I beg to move, That the Bill be now read a Second time.
I am delighted to move the Second Reading of this Bill, the principle of which has gathered support from those in all parts of the House since it was introduced in December. It is appropriate that I put on the record my sincere thanks to the Grocery Market Action Group, which consists of a powerful alliance of organisations, including the Association of Convenience Stores, the Rural Shops Alliance, the Independent Fruit Growers Association, the British Brands Group, the National Farmers Union, ActionAid UK, Traidcraft and Banana Link. Many of those organisations have lobbied Members to attend today’s debate, and they are very supportive of Members’ support for the Bill.
The action group is ably chaired by the hon. Member for St. Ives (Andrew George), and I pay tribute to him for his long-standing campaign to address the imbalance in the grocery market. The group has played a constructive role since it was set up in 2006, when the Competition Commission began its latest inquiry into the retail sector. I thank also the Farmers Union of Wales and, particularly, my local Ynys Môn branch, which has lobbied me for a long time—since I was first elected in 2001, in fact. It has argued in a forthright and coherent manner for a grocery code of practice and an ombudsman to implement the code effectively, and I have led a number of union delegations to meet Ministers in the House, including the Minister with responsibility for food, farming and the environment, my hon. Friend the Member for Poplar and Canning Town (Jim Fitzpatrick), who was very receptive to the idea of an ombudsman. I also acknowledge the farmers unions’ dairy industry campaigns to secure a fair price for producers, given what they consider to be market failings. I agree with them and hope that in some way the Bill will address that imbalance, too.
I want to make it clear that I am not anti-supermarket, nor indeed are the terms of the Bill. In fact, I am pro-supermarket. I am also pro-small shops, pro-small convenience shops, pro-local suppliers and, above all, pro-consumer. The supermarkets are the major retailers, and they are important contributors to the local economies of all our constituencies and, indeed, the country’s wealth.
I congratulate my hon. Friend on bringing forward his Bill. Will it address the non-grocery products that supermarkets sell? I am thinking, for example, of petrol, whereby the local pricing policy of large grocery retailers leads to a great distortion. In Inverclyde, which has some prosperous areas but also a lot of deprivation, the petrol prices that grocery retailers set are higher than those in many much more prosperous areas of Scotland. I am grateful to a constituent of mine, John MacNeil, who has driven all around Scotland pricing petrol. Will my hon. Friend’s Bill address the supermarkets’ local pricing policy on that product?
My hon. Friend makes an important point, and, indeed, I attended a debate about petrol prices in Westminster Hall. It is a big issue, and there are market failings in that area, too. In order to move forward, we need the Office of Fair Trading to undertake an inquiry into petrol pricing. The OFT and the Competition Commission could recommend to the Government a policy on those imbalances, which my hon. Friend has described. They are evident in all our constituencies, and I represent a periphery area, where we face exactly the same problems. Not only are some of the large retailers and supermarkets varying their petrol prices; they are having a huge impact on independent suppliers, many of which have had to close down.
I apologise for butting in on the hon. Gentleman so early in his speech, but I want to back up the point that he was making in response to that last intervention. Does he agree that it would be inappropriate to use an ombudsman to stick up for the oil companies, many of which are larger than the supermarkets concerned? There might be an issue of the kind that has just been discussed, but an ombudsman would be the wrong way to deal with it.
I agree. We are talking about not only the retailers of petrol but the distributors and oil companies. Although we need a fresh independent inquiry into the pricing mechanism, I do not think that this Bill—or, indeed, an ombudsman—is the way forward for that.
Does the hon. Gentleman accept that there have been many inquiries which have always come down in favour of saying that an active market is operating and that there are additional costs in rural areas that have to be borne by somebody? However, how is petrol retailing associated with groceries? As I understand it, those are what this Bill is about.
I do not think that the hon. Gentleman was listening to what I said. What he has mentioned is not in the Bill. An important point was raised about the variations in petrol prices across the United Kingdom, and he says that many inquiries have favoured the retailers and the oil companies on the issue. Indeed, in the past there have been many inquiries about the issues raised by my Bill. However, the most recent one came to the conclusion that there were market failings. That is why there is a new code and why we need a new ombudsman. We need an up-to-date inquiry by the Office of Fair Trading into petrol prices.
Perhaps I can raise a different point and get my hon. Friend off the petrol issue. I am here to support his Bill, but one of the issues in relation to supermarkets is suppliers from the developing world. Bearing in mind that we are in Fairtrade fortnight, does my hon. Friend consider that his Bill does anything to support developing-world suppliers, which often get a raw deal from supermarkets?
Yes, indirectly. This is about choice. We are all lobbying and campaigning for greater choice and greater brands, and Fairtrade is an important source of those. The Bill will help. Many of the organisations that lobbied hard for it welcome that, because they believe that it will do something to help them in future.
Earlier, the hon. Gentleman said that he was pro-consumer and that he saw an imbalance between the power of the supermarkets and that of the suppliers. Presumably, therefore, he wants the appointment of the ombudsman to result in higher payments from supermarkets to suppliers. That would inevitably lead to higher prices for customers. Given that he is so in favour of consumers, will he tell us by how much he expects prices to go up and the kind of rise that he thinks would be acceptable?
I have not even developed the argument, so I could not have said that. What I am saying is that I am pro-supermarket, pro-supplier and pro-consumer. If the hon. Gentleman wants to argue against that, that is up to him, but it is on the basis of that standpoint that I bring the Bill to the House—to make sure that the code is properly applied and adhered to.
I congratulate the hon. Gentleman on the Bill. May I clarify something? On the requirement for a supermarket ombudsman, the Competition Commission found not, as the hon. Member for Shipley (Philip Davies) suggested, that the mechanism involved should be price sensitive and price setting, but simply that it should oversee the necessity for fair dealing. The issue should not be and is not about price setting.
The hon. Gentleman is absolutely right. We are talking about fairness. The Competition Commission identified that there was an imbalance and that there were market failings and unfairnesses. The Bill would rectify that. The code has been in place since 4 February; what we are looking for is a referee to oversee it. It is as simple as that.
I congratulate the hon. Gentleman on bringing forward the cause. He will be aware of polling evidence that consumers are very much in favour of the creation of an ombudsman; a YouGov poll identified that eight out of 10 consumers were. Does the Bill not also represent a huge opportunity for supermarkets to present themselves in a positive light?
I agree, and I thank the hon. Gentleman for all the support that he has given me and for his work with the National Farmers Union and the Grocery Market Action Group to establish the code and make sure that we have the inquiry. I will develop my argument and deal with the issue in greater detail.
I am sure that the hon. Gentleman will agree with me on a point that he might develop later. The issue is not all about prices; it is about terms of trade as well. I recently discovered a supermarket that tried to increase its credit terms to 90 days. That is an impossible situation for a small supplier, so the matter is about more than price—it is about terms of trade as well.
It is, and that comes under the umbrella of fairness. As my hon. Friend the Member for Hendon (Mr. Dismore) said, the issue is about fair trade, including Fairtrade suppliers. The whole ambit is covered by what the code will produce, but the Bill is specifically about the ombudsman.
Before I took those interventions, I was praising the supermarkets for their importance in the local and national economy. In the United Kingdom, the food retail sector represents about £110.4 billion. The supermarkets are at the end of the supply chain; at the other end are the producers, farmers and suppliers. I want there to be an interdependency between them all, but at this time that does not exist. That is why we need the new code and an ombudsman as a referee.
As I said, the purpose of the Bill is to institute both fairness and firmness—the fairness that the new code of practice will provide, and the firmness that a referee would bring. That is exactly what a grocery market ombudsman could do in overseeing the grocery supply code of practice, to which I shall refer as “the code” from now on.
I use the term “referee”, and there is an important rugby analogy. Like rugby, the grocery market is a rough game. It needs rules and a referee to ensure that they are adhered to on all sides. That is what I argue in the Bill. I share the aim of many in the House that we need a rich diversity of suppliers, producers and brands, and small and large retailers, along with the supermarkets, to provide real choice and real value for the consumer.
The need for the code was established as a result of a full and comprehensive inquiry by the Competition Commission, at the request of the Office of Fair Trading, into the supply of groceries by retailers in the United Kingdom; I stress that the Bill covers the whole of the United Kingdom of Great Britain and Northern Ireland. The inquiry started in May 2006. After two long years, the commission reported in April 2008. Its findings made it very clear that there was an adverse effect on competition and it provided remedies to rectify those market failings.
The hon. Gentleman says that the Competition Commission’s report was very clear. However, does he concede that the economist Professor Bruce Lyons, one of the two Competition Commission panel members working on supplier issues, concluded that the ombudsman would be counter-productive? He opposed the setting up of an ombudsman.
I am grateful to the hon. Gentleman for that intervention. I said that the report was clear; I did not say that it was unanimous. There was a lone voice, and the hon. Gentleman is desperate to jump to it. There was, however, a huge majority in favour of establishing the code and the ombudsman. I see where the hon. Gentleman is coming from, but in a democracy we have to go with the majority. I believe that he is a democrat and I am sure that when I have developed my arguments he will support the Bill because it is about firmness and fairness, and I am sure that he is a decent person who believes in both. It will be difficult for him to argue against that principle.
Paragraphs 2, 3 and 5 of the report’s summary were clear that there was an adverse effect on competition. Paragraph 2 states:
“We found that, in many important respects, competition in the UK groceries industry is effective and delivers good outcomes for consumers, but not all is well.”
I am sure that the hon. Member for Shipley (Philip Davies) is listening to this first part. The paragraph goes on:
“We have concerns in two principal areas. First, we found that several grocery retailers have strong positions in a number of local markets. Barriers faced by competing grocery retailers that could otherwise enter these markets mean that consumers get a poorer retail offer in terms of prices, quality and service than would otherwise be the case, while those grocery retailers with strong local market positions earn additional profits due to weak competition in those markets.”
The report continued:
“Second, we found that the transfer of excessive risk and unexpected costs by grocery retailers to their suppliers through various supply chain practices if unchecked will have an adverse effect on investment and innovation in the supply chain, and ultimately on consumers.”
That is why we are battling for consumers as well as for suppliers. The report says, in part 5 of its summary:
“We will be tightening the provisions of the Supermarkets Code of Practice and broadening its application such that more grocery retailers will be required to abide by its terms. We will also be seeking legally binding commitments from grocery retailers to establish an Ombudsman to oversee the revised Code. If we cannot secure suitable undertakings from these grocery retailers, we recommend that Government takes the necessary steps to facilitate the establishment of the Ombudsman.”
That is a very clear conclusion by the Competition Commission on this matter.
The commission was also very fair in wanting an undertaking from the retailers to establish, during a reasonable period, the appointment of an ombudsman. However, the voluntary agreement did not deliver that conclusion, and no undertaking was reached for such an office. The commission recommended that the then Department for Business, Enterprise and Regulatory Reform should establish an ombudsman
“to give the Ombudsman the power to levy…penalties on the retailers for non-compliance.”
I thank my hon. Friend for introducing this excellent Bill. Does he accept that part of the problem with trying to get a response from the supermarkets is that they are utterly divided? It is a myth to pretend that all supermarkets are opposed to an ombudsman, and that is why we need to legislate on behalf of the good.
I am grateful to my hon. Friend for highlighting that point; I am sure that other hon. Members will do the same. Some supermarkets have embraced not only the code but an ombudsman, because they believe that that is in their interests as well as in the interests of suppliers and consumers. At the end of the day, we all want to reach the goal of a healthy food industry and grocery industry in Britain.
I have lobbied and campaigned for an ombudsman for an awfully long time. Having somebody independent of Government and the supermarkets making the decisions would have the advantage of giving confidence to suppliers to invest for the long term and take long-term decisions.
My Bill has been the subject of a lot of discussion in the press. I welcome the announcement by the Conservatives that they agree that there have been market failings in the current circumstances and that we should have an independent ombudsman to right that wrong. In January, the Government accepted the need for a body independently to enforce the code of practice. The Minister for Further Education, Skills, Apprenticeships and Consumer Affairs, my hon. Friend the Member for Cardiff, West (Kevin Brennan), announced that the Government accepted the Competition Commission’s recommendations and said that a consultation would be undertaken on the new code, which came into force on 4 January 2010— a consultation not on whether we need an ombudsman but on how best that ombudsman should be housed and have the tools to enforce the code. I am very grateful that as we go into the next general election the two major parties support the appointment of an ombudsman, as do all the other parties in this House. I am speaking from a position of strength and consensus in promoting this Bill. It has always been my intention, and that of its sponsors, to create that consensus across the House to ensure that we get the best deal for suppliers and for consumers. I hope that we can move forward on that united front.
Of course, there are those who oppose the Bill, including the British Retail Consortium and, as my hon. Friend the Member for Stroud (Mr. Drew) said, some of the supermarkets are divided on the issue. However, I believe that the momentum is going in its favour and that the supermarkets will find that they have nothing to fear from fairness in the grocery market supply chain.
The hon. Gentleman has alluded to the British Retail Consortium, which has described his proposal as a new “multi-million pound bureaucracy”. It obviously has ramifications in terms of costs. However, the National Farmers Union has said that the cost of the ombudsman would be as minimal as 0.005 per cent. of the turnover of the supermarkets, which amounts to some £70 billion. Given what he is trying to achieve, surely that represents real value for money.
Yes, I agree with the NFU. I do not agree with the NFU on all issues—in fact, there are some on which I am diametrically opposed to it—but on this one, I have worked with it, and I have seen the figures. An independent analysis of those figures comes to the same conclusion about the costs. I believe that they could be absorbed quite easily. In proposing a code and an ombudsman, we are seeking fairness whereby suppliers can invest for the long term, can display more innovation, and can give more choice to the consumer.
Does the hon. Gentleman believe—it is not clear from his Bill—that a complainant should be able to complain to the ombudsman and remain anonymous? The supermarkets have said that that would be a grave breach of natural justice. What is his position on the matter?
I certainly do not agree that it would be against natural justice. A supplier—perhaps a sole trader—who has a long-term contract with a supermarket and depends on it for his or her livelihood might find that the supermarket had retrospectively changed the conditions of the contract. In taking the complaint to the ombudsman, that person should have some cover whereby the facts can be presented, the contract can be produced, and the outcome can be arrived at transparently. They should have the benefit of not being named, because their livelihoods depend on it. I am sure that the hon. Gentleman supports sole traders and small businesses. The Competition Commission recommended, in the interests of fairness, that they should be added to the ombudsman’s responsibilities.
