to paragraph 3(2), a Retailer must not vary any Supply Agreement retrospectively, and must not request or require that a Supplier consent to retrospective variations of any Supply Agreement.
(2) A Retailer may make an adjustment to terms of supply which has retroactive effect where the relevant Supply Agreement sets out clearly and unambiguously:
(a) any specific change of circumstances (such circumstances being outside the Retailer’s control) that will allow for such adjustments to be made; and
(b) detailed rules that will be used as the basis for calculating the adjustment to the terms of supply.
(3) If a Retailer has the right to vary a Supply Agreement unilaterally, it must give Reasonable Notice of any such variation to the Supplier”.
That is exactly why I have asked for the Office of Fair Trading to produce its reports. It has now had 20 compliance reports: two years’ worth, from 10 different supermarkets. It either believes those compliance reports or it does not. Those compliance reports either record breaches or alleged breaches of the code of practice under these paragraphs or they do not. For us to proceed without understanding the present situation is a dereliction of Parliament’s duty.
I welcomed the list suggested by the noble Lord, Lord Knight. I am not sure that jam with less sugar in it than some other jam is a subject that quite comes under the code, any more than pomegranate dust in chocolate does. I would just comment that exotic chocolates are mostly sold not through supermarkets, but through Thorntons or Hotel Chocolat. There are specialist retailers in exotic chocolates. Who else, one then asks, produces a list of those things which demonstrate a type of behaviour that might justify the introduction of an administrative penalty system? Does the OFT produce a list? It has been looking at this market. It has the power to refer what it thinks is anticompetitive to the Competition Commission. Does the Competition Commission have a list? Do the trade associations have a list? I have asked them all to let me know what they would like to see investigated. They have come back more or less with the same answer: their members will not tell them because they are too frightened.
Quite honestly, that will not do. It is not evidence. It is assertion and raises the question about suspicion. Do Her Majesty’s Government have a list? Do the Members of this Committee have a list? If there are lists, that is great—I am here to be convinced, as I think I said on Tuesday. At the moment the principle behind this clause is quite unsupported by evidence. What, the question becomes, about the clause itself? In detail it is very faulty. There is no maximum amount. We have no idea what the Secretary of State would do if there was a piece of secondary legislation. We do know that we have too much legislation. We have too much secondary legislation. Secondary legislation is not scrutinised properly. After that we have too much litigation. Here is this clause saying, “Oh well, go to the High Court or the Court of Session in Scotland”.
Does Parliament really want to set up another set of administrative fining, trying to fine big people who will have pretty good legal advice and pretty good arguments to put forward? Do you want them in court every five minutes? This does not seem to be in the public interest. The whole process is incredibly costly. The impact assessment does not begin to try to analyse how it would work and who would be charged what and what expenses in total would be incurred. It is a bland document. It says in various places that it is difficult to know how this will work and how that will work. However, it is worse than there being a lot of costs incurred. Who finally is going to pay? Times are what they are, and it is the least able to pay who ultimately will pay. The Co-op’s margin, as I said, is 2.8% before tax. Let us suppose that it is put to fines, goes to law and spends a lot of money—where will that cost end up? The answer is: in the prices in the shops. What can the 10 sensibly do but alter their margins? The best net margin is Marks and Spencer’s—although I have found it difficult to find out how that is split between clothing and food—at just over 6%. That is the highest margin that I can find.
The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)
There is a challenge to start the day on. Our discussion on my noble friend Lord Eccles’s amendment is the first discussion today on financial penalties although I know that we have more to come, as the noble Lord, Lord Knight, has just said. As I said at Second Reading, the Government believe that the enforcement methods of recommendations and requirements to publish—so-called “name and shame”—are likely to be sufficient to ensure a higher level of compliance with the code. However, should those powers be insufficient, it is important to have the reserve power of allowing the adjudicator to impose financial penalties.
Before I continue, I say to my noble friend that here he has someone who understands supermarkets and these large companies and how they work. I have said before and will say again that I was a supplier to six of the largest supermarket groups. I ran a successful and happy business during that time, but of course I did it in the 1980s and in those days there was no written contract for chilled food at all. I had no written contract, so every time I filled a lorry with £50,000-worth of smoked salmon or smoked mackerel I could not even get insurance on it because I did not have a contract that I could show anyone. I took a risk in making those journeys every day but it was advantageous to me to do so. I am fully aware, as are the Government, that there is a relationship between the supermarkets and their suppliers and, ultimately and inevitably, to the consumer.
