Committee (2nd Day)
Relevant documents: 1st Report from the Delegated Powers Committee.
Clause 6: Investigations: forms of enforcement
37: Clause 6, page 2, line 30, leave out paragraph (c)
My Lords, Amendment 37 would knock out Clause 9, or elements of Clause 9, so I will confine myself to speaking to Clause 9, which provides for enforcement using financial penalties. The clause is very important. It is probably the most important debating issue during the progress of the Bill. There is a wide range of views within the Committee about the clause, from my suggestion that it should be taken out altogether to the Government’s position that it should be discretionary, given the right amount of evidence, for the Secretary of State to introduce financial penalties and, on the other hand, that that discretion should be removed and that penalties should start as soon as the Bill is enacted.
Before Parliament agrees to a regime of fines—administrative or quasi-judicial fines—it is incumbent on us to give it careful thought and have sufficient evidence. It is a serious matter to give any regulator or adjudicator the power to impose fines. The clause comes against the background that the industry as a whole—the retail industry and its suppliers—has been enormously successful. If we want evidence of that, we have only to look at the Food and Drink Federation’s evidence, which says, look how wonderfully successful our members have been and what a fantastic contribution they are making to the economy. I am sure that that is right. As the Competition Commission stated, the general public have benefited hugely from the growth of the supermarkets, because of not only price but also choice. All sorts of things are available at reasonable prices to the general public which would not be there if it were not for the supermarket industry.
I quite accept that there have been bumps and glitches along the road, and no doubt there will continue to be. It is a very big industry with very tight margins. The Co-op’s net margin before tax is 2.8%. There is not a lot of room there and it is clear that, from time to time, there will be arguments about sums of money which we might not think considerable but which to a supermarket working on narrow margins are indeed considerable.
There is in our body politic a certain distaste for competition. We do not have many really competitive markets in this country—take a look at banking and quite a lot of other industries. Within the political body politic, there is also wariness about competition. It seems rather distasteful that people should fight so hard for business and to make that business more efficient. What type of behaviour by the supermarkets in breach of the GSCOP, the code of practice which is imposing excessive risk and unexpected cost on suppliers and leading to the ultimate disadvantage of the public—which is a straight rendering of the Competition Commission’s position—justifies the imposition of a system of fines?
In our last sitting the noble Lord, Lord Knight, very helpfully cited some examples of things that do not go as well as they should. His most striking example was the matter of delivery schedules. He started with a reference to notice periods, reasonable notice and the vagaries of supply. This matter is covered in the code of practice to this extent. If you will forgive me, I think that we should take note of what is in the code of practice. In part 1, under “Interpretation”, it states:
“Reasonable Notice means a period of notice, the reasonableness of which will depend on the circumstances of the individual case, including:
(a) the duration of the Supply Agreement to which the notice relates, or the frequency with which orders are placed by the Retailer for relevant Groceries”.
In his presentation the noble Lord, Lord Knight, said that there were some people with no contract. I think that that is absurd. I cannot understand why the representative bodies of the suppliers do not pull themselves together and make sure that their members do have supply contracts. If there is anything that a trade association could contribute to its membership, it would be good advice on how to get a contract that is enforceable. If suppliers are entering into contracts that are not enforceable, they had better get up to speed. I started taking orders for steel castings when I was 25, and the idea that I would have ever entered into a contract to supply anyone—the British Steel Corporation, for example, a very powerful body at that time—without anything written, is unthinkable.
The code goes on to state that,
“(b) the characteristics of the relevant Groceries including durability, seasonality”—
we are back to lettuce—
“and external factors affecting their production; (c) the value of any relevant order relative to the turnover of the Supplier in question; and (d) the overall impact of the information given in the notice”—
that is, the “reasonable notice” notice—
“on the business of the Supplier, to the extent that this is reasonably foreseeable by the Retailer”.
While the Competition Commission has taken this matter into account, it has had to handle it with what might be described as a certain amount of flexibility, because of the variability of the circumstances.
Part 3(3) of the code—and this of course is binding within all supply agreements—states:
“Variation of Supply Agreements and terms of supply
(1) Subject to paragraph 3(2), a Retailer must not vary any Supply Agreement retrospectively, and must not request or require that a Supplier consent to retrospective variations of any Supply Agreement.
(2) A Retailer may make an adjustment to terms of supply which has retroactive effect where the relevant Supply Agreement sets out clearly and unambiguously:
(a) any specific change of circumstances (such circumstances being outside the Retailer’s control) that will allow for such adjustments to be made; and
(b) detailed rules that will be used as the basis for calculating the adjustment to the terms of supply.
(3) If a Retailer has the right to vary a Supply Agreement unilaterally, it must give Reasonable Notice of any such variation to the Supplier”.
That is exactly why I have asked for the Office of Fair Trading to produce its reports. It has now had 20 compliance reports: two years’ worth, from 10 different supermarkets. It either believes those compliance reports or it does not. Those compliance reports either record breaches or alleged breaches of the code of practice under these paragraphs or they do not. For us to proceed without understanding the present situation is a dereliction of Parliament’s duty.
I welcomed the list suggested by the noble Lord, Lord Knight. I am not sure that jam with less sugar in it than some other jam is a subject that quite comes under the code, any more than pomegranate dust in chocolate does. I would just comment that exotic chocolates are mostly sold not through supermarkets, but through Thorntons or Hotel Chocolat. There are specialist retailers in exotic chocolates. Who else, one then asks, produces a list of those things which demonstrate a type of behaviour that might justify the introduction of an administrative penalty system? Does the OFT produce a list? It has been looking at this market. It has the power to refer what it thinks is anticompetitive to the Competition Commission. Does the Competition Commission have a list? Do the trade associations have a list? I have asked them all to let me know what they would like to see investigated. They have come back more or less with the same answer: their members will not tell them because they are too frightened.