Surely the real issue is the inequality of arms between a small supplier and a mega-multinational supermarket. The supermarket is of course entitled to know the case that it has to meet, but that does not necessitate the identification of the individual who has made the complaint, who could be eaten up alive by the giant power of the supermarkets. What is important is that the supermarkets know the case that they have to make—the gist of the case, as we say in other aspects of the law that we debated earlier this week.
My hon. Friend is an accomplished lawyer, and he understands these things far better than I do. That concern is not covered in the Bill, but there is no hidden agenda. The intent is to help and support the small supplier and small trader overcome the existing imbalance in the grocery market. He is absolutely right about that.
The hon. Gentleman is making an important point. Further to the anonymity of complainants, it is more important to emphasise that the ombudsman should be able to undertake investigations on a proactive basis, because even if a complainant were to act anonymously, it would be pretty clear, at a very early stage of the investigation, where the original complaint might have come from. When the OFT undertook an inquiry into the effectiveness of the supermarket code of practice published in February 2004, it found that suppliers would not complain because of what they described as a climate of fear about the consequences should they use the remedy available to them.
The hon. Gentleman is absolutely right. Let us not forget that the inquiry undertaken by the Competition Commission took some two years and included cases and evidence from a wide range of bodies, and its conclusion was that the ability to make anonymous complaints was required by some small businesses. There is no hidden agenda in the Bill. We cannot put everything in it, but the intent is as I am outlining. Clause 1(3) sets out the purpose of the ombudsman, which is to
“ensure fair dealing between retailers and their suppliers…promote competition for the benefit of consumers…enforce the Groceries Supply Code of Practice… (“the Code”), including the investigation and determination of complaints and disputes under the Code; and…fulfil the purposes set out in the Recommendations from the Competition Commission to the Minister of State for Business, Innovation and Skills on 4 August 2009”.
It is therefore clear what the Bill is intended to do. It has widespread support, and I believe that we should move forward and establish an ombudsman as soon as it is practical to do so.
Clause 1(4) calls for the ombudsman to be independent of the OFT. There has been some debate about that, and I fully understand why, but to me, an independent ombudsman is one that will investigate and make a determination on conduct allegedly in breach of the code thoroughly and objectively, without outside interference. It will have to build up trust and be easy to access by suppliers, retailers or the OFT itself. It is important that it be independent, and seen to be independent, in dealing with the complaints brought by those three groups and bodies.
I understand the hon. Gentleman’s point, but can he explain how on the one hand he is asking the OFT to establish the ombudsman, and on the other saying that it should be independent of the OFT? How on earth can it be independent of the OFT if it has been appointed by it?
The answer is quite easy—we lay down the principles and allow the ombudsman to get on with its work, listen to complaints and act on the evidence that it is given. It is very simple. Parliament sets up many independent bodies and accepts their findings, so I do not see a conflict.
This is potentially a point of contention, but it is one of detail and does not undermine my party’s basic principled support for the idea of an ombudsman, which the hon. Gentleman has mentioned. It seems possible to argue that an ombudsman within the OFT would be a good deal cheaper, because it would avoid duplication while having all the same powers as the ombudsman that he proposes. I hope he accepts that the OFT itself is independent and has all the determination and resolution that he wants in his independent ombudsman. I am not sure why having an independent ombudsman independent of an independent OFT is necessarily an advantage over having the ombudsman within the OFT itself. Perhaps he could explain.
I can explain my position, but I am uncertain of the Conservatives’ position given what the hon. Gentleman has just said. My understanding is that they want an independent ombudsman within the OFT, and that is what I am saying. I think we are at one on that. The issue is not whether it is housed within the OFT, although there is a debate to be had about that in Committee if the Bill progresses. What is important is that it carries out its duties fairly and transparently, and that all sectors—the OFT itself, retailers and suppliers—have confidence in it.
I agree with the hon. Gentleman, because I do not want to set up an empire—a block of flats with “Ombudsman” on the door, a wide range of suites on the fifth floor and so on. I want an effective body that will adhere to its responsibility. I am not really worried whether it is housed in the OFT’s building, but I want it to be independent in that it makes its own decisions, so that the code can be applied correctly.
I have to be honest with the hon. Gentleman and say that I do have some concerns about the OFT, which is why we both want to have an ombudsman. If we were 100 per cent. confident in the OFT, we would not be arguing for an ombudsman. The word “independent” makes some people worry that we are going to set up a complete independent body, but whether that is necessary is a matter for debate. We need to establish the principle that we all share and ensure that the ombudsman does its job effectively.
The hon. Gentleman says that he does not want to set up a great empire, which I am sure is a great relief to everybody, but clause 1(5) states:
“The Ombudsman may appoint staff which the Ombudsman thinks are necessary for the fulfilment of the Ombudsman’s functions.”
That seems a pretty wide-ranging ability for him to appoint as many people as he wants, in order to create such an empire.
Again, the hon. Gentleman tries very hard to drag this down, but he is not succeeding. If he is suggesting that the ombudsman could do the job on his own, handling a flood of complaints from retailers, suppliers and the OFT, he needs to consider the matter more seriously. There need to be certain resources, but whether there could be economies of scale, perhaps through joint use of IT equipment and so on with the OFT, can be debated if the Bill proceeds into Committee.
The exchange about the ombudsman’s independence was particularly helpful, because the extent of that will clearly be an issue for detailed debate. It is encouraging that, as I understand it, we all agree that the ombudsman must not be able to be overruled by the director general of the OFT. If there are ways of saving costs by bringing the ombudsman under the same roof as the OFT, with the same front-of-house facilities, or other ways of avoiding loading additional costs on those who are paying for the service, we should consider them. We are all moving in the same direction—we believe fundamentally that the ombudsman should not be overruled by the OFT.
The hon. Gentleman eloquently makes my point for me. That is what we agree about—there is more agreement than disagreement between all the parties about the need for an independent ombudsman. However, the hon. Member for Weston-super-Mare (John Penrose) made the valuable point that the details are a matter for debate, which we should have in Committee to tighten up the Bill and ensure that we are all singing off the same hymn sheet.
It is important that the independent ombudsman has real teeth to do its job, so that it can build trust. If it were seen as just part of the OFT, perhaps retailers and small suppliers would not have the faith to go to it. They might feel that the OFT was an arm of government, with its director general making the decisions. That is why we want to establish an independent ombudsman.
Many of the Bill’s clauses are technical, and there were many points that I would have liked to put into it but could not. However, I have explained that the need for the ombudsman has come from the Competition Commission, not from vested interests. The commission has examined the matter thoroughly. The hon. Gentleman said that the OFT could set it up, and I think we can all agree about that, because the OFT is set up in such a way that it can deal with competition issues, but the ombudsman’s independence is crucial.
The Bill has cross-party support, and I have talked to a number of Members about it. Its sponsors come from all parts of the House, which is important. The debate outside has also been useful. Yesterday there was a reception hosted by the Grocery Market Action Group, and many organisations were there. I would have liked more dialogue with the supermarkets, but some of them made their views clear in statements to the press. There are divisions between them, and the ones that have already accepted the code, as they will have to, have nothing to fear from a referee or an ombudsman. I make that point time and time again. If we have the fairness and firmness of an ombudsman, we can all benefit. So I welcome the Government’s moves in response to the Competition Commission’s report, and I believe that the Bill can help and be a vehicle for creating the post of ombudsman in law.
We all value this country’s food industry—its diversity and strengths. The small and the not-so-small organisations throughout the supply chain—producers, suppliers and retailers—are important to us, and they need each other to survive. The Competition Commission held an extensive inquiry and concluded that there are market failings. A voluntary code has not delivered fairness for suppliers or consumers.
The new code of practice has been in place since 4 January to ensure fairness and reduce the risk to suppliers that many hon. Members identified in their interventions. If we reduce the risk to suppliers, we allow them to invest for the long term, which allows for innovation, better quality products, more variety and more choice for the consumer. To ensure that the policy and the code work, we need the ombudsman. I hope that the House will accept that today. If I catch your eye, Mr. Deputy Speaker, I would like to comment on others’ remarks later.
I support the Bill, on which I congratulate the hon. Member for Ynys Môn (Albert Owen). As a sponsor, the most helpful thing I can do is not take too much time on a Friday morning. Having engaged in debates on the issue on several previous occasions, I refer hon. Members to my remarks in those debates.
Today is St. Piran’s day—Cornwall’s patron saint’s day. For a Cornishman to be away from the country of Cornwall and up here in England’s capital city of London shows my commitment to the Bill. To be here on St. Piran’s day shows commitment above and beyond the normal call of duty for a Cornishman. I am missing out on many processions and celebrations in Cornwall in order to demonstrate my support for the excellent measure.
I am pleased that we have the Bill after so much work over so many years by many organisations from diverse backgrounds and interests. In the Grocery Market Action Group, organisations such as Traidcraft, ActionAid and Friends of the Earth work co-operatively in the same room with the National Farmers Union and the British Brands Group. That demonstrates the breadth of interest and concern that has brought people together to seek fundamental fair dealing.
Those who are involved in the proposals have never argued that the supermarkets’ actions are in some way evil and that they must be stopped. Their behaviour in the past couple of decades has been entirely rational in the context of the market. It is rational for them to use their power in the marketplace to drive the hardest bargain that they can to sustain the highest possible share price and dividend for their shareholders. They are in competition with their few rivals, and that is how they must judge their success as companies.
However, those who are concerned and come from constituencies such as mine, where many small suppliers—small growers, small farmers, fishermen and others—supply the supermarket chains, ask when effective, successful, clever, even creative use of market muscle becomes abuse. Buyers’ impact on the suppliers and what has been going on behind the scenes has been investigated and considered for many years. Those of us who have been involved and concerned about the matter have urged the Competition Commission and the Office of Fair Trading over the past 10 years to acknowledge that rather questionable practices have occurred. Those practices are in the interests neither of suppliers who wish to innovate, nor of consumers, who want a good range of products at competitive prices in the shops.
I emphasise to the hon. Gentleman before he intervenes that the Competition Commission clearly found in its report evidence of the transfer of excessive risk and unexpected costs, which have an impact on supplier innovation and ultimately on the consumer’s best interests.
The hon. Gentleman paints a picture of supermarkets being supplied exclusively by quaint, small farmers, when—because supermarkets are so big, have so many customers and need so many products—most suppliers tend to be big multinational companies, some of which are bigger than the supermarkets. He talks about supermarkets abusing their market muscle, but why is he so determined to stand up for huge, multinational suppliers when the supermarkets are negotiating with them to try to reduce the price for the consumer?
I am grateful for that intervention. Of course, when there is no evidence of unfair dealing between the suppliers and the supermarkets, there is no case to answer. The ombudsman’s ability to investigate the trading practices is a back-stop, so if the hon. Gentleman is right, there will clearly be no case to answer. The Competition Commission investigated the matter more thoroughly than I believe the hon. Gentleman has been able to do, and it has reached clear, balanced conclusions.
The hon. Member for Shipley made an important point. However, under the Bill, suppliers and retailers will be able to complain about any injustice. I cannot understand the problem. If he thinks that there is an imbalance, and that huge suppliers are unjust to the retailer, the complaint can be made.
I am grateful for that. The hon. Gentleman is right. I hope that, in Committee and at other stages of the Bill’s passage, fair trading working both ways—the boot could be on either foot—will be emphasised. Of course, it is possible that a Cornish potato grower would approach the chief executive of a large supermarket and say, “Here are my potatoes. You’re selling them two for the price of one, you’re paying and I want the money up front a month in advance. If there’s any wastage that damages the good name of my product, or you damage my reputation by not handling my goods properly, after I’ve delivered them to you in pristine condition, you’ll pay a fine. If you don’t agree to those terms, I won’t supply you.” When the boot is on the other foot and the supermarkets wish to complain to the ombudsman that their suppliers are treating them unfairly, the ombudsman should examine both sides of the relationship. However, the Competition Commission’s point is that it has found questionable practices working the other way, and that suppliers are being treated unfairly. It has clearly concluded that an ombudsman is needed to uphold the principle of fair dealing, which is why the Bill is vital.
I do not wish to speak for very much longer, but one element of the Bill that needs to be emphasised strongly—I highlighted it in an intervention—is the need for the ombudsman to be able to undertake investigations proactively, as well as on the basis of overt or anonymous complaint. Ultimately, the Bill will benefit not only the market, but consumers, who have a massive interest in the measure.
Supermarkets could also benefit significantly. Those with a turnover of more than £1 billion will be covered by the Bill, and many such supermarkets support it—admittedly, some only conditionally. They should embrace the measure, because at the end of the day, if they have nothing to hide, they have nothing to fear. At the end of each year when the ombudsman reports, what could be better for supermarkets than the ability to say that the ombudsman has investigated them, found that their relationship with their suppliers is positive, and given them a clean bill of health?
I take the hon. Gentleman’s point about investigations. It is entirely possible that if the source of an anonymous tip-off needs to be protected, they can be so protected if the ombudsman, the OFT or whoever carries out an investigation discovers the information in the files of a supermarket—that can be an effective way in which to maintain the anonymity of a whistleblower. However, that relates to an earlier discussion, to which we may have to return in Committee, on whether the ombudsman should be part of the OFT, which obviously already has such investigative powers. There is a danger of duplication and heavy-handed intervention, because the powers already exist. We might need to deal with that more detailed point in Committee.
I entirely acknowledge that that needs further investigation in Committee, but my response now is that if the OFT had been using such powers, we would not be here discussing the need for an ombudsman. I am critical of the OFT and its attitude towards such matters, because it does not wish to look beyond satisfied customers at the checkout and through the supply chain. That has always been a problem for those of us who are concerned about supermarkets’ suppliers. However, the hon. Gentleman makes a perfectly fair point. Legislators need to be aware of, and to monitor continually, such matters, so that we do not end up absurdly over-regulating or engaging in heavy-handed interventions.
There are tremendous advantages in the Bill for the larger retailers. If at the end of each year they can be seen to have been exonerated by the ombudsman, they could shout about it and use it in their publicity. It would be good for supermarkets’ public relations if non-governmental and campaign organisations congratulate them when an ombudsman’s report proves that they have treated their suppliers fairly.
That parallel is entirely right. In previous debates on the matter, I proposed that a food trade regulator—that is what I proposed to call such a body—should be able, at the end of each year, having undertaken proactive investigations, to provide such a charter mark or badge to a retailer and give them that level of exoneration.