The Secretary of State would not activate this power lightly. The process by which he could do so is set out in detail in Schedule 3, but key aspects include the fact that the Secretary of State may make such an order only if he or she thinks that the adjudicator’s other powers are inadequate, and that before making such an order the Secretary of State must consult a range of parties, including the large retailers and the representatives of suppliers and consumers. The Bill provides sufficient checks to ensure that the power is introduced only if it is genuinely needed.
Maintaining the possibility of imposing financial penalties is essential if we are to be confident that the adjudicator will have the necessary powers to enforce the groceries code. The noble Viscount, Lord Eccles, was worried about the reasons for not prescribing the maximum fine in the Bill. It is more appropriate that such a maximum be informed by experience; for example, of how much retailers might be gaining from non-compliance. This experience can be gained only once the adjudicator is operational. Should the Secretary of State make an order to introduce fines, the order must specify the maximum penalty that may be imposed or how the maximum penalty is to be calculated.
The very existence of the reserve power will contribute strongly to ensuring compliance with the groceries code. Large retailers will be conscious that there is the prospect of a swift introduction of financial penalties if there is evidence of significant non-compliance with the groceries code and the existing regime seems not to be sufficiently effective. Clearly, all large retailers will prefer to avoid this situation arising.
The Bill’s provisions on financial penalties both encourage compliance with the initial enforcement regime and provide an important reserve power should stronger methods of enforcement be necessary. I therefore propose that the provision stand part of the Bill and ask my noble friend to withdraw his amendment.
Viscount Eccles
My Lords, my noble friend starts from a zero base. If we read her words carefully in Hansard, we will find that it is as if we have no idea whether supermarkets are behaving in a fair-dealing way and we have to have in the locker a threat. Yet we have had a code of practice, which was thought not to be satisfactory and has been beefed up. I have heard nobody in this Committee say that the new code is unsatisfactory—I have heard the noble Lord, Lord Knight, suggest that it should be extended but I do not think that anybody has quarrelled with it. It has been in force for two years. All the 10 supermarkets have appointed compliance officers and all of them report publicly—with the exception of a German-owned supermarket that does not report publicly in this country—to the Office of Fair Trading. To say that we need the Bill to ensure compliance with the code is just wrong. We have all the evidence that we need to know whether the code is being complied with. Where other things are not being reported which either come under the code or could be thought to do so, I absolutely accept the need for their inclusion. It was for a list of those things that I was looking.
My noble friend’s taking on large orders for smoked fish with no written contract is beyond comment. She was obviously taking excessive risk, but it was not being passed on by the supermarkets, which no doubt would have been perfectly willing to enter into a written contract. She was undertaking that risk on her own account and I do not see what an adjudicator could do about that, except give some good advice.
Unfortunately, I am unsatisfied with the Minister’s reply and intend to raise the matter at the next stage of the Bill. Meanwhile, I beg leave to withdraw the amendment.
Viscount Eccles
My Lords, I have an amendment in this group. Before I speak to it, however, I should like to say briefly that anything that would lower the cost of settling disputes is to be welcomed. The High Court is not to be welcomed in that regard. After all, the intention behind the code of practice was, and is, to provide a method for settling disputes that does not involve the courts or a tribunal at all. As I say, I still hope to find that the Committee can be persuaded that that is the best way of settling disputes.
My amendments go to the naming-and-shaming part of the enforcement by seeking to leave out specifying what information is to be published, how it must be published and the time by which it must be published. I have a later amendment that is a substitution because I would like the criteria that are to be used to cover the matter of publication to be in the guidance under Clause 12. I am on board with the adjudicator being in some form of sensible dialogue with the supermarket about what the information should be and how and when it should be published. However, Clause 8(2) is far too prescriptive and will lead to endless arguments. When we come to the matter of appeals, we have to remember that we do not actually have to write someone having a right to appeal into an Act of Parliament; there is nothing to stop them going to court if they want to do so and think they have a good case. I suggest to the Committee that we should be careful about making the Bill so adversarial, instead of looking for sensible and fair dealing and agreement.