That would also reassure retailers’ customers. The National Federation of Women’s Institutes is concerned about the future of the dairy industry, but many other bodies are informing their members—millions of people—about the impact of the relationship between supermarkets and suppliers. People are concerned, but when they go into supermarkets, they are not always aware whether their purchases are a good or bad thing or whether they are sending the right signals. The transparency and reassurance of an ombudsman would be welcome for both consumers and supermarkets, which the latter should embrace.
Another benefit for supermarkets and large retailers is the ability to plan for a continuity of supply. That is important for both them and their customers. Agricultural support used to encourage supply, but we have now moved away from that. If we are to have continuity, we must have profitability right the way along the supply chain. A regulator could achieve both that and continuity of supply.
I strongly agree. That is one reason why the National Farmers Union of Scotland and the Farmers Union of Wales support such a measure—I pay tribute to the latter, which has pursued this line for longer than the other farmers’ unions. One beneficial outcome, which I would have thought British-based large retailers would have acknowledged, is that a supermarket ombudsman would provide and underpin stability to British growers and producers. That can only be good thing. Many people in this country are concerned about the self-sufficiency of the UK production and supply base. The uncertainty created by the relationship between supermarkets, suppliers and producers has in turn created a climate in which growers and producers frequently go out of business—the margins are so small that the viability of many sectors is in question. Greater stability and certainty within the market will improve British production and self-sufficiency.
I am concerned by the hon. Gentleman’s last couple of remarks. Will he clarify that there is a distinction in his mind—because there certainly is in many other hon. Members’ minds—between the proposal for a grocery market ombudsman and his party’s wider proposal for a food industry regulator? The Bill is for a smaller, more circumscribed body, and if the hon. Gentleman wished to push it a little further he might find that the cross-party unity starts to fray rather rapidly.
That is a fair intervention and one that might be probed further in Committee. One issue that is very much open to debate is how far up the supply chain this measure would go. The Competition Commission originally suggested in its recommendations in 2008 that the supermarket ombudsman should concern itself with the ultimate supplier to the supermarkets, but many of the primary producers see those ultimate suppliers as being in the pocket of the supermarkets as they pass on the demands of the supermarkets down the supply chain. The ombudsman should have the ability to take complaints from primary producers, and I hope that we will have the opportunity to investigate that issue further.
I have spoken for longer than I intended, but I have taken several interventions through which we have been able to explore the issue. This is an excellent measure. I know that the Government have been consulting on it since 4 February, and I hope that responses are coming in thick and fast. There is strong support from my party for the Government’s move on this issue—albeit that it is late in the day. We want to see the measure on the statute book and the ombudsman in place as soon as possible.
I am delighted to speak in support of this excellent Bill. I know that the eyes of the world may not necessarily be on us this morning, but that is a great shame, because we are doing something worth while that will bring fairness into the lives of producers and consumers. Most people I talk to believe in the need for fairness in the food chain in particular, as well as in all other aspects of consumption.
I pay tribute to my hon. Friend the Member for Ynys Môn (Albert Owen) for introducing this Bill. It brings to a head the campaign that the hon. Member for St. Ives (Andrew George) has led admirably, and I am pleased to add my support today. It is wonderful that we are doing the work for the three Front Benches. I hope we can make some progress today, given that consensus has broken out—
Well, as with all consensus, there are those who choose to break it. We might be able to win them over with the power of our arguments and the clarity of our rhetoric.
I declare an interest, as a Co-operative MP as well as a Labour MP, and I have lobbied the Co-operative Group for some time on this issue. I like to think that it will come off the fence eventually and support the idea of an ombudsman. It is a democratic organisation, and sometimes it takes time to get a decision on a particular issue. The Co-operative Group has more to gain than most from this Bill, because of its belief in mutuality, fairness, justice and openness, so I hope it will support the measure and help to move towards a strong ombudsman that does the job properly.
This has been a long fight, and as in all long fights, it is very satisfying to be almost within sight of the end of the road, although we will not know how it will work until it is tried. I do not want to count my chickens when it comes to this bit of the food chain until we have seen whether the ombudsman—if and when set up—has not only the power, but the willingness to perform the activities we would like to see. As both my hon. Friend and the hon. Gentleman said, it is pleasing that the Bill would give the ombudsman the ability to be proactive, but the office holder has to be willing to use that power.
I pay tribute to the coalition led by the hon. Gentleman, who has brought together a good group of organisations—listed by my hon. Friend—representing a wide range of interests. That variety of interests has been a useful argument against those who claim that this is a narrow, sectarian Bill on behalf of narrow, sectarian interests. In fact, if we were to add up the millions of people represented by the organisations in question, it suggests that we are on the side of the angels, and I am proud to be on that side of the argument. It takes a brave Member to take on the Women’s Institute, as a former Prime Minister knows only too well. Certain hon. Members need to tread very gently.
The hon. Gentleman made it clear that we have been dismayed by the lack of action by the Office of Fair Trading and the Competition Commission. This proposal is the culmination of the latest review, but there have been previous reviews and some of us were unhappy with the outcomes, which were unclear and did not help our cause. We are pleased that the statutory code of practice will now be overseen by the ombudsman, apparently.
Another important issue—although it is not within the purview of the Bill—is the planning arrangements that affect supermarkets. That is another area of dispute and, without making allegations, I can say that there is a degree of anti-competitive practice. As I say, that is not part of this Bill, but it is part of the overall context in which we have seen a growing coalition around the introduction of an ombudsman.
Some three years ago, I conducted a survey to look at why it was so difficult to achieve clarity in the relationship between the suppliers and the supermarkets. It was an anonymous survey and the aim was to try to elicit information from the 100 leading suppliers—by size—so that they would be encouraged to give evidence to the Competition Commission inquiry that was then in progress.
I shall explain why the basis of that inquiry had to be one of anonymity. I wrote to 100 leading suppliers asking for anonymous replies, but received only four, three of which said that it was not worth their while commenting. The one that did comment, however, was interesting. I cannot say who it was, of course, because I do not know—it was sent back anonymously—but the comment concerned a classic abuse well known within the trade but probably not among most consumers. One hears about it when one asks a supplier how retailers retaliate if they feel that the supplier is not playing by the rules of the supermarket’s game.
The products of those 100 suppliers are well known, so it would be foolhardy for supermarkets to take action against them. If a customer says he wants a tin of so-and-so, a bottle of this or a packet of that but does not get it, he might go to a competitor, so supermarkets never take action against a main product line. However, if they feel that a supplier is being difficult or not meeting their requirements—the supplier might be bringing undue pressure to bear—they could take action against the secondary product lines or, in particular, the new ones that the supplier might wish to introduce. How a supplier introduces a new product is entirely dependent on retailers—where they put them, what deals are done and how willing they are to buy them—so suppliers live in fear of the supermarkets’ ability to exact retribution.
We have to talk about that culture of fear. We are here to build bridges, but we must consider the context. Even the biggest suppliers live in fear of what could happen to them. This is not about corner shops or small producers facing difficulties if they lose a contract, but about the big guys still fearing the even bigger guys. I thought the rugby referee analogy, used by my hon. Friend the Member for Ynys Môn, was a good one, so I shall take it further. Were this about the odd trip, a push in the line-out or a ball being chucked into touch when it should really have been kept in the field of play, all I would say is, “Well that, I’m afraid, goes on.” However, that is not what we are talking about; we are talking about the intricacies of the front row—the odd bit of eye-gouging and the occasional use of the boot to make it clear who is in control of the game and who stands to lose if they push their luck too far. That might have gone on in the old days of rugby, but in these days of cameras and so on, people are less inclined so to behave, particularly given that they could end up with a fine after the game or—dare I say it?— a ban. [Interruption.] We have not got on to the ear-biting—we will leave that for another day.
That is what the ombudsman would do. It is about introducing fairness, justice and transparency to the operation of the food chain and, more generally, the supply chain.
That is very good, so I shall continue the analogy. If people are found to have cried wolf, they will face even greater retribution, but this time, not only will the supermarket be having a go at them; they will face the full power of the ombudsman and could have their manager removed, their players banned and so forth.
I ask this question genuinely, as I always do: what do the supermarkets have to fear from the introduction of an ombudsman? Three arguments have always been used against it. The first is that the supermarkets do not need one, because there is nothing wrong, everything is above board and everybody is happy. Why, therefore, did evidence have to be given in confidence and anonymously? The reason, of course, is that that is not the case. The second argument is that an ombudsman is too expensive, but the hon. Member for St. Ives has exploded that myth. It is not too expensive; this is a minor cost, expected to be about £5 million shared among the biggest retailers and supermarkets. The cost is minimal.
The third argument goes, “We can best do this ourselves, and we don’t need these terrible people from Government interfering and setting up this apparatus.” As I said in an intervention to my hon. Friend the Member for Ynys Môn, however, supermarkets are divided on that. Some would welcome an ombudsman, because they have accepted that there is unfairness in the system and want to have their names cleared in the light of allegations that might swim around, and which might blacken their names along with those of retailers who clearly are offending. So I welcome what we are trying to do.
I welcome the fact that all three Front Benches have signed up to the proposal and that we have established, in setting up the ombudsman, some key principles, including transparency and the ability to investigate, with the possibility of clear action—including punishment—following. It would not have to include punishment or fines, however: there might simply be a need to consider how an aspect of the supply chain operates. Other key principles include fairness and proportionality. The latter point, which perhaps no one has touched on, is underestimated: we are talking about not the imposition of massive fines, but proportionate responses where malpractice has been established, and justice being exacted to ensure that those who have caused the problems learn from their mistakes.
I also welcome the international aspect of the proposal, because some of the greatest unfairness occurs against those who import, usually from the developing world, and are subject to all manner of restrictions and malpractice. I hope that we can identify that and try to restore fairness to the terms of trade. I hope, therefore, that there will not be any opposition to the measure. There might be criticism, but the right place for a critique of, and for improving, the Bill is in Committee.
I am pleased to be sponsoring three other private Members’ Bills—somewhat foolishly, perhaps—which is why my time is even more valuable than normal. However, if I am chosen to sit on this Bill Committee, I hope that we can further improve the Bill, because that would be the right place for a critique and to put in place the detail necessary to make the Bill do what we want it to do. I hope, therefore, that the Bill gets a Second Reading shortly, and that there is, building on this unanimity, a desire to reintroduce greater fairness into a supply chain—what was a food chain—that has worked well in the past, but which in recent years has been subject to an imbalance between the supermarkets and suppliers.
I am against the Bill. It is wholly misconceived, and I shall, without shame, speak on behalf of the consumer. The Bill would give the right to suppliers to go to an ombudsman, but not to consumers to go to the ombudsman and complain that the consequences of its work were that the costs of products were rising and that they were having to pay more.
It would be bizarre if the House let the Bill pass on the nod, when it has been so strongly attacked by one of most successful entrepreneurs this country has ever produced—Sir Terry Leahy, the chief executive of Tesco. When he was interviewed by The Financial Times on 12 February, he said:
“I'm not in favour of an ombudsman. Everyone knows supermarkets are one of the most competitive industries around. That competition puts power in the hands of the consumer”.
“In a free society, why would you want an ombudsman if there are no problems now as far as consumers are concerned?”
“An ombudsman would be there to protect suppliers but should be there to protect consumers.”
Does the hon. Gentleman not agree that the profits made by the supermarkets are the motivation for such statements, and that, while the consumer will fare very well as a result of the Bill, the profits of the supermarkets may be adversely affected by it?
Some supermarkets are profitable and some are not. Those that are not profitable go to the wall. There is clearly enormous scope for new market entrants. Aldi and Lidl, for instance, saw the opportunity to push into the supermarket business, where there is currently a lack of competition, and they have exploited the gaps in the market. The successful supermarkets have grown. They are the ones that have kept in touch with their consumers.
We all know of examples of supermarkets that have failed. When I was a student, my local supermarket was Safeway. Safeway is no longer on the high street, because it failed. When I was a teenager being brought up in Cornwall, where my parents lived, there were no supermarkets there, and I recall the sense of excitement when Marks & Spencer opened one in Truro. As the hon. Member for St. Ives (Andrew George) will confirm, Truro now has an enormous Tesco, an enormous Sainsbury’s and a very successful Marks & Spencer, and not far outside Truro there is a very successful Asda.
There was a time when the Cornish peninsula was starved of the competition and choice that comes with supermarkets. It is regrettable that, as far as I know, Waitrose has not yet extended its services to the peninsula, and I hope it will not be long before it does. I am delighted to be speaking immediately after the hon. Member for Stroud (Mr. Drew), who is a member of the Co-operative party. There was a great air of excitement in my constituency when the Co-op store in Christchurch closed and was replaced by a Waitrose. That is what happens in the real marketplace.
I am grateful to the hon. Gentleman for reeling off the names of all the supermarkets that have moved to Cornwall. We experienced the same situation in north-west Wales during the 1980s, when there were very few supermarkets in the area. That has now changed. Because people are feeling a little wealthier and able to spend more, they are attracting more retailers, including Waitrose in my constituency. I welcome that, and Waitrose welcomes the idea of an ombudsman. It is not true that all supermarkets oppose the idea. Many are in favour of it, and see it as the way forward.
Some supermarkets may see it as the way forward, but it is possible that they have not looked at the Bill very carefully. I think the Bill constitutes a grave distraction from the real issues affecting consumers and, indeed, suppliers.
One of the biggest problems for a supplier based in Cornwall is the cost of taking his goods to market. That is largely due to the cost of transport and the high taxes charged on diesel, which discriminate against suppliers from the more remote parts of the country. What will the Bill do about it? Nothing whatsoever.
What about the common agricultural policy, which is probably the greatest burden that consumers of grocery products in this country have to bear? I am glad to see that the hon. Member for Stroud agrees with me about that. The common agricultural policy probably adds about £1,000 a year to the average family’s grocery bill. That is the big issue we should be trying to address, but the Bill avoids it. What about the costs of regulation imposed by Government on supermarkets, other retailers and suppliers? What about the VAT that is imposed on an increasingly wide range of supermarket products, including, I understand, Pringles? What about all the extra regulations that are constantly being introduced, and which discriminate against the small supplier?
The House should be addressing those major issues, rather than going along with the superficially attractive idea of creating an ombudsman whom the Bill would allow to impose unlimited fines and costs on grocery suppliers and supermarkets, and to reach determinations based on anonymous complaints against which there could be no appeal other than on a point of law. The Bill pushes arbitrariness far beyond what is reasonable. Those who are campaigning against it are well advised, and I am glad that they have support from Members of Parliament. There may not be many Members in the Chamber today, but I know that my hon. Friend the Member for Shipley (Philip Davies) and I are not alone in our concern about the Bill.
In anticipation of the intervention from the hon. Member for Stroud, I have it made clear that I oppose the Bill. My hon. Friend the Member for Shipley opposes it as well. I cannot speak for others, but it is a pretty good rule of thumb when we are legislating in this place that if there is a consensus between the Front Benches, it will be very bad for the country. That may not be apparent initially, but it usually becomes apparent later. The ghastly Dangerous Dogs Act 1991, for instance, was passed on the basis of consensus. So, in the end, was the ghastly high hedges legislation, which some of us opposed. It was passed with no debate whatsoever, as part of the Anti-social Behaviour Act 2003, and I receive a lot of complaints from people who say that it raised expectations but has not delivered the goods. There are many other examples.
The hon. Gentleman has identified two Members who oppose the Bill. Would he care to list those outside the House who oppose it, apart from Sir Terry Leahy, whom he mentioned earlier? It is a fact that the National Farmers Union, the Women’s Institute and various other bodies that are represented in all our constituencies have thought about the issue. They are consumers, and they have concluded that the current system is unfair. Does the hon. Gentleman simply ignore what they say and what the Competition Commission says?
I shall not respond to the hon. Gentleman’s challenge and list everyone who opposes the Bill, but my hon. Friend the Member for Shipley referred to one distinguished individual who has already spoken out against it. I hold no brief for the British Retail Consortium, but it seems to represent a lot of retailers: in other words, a lot of shopkeepers up and down the country. If the British Retail Consortium is against the Bill, as I understand it to be, I am sure that its members are against it. If they are not, they will soon be resigning from the consortium in accordance with the principles of the marketplace.
I can say with some confidence that if consumers realised that the Bill would push up the prices they pay in the supermarkets, they would be opposing it in large numbers. They would be lobbying and petitioning against it. I am sure that if they realised that, under the Bill they would have no right to bring cases to the ombudsman or to make representations about the consequences of the restrictions on competition that the Bill would impose, they would be eager to speak out on the subject.
We are sent to this place by our electors to exercise our judgment on the issues before us. Despite the comments of the Bill’s promoter and others who say they support it, the evidence I have seen when one looks beneath the surface is that the Bill will just lead to a lot more bureaucracy and expense and will interfere in one of our most successful industries—our retail industry. That highly competitive industry delivers much lower grocery prices to consumers in the United Kingdom than are found in almost any other part of Europe. Those prices would be even lower if we could address the ghastliness of the common agricultural policy. I shall not go further down that route, Mr. Deputy Speaker, but may I just say that it is important that those of us who think this Bill wrong should have the courage of our convictions and oppose it on Second Reading? [Interruption.]
Thank you, Mr. Deputy Speaker—you take the very words out of my mouth.
I begin by congratulating my hon. Friend the Member for Ynys Môn (Albert Owen) on coming so high in the ballot and on choosing this extremely important issue out of the many different topics available. Introducing this Bill is crucial, and we have waited a long time for it. We have seen the report from the Competition Commission and we have been told that this Bill is a helpful way forward, yet there has not been an opportunity to get it enacted—it is high time that we did.
We can often get lost in nostalgia, thinking back to the time when every village had a little row of shops, but we must remember that that was the time before the motor car—or the time when many people, mostly women, had no access to motor cars—so every bit of shopping had to be carried home. Shopping was therefore done on a daily basis. Of course we have moved on from that and all of us like to enjoy the full range of consumer outlets available to us. We love going into the specialised shop where somebody who has a real love of their product and their trade can spend hours telling us all about it, but we also love going into a big supermarket and getting everything done very quickly.
We are very lucky in Llanelli because we still have an indoor market, which has many of the traditional stalls where people can do a good morning’s shopping and come home with all sorts of valuable products, many of which are locally produced. Obviously, we all want to ensure that there is fairness, be it in respect of the local corner shop, which we value because we can easily pop in at any time—day or night—the supermarket, the indoor market in Llanelli or the specialist producer. Even the British Retail Consortium refers to the code of practice. If it is so keen on the code, it is difficult to see why it opposes the idea of a “referee”, as my hon. Friend the Member for Ynys Môn has termed the ombudsman. It is right that we should have proper rules and regulations and a proper code.
The Competition Commission has taken evidence and made a recommendation, so it has clearly gone into this issue far more thoroughly than perhaps the hon. Gentleman or I can possibly do in the short space of time available to us. It is clear that huge distortion has resulted from the fact that there are one or two large players in this market, and we therefore need to strengthen the tools that we have to deal with them. That is why we want a grocery market ombudsman.
Dairy farmers in my constituency face considerable difficulty. Again, we can recall what happened in the past. I remember accompanying my grandmother when she went to cook and clean on a local farm, and at that stage milking was still done by hand, with the milk put in churns. We have moved on—of course we have, because everybody needs to upgrade. High standards need to be met on hygiene and efficiency, and huge investment by farmers is required to meet them. All that needs to be financed and we know how difficult it is for some of the young people in our constituencies to remain in farming. We know how difficult it is to raise the capital to make those necessary investments and to bring everything up to the required standards.
I very much agree with what the hon. Lady is saying. Does she agree that morale has sunk to an all-time low in the dairy sector and that one of the most attractive qualities of the Bill is the extent to which it will send a powerful message about the ability of primary producers to innovate and to invest, because it will take away some of their concerns and the risks to which they have been subjected by the behaviour of some retailers?
I agree with the hon. Gentleman. It is crucial that we should stop portraying farmers as simply whingeing; what they want is a fair deal. They want their concerns to be taken seriously and they want a fair price. The price of milk has not kept pace with inflation at all—the price has been ridiculous—and those farmers need our protection so that they obtain a fair price. They are not asking for special treatment; they are asking for fair treatment. I recall the time, some 30 years ago, when the whole fair trade movement was very new. A street theatre would show a banana being chopped into pieces to illustrate how much the producer got, how much the middle people got and how much the consumer actually paid. We have come an extremely long way since then—we have come so far that people can buy an enormous range of Fairtrade products, and supermarkets are becoming proud of the fact that they are stocking them. They boast that they do.
We need to value our home producers in the same way. This week, as part of Fairtrade fortnight, we are celebrating the progress that we have made on fair trade in respect of products that come from developing countries, but we must ensure that we do the same for our local producers. We need to ensure that they are also valued for what they produce. I have never quite understood the logic of selling lettuces at two for the price of one. People end up being tempted to buy two lettuces for the price of one, only for them to go home and find that they have already got a few lettuces in the bottom of the fridge. It is extremely difficult to get through a large quantity of lettuce in a short time, no matter how good the quality, and the product does not keep for ever and ever.
The hon. Lady seems to be giving the impression that supermarkets impose things such as “buy one get one free” offers on suppliers, who do not want to pursue them. In the real world, it is suppliers who always insist that supermarkets make these offers because the suppliers see that as a way of marketing their products. “Buy one get one free” offers are the result not of supermarkets imposing them on suppliers, but of suppliers coming to supermarkets because they want to do them.
We will have to beg to disagree on some of these points. The supermarkets have enormous power and there is enormous potential for distortion of the market. One decision made by one very large player can have a huge knock-on effect on everybody else in the market. We are considering fairness here; we are not considering special treatment. We are not being soppy, romantic and overly nostalgic and we are not assuming that nothing should ever change. We accept that there has to be change and that the modern world requires enormous changes to be made by our farmers and producers. We therefore require a fair and level playing field, whereby everything that is thought to be in any way unfair or anomalous can be examined by an independent ombudsman, who can then take up the issues and examine whether there is a way of making things fairer and whether anybody is being badly done by. It is important to make it clear that we are not against the supermarket and we are not against the consumer.
We all understand that modern life is such that people benefit enormously from having a range of shops to which they can go. We know that people sometimes want to do everything under one roof in a hurry and they want the enormous variety that can be put on display by the supermarkets. We also know that at other times people want the shop that is just down the road from them because it is convenient and easy to reach. What is important is that any one player or any one institution is not so large and dominating that other people do not receive any form of fair play.
As I say, we are not looking back and we are not trying to recreate some sort of ideal from the past, which of course was never quite such a golden era as we always seem to imagine. We are living in the modern world and are trying to get a fair deal so that the consumer can know that when they go to buy products, the people who have produced them receive a reasonable price. The consumer demands that nowadays. The consumer demands Fairtrade products, demands to know whether companies that import clothing from third world countries are using child labour and wants to know whether the staff in the local supermarket are allowed to join a trade union. Consumers are very ethical and discerning.
The hon. Lady will agree, I am sure, with the point that has been made repeatedly this morning—the annual report that the ombudsman will be required to provide to give a bill of health on the performance of the supermarkets in these matters will give the consumer exactly the kind of information that is needed. Far from this being a supermarket-bashing debate, it is about empowering consumers to make decisions on the behaviour of the supermarkets. That should surely be welcomed.
Indeed. The interest in ethical investment and in wanting to spend one’s money in businesses that one feels are ethical is growing daily. People want to make ethical investments, whether by investing in certain companies or shopping in certain places. Consumers are asking questions. They are asking whether people are treated fairly—whether staff are treated properly in the local supermarket or whether the producer gets a fair price. If the ombudsman can give a bill of health to a supermarket, it will be proud of that fact. It will probably want to badge it in some way and to talk it up in their local community. It is important that we get full consensus behind the idea, as it is through the support of the law-abiding majority that we make laws in this country, and that applies in this case. The supermarkets that are doing the right thing, that care about the price that they pay their producers and that look after their staff and consumers are not worried by the idea of a referee.
The idea that a referee could be damaging in any way seems completely absurd. Clearly, the idea is that those who play fair are dealt with fairly. The only difficulty would arise if there was exploitation or if totally unreasonable pressure was applied. As the hon. Member for Brecon and Radnorshire (Mr. Williams) said, it is not just a matter of price. It might also be a matter of terms and conditions. We know that, with the difficulties of the economic downturn over the past year and a half, ready income is important to the small supplier. We know that being paid promptly can make a huge difference between being in business or going out of business. It is not simply a matter of price—terms and conditions come into it, too, and so might such things as exclusivity clauses and ways in which the producer can be hemmed in or forced into a position in a manner that, frankly, we would term bullying in many other spheres of life. The producer cannot wriggle out or choose who they supply. We are busy talking about choice from the point of view of the consumer, but the producer also needs freedom to act so that they can get what they feel is the best price for their product and are not hemmed into a particular way of production and supply for a particular chain.
To sum up, we need to live in the modern world—we should not be nostalgic for times gone past—in which we, as consumers, are ethical and demand good standards, and choice. We want to have the specialist, the corner shop, the market and the supermarket, but we also recognise that the difficulties facing the farming industry at the moment mean that we could lose the ability to produce our own products such as milk. I hear people saying that we could be importing our milk from abroad before long. If someone goes out of business, they cannot simply press a button and start all over again. We all know how long it takes to restock and to build up a herd and a viable dairy farm. It is worrying to hear that some of our dairy farmers think, yet again, that they might have to pull out of the industry. They would be added to the many hundreds who have already done so. We are talking about food security and about a basic product, such as milk, having to be brought in from abroad.
It might come as a surprise to my hon. Friends to hear that we now produce more of our own food than we did back in the 1950s, when we had a large empire and were dependent on imports. However, it is important that we should look to the future and consider how we nurture and protect producers in all sectors. We know that people have to be responsive. Corus, in my constituency, which produces tins for many well-known brands, has to be extremely responsive and it has kept going through the economic downturn because of its immense flexibility. It is prepared to switch in a fortnight the style and quantity of tin that it provides for certain big producers because of changes in consumer patterns. If consumers suddenly want more baked beans, more tinned fruit or whatever, the Corus packaging plant in my constituency can change the type of tin that is required very quickly. We need such flexibility from the producer, but we do not want a situation in which producers cannot survive. That is the importance of this Bill. Without a grocery ombudsman, we might well see the end of many of our dairy farms. That is one of the main reasons why I support the Bill promoted by my hon. Friend the Member for Ynys Môn.
I start by congratulating the hon. Member for Ynys Môn (Albert Owen) on having come so high in the ballot—although I am never sure why we congratulate each other on what is essentially a matter of chance—and on laying out this Bill in an extremely logical and careful way. He put the case very strongly and is also benefitting from widespread consensus across most of the House—certainly in the three major parties. He explained that and some of the factors that have led to the building of that consensus over many years. I congratulate him on that, too. He handled many interventions with a great deal of courtesy and logic and therefore managed to deal with an awful lot of the points that were likely to come up later in the course of his remarks.
The hon. Gentleman covered two issues that are worthy of extra detail. The first was the question of large suppliers versus small ones and the second was that of whether the proposed ombudsman should be in or out of the Office of Fair Trading. I propose to come back to them in a moment if I can.
I am not sure whether it is necessary for me to make this point, Mr. Deputy Speaker, but I shall make it anyway on the precautionary principle. My wife used to work for a couple of large supermarkets—
The hon. Gentleman says that his wife did, too. I am not sure whether it is necessary to declare such non-interests, if I can put it that way, but I shall apply the precautionary principle just so that it is on the record.
The hon. Member for Ynys Môn was followed by the hon. Member for St. Ives (Andrew George). As someone with the name of Penrose—a solid Cornish name—I sympathise with the fact that he cannot be too close to Cornwall on St. Piran’s day, which is very important in that part of the world. He is a leading light in the Grocery Market Action Group and I suspect that today is therefore an important day for him and everybody else in that organisation. It represents something of a victory on which they obviously deserve to be congratulated.
It is worth pausing to mark the important distinction that the hon. Member for St. Ives made between fair dealing and price setting. It is vital that everyone acknowledges that the Bill is proposing a mechanism to force and drive home fair dealing, and that it is not about price setting. If the Bill were to trip over the line between fair dealing and price setting, I think that none of us would support it. My party would certainly have great difficulty in doing so.
That is an important principle to establish. To be fair, when I gently asked the hon. Member for St. Ives to distinguish between the ombudsman system that would be set up by the Bill and his party’s proposals for a food market regulator, he was kind enough to draw a distinction and to say that this Bill would involve an entirely smaller operation.