Lord Browne of Ladyton
I agree with the noble Viscount that in the current environment it is impossible to stop people going to court. They will find a way to get to court, and that way will probably be judicial review. If one has sufficient resources behind one—we are talking here about the 10 biggest retailers in the country, and no one apart from the Government has resources that can match them—and feels strongly enough about an issue, one is entitled to find a way to get to court. The problem is that if Parliament does not allow a right of appeal then it will probably have to go by some form of judicial review. What is unsatisfactory about judicial review is that it deals with the process more than it deals with the content, although the content quite often enforces the process. Invariably, one then has to start again. Instead of concluding the matter, therefore, that may just cause it to start again at even greater expense. While the noble Viscount recognises that we cannot stop people going to court, I suggest that it is better if we can provide a sensible and efficient method of reviewing decisions that people who are aggrieved can take advantage of.
Viscount Eccles
My Lords, I completely agree. I am not trying to be prescriptive at all. All that I am saying is that if people feel that they are being unjustly dealt with and they have the resources, they will find some way of challenging what they think is that unjustifiable behaviour. We are debating this matter against the background that no one has yet been able to say what sort of behaviour by the supermarkets they want to see investigated by the adjudicator. If we knew that, we would be in a better position to decide how severe the enforcement procedures should be.
Viscount Eccles
Before my noble friend replies, perhaps I may just say that whatever my view of the proper fate for Clause 9, and however the Bill turns out, I think that the message sent out by these debates to an industry attempting to provide the best possible service to the public is a very important one. I should like to say two more things. On the production of milk, it is a problem. God gave dairy farmers different natural resources. Some dairy farmers need one leg shorter than the other; some do not have to have that disadvantage. The production of milk in this country has nevertheless been remarkably stable over the past five years. There has been no decline. In other markets farmers in general are doing rather well. For example, rapeseed is extremely successful at the moment and so is the production of beef. Dairy products as a whole do not provide an adequate argument. Finally, I think that there have been just one or two references in this debate to the costs of all this—the noble Lord, Lord Browne, made some reference to cost—and there has been absolutely no reference to who ends up paying.
The Lord Bishop of Wakefield
My Lords, I need to leave fairly soon, so I want to add something about this particular suggestion. I want to address also a broader point, since this is tied into the whole issue of financial penalties.
I was grateful to the Minister for her comment about changing culture. This is another small way in which the culture might be changed. But the crucial issue we need to grasp is that changing any culture will require whether we like it or not—and it is not a pleasant word—coercion. That is at the heart of much of what we are saying here. I do not know enough about the latest statistics to be able to respond to what the noble Viscount, Lord Eccles said a few moments ago, but, certainly, in our part of the world dairy farms are still closing and, certainly, an analysis of the past 10 years would show that the capacity for milk production has reduced. I do not know what the figures are for importing milk, but I think they have gone up significantly over these years.
All these things lead us back to innovation, which seems to be a key word to use. It is a positive word. It goes back to changing cultures and is not about punishing people. It is about trying to find a proper balance within the market, so that suppliers and retailers are doing something which has a synthesising effect: they are working together. Therefore, I hope very much that some sort of response will come from the Government at this stage. If it does not, I fear that these same questions will be asked on Report. I would gently support this pair of amendments, but in the end they push us back to the same issues that we have been looking at. If we do not face those issues, we shall still end up in a situation where we do not alter the present culture.
Viscount Eccles
Before the right reverend Prelate sits down, can I ask him whether he believes that coercion is the only way to change culture?
The Lord Bishop of Wakefield
No. It depends on what you mean by “coercion”, which can mean something very unpleasant indeed. It does mean that people will not necessarily change the way that they operate simply because we ask them to be nicer. That is the point. We know that, otherwise we would not have produced the sort of legislation that we are debating today. Even if we do not go down some of the roads that we have been debating, the whole Bill seems imply that the adjudicator must have some powers by which the present situation is changed. How you want to use the word “coercion” is another matter. I would not want it to be overpressed. After all, the worst form of coercion always leads to war and that is not what we are talking about—we are talking about precisely the opposite—but it will need firmness and robustness.
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.
Lord Browne of Ladyton
It would be helpful to the Committee if the Minister were able to indicate the scale of fines that the Government have in mind if these financial penalties were ever activated. I cannot imagine that we have got this far without the Government having some idea of what the scale of those fines is likely to be. If we do not know, we are significantly disadvantaged in our debates about what this power masks, because it masks quite a lot from what I can see in the schedule.
Viscount Eccles
I fully agree with that. What industry needs is certainty. What it cannot live with is uncertainty. It needs to have as many of the factors that are going to influence what it does and the way it does it as settled as possible. Uncertainty is the enemy of good business.
Baroness Wilcox
My Lords, as has been mentioned, I listened very carefully at Second Reading when the subject of Schedule 3 was discussed. I know that many noble Lords feel that the process set out there is too clunky—I think that was the word that was used—and bureaucratic, and that it should be simpler and quicker. I assure the Committee that it was not the intention of the Government to introduce a clunky process, so this is something we are willing to look at, and if it is clunky we will need to amend it.
However, while the Government are willing to consider amendments in this area, I feel that those that have been laid today go a bit too far. In particular, the Government believe that financial penalties should be available only if the other powers are inadequate. After all, if the other powers are adequate, why do we need fines? We should not seek to punish the supermarkets for the sake of it, given the strong contribution that they make to the UK economy and to employment.
Similarly, I feel that stripping out consultation altogether is not appropriate for a significant measure. Evidence is important and consultation takes only three months. I believe it would be more appropriate to look to streamline and simplify that consultation process rather than eliminating it altogether.
The noble Lords, Lord Knight and Lord Grantchester, have put forward two amendments, both requiring draft guidance on financial penalties to be published within a year of the adjudicator being introduced. These amendments are identical except that one requires consultation and one does not. I will therefore address the principle of both together.
The publication of guidance is intended to ensure that those dealing with the adjudicator have a proper understanding of how it will act and of what is expected of them. Draft guidance on a power that the adjudicator does not have would not provide such clarity. Rather, we need to find a way to streamline the production of guidance if it is necessary, rather than producing it in advance.
I can answer two questions. To the noble Viscount, Lord Eccles, yes, the consultation will be carried out in the usual way. I hope that that is reassuring. To the noble Lord, Lord Browne, the reason for not prescribing the maximum fine in the Bill is that it is more appropriate that such a maximum be informed by experience—for example, how much retailers may be gaining from non-compliance. That experience can be gained only once the adjudicator is operational. Should the Secretary of State make an order to introduce fines, that order must specify the maximum penalty that may be imposed or how it is to be calculated.
I would like to discuss those points in more detail with the noble Lords who proposed the amendments before the next stage of the Bill, and the Government will carefully consider whether we want to bring back an amendment on the subject. With that, I ask the noble Lord to withdraw his amendment.
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.
Lord Teverson
I congratulate the Government on this clause. It is balanced, it puts the costs where they should be and acts as a break on frivolous claims and complaints. I do not understand the argument about it putting up prices, because if that is the case it is because we have an oligopolistic market. The way that markets work is that the price is set not by the cost of fines but by competition in the market and the crossing of supply and demand. If we have competition in that market—that is a big “if” and I will come back to it in a minute—the individual firm takes a hit on the fine, but it cannot put up the price because there is competition in that market. That sector argues very strongly that there is strong competition in that market, so it does not affect price. That is fundamental capitalist economics. If there is a problem, it is because there is insufficient competition in the grocery market. Frankly, if that is the case, the remedy is not here, but is clearly somewhere else altogether—in the Competition Commission or whatever follows it following any legislation this year.
As I said at Second Reading, I am a great advocate of multiple retailers. They have brought a great deal of benefit to this country, although there may be downsides as well. It is clear that if people cause the costs of an investigation, it should take responsibility for them. That is absolutely the right way to do it, and the clause reflects that. If you believe that fines will put up costs, you have to go to something other than fines. What do you go to? I do not think you go back to taxpayers. That is impossible. You would have to go back to an FSA-type system where you have approved people and you disqualify them from being in the grocery trade, but there is no way that that would work. Otherwise, I suppose you put them in jail under the criminal code, and that is clearly utterly inappropriate. I congratulate the Government on the clause. It is absolutely balanced and correct.
Viscount Eccles
I am listening intently. Will the noble Lord, Lord Browne, deal with the issue of anonymity? If my amendment were accepted, if the adjudicator believed that one retailer had breached the code, I can see that it would still be complicated but not quite as complicated. If the adjudicator has a duty to preserve anonymity, I cannot see how he could do so without widening the investigation in such a way that means it is not easy for people to identify who is being investigated. At that point, the investigation costs go up and the way of presenting them so that they are eventually paid by whatever means becomes much more difficult. How would the noble Lord deal with the dimension of anonymity?
Lord Browne of Ladyton
I do not know if I am grateful to the noble Viscount for asking me that question. If I were standing where the noble Baroness is, then I would feel I had to answer it. The only answer I can give the noble Viscount is that I will think about it. However, I suggest that for the purposes of the Committee, the fact that it is not easy to answer makes the point that he wishes to make.