The hon. Member for Stroud (Mr. Drew) then came into the debate. He was broadly, indeed strongly, supportive of the Bill. The only part of his argument on which one or two of us might depart was his comments about modern front-row forwards in rugby. I suspect that he was being sweetly naive in assuming that some of the more dark arts that have been practised for a long time by the front-row union have been reduced in any way. I suspect that they are going on, but in a modified form since the advent of camera use.
I was pleased to hear from my hon. Friend the Member for Christchurch (Mr. Chope), because he spoke up strongly in favour of consumers. The hon. Member for Ynys Môn also said that he is a supporter of supermarkets as well as of consumers and supermarket suppliers, and it is worth reiterating the point that supermarkets have driven down prices for us all. They have expanded choice and quality over many years, and they are, in general, in an incredibly competitive sector which I suspect all hon. Members use regularly. It would be rather double-dealing of us to pretend that they do not offer something that is tremendously important not only to us personally but to pretty much every one of our constituents. It is very easy to demonise them while forgetting that the reason they are so successful is that a great proportion of our voters shop in them every week.
Indeed. People are voting with their feet, and supermarkets are therefore a very important and valued asset in this country.
It is also true, as my hon. Friend the Member for Christchurch pointed out, that supermarkets have built up a notable supply base in many areas over a great deal of time. There has been much discussion in this debate about the negative effects of the strong negotiating tactics used by supermarkets in some sectors, but that is by no means universal. I hope that it will be widely accepted that in the prepared foods and ready meal sector, a strong supply base has been built up in close partnership with the supermarkets. Indeed, the sector would not have been anything like as successful as it now is without that kind of very close partnership and trust between supplier and grocery chains.
In the spirit of the consensus in which the hon. Gentleman is making his comments, let me ask whether he has read the excellent report by Professor Roger Clarke of the Cardiff business school, who looked into this issue in his report, “The Impact of a Groceries Ombudsman on Consumers’ Best Interests”. In the report, he acknowledges the benefits that supermarkets bring to consumers but, as I highlighted in my speech, he also says that if we had an ombudsman to increase fairness and to regulate the market properly, there would be greater innovation from suppliers, which would give greater choice and value to the consumer.
I thank the hon. Gentleman for his intervention. It is for precisely the reasons he has just given that my party supports the principle of having an ombudsman, and I was just trying to make the point that many consumer benefits have resulted from the way in which supermarkets have developed over time. However, we could still do better. The Competition Commission’s report makes that very clear. I think that the report that he has just quoted was among the input to the Competition Commission report that was accepted by the commission and adopted as part of the report. That logic is very robust.
The hon. Member for Llanelli (Nia Griffith) made some supportive comments and made the point very cogently that no matter what prior experiences some of us might have had within our families in previous generations—I think that she mentioned her grandmother who had been involved in dairy farming—we have to live in the modern world. It is therefore important that we set up an architecture of institutions that will work to ensure that will cover the things that the grocery ombudsman will do in the modern world. So, she was also strongly supportive.
I return to the two issues that I mentioned at the start of my remarks—large suppliers and whether the grocery market ombudsman should be in or out of the OFT. I accept the point made by hon. Member for Ynys Môn that these issues should be discussed in more detail in Committee. If the Bill reaches that stage, we will have an opportunity to explore the best way of dealing with them. Let me put on the record my party’s starting point on this issue. We would be quite nervous about having a grocery market ombudsman who sought to protect large oil companies, or large international or multinational suppliers such as Coke or Pepsi, many of which are a great deal larger than Morrisons, Sainsbury’s or any of our British supermarkets. We would be very nervous about an ombudsman who sought to protect such suppliers from our domestic supermarkets. We do not think that it would be intelligent or necessary for the ombudsman to do that, and we would therefore want adequate safeguards in the Bill, should it get to Committee, to make sure that the ombudsman would be focused on the smaller end of the supplier spectrum, which is inherently more vulnerable simply because those suppliers do not have the kind of bargaining power that they would need if they were to go toe to toe with an organisation the size of Tesco or Morrisons, for example.
I am reminded of a story that is not quite an urban myth—probably a rural myth—that circulates widely in my constituency about a local company, Yeo Valley, which is a successful organic dairy and yoghurt producer. It supplies most of the major supermarkets and it has thrived by not being beholden to any one of them by ensuring that not too large a proportion of its business goes to Tesco, Sainsbury’s or any of the others. If any of them try to use muscular negotiating tactics, it is able to withstand them because it has diversified its customer base. It has done that very successfully, and so that is a good model. The story that circulates locally—I have no idea whether it is true, but it illustrates my point—is that when a supermarket buyer turned up at Yeo Valley and said, “Now, look here, we need to reduce the price that we pay you for your yoghurts,” the chief executive of Yeo Valley called his distribution centre and asked it “Will you please call back the lorries that are currently on their way” to that company’s depot “because it can’t pay for the goods?” Apparently, there ensued a rather rapid climbdown from the supermarket’s buyer for the simple reason that he knew that Yeo Valley could afford to do that. There is a point to be made about not trying to protect people who do not need protection and about not trying to protect people against bad negotiating tactics at the expense of people who are capable of producing good negotiating tactics, such as my constituent from Yeo Valley.
The hon. Gentleman makes an important point, but some small producers supply bigger processors. I am thinking about the report that the Environment, Food and Rural Affairs Committee will soon produce on Dairy Farmers of Britain. I do not want to pre-empt the report’s findings, but one thing is certain—that group has gone bust, and that has caused huge problems for very small milk producers. Does the hon. Gentleman agree that we need to look at the whole food industry, including both small producers and larger processors?
The hon. Gentleman’s intervention illustrates my point. It is important to protect people who are vulnerable to over-muscular negotiating tactics but we must not try to extend protection to companies that are either large enough not to need it or to those that are just making bad decisions. There are other reasons why companies go bust. I would not want to comment on the case that the hon. Gentleman mentions, but we do not want to start intervening when a dairy processor, or any other intermediary, goes bust for other reasons, because at that point we are on a slippery slope; that is the thin end of a very large wedge.
It is important for us to limit the role of the grocery market ombudsman so that it applies purely to companies that need protection from over-muscular negotiating tactics, and for us not to try to protect those companies from other follies, or other mistakes that they make, which are part of the normal risks of doing business.
My hon. Friend is making some very good points that appear to be in direct opposition to the Bill. He talked about the thin end of the wedge, but by supporting the Bill—albeit tentatively, it seems—he is supporting a thin-end-of-the-wedge approach, because in many different industries big companies negotiate contracts with smaller companies in the same sector. If my hon. Friend is saying that we need an ombudsman in the food retail industry, surely we will at some point need an ombudsman to deal with big companies negotiating with smaller companies across all industries.
I thank my hon. Friend for that intervention and for the chance to clarify what I was saying, as I was clearly not as translucent as I should have been. We support the principle of the grocery market ombudsman, but I was trying to put down a marker for Committee, should this Bill make it to Committee, that there are issues that will need to be greatly clarified and solidified. Without that, the Bill could be quite dangerous.
My hon. Friend is right to point out the dangers of the thin end of the wedge. The distinction between the market that we are talking about and any of the others to which he alluded is that there has been a Competition Commission report on the former, and that report said that there was a specific set of problems. As to whether he is willing to accept the conclusions of that report, I doubt it, as I have listened to his earlier remarks. It is important to say that I would not wish to extend the principle to any market that had not been the subject of a Competition Commission report that reached similar conclusions; I agree with him that such a move would be an extremely dangerous thin end of a wedge, and could give rise to grave concerns in all parts of the House.
The second point—we have already discussed it, so I will not take up too much of the House’s time on it—is the question of whether the ombudsman should be in or outside the Office of Fair Trading, or at arm’s length from it but within it, or whatever. It seems from the remarks of the hon. Member for Ynys Môn that we are substantially agreed on the importance of independence; there were nods all round when we discussed the matter in his speech, so I will not belabour the point. I should just say that I suspect that there is quite a lot of detailed discussion to be had—again, in Committee—about how we achieve that independence. There may be some discussion about the best kind of institutional architecture to achieve the aim on which we are all agreed. That is a point for another day.
I hope that it is now clear that the Conservative party is in favour of the measure in principle. There are a few items of detail to consider, but they are very important; I am sure that the hon. Member for Ynys Môn, who is the promoter of the Bill, does not expect a blank cheque from anybody. However, we are broadly supportive. We think that the move is good and will advance the cause of both supermarket suppliers and consumers, if done in the right way, and we therefore look forward to the Bill making progress.
It is a pleasure to follow my hon. Friend the Member for Weston-super-Mare (John Penrose), who made some telling points—points by which I was heartily encouraged. I was certainly more encouraged by his speech than by some of the earlier contributions.
We have already been round the houses somewhat in a topical debate that took place on the issue on 21 January. However, with your permission, Mr. Deputy Speaker, I would still like today to make some of the points that I made in that debate. I am used to many of my contributions falling on stony ground, but to say that that speech clearly fell on stony ground would be an understatement, so it appears necessary to reiterate some of the points.
It seems that a depressingly familiar approach has been taken. We stand in this House pontificating about things of which we have absolutely no knowledge. That appears to have been done in spades this morning. The hon. Member for St. Ives (Andrew George) made the point that the Competition Commission had looked into the issue in more detail than I had. He may or may not be right about that; other people can judge. However, although in this debate I have no interest to declare, I would like to think that I have some experience to declare, having worked for a supermarket chain for 12 years before entering Parliament. I would like to think that I do have some knowledge of the industry.
I would also like to think that I have some knowledge of the problems to which hon. Members referred, given that my stepfather was a dairy farmer who went out of business because it was no longer financially viable for him to continue dairy farming. I would like to think that I have some knowledge of that side of the equation, too. It is for others to decide whether the Competition Commission looked into the issue in more detail than I have done, but I hope that hon. Members will acknowledge that I do at least have some knowledge of the supermarket industry; given some of the contributions made, it would appear that some hon. Members who have spoken do not.
We need to start with basics. I do not know what it is about this country, but we seem to have an obsession with knocking anybody or anything that happens to be successful. If anything is successful, we want to cut it down to size and pull it to pieces. The supermarket industry is one of the most impressive industries in this country. We should be immensely proud of it; it has achieved so many things, including for consumers by lowering price. In fact, the Competition Commission itself said:
“Food prices declined, in real terms, by around 8 per cent between 2000 and August 2007…This decline in real food prices is likely to have delivered significant benefits to consumers as shopping bills for the same basket of goods would now be lower in real terms than was the case seven years ago.”
That is one of the great legacies of supermarkets in this country.
If the hon. Gentleman looks at those figures, he will find that the decline in farm-gate prices was far greater than the decline in retail prices, and that leads one to suppose that the supermarkets were maintaining or increasing their margins while putting pressure on the smaller producers.
The hon. Gentleman is completely wrong about that. Anybody who knows anything about the supermarket industry, and particularly those who have worked in it, know that it is one of the most—if not the most—competitive industries in this country. My time working for Asda showed me that it was based on a particularly simple formula: increase volumes and reduce margins. What the hon. Gentleman said is therefore completely and utterly wrong. What supermarkets have been doing year after year is reducing their margins and increasing their volumes. That is what has delivered lower prices.
Milk is a prime example. Perhaps the hon. Gentleman will tell us what huge profit margin he thinks supermarkets have when selling milk. Actually, they do not have a huge profit margin; milk is one of the most competitive products sold in supermarkets. Profit margins for supermarket retailers on products such as milk are very low indeed, if not non-existent. The idea that farmers are suffering on the back of huge profit margins for retailers is simply wrong.
Without wishing to intervene in the discussion about milk—that topic has been very fully debated, not just here but in many other forums—perhaps one of the reasons why there is a disconnect between what my hon. Friend is saying and what was said in the previous intervention is that there are, of course, other players in that supply chain. I am thinking particularly of some of the dairy firms. There is a degree of finger-pointing going on between supermarkets and some dairy firms, on the subject of who exactly is getting this notional extra margin that everyone thinks may be out there somewhere. Everyone is saying, “It’s not me, guv; it’s the other lot.”
My hon. Friend is right. I reiterate that people should not presume that just because the farmers have struggled on a particular product, the consequence is that the supermarket has a huge profit margin on that product. There are, as he says, others involved.
What the hon. Member for Weston-super-Mare (John Penrose) said in his intervention is right. An ombudsman would not point the finger, but look to see where the problem lay and could deal with it. That is the point. If the hon. Member for Shipley (Philip Davies) had listened to my opening remarks, he would know that I talked about the whole supply chain, not just the supermarkets, and I was not simply knocking the supermarkets. If there is an injustice in the supply chain, it should be rectified. I am sure he cannot disagree with that.
The only possible worthwhile consequence of an ombudsman is that the suppliers will be paid more than they are now. If that is not the consequence of an ombudsman, there seems to me to be no point in anyone here proposing one. In view of the small profit margins that supermarkets run to, any increase that goes to any part of the supply chain will inevitably be passed on to the consumer.
A ludicrous argument has been perpetuated today, most notably by the hon. Member for St. Ives, who suggested the apparently painless panacea of a grocery ombudsman—the cost will be X million pounds a year—which will be of great benefit to the supplier, to the supermarket chain and to the consumer. What kind of drivel is that? The system cannot possibly have all those consequences.
If, in a debate in the House, hon. Members were to say, “I want to see suppliers paid more by supermarkets, and I think that is a legitimate aim,” and if they acknowledged that that would lead to an additional cost to the consumer and/or to the supermarket, we would at least be having a frank and honest debate, and I could agree or disagree with that. But for people to stand up and say, “We’re going to have an ombudsman that will cost X amount of money, and the supplier will benefit, the supermarket will benefit and the consumer will benefit,” is treating everybody as if they were utter idiots. That scenario is just not possible. It is some kind of dream world.
I urge hon. Members to be clear about the consequences of setting up an ombudsman and to have the courage of their convictions. If they believe in the principle of an ombudsman to give more money to suppliers from retailers, they should at least be open and honest about what the full consequences of that policy would be.
I was making the point that in this country, we seem to want to knock successful industries. It is important to realise why supermarkets have become so successful. Like other successful businesses, supermarkets have become successful for one main, overriding reason—they look after their customers. Every business that is successful has achieved that status because it looks after its customers and looks after its staff. Any organisation that looks after its customers and its staff will be successful. All failed businesses have two things in common—they do not look after their customers or their staff.