There are all sorts of complexities about this legislation, many of which are necessary. I believe that anonymity at the heart of this process is necessary to build confidence in it and ensure that people come forward in this unequal bargaining position. The noble Viscount himself said that the consequences of people being exposed may be significant for them as suppliers to the retail industry. However, all of these complexities are going to keep the adjudicator awake at night in any event. This complex structure that we are creating—and we are all now willing participants in this if we do not speak out against it—is taking a reasonably good idea, which could be delivered simply, and complicating it beyond all belief. It is so complicated now, and I have taken such an interest in this over the last couple of weeks, that I might go back into practising in the legal profession, because I can see opportunities here that were not there when I practised before, and niche practices are places to make decent money now in the legal profession.
I do not support the argument that the noble Viscount puts forward, because I think costs should fall. The nature and scale of what we are dealing with here is such that if people cause this draconian step to have to be taken, then they deserve all they get in my view. They should then have to go out and compete in the market in order to make that money up in some other way.
There is another point about this clause that disturbs me, which is the part that the noble Lord, Lord Teverson, likes and is designed to avoid vexatious complaints. This is entirely the wrong way to go about this. We should be saying that the adjudicator should stop vexatious complaints and not pursue them. I cannot believe that we will be satisfied if we appoint somebody to be the adjudicator who has to resort, after an investigation, to imposing the costs of the investigation on to a vexatious complainer. I want an adjudicator who says, “I have looked at this, it is vexatious and I am not doing it”.
Baroness Wilcox
My Lords, I understand my noble friend Lord Eccles’s reluctance to see individual retailers or complainants having to pay the costs of investigations. However, I think this is justified in both cases and take this opportunity to explain why this clause should stand part of the Bill.
In the case of retailers, they can be required to pay the costs of investigations only if the adjudicator is satisfied that they have broken the code. In this situation, the need for investigation and enforcement follows from their actions. It would seem unfair on retailers who have not breached the code to incur additional costs through a general levy when there is a party who clearly bears responsibility for the costs being incurred. I know from our debate at Second Reading that many noble Lords feel strongly that the costs should fall on those who breach the code rather than those who do not, wherever possible.
This is not a financial penalty or a blank cheque; it simply ensures that if a retailer breaches the code, the cost of the investigation can be borne by them, not by the other nine retailers. In the case of costs being borne by complainants, the Bill is clear that they can be expected to pay the costs of an investigation only if the adjudicator is satisfied that their complaint was vexatious or wholly without merit. That is a strong test directed at clearly irresponsible complainants rather than simply erroneous or weak ones. Without such a power, individuals might be motivated to make complaints that they know to be false or completely unjustified, wasting the adjudicator’s resources and placing unfair burdens on the retailers it investigates. Of course, the adjudicator should not pursue a case that he or she knows to be vexatious, but that may not be clear at the outset. That is simply a safeguard in case an investigation turns out to have been based on vexatious complaints.
Finally, I note that in each case, the clause says that the adjudicator may require a party to pay the costs of investigation. That is strictly discretionary. For instance, if a breach was found in a retailer but it was understood to be a matter of simple error, the adjudicator might decide that it would be disproportionate to require it to pay all of the costs. I hope that helps the noble Lord, and I support the Question that the clause stand part of the Bill.
Viscount Eccles
My Lords, I start with a technical question about the wording of the clause to which I am not looking for an immediate answer. It states that the adjudicator may,
“require a large retailer to pay some or all of the costs of an investigation”.
It is not self-evident that that means only the adjudicator’s costs. Of course, a lot of the cost will fall on third parties, including the retailer, and there are bound to be a lot of costs. My proposal that suspicion should be replaced with belief would go a long way to create more certainty about the adjudicator’s ability to turn down not just vexatious complaints but complaints for which there is too little evidence. It is my perception that when the Bill becomes law, a lot of cases will be brought for which the evidence will be sketchy, and the adjudicator will have to use his or her best judgment.
If those considerations can be given some thought and we can have a more—I criticise myself here—coherent and consensual discussion at the next stage, I withdraw my objection to the Question.
Lord Browne of Ladyton
My Lords, I shall speak to Amendment 57 in this group, standing in my name. A number of references have been made to the importance of the adjudicator as the driver of a changed culture. I have heard the adjudicator’s role referred to as a role which the Government hope will develop into a role operated by the person in the country who knows the code best. Clearly, that person and that office is the place that people should be able to look to for advice and guidance, because it will be the repository of the best advice and guidance about the code.
Consequently, I support the amendment of the noble Lord, Lord Howard of Rising, that the adjudicator should be required to give advice to those people. As the Minister said, the expectation is that a culture of changed practice will be created rather than a culture of litigation. If the adjudicator is required to provide the advice, that is an element of changing the culture. As I have already said, at Second Reading the Minister referred early on to the fact that anybody can make a complaint to the adjudicator. In winding up the debate—it is Column 764, for the purpose of the Official Report—she made reference to the importance of the public and to their desire for this area of commerce to operate in a way that addressed their expectations but which was also fair.
The public therefore have a role to play in this. They can make a complaint; they are consumers of the whole objective of improving the competition of this part of the economy. However, they are excluded from the list of people to whom the adjudicator can give advice. It seems contradictory to encourage anybody, including any member of the public, to make a complaint but not give the adjudicator the statutory power to give advice to the public. I have amended this, therefore, to include the public in the list of bodies. The noble Baroness is right that the public will want to know and understand how this code operates. Without the vires or the powers, the adjudicator will not be able to give them advice. The adjudicator ought to be able to do it.
Baroness Wilcox
My Lords, providing advice and guidance will be important in the adjudicator’s role of promoting compliance with the groceries code. I understand, therefore, why my noble friend Lord Howard of Rising wishes to see a requirement on the adjudicator to provide advice and why the noble Lord, Lord Browne of Ladyton, wishes such advice to be available to the public as well as to retailers and suppliers. I agree with the noble Lord, so it is important that the adjudicator clarifies certain issues around how he or she will work and indeed, how the public as well as suppliers and retailers will have an interest in this.
However, under Clause 12 the adjudicator has a duty to provide guidance on how he or she will investigate and has powers to provide further guidance on any issue related to the code. This guidance will be published and available to all. It is therefore the most suitable format for any obligatory communication by the adjudicator and is the best way for the adjudicator to deal with the public. Conversely, advice is more likely to be given on an individual basis to clarify specific issues with retailers and suppliers. It is likely to be given where the adjudicator notices that certain retailers or suppliers do not have a clear understanding of the code. It is also likely to be given to retailers or suppliers who are not sure whether a specific practice that is relevant to them is within the code. Advice is therefore suited to individual, potentially technical discussions of the code with those to whom the code is more directly relevant—suppliers and retailers. Any statements of general principles can be made through the power in Clause 12 to provide guidance, and those statements will be available to the public.
On whether the provision of advice should be mandatory, the adjudicator would normally be expected to provide advice when it is requested. However, the adjudicator will have a limited budget and will need to prioritise their work accordingly. It is therefore appropriate that they should have the freedom to choose whether in a particular instance giving advice is the best way of encouraging retailers to comply with the code. There could also be circumstances when giving advice would be inappropriate; for example, due to a conflict of interest. I ask noble Lords not to press their amendments.
Viscount Eccles
“(ba) the criteria that the Office of Fair Trading intends to adopt towards the content and timing of information to be published under section 8(2);”
Viscount Eccles
My Lords, I will be brief with this one. This is my substitute for the words that I wish to see left out in Clause 8, which are,
“specifying—
(a) what information is to be published;
(b) how it must be published; and
(c) the time by which it must be published”.
I suggested to the Committee that that was too prescriptive, but I quite accept that retailers need to know how the publishing of what has been described as naming and shaming information will take place. It would be much more appropriately included in guidance. That is why I have suggested the addition to the subjects on which the adjudicator must publish guidance and the criteria that the adjudicator—I have to amend my amendment, because I was still fighting for the Office of Fair Trading at the time—
“intends to adopt towards the content and timing of information to be published under section 8(2)”.
I put that in because I am keen to remove as much of what might be called the prescriptive, mandatory or antagonistic features of this Bill as possible, and to try to engender as much co-operation, discussion and agreement as we possibly can.
If we are going, finally, to depart from self-regulation for other forms of regulation at the same time as I am supporting a Government who claim that they are a deregulating Government, we should try to make sure that the very sensible code of practice is applied by agreement and not coercion, if I may come back to that word. This is just another small attempt to get into the Bill words which encourage co-operation rather than depending upon coercion. I beg to move.