What supermarkets have done, incredibly successfully, is provide their customers with what they want, at a time when they want it and at a price that they are prepared to pay for it. There is no magic formula. There are no black arts in the front row, as was mentioned earlier. It is a simple formula for success. Why on earth would we want to try to stop supermarkets being successful and doing what they do so well—looking after their customers?
Another myth is that supermarkets make big profits only because they have a terrible relationship with their suppliers and screw them into the ground at every opportunity, and therefore that we need an ombudsman to intervene and stop that practice. That might be the populist view out there and it might sound perfectly plausible, but in the real world, no supermarket could even begin to work on that basis.
As my hon. Friend the Member for Weston-super-Mare made clear, a supermarket can be successful only if it has some product on the shelf. A supermarket does not become successful by selling fresh air. By definition, particularly in such a competitive marketplace, one of the things that supermarkets must always be conscious of is having a good relationship with their suppliers. They need a good relationship with their suppliers because, unlike other industries, food retailing is very difficult to predict. Knowing how much stock to have on the shelves on any given day is not easy.
We all go to the supermarket—I am as guilty as the next person—and want to buy something that is off sale because the supermarket has run out. We go crackers about that because it is so inconvenient when there is nothing on the shelf. Knowing how much product to order on any given day is not easy and depends on all sorts of factors. One large factor that affects the amount of stock a supermarket has on its shelves is the weather.
On a hot sunny day, people will want to buy lots of bottles of lemonade. That might not be a problem, because the supermarket can have large quantities of that in stock and it does not go off. Also, in hot weather, people want to buy lots of salads and not so many vegetables. In colder weather or when it is raining, people want to buy more vegetables, not salads. The supermarket cannot have a huge over-stock of those things or they will go to waste.
Supermarkets must be very good at predicting the weather and trying to predict the demand for products on a particular day. Given the vagaries of the British weather and therefore the uncertainty about the quantity of a product likely to be sold on a specific day, it is essential that a supermarket has good, strong, close relationships with its suppliers, especially its fresh food suppliers, because it needs some flexibility in how many of a particular product they will supply at very short notice.
I can assure hon. Members that if a supermarket was not treating its supplier well or fairly, or was not giving it a sufficiently good income, the goodwill that the supermarket relies upon in order to get the right amount of product to the shop on a particular day would quickly go. The idea that supermarkets can thrive by screwing suppliers into the ground might be a plausible theory, but I am afraid it is one born of utter ignorance.
Some years ago the Environment, Food and Rural Affairs Committee undertook an inquiry into the so-called missing 4p in the milk industry. What that ascertained was exactly the pressure that the retailers exerted on the processers, who then exerted it on the producers. Is he saying that our report was completely wrong?
I suspect that it probably was not brilliant. I will not say that it was completely wrong. Most things have an element of truth in them and the rest is made up to suit the prejudices about the subject. But, of course, nobody here is saying that supermarkets are not tough negotiators. Of course they are, but suppliers are tough negotiators, too. Anybody who thinks that suppliers just roll over and do as they are told is living in a fantasy land.
If Labour Members want to start tangling with suppliers such as Mars, Pepsi and Procter & Gamble because they think that they are an easy target, I say to them, “Please feel free. Set up your own supermarket and see how far you get with them, because you’ll find that they are very tough cookies, indeed.” Why on earth the hon. Member for Ynys Môn (Albert Owen) wants to waste time setting up an ombudsman to support companies such as Procter & Gamble, Mars and all the other big multinational companies, many of which have marketing budgets that supermarkets could only dream of, is beyond me. Some people might need help in the world, but Procter & Gamble does not.
No, I cannot. It does not surprise me in the slightest that the Labour party is in favour of setting up a grocery ombudsman, because we all know its modus operandi: it has to stick its nose into everything; it does not trust anybody to look after their own interests; the state knows best and has to protect everybody—even, it seems, big multinational companies; and the Government have to intervene in every nook and cranny of everybody’s lives.
Equally, it comes as no surprise to me that the Liberal Democrats are in favour of the proposal, because they have detected—no doubt in their focus groups—that they might get two and a half or three extra votes out of doing so in seats that they need to win at a general election. As we all know, the Lib Dems will say absolutely anything if they think that, on the back of it, there are two or three extra votes to be gleaned in a marginal seat.
On the point behind the hon. Gentleman’s intervention, I must say that it is incredibly curious and, equally, disappointing that a Conservative party that is supposed to be against Government-inspired quangos and Government intervention—that wants to try to let people get on and run their own lives—is in favour of a grocery ombudsman. I am afraid that I cannot offer any explanation for that, other than the contribution from my hon. Friend the Member for Weston-super-Mare, on the Front Bench. I believe that my Front Benchers are grossly mistaken, and that their support for the proposal is very un-Conservative.
The hon. Member for Weston-super-Mare made a logical response to the Bill. It was not about three and a half votes in Liberal constituencies or minorities on the fringe; it was about a whole body of our constituents who support the proposal. I am clear about where the hon. Member for Shipley (Philip Davies) stands on the matter of the ombudsman, and about how far away his stance is from that of his Front Benchers, but the code was set up because of market failings, so does he accept the need even for a code?
I am not a big fan—[Interruption.] I am going to answer the question. I am not a big fan of the code, but it is in place and there is nothing that I can do about it. It is far too stringent and it goes far too far, but its existence knocks out completely the argument for an ombudsman, and we will return to that point later. However, it is incredibly curious that my hon. Friends are in favour of the ombudsman. It makes no rational sense, and I shall come back to the reason why an ombudsman is not a good idea—whatever side of the argument one happens to take.
On suppliers, I shall expand on my intervention about offers on the hon. Member for Llanelli (Nia Griffith). Owing to a few misapprehensions, the hon. Member for Ynys Môn may well think that many people in the country are in favour of setting up an ombudsman, and if those misapprehensions were cleared up that support might no longer exist. The idea that supermarkets insist that suppliers introduce and pay for “buy one get one free” deals is, frankly, out of cloud cuckoo land. In fact, suppliers fall over themselves, saying to retailers and supermarkets, “We want to do a ‘buy one get one free’ on our product,” and, “We want to do this product at ‘three for the price of two’.”
Many companies, such as Procter & Gamble and Mars, introduce such special offers because of their colossal marketing budgets. They want people to try their product, and they judge, probably rightly, that consumers will do so if it is part of a special offer, such as “buy one get one free”. The companies hope that, when the offer ends, people will have formed the habit of buying that product and will continue doing so. Such offers are inspired not by the supermarket but by the suppliers, which want more people to buy their products. It is a marketing strategy carried out by the supplier for the benefit of the supplier.
My experience at Asda is in direct contradiction to what the hon. Member for Llanelli said. Things might well be different now because it is five years since I left, but during my time there, when suppliers came to us saying that they wanted to do a “buy one get one free” or a “three for the price of two” offer on their products, we said that we would prefer it if they did not. This is not a state secret. Rather than having a special offer that applied for only one week or month, meaning that a customer would have to have the pure luck of being in at the right time to take advantage of it, we would have preferred a permanently lower price.
We would ask suppliers whether they would be prepared to invest the money that they would have put into a special offer in a smaller but more permanent price reduction. We thought that that would be better for our customers—particularly, I might add, for pensioners who lived on their own and might not want two products for the price of one or three for the price of two. They would prefer a permanently lower price. The idea that supermarkets force suppliers into making special offers is completely and utterly wrong.
I come back to the intervention made by the hon. Member for Ynys Môn. If people realised the things that I have mentioned and if the myths that have been built up were exposed, perhaps his constituents would not be so keen on a grocery ombudsman. A lot depends on how the question is framed. If we say to people, “Nasty, big, terrible supermarkets are screwing suppliers into the ground. Do you think that there should be an ombudsman to try to referee that relationship?”, of course people will say yes. However, if we say, “An ombudsman is going to be introduced and the upshot will be higher supermarket prices,” a different answer might be gleaned from those same constituents. I am not entirely sure that the public would support a grocery ombudsman when they realised the full facts of the matter and the full implications.
The hon. Gentleman mentioned the groceries supply code of practice, and I want to spend a bit of time on that. I should set the scene. We have to realise that supermarkets are already the most regulated part of the food sector. There has been a code of practice for the four largest grocery retailers since 2002. The new code, which came into effect only on 4 February, if my memory serves me, will apply to the 10 companies that cover more than 90 per cent. of the groceries sector by sales.
It seems to me that hon. Members here do not understand the full implications of the new code, which builds on the code that was already in place. The new code adds a requirement to put all agreements in writing within three days of the agreement’s being made. That is a huge undertaking for a supermarket. The average Asda store, which is what I know most about, will probably have in the region of 40,000 products on sale at any one time, so putting all the agreements in writing within three days is a big commitment.
The new code puts a prohibition on retrospective changes to agreements, which was one of the points made by hon. Members. The Competition Commission considered that such changes were the principal manner in which excessive risks or costs could be transferred from retailers to suppliers, but it has to be pointed out that the changes are prohibited even when they are to mutual advantage. A retrospective change to an agreement can sometimes be of benefit both to the retailer and the supplier. For example, if an order for extra stock is made, that may well be to the benefit of the supplier. However, even those changes are prohibited. The code imposes a prohibition on charging suppliers for shrinkage. The Competition Commission believed that the retailer was best placed to control the risk of shrinkage and minimise losses. The code has an overarching “fair dealing” provision, which the Competition Commission considered balances the need to curtail unreasonable behaviour on the part of retailers with the need to allow a measure of commercial flexibility. It states that a retailer may only de-list a supplier for genuine commercial reasons, and expressly not for exercising its rights under the code.
In response to an intervention by my hon. Friend the Member for Christchurch (Mr. Chope), the hon. Member for Ynys Môn talked about anonymous complaints, and the hon. Member for Hendon (Mr. Dismore) said that anonymous complaints were to be welcomed because suppliers would be driven into the ground by the nasty, unscrupulous supermarkets if they made it clear that they had complained. However, as I said, the code clearly states that a retailer may only de-list a supplier for genuine commercial reasons, and expressly not for exercising its rights under the code of practice.
I am afraid that these concerns are completely null and void, because such practices are already banned under the existing code, which is overseen by the OFT. That means that any supplier who feels that they have been badly treated by the supermarkets can go to the OFT to say that the code has not been abided by. The OFT already provides independent, effective scrutiny of the code whereby suppliers can raise their concerns and grievances. When the OFT commissioned research on the previous code in 2005, it found that, by and large, supermarkets were compliant with the code, and found no evidence that disputes between supermarkets and suppliers were leading to any significant impact on competition in this market.
Even if one is in favour of all this intervention and the more draconian parts of the code, setting up an ombudsman is a solution looking for a problem, because the solution is already there—it is called the Office of Fair Trading, which oversees the code that everybody signed up to. Given what hon. Members said earlier, it seems that they support the code of practice that has been agreed. Why do we need an ombudsman when the OFT is already there to deal with any complaints? It is a complete and utter waste of time. We hear hon. Members on both sides of the House saying that we need better regulation and smarter regulation, and that we do not want excessive regulation, yet they are proposing to set up an additional body that duplicates the existing role of the OFT with regard to the grocery supply code of practice. That is completely and utterly pointless.
What would happen in the real world if we had a grocery ombudsman? That was considered by Professor Lyons, who was one of the panel members during the Competition Commission’s investigation, and one of the two panel members who worked on the supplier issues work stream. The hon. Member for Ynys Môn said that the findings of the commission were clear, but not unanimous. He may well think that, but I would not concede that they were clear. Professor Lyons is a professional economist with particular expertise in this field. I would be so bold as to say that he has more expertise than those who have contributed to this debate. It therefore seems to be particularly notable that it was Professor Lyons who dissented from the majority view on the panel and objected to the proposal for an ombudsman. The commission’s report states that Professor Lyons
“believed that the Ombudsman would be counterproductive…He was concerned that the Ombudsman may find a role ‘proactively’ representing the interests of suppliers, including global manufacturers and large intermediaries, which he considered would reduce the benefits of competition.”
He believed that an independent ombudsman, as proposed by the hon. Gentleman, would be
“susceptible to external pressures and regulatory creep.”
I could not put it better myself.
Anyone who lives in the real world knows exactly what will happen. The ombudsman will not sit there for a year, at the cost of x million pounds, and at the end of it say, “During the course of the previous year, I can report that I had nothing to do.” That is not how that kind of quango operates. If nothing is reported to it, it will go out and stick its nose into matters on which nobody has reported a particular problem. That was clearly what Professor Lyons concluded.
The OFT has previously reported that it could not see any material breaches of the supermarket code of practice, so we can presume that the same thing will happen with the new code of practice. If an ombudsman is set up and the supermarkets stick faithfully to the new code of practice, does anybody here seriously believe that the ombudsman will produce a report each year saying, “In the course of the last year I did nothing, I have absolutely nothing to report and I do not envisage doing a great deal for the next year either”? If anyone wishes to intervene to say that that is what they expect, I will be delighted to take their intervention. Now is their opportunity.
The hon. Gentleman prays in aid a professor who is entitled to his opinion. There is a debate about this matter, and as the hon. Member for Ynys Môn (Albert Owen) made clear, Professor Roger Clarke from the Cardiff business school has undertaken a deep study and takes a contrary view. His paper, which was published last year, concluded clearly that the introduction of an ombudsman would protect the interests of shoppers and would
“lead to more choice, better quality products and lower prices.”
Of course there is debate among academics, just as there is in the Chamber. The hon. Member for Shipley (Philip Davies) is entitled to his view, just as others are to theirs. There is a debate, and he seems to have drawn his own conclusions, which is fair enough.
I note that the hon. Gentleman did not take up my offer to say what he thought the ombudsman would do, so I rescind the statement that I had one taker. It seems I had none. He says that we are having a debate, but if it were not for me and my hon. Friend the Member for Christchurch, we would not be. As my hon. Friend made clear earlier, we have yet another cosy consensus in the House. Nobody wants to stand up and say something practical, because they think some people might be opposed to it or offended by it.
As my hon. Friend made clear, the history of cosy consensus in the House is not happy. He gave a list of examples, and I will add a couple more if he and you, Mr. Deputy Speaker, will allow me. I believe the Child Support Agency was supported by all parties, and it has been a complete and utter disaster. I might even add our membership of the exchange rate mechanism, which everybody thought was a marvellous thing but which had catastrophic economic consequences for this country. We do not accept that a cosy consensus between the Front Benchers guarantees that something is right. Indeed, I share my hon. Friend’s view that a cosy consensus in this place leads to the inevitable consequence that something is wrong.