Lord Howard of Rising
My Lords, my amendment in this group is along the lines of my previous one, such that the adjudicator “must” publish guidance. It seems absolutely inconceivable that he is not compelled to give guidance and to publish it. Imagine him refusing to let retailers know what steps they have to take to comply with his code. Another point here is one of natural justice. The adjudicator is paid by the retailers. The least that he could do is to provide them with the information on how he is going to treat them; after all, they are footing the bill. As I have said before, his interpretation may be different on these things. However, rather than waste the Committee’s time repeating the arguments, I will leave it at that.
Baroness Wilcox
My Lords, the guidance provided by the adjudicator will help to ensure that all interested parties have a proper understanding of what they can expect of the adjudicator. Several noble Lords have brought forward amendments on what should be included in the guidance or on how that guidance should be produced.
With regard to the amendment moved by my noble friend Lord Eccles, the adjudicator will already have to publish guidance on how he or she will decide which enforcement powers, if any, to use. The adjudicator will also have powers to provide more specific guidance on how exactly he or she will go about requiring a retailer in breach of the code to publish information. However, I do not believe that the adjudicator should have to publish guidance on how he or she will approach the publication of information before such investigations can be started, especially as the approach to publication might be dependent on what breach is discovered. We must balance the need for retailers and suppliers to be informed of the principles under which the adjudicator is working with the need for the adjudicator to be able to start working promptly.
The noble Lord, Lord Howard of Rising, has tabled two amendments that I would like to address. The first is on the requirement for the adjudicator to publish guidance on a range of matters set out in Clause 12(3). Here I note that the requirement to publish guidance in Clause 12(1) is focused on specific issues, and under Clause 12(5) the requirement to publish information is given the context of a specific timetable. The adjudicator should be required to publish guidance, and he or she has to. Clause 12(1) states:
“The Adjudicator must publish guidance about —
(a) the criteria that the Adjudicator intends to adopt in deciding whether to carry out investigations;
(b) the practices and procedures that the Adjudicator intends to adopt in carrying out investigations; and
(c) the criteria that the Adjudicator intends to adopt in choosing whether to use the enforcement powers and which ones”.
While other guidance is valuable, it is not clear what would be achieved by a general requirement to publish guidance on broad topics such as the application of any provision of the code. Rather, these overarching topics are intended to indicate likely areas of guidance and ensure that the adjudicator can give guidance when the need arises.
Regarding my noble friend’s second amendment, guidance can relate to a wide range of the adjudicator’s activities and functions. It would be inappropriate to include a requirement to consult retailers without equivalent requirements to consult supplier representatives and other interested parties, which would create further bureaucracy, something that I am sure we would all try to avoid. This change is not necessary, given that the Bill already requires the adjudicator to consult any person whom he or she considers appropriate. I hope that that is helpful to noble Lords and I ask my noble friend to withdraw his amendment.
Viscount Eccles
My Lords, I am not quite sure how to put this, but I think the Committee is being let down. Once again we are being told that we are starting from a zero base, that nobody knows anything about the operation of the code and that the adjudicator will start with a blank sheet of paper. The code came into effect on 4 February 2010, having been published in 2009. All 10 supermarkets have gone through the procedures that it requires them to go through. They have included it in their conditions of purchase and sale; they have appointed compliance officers; and they have made two sets of annual reports to the Office of Fair Trading. Disputes have been running in the past 24 months and disputes have been settled.
To say that there is no base of information that the Government can rely on in drafting the details of this Bill and that before deciding how guidance should be given they have to wait for the adjudicator is indefensible. I will return to this on Report. I hope that before then there is some rethinking about the position under the code, instead of us being told time and time again that it is as if the code did not exist. I beg leave to withdraw the amendment.
Viscount Eccles
Viscount Eccles
My Lords, this is a small matter of equity. Clause 15(4)(a) concerns information that may be considered when deciding whether to investigate. It confines the adjudicator to a fairly narrow range of people involved in the industry. My amendment proposes to add, to the information provided by a supplier, the words “or a retailer”. It seems perfectly possible that a retailer will have information about the operation of the code and possible breaches of it, which means that they would like to provide information. I think that they should have that opportunity in any event. I beg to move.
Baroness Wilcox
My Lords, I am grateful to noble Lords who have raised the important issue of what any restrictions on the sources of information under Clause 15(10) should involve. The Government hope and believe that third parties such as trade associations will provide information to the adjudicator in a responsible and helpful way and that this clause will never need to be activated. Nevertheless, it is important that we give proper scrutiny to the details of how the clause can be activated and what it should include.