We have clarified that we do not believe that the ombudsman will sit and do nothing even if there is nothing to do, and that he will, as Professor Lyons said, find a proactive role in representing suppliers’ interests, even when no particular problems are reported to him. It was interesting that the hon. Member for St. Ives was so dismissive of Professor Lyons. Contributors to the debate have said time and again that we need the ombudsman, not because they think so or have evidence or know what they are talking about, but because the Competition Commission said that we need one. Yet the hon. Gentleman was quick to discount the opinions of Professor Lyons, who was one of two panel members on the Competition Commission who examined the supplier issue work stream. Why was the hon. Gentleman so quick to dismiss him while praying in aid the body on which he served? I would have thought that his views were particularly relevant.
We know exactly what will happen. The ombudsman will start sticking his nose in and the only possible consequence of that interference will be increasing the cost to retailers of the products that they buy from the suppliers. If that does not happen, there is no point in the Bill. The inevitable further consequence is higher prices in the supermarket. I hope that those who support the Bill will make it clear that they are happy with higher prices. It would be helpful if they said by how much they were prepared for prices to increase.
The hon. Member for Ynys Môn said that the ombudsman would cost around £5 million and that that represented 0.0007 per cent. of sales in supermarkets, or something along those lines. I am sure that he will correct me if I am wrong, but I have not seen a limit on the cost of the ombudsman in the Bill. Indeed, as I made clear in an intervention, the exact opposite applies because the measure would give the ombudsman free rein to appoint as many staff as he deemed necessary to carry out his duties. Instead of a curtailed minimal cost, we are invited to support an open-ended cost so that the ombudsman is free to build his empire and make it as big as he wishes.
The hon. Gentleman is trying to confuse the House. The Competition Commission’s report makes clear the cost to the retailer. It has been estimated at £5 million, which is 0.005 per cent. of the sales of the some of the largest retailers. The only variant would be the number of complaints about the retailer. The formula is in clause 12—I am sure that he has understood that. However, the setting-up costs would, of course, be separate.
I can do no better than read from the Bill, then people can make up their own minds about its implications. It states:
“The Ombudsman may appoint staff which the Ombudsman thinks are necessary for the fulfilment of the Ombudsman’s functions.”
People can interpret that as they wish. I interpret it to mean that the ombudsman may appoint as many staff as he deems necessary to carry out his job. If he wants to start empire building—I suspect that that will happen because that is what happens with all such quangos—the Bill would give him or her an open-ended opportunity to recruit as many people and make the empire as big as they see fit. I have quoted from the Bill—I do not intend to mislead anybody; people can make up their own minds.
First, the Bill provides for an open-ended cost for setting up the ombudsman. So that we know where we stand, we must always be clear that, when we refer to cost, it will ultimately be borne by the consumer. The hon. Gentleman estimates that the cost to the consumer of setting up the ombudsman will be £5 million—that limit is not in the Bill, and he might wish to consider introducing it in Committee—but that is not the cost that consumers need to worry about. The cost that consumers ought to be worried about is the higher prices that they will be expected to pay as a result of the ombudsman’s decisions.
The grocery market in this country is worth in the region of £130 billion a year. What extra moneys do we expect supermarkets to pass on to their suppliers as a result of the ombudsman’s intervention? Let us be modest and say that suppliers will get a 1 per cent. increase in their income from supermarkets as a result of the ombudsman being set up. I am sure the hon. Gentleman had something much more ambitious than 1 per cent. in mind, but based on the size of the grocery market at the moment—it might grow—that would mean that suppliers could expect a further £1.3 billion. Who will pay that extra cost? The consumer will pay. Even if the grocery ombudsman delivers only a 1 per cent. increase in income for suppliers as a result of the empire that will be set up, that will cost consumers in this country £1.3 billion. What a surprise that nobody mentioned that earlier and told the public what the cost would be to them through higher shopping bills.
We are in the midst of a recession. People are losing their jobs and struggling to get by, and many fear for the future, yet hon. Members, who seem to be occupying an ivory tower today, seem happy to pass billions of pounds of costs on to their constituents when they can least afford it.
The hon. Gentleman has picked a figure of 1 per cent. Does that mean that supermarkets are underpaying suppliers by £1.3 billion as a result of their unfair practices? Is that the assumption he is making with the figures he has picked out of the air?
I shall try to speak more slowly for the hon. Gentleman’s benefit. Those who propose the ombudsman take the view that supermarkets are screwing suppliers into the ground. Therefore, from their perspective—I do not believe that an ombudsman is necessary—the ombudsman will be useful only as a means by which to divert more money from the supermarket to the supplier. I am merely following through the consequences of that for our constituents, namely by saying that there will be an increase in prices.
I suspect that the hon. Gentleman has a more ambitious figure than 1 per cent. in mind. I am simply illustrating what every 1 per cent. more that goes from the supermarket to the supplier will mean for the consumer. He might think that a 5 per cent. increase is necessary. If so, I hope he tells people that that would mean that they will be paying an extra £6.5 billion a year in their shopping bills.
I will try once more. The hon. Gentleman says that the supermarkets are not trading unfairly in any way. Presumably therefore, in his analysis, the ombudsman would not make any award or decision that increases what supermarkets pay to suppliers. However, he has given the figure of 1 per cent., which assumes that there is unfair trading to the tune of £1.3 billion.
This is very hard work. I will try to explain my point to the hon. Gentleman for the third time. Perhaps detention and a bit more homework is required. I will try to give him one more opportunity to grasp this point. The only reason to set up the ombudsman is to make supermarkets give more money to suppliers—if he has a different reason for setting up the ombudsman, perhaps he could tell me what it is. However, I presume that he is in favour of an ombudsman because he thinks that it will deliver more money from supermarkets to suppliers. The fact is that every 1 per cent. extra that goes from the supermarket to the supplier will mean a £1.3 billion cost that will ultimately be borne by the consumer.
If the hon. Gentleman believes that setting up the ombudsman is such a good thing, and that it is a price worth paying, he should have the courage of his convictions and say so. To try to pretend that any extra money that goes to the supplier from the supermarket will not cost the consumer or the supermarket anything—which seems to be the length and breadth of the argument that we have heard so far—is ridiculous. People are not stupid, and they can see that that is a ridiculous argument. If anybody gets extra money, it must come from someone else, and in this case, it will come from the consumer. Those consumers are our constituents. All I am urging hon. Members to do is to be up front with their constituents about what they are proposing, instead of just telling them the benefits that will occur. Why do people in this country have so little faith in Members of Parliament? It is because they think that their MPs are not straight with them and do not tell them all the facts. People think that MPs do not tell them the bad news as well as the good news. Let us try to put that right, be open and up front with our constituents and tell them the full consequences of introducing the ombudsman—higher prices at the checkout. That is an inevitable consequence of the Bill, and it is very depressing that hon. Members will not be up front with their constituents.
I return to the point made by my hon. Friend the Member for Christchurch in his all-too-brief speech. He hit the nail on the head when he described the Bill as fiddling while Rome burns. We have hon. Members supposedly championing our hard-pressed suppliers today—we keep being reminded how hard-pressed they are—and yet those same Members are the greatest advocates of piling more and more costs on to those suppliers, including employment costs, additional regulations and other burdens. For instance, the cost of EU regulations drives many companies, and farmers, to despair. The biggest issues facing many suppliers are the increase in regulation, red tape and employment costs. Those are driving suppliers into the ground and are far more important than their relationship with the supermarkets. But those hon. Members who act as the self-appointed champions of the suppliers are also the greatest cheerleaders for the extra regulation, costs and taxation that is imposed on them. I suggest that it would be more helpful to the suppliers to consider those issues.
Who would be protected by the Bill? It would not be many of the small producers and farmers. Instead, it would be large multinational companies that will use the threat of this legislation to try to bolster their negotiations with supermarkets. Those companies make hundreds of millions of pounds of profit every year, and the effect of the ombudsman will be to deliver even bigger profits to those big multinational suppliers at the expense of the consumer who will have to pay more. I am sure that the hon. Member for Ynys Môn, as a good Labour man, believes in the redistribution of wealth, but it is beyond me how on earth he can justify redistributing wealth from some of the poorest of his constituents, who go to supermarkets specifically because they deliver low prices—they might be on fixed incomes, and it might be all that they can afford—to some very big, multinational suppliers. I have no idea on what basis that could be considered fair, but it is not my definition of fairness. It would do the poorest of his constituents a great disservice by wanting to line the pockets of some very big, multinational companies. That is the only possible upshot of an ombudsman.
Following on from the point about suppliers, I must point out, because a great disservice is being done to supermarkets today, that supermarkets are some of the most proactive organisations in getting small suppliers up and running, taking on their products and helping them to get started and to grow and thrive. Without the actions of many supermarkets, many small suppliers would have gone down the pan an awfully long time ago. I remember, from my time at Asda, receiving a thank you letter from a bakery, I believe—either way, it was a small business—to Asda for helping and supporting it through a difficult period. Without that help, it would not have been able to survive and flourish. The idea that it is a one-way street of supermarkets trying to drive smaller suppliers and retailers into the ground is not borne out by the facts.
In many cases, supermarkets go over and above what is expected of them. I think I am right in saying—I will happily be corrected—that Morrisons has introduced a scheme under which it pays its smallest farmers within seven days. That is a fantastic initiative that is doing an awful lot to help—I presume—those small suppliers that need rapid cash flow. Given how the Government sometimes treat their suppliers, it does not behold people in the House to want to set up a Government-inspired quango to lecture retailers, which are often good at paying their suppliers quickly, on how they should be looking after them. In many cases, food retailers and supermarkets are some of the best in the industry at looking after their suppliers and paying them promptly. It would be wrong for people to be left with the impression, from this debate, that supermarkets are among the worst offenders, when they are not.
I do not intend to delay the House further. On all these issues, particularly where we have a consensus between the Front-Bench spokespeople, it is important to hear the alternate view. There is always another side of an argument, but unfortunately in this place it is sometimes hard to find somebody who will stand up and put it, if people think that the proposals are popular. However, it would do a great disservice to a very successful industry, of which we should be incredibly proud—the supermarket industry—were somebody not to speak up and put the other side of the argument. To try to give the impression that supermarkets are mean-spirited organisations—they are not—would be unfair to the millions of people who work in the food retail sector and supermarkets and who are rightly proud of the companies for which they work and of how their companies look after their staff, suppliers and customers. It would be grossly unfair on consumers were we not to put the other side of the argument, because the one thing that I can guarantee is that, if a grocery ombudsman is set up, there will be only one loser at the end of the day: consumers—our constituents—who are often the poorest people in our constituencies. They go to supermarkets because they have the cheapest prices, and they will be the ones who suffer as a result of grandstanding by some hon. Members in the House who know very little, I am afraid, about the industry to which they want to do so much damage.
I congratulate my hon. Friend the Member for Ynys Môn (Albert Owen) on raising an important issue. I think we have all noted his genuine concern and desire to protect the businesses that supply supermarkets with grocery produce, and his wish to ensure that commercial relationships in the sector are conducted fairly. He has been a champion of the cause, and his speech demonstrated the passion with which he has pursued it.
I pay tribute to my hon. Friends the Members for Stroud (Mr. Drew) and for Llanelli (Nia Griffith), and to the hon. Member for St. Ives (Andrew George), who has also been supportive. The hon. Member for Weston-super-Mare (John Penrose) raised points with which I shall try to deal later. It was obvious that the hon. Members for Christchurch (Mr. Chope) and for Shipley (Philip Davies) held a different opinion, but they have form when it comes to issues such as this. Their desire to abolish the national minimum wage was an indication of their view that any interference from Government in the form of regulation intended to look after workers’ rights was to be resisted at all costs. That is part of their philosophy.
That is a tremendously appropriate Bill to present during an economic downturn, I must say. It certainly shows where the hon. Gentleman is coming from on the protections that have been introduced for workers.
As for the Bill we are discussing today, I assure my hon. Friend the Member for Ynys Môn that the Government share his concern. The Bill provides for the creation of a grocery market ombudsman, and sets out a number of rules against which the ombudsman would monitor and enforce compliance with the grocery supply code of practice. As Members have said, the code was drawn up by the Competition Commission. It was one of the commission’s recommendations following its market inquiry into the supply of groceries in the United Kingdom, which resulted in a report published in April 2008.
I thank the commission for its thorough examination of the issues, and for the hard work of all its staff during the investigation. I also commend it for producing the new code, and for its valiant efforts—sadly, they proved fruitless—to win the agreement of the largest grocery retailers to set up an ombudsman scheme voluntarily. Its investigation was exhaustive. I understand that it received more than 100 submissions from grocery retailers, and more than 600 from a wide range of suppliers, consumers and local authorities from all over the United Kingdom. Some 80 hearings were staged, involving all the interested parties, and a number of other meetings were held as well.
Can the Minister tell us how many submissions came from farmers or farm workers? As she will know, there are a great many farmers in my constituency. A problem in the past has been the driving down of the amount of money they receive for their goods, which is great for consumers but not for producers. In the long term, we need a little bit of fairness for both.
The hon. Gentleman makes a good point. What he describes is exactly what the Competition Commission was trying to get to grips with because there had been so many complaints. I do not know exactly how many farmers made representations, but I know from the speech made by my hon. Friend the Member for Ynys Môn that the National Farmers Union has been very supportive of the work that he and others have done.
In addition to the hearings, questionnaires, surveys and other industry publications were used and the commission also used its legal powers to ensure that other essential information was provided and could be taken into account. The result was a 270-page report containing more than 30 detailed appendices and, as I say, very important and valuable work. The inquiry concluded that although the market is generally working well, there are concerns about the long-term future of the supply chain.
The commission’s main concern was about the exercise of buyer power by certain grocery retailers in respect of their suppliers of groceries, particularly through their adoption of supply chain practices that transferred excessive risks and unexpected costs to those suppliers. The commission was at pains to point out that the exercise of buyer power by grocery retailers is likely to have positive implications for consumers, especially where the competition between grocery retailers is effective, as consumers benefit through lower prices and this can also spur innovation in the supplier chain. However, the exercise of buyer power can raise concerns in certain limited circumstances.
The commission found that when, in the hope of gaining competitive advantage, grocery retailers transfer excessive risks or unexpected costs to their suppliers, the likelihood is a lessening of suppliers’ incentives to invest in new capacity, products and production processes. The commission concluded that, if left unchecked, this would ultimately have a detrimental effect on consumers because it would lead to lower quality goods, less choice of goods or less product innovation. That is exactly the point that addresses the issues raised by the hon. Members for Shipley and for Christchurch, but I do not think they were listening to it—I can come back to it.
During the investigation the commission received details of 380 concerns from suppliers and supplier associations. Nearly half the concerns related to the transfer of excessive risks or unexpected costs from grocery retailers to suppliers, and one third related to requirements for retrospective payments or other adjustments to previously agreed supply arrangements. These practices were identified despite the existence of the supermarket code of practice, which had been drawn up following the 2000 broad-based investigation into grocery retailing conducted under the Fair Trading Act 1973. That earlier investigation highlighted the existence and operation of a group of practices that operated against the public interest in relation to the behaviour of five grocery retailers towards their suppliers.
At that time, the commission decided that any main party with more than an 8 per cent. share of grocery purchases for resale from its stores is, for the most part, able to control its relationship with suppliers to its own advantage, whereas the smaller multiples are not able to do so to anywhere near the same extent. The commission therefore specified that a grocery retailer with a national share of grocery sales of more than 8 per cent. should be required to comply with the code of practice. The supermarket code of practice was the result.
The original five grocery retailers identified by the commission were Asda, Safeway, Sainsbury’s, Somerfield and Tesco. Somerfield was later found to have less than an 8 per cent. share and so did not become a signatory. Safeway was subsequently acquired by Morrisons, which agreed to be bound by the supermarket code as if it were a signatory. The OFT has overseen the operation of the code since its creation. It reviewed the code in 2004 and published an independent audit of retailers’ compliance with it in March 2005. In addition to the audit, the OFT called for evidence to cover other aspects of the supply of groceries by grocery retailers that had a negative impact on competition.
The OFT decided in August 2005 not to refer the market to the commission. It reconsidered this decision following an appeal to the Competition Appeal Tribunal lodged by the Association of Convenience Stores, and it decided to make a reference in May 2006. One of the factors that persuaded the OFT to reconsider its decision was the existence of evidence to suggest that buyer power had increased since 2000, and that that power could have a deleterious effect on consumer choice.
When it completed its final report, the commission took evidence from a large number of parties and made a convincing case for the need for an independent body to monitor and enforce the code. However, the commission does not have the power to set up new bodies, and it sought over many months of discussions and consultations to obtain voluntary undertakings from retailers to establish an ombudsman scheme. Unfortunately, it was unsuccessful in that endeavour.
As a result of its inability to reach an agreement with retailers, the commission recommended in August 2009 that the Government take the necessary steps to establish an ombudsman with the powers to enforce the code and to levy financial penalties on retailers that fail to comply with it. This chain of events culminated in the commission’s market inquiry and subsequent report, which contained the recommendation that is the subject of the debate today.
The commission believes that the code will be much more effective if adherence to it is monitored by an ombudsman who can address the “climate of fear” the existence of which under the previous code of practice many of the suppliers mentioned. The Government have already announced that an ombudsman will be able to accept and investigate anonymous complaints. That is a crucial difference and one that paves the way for far more effective enforcement of the code. The commission has recommended that an ombudsman should be able to accept complaints from parties at every stage along the supply chain, rather than just from those who directly supply the supermarkets. Finally, an ombudsman will be able to investigate recurring complaints against a particular retailer. These important differences between the OFT’s current role and the proposed remit of the ombudsman will give the new code real teeth and help to ensure that it is more effective than the one it replaces.
The debate has understandably concentrated on the mistreatment of some suppliers, but I strongly believe we should not lose sight of the fact that grocery retailers are doing a good job overall, as recognised by the Competition Commission in its 2008 report. One instance that has been highlighted is the fact that households are spending less of their income on food thanks to reductions in prices across a wide range of goods. The commission found that between 2000 and 2007, food prices declined in real terms by approximately 8 per cent. That continued a trend that the commission had observed in an earlier investigation, which showed a decline in food prices of 9.4 per cent. I am sure that we are all aware that prices have risen somewhat more recently, but that has been brought about by a number of different supply and demand factors. We also know that an ever-increasing number of consumers use supermarkets because of the convenience, choice and range that they offer. Consumers also benefit from a competitive market that offers good value for money.
Supermarkets are an important source of jobs and investment. Retail accounts for about 10 per cent. of gross domestic product, with groceries making up 50 per cent. of that and providing about 1.5 million jobs. Asda, which the hon. Member for Shipley has mentioned, is a good example. It is based in Leeds and employs tens of thousands of people in the region in its stores, its head office and the cluster of distribution and recycling centres in the Castleford, Pontefract and Doncaster areas. Its parent company, Wal-Mart, which is the largest retailer in the world, has created its international centre of marketing excellence at Asda house in Leeds. That is a tribute to the faith that that major company has in the skills and talent of the people of Yorkshire and the Humber. As the Minister for Yorkshire and the Humber, and as the MP for Doncaster, Central, I am very proud that our region has been chosen as the home of that centre of excellence.
Morrisons, another supermarket chain that has its headquarters in Yorkshire, plans to create 5,000 new retail jobs by the end of the year and will set up a new fresh food academy to offer training in retail craft food skills. It also has ambitious plans to increase the number of its staff who take part in its company-wide training scheme to 22,000 by April and to 100,000 by spring next year. Morrisons is believed to have one of the largest retail skills training programmes in the UK. It certainly deserves credit for its efforts to boost the skills of its work force, and I hope that its training targets will serve as an inspiration to other employers.
Tesco also makes a valuable economic contribution. It is one of the region’s largest employers, with more than 12,000 staff in more than 100 stores across Yorkshire and the Humber, and it created more than 500 jobs in the region last year in new and extended stores. The Goole distribution centre has a straw-powered combined heat and power plant that can put energy back into the national grid. Next month, construction will start on a new store in Hornsea in east Yorkshire, creating 270 new jobs that will be available through Jobcentre Plus as part of the local employment partnership programme.
Making sure that we have a competitive and diverse retail sector that delivers value for money and promotes consumer choice is an objective that I strongly support. In my capacity as a Minister in the Department for Communities and Local Government, I am the Government’s champion for markets. Since taking on that responsibility last year, I have seen how important it is that we do not allow consumer choice in a particular locality to be constrained by the dominance of a select group of large retailers. It is in everyone’s interest to make sure that our town centres are vibrant, attractive places to visit and that they offer an interesting mix of large and small retailers. Traditional street markets are an excellent way of drawing shoppers into an area, increasing footfall and benefiting the shops and other businesses nearby. Markets are also a valuable testing ground for entrepreneurs with a good idea but a limited budget. A market stall is a good way of keeping overheads down while trying out new projects and growing a small business. That is why we have taken steps, through our town centre first policy, to promote retail diversity and to prevent local monopolies from developing.
The policy that we have instituted gives local authorities the tools that they need to preserve the character and individuality of town centres across the planning system. We have tried to create the right environment for diversity of retail outlets, and it is important to see today’s discussion in the light of that, because the issue is about using a whole range of approaches to shape attractive shopping districts that everyone can enjoy; helping to safeguard the vitality of local communities; and making sure that there is not an over-dominance of one sector.
I welcome a code that has effective enforcement and that helps farmers and other producers to develop their business and contribute to their local economy in the way that I described. The recommendation that led to the commission’s code of practice was designed to remedy exactly the kind of problems that smaller suppliers and smaller retail outlets can face. The code of practice strengthens and broadens the existing supermarket code of practice.
The new grocery supply code of practice, which came into force on 4 February this year, applies to all companies that are active in the sector and have an annual retail groceries turnover of £1 billion or more. Retailers such as Waitrose, Iceland, the Co-op and Marks & Spencer will all be subject to the provisions in the code for the first time. It introduces independent, binding arbitration for the first time, and makes it clear that retailers may de-list a supplier—in layman’s terms, stop trading with them—only for genuine, commercial reasons. A retailer cannot stop trading with a supplier simply because the supplier has complained that the retailer has not kept to the terms of the original agreement. That is very important, as many suppliers told the commission that they were reluctant to use the complaints process in the old code due to their concern that they might be identified, and because of the resulting likelihood of being de-listed by the retailers.
The new code also places the burden of proof on the retailer to demonstrate that where the supplier has complied with requests made, that was achieved voluntarily. It introduces an overarching fair-dealing provision, requiring retailers to act in good faith, and without distinguishing between formal and informal agreements.
In broad terms, the Bill introduced by my hon. Friend the Member for Ynys Môn seeks to enact the Competition Commission’s recommendations, establishing an ombudsman to oversee the code that I have just described. As I stated at the outset, the Government are sympathetic to the Bill’s objectives. The Bill seeks to establish the independent grocery market ombudsman; to provide funding for them; and to provide a duty to establish and publish procedures and guidelines for undertaking their work.
The Bill would also give the ombudsman responsibility for investigating and adjudicating on alleged breaches of the code, and grants powers to gather information, impose monetary penalties, award costs, and enforce monetary penalties and costs orders. In addition, it would require the ombudsman to give reasons for decisions. It would also provide for appeals against decisions and for the publication of reports on all complaints, as well as for an annual report on the discharge of its functions.
I shall be clear with the House about what we said in July 2008, when we set out our formal response to the Competition Commission’s report. I quote:
“The Government notes that the CC will be creating a new strengthened and extended GSCOP and that the CC will be seeking undertakings from grocery retailers to establish a GSCOP Ombudsman to monitor and enforce compliance with GSCOP. The CC has recommended that if it does not obtain satisfactory undertakings within a reasonable period, BERR should take the necessary steps to establish the Ombudsman. Should this be the case, the CC also recommends that BERR takes steps to give the Ombudsman the power to levy significant financial penalties on the retailers for non-compliance.”
The Government are also on record, in a reply to the hon. Member for St. Ives, as committing themselves to carrying out a full consultation before deciding on the way forward. I know that the hon. Gentleman met my ministerial colleague with responsibility for competition with a delegation from the Grocery Market Action Group, which he chairs.
The Government have listened to all sides of the argument relating to the introduction of a groceries ombudsman. The issue is not straightforward. There are many aspects that need to be carefully weighed up, but we have taken it very seriously. After careful consideration, the Government have recognised that there is a legitimate need for the grocery supply code of practice to be independently monitored and enforced. At the same time as ensuring effective enforcement of the code, we are keen to preserve flexibility in commercial negotiations between suppliers and retailers over prices and other commercial elements of the supply agreement.
We are determined not to place any unnecessary costs on business, particularly in a period of economic difficulty. That is one of the reasons why we are consulting on the scope, scale and responsibilities of the new ombudsman. We want to make sure that we get this right. The Competition Commission inquiry raised a number of complex and important issues for the groceries market, consumers and the wider economy. We are seeking views on the following issues: what powers the body monitoring and enforcing compliance with the code should have, in addition to being able to hear anonymous complaints; which existing bodies might assume these responsibilities; how the body should be funded; what the access arrangements should be for the new body; whether a sanctions regime should be introduced; and how might it operate alongside an appeals mechanism.
The consultation exercise is due to close on 30 April, and we hope to receive a large number of responses, encompassing as broad a spectrum of views as possible. No doubt many hon. Members in the Chamber will wish to respond to the consultation in as much detail as they have spoken this morning. I am sure that my hon. Friend the Member for Ynys Môn will be delighted to know that we have produced a Welsh language version of the consultation, which was published on 5 February. We want to ensure that the views expressed by respondents to the consultation are adequately reflected in the legislation that brings the ombudsman into being.
Because of the pressure and the hard work that many of my hon. Friends have put into ensuring that the Government are fully cognisant of all the important issues at stake, and because of the support from Members in other parts of the House, we support the principles of the Bill. I pay tribute to my hon. Friend the Member for Ynys Môn for all the work that he has done in introducing the Bill. We may need to table amendments to the Bill at a later date. However, the principles that he has encapsulated in it are exactly the right ones.
The debate has been very thorough, and some excellent points have been made, particularly by Labour Members. The principles in the Bill are a sound basis on which to proceed, and the Government are therefore content for it to go forward into Committee.
I shall briefly respond to what, as my right hon. Friend the Minister said, has been an excellent and, in many ways, measured debate. She was right to spell out the detail of the Competition Commission’s findings, and I too support its work. It has done an awful lot of work over a long period, and that is to be welcomed.
I shall briefly make a couple of important points. The hon. Members for St. Ives (Andrew George) and for Weston-super-Mare (John Penrose) were clear that the fundamental point of this Bill is fair dealing, not price setting, and I too make that clear. The Bill is in the interest of supermarkets, as the hon. Member for St. Ives said, and I believe that by embracing the ombudsman, they will have a charter to look to for the future. That is important.
My hon. Friend the Member for Stroud (Mr. Drew) rightly said that he, as a Co-operative party member, needs to lobby the co-operative movement harder, because, importantly, all the mutuals are now trying to break ranks and get on board with the ombudsman. It will not be long before the big four supermarkets come along with them.
The hon. Member for Christchurch (Mr. Chope) made a brief—by his standards—12-minute contribution. I did not agree with much of what he said, although he made a good attack on the common agricultural policy and Europe. Interestingly, he said that the consensus in the House was not good for legislation, but I think that on this occasion the consensus among the Opposition and Government Front Benchers is very welcome.
My hon. Friend the Member for Llanelli (Nia Griffith) is a champion of consumers and suppliers not just in her constituency, but in Wales, and a great supporter of farmers and, in particular, dairy farmers. The hon. Member for Weston-super-Mare is right—and I am happy to say it—that the Bill needs a little tweaking in Committee. We cannot include everything, but in Committee we will have to look at the issue of the OFT and where the ombudsman is housed. The safeguards that he asked for, however, can be added in Committee.
The hon. Member for Shipley (Philip Davies) seemed to say that just because he has worked in the industry, nobody else understands it, and that was disappointing. I did not boast about this at the beginning of the debate, but I have spent more years in retail than he has. We do not have to be experts on everything, however, because in this House we are generalists. We can understand what is going on; we can understand what is going on in the lives of our constituents; and we are here to be champions for them. I repeat: the Bill is not anti-supermarket; it is pro-suppliers and pro-consumers.
Question put, That the Bill be now read a Second time.
Bill to stand committed to a Public Bill Committee (Standing Order No. 63).