The clause as drafted provides the most suitable way to restrict information. The sources that would still be allowed to provide information are those identified as most suitable by the Government following their consideration of pre-legislative scrutiny by the Business, Innovation and Skills Select Committee. These have been carefully considered as sources that could provide useful information without the risk of the adjudicator being deluged with complex but essentially weak complaints.
My noble friend Lord Eccles suggested that retailers should be included in the list of sources of information. Clearly retailers will have relevant information about whether a breach has occurred and this will be central to investigations. However, the place for this to be heard is in investigations, where the adjudicator can seek relevant information without revealing details of complaints. The decision to start an investigation is based on complaints or other information giving reasonable grounds to suspect that the code has been breached, not on an attempt to weigh all the arguments.
My noble friends Lord Razzall and Lord Teverson suggest that trade associations should be added to the list. However, trade associations are the primary group that this power to limit the sources of information is intended to address. The power has been introduced in the light of concerns that trade associations might raise complex but unjustified complaints. This could put a strain on the adjudicator’s time and resources, as well as unnecessary burdens on the retailers.
The noble Lords, Lord Knight and Lord Grantchester, suggest that the Secretary of State should be able to specify sources through guidance. However, such an extension would be a more serious matter than is suited for guidance, which the adjudicator must “take account of” but which is not strictly binding.
Clause 15(10) has been deliberately written to restrict the sources of information to those that are most likely to have information regarding a breach of the code. This will ensure that trade associations and other third parties have a clear incentive to act responsibly. It would be invidious to put the Secretary of State in a position where he or she had to pick which third parties or classes of third party were responsible and which were not, and such an amendment could lead to the very lobbying and campaigning that we hope to avoid.
Finally, the noble Lords, Lord Knight and Lord Grantchester, have also proposed an amendment to Clause 23 that is relevant here. It would mean that Clause 15(10) required an affirmative resolution. Throughout the Bill we have striven to ensure that a suitable level of parliamentary scrutiny is provided for any orders.
The Government believe that the negative procedure is suitable here as the content of the order is very clearly defined in the Bill, and because an order can be made only as the result of a triennial review involving widespread consultation. The Delegated Powers Committee considered this order specifically and confirmed that it was satisfied with our reasons for this being a negative procedure.
I hope that these answers to the amendments have been helpful. I therefore ask the noble Lord to withdraw his amendment.
Baroness Wilcox
My Lords, the duty of the adjudicator to keep complainants’ identities confidential is central to this Bill. The initial market investigation, consultation and pre-legislative scrutiny all indicated that suppliers would be reluctant to complain if they thought that they would be identified, and noble Lords have made the same point in the House. The protection of the identity of parties to arbitration is likewise important. The proposed amendments on confidentiality therefore need careful consideration.
The noble Lord, Lord Browne of Ladyton, proposed a number of amendments with the clear aim of making the requirement on the adjudicator to maintain confidentiality as tough as possible. I agree that this needs to be a strong requirement. However, I believe that the Bill already achieves this.
Two of the amendments in the name of the noble Lord, Lord Browne of Ladyton, specify that the adjudicator “must not” rather than “may not” make unauthorised disclosures of information that might break confidentiality. I am confident that “may not” and “must not” have the same force here. The words “may not” are intended to be prohibitive: the adjudicator is in either instance required to refrain from making unauthorised disclosures.
Another two amendments in the name of the noble Lord, Lord Browne, specify that the duty to maintain confidentiality also applies to the deputy adjudicator and any staff. I agree completely with this as a matter of principle. However, the Government are confident that the deputy adjudicator and staff seconded to the adjudicator would already be bound by the duty of confidentiality as set out in the Bill and that therefore the amendment is unnecessary.
The noble Lord’s final amendment on this clause makes any knowing breach of confidentiality by the adjudicator or his or her staff an offence and introduces fines for anyone found guilty of such an offence. I do not believe that the threat of fines is necessary to make the adjudicator act responsibly. The adjudicator will be a public authority and will be bound to take the responsibilities under Clause 18 very seriously, as well as being bound to respect the human rights to privacy of the relevant parties. It is true that there is no sanction for breach expressed in Clause 18 but a breach would be a breach of statutory duty by the adjudicator and would in principle enable a person who suffered from a breach to claim damages from the adjudicator or to seek an injunction to prevent the disclosure if the person knew in advance.
I do not think that my noble friend Lord Eccles will be speaking to his amendments.
Baroness Wilcox
I therefore would ask the noble Lord, Lord Browne, to withdraw his amendment.