Quite honestly, that will not do. It is not evidence. It is assertion and raises the question about suspicion. Do Her Majesty’s Government have a list? Do the Members of this Committee have a list? If there are lists, that is great—I am here to be convinced, as I think I said on Tuesday. At the moment the principle behind this clause is quite unsupported by evidence. What, the question becomes, about the clause itself? In detail it is very faulty. There is no maximum amount. We have no idea what the Secretary of State would do if there was a piece of secondary legislation. We do know that we have too much legislation. We have too much secondary legislation. Secondary legislation is not scrutinised properly. After that we have too much litigation. Here is this clause saying, “Oh well, go to the High Court or the Court of Session in Scotland”.
Does Parliament really want to set up another set of administrative fining, trying to fine big people who will have pretty good legal advice and pretty good arguments to put forward? Do you want them in court every five minutes? This does not seem to be in the public interest. The whole process is incredibly costly. The impact assessment does not begin to try to analyse how it would work and who would be charged what and what expenses in total would be incurred. It is a bland document. It says in various places that it is difficult to know how this will work and how that will work. However, it is worse than there being a lot of costs incurred. Who finally is going to pay? Times are what they are, and it is the least able to pay who ultimately will pay. The Co-op’s margin, as I said, is 2.8% before tax. Let us suppose that it is put to fines, goes to law and spends a lot of money—where will that cost end up? The answer is: in the prices in the shops. What can the 10 sensibly do but alter their margins? The best net margin is Marks and Spencer’s—although I have found it difficult to find out how that is split between clothing and food—at just over 6%. That is the highest margin that I can find.
In my view, Parliament does itself a disservice regularly by pretending when it does these things that, in a funny way, no one pays. We pretend that it is not the consumer or the taxpayer who pays but that in some way the payment comes out of the directors’ lunches or somewhere like that. We think that it is absorbed somewhere within an institution with a name like Sainsbury’s and that no one actually works there as an individual. It is the institution that is paying, and it never falls on the individuals. In the end, though, everything falls on individuals somewhere—or somewhere else.
I look forward to this debate, and also to the debate on the following amendments, which do not take exactly the same position as I am taking in front of the Committee. I beg to move.
My Lords, with all respect to the noble Viscount, we have amendments coming up later regarding the powers to fine. All that we on this side want to do at this stage is say that he will not be surprised that we disagree with him, and that we will explore at greater length the reason why. Suffice to say that the Federation of Small Businesses, the National Farmers’ Union and the Country Land and Business Association, to name but three of the submissions that I have had, think that we should go further on the powers to fine than the Bill does. We have support from across the House; the noble Lords, Lord Razzall and Lord Teverson, my noble friends Lord Borrie and Lord Grantchester, and the noble Baronesses, Lady Randerson and Lady Byford, have all put their names to amendments that say that we should go further. We think that the status quo is the minimum. The Select Committees of BIS and Defra are also supportive of the powers to fine. I am happy to leave it to the Minister to persuade her noble friend that he should withdraw his amendment.
There is a challenge to start the day on. Our discussion on my noble friend Lord Eccles’s amendment is the first discussion today on financial penalties although I know that we have more to come, as the noble Lord, Lord Knight, has just said. As I said at Second Reading, the Government believe that the enforcement methods of recommendations and requirements to publish—so-called “name and shame”—are likely to be sufficient to ensure a higher level of compliance with the code. However, should those powers be insufficient, it is important to have the reserve power of allowing the adjudicator to impose financial penalties.
Before I continue, I say to my noble friend that here he has someone who understands supermarkets and these large companies and how they work. I have said before and will say again that I was a supplier to six of the largest supermarket groups. I ran a successful and happy business during that time, but of course I did it in the 1980s and in those days there was no written contract for chilled food at all. I had no written contract, so every time I filled a lorry with £50,000-worth of smoked salmon or smoked mackerel I could not even get insurance on it because I did not have a contract that I could show anyone. I took a risk in making those journeys every day but it was advantageous to me to do so. I am fully aware, as are the Government, that there is a relationship between the supermarkets and their suppliers and, ultimately and inevitably, to the consumer.
The Secretary of State would not activate this power lightly. The process by which he could do so is set out in detail in Schedule 3, but key aspects include the fact that the Secretary of State may make such an order only if he or she thinks that the adjudicator’s other powers are inadequate, and that before making such an order the Secretary of State must consult a range of parties, including the large retailers and the representatives of suppliers and consumers. The Bill provides sufficient checks to ensure that the power is introduced only if it is genuinely needed.
Maintaining the possibility of imposing financial penalties is essential if we are to be confident that the adjudicator will have the necessary powers to enforce the groceries code. The noble Viscount, Lord Eccles, was worried about the reasons for not prescribing the maximum fine in the Bill. It is more appropriate that such a maximum be informed by experience; for example, of how much retailers might be gaining from non-compliance. This experience can be gained only once the adjudicator is operational. Should the Secretary of State make an order to introduce fines, the order must specify the maximum penalty that may be imposed or how the maximum penalty is to be calculated.
The very existence of the reserve power will contribute strongly to ensuring compliance with the groceries code. Large retailers will be conscious that there is the prospect of a swift introduction of financial penalties if there is evidence of significant non-compliance with the groceries code and the existing regime seems not to be sufficiently effective. Clearly, all large retailers will prefer to avoid this situation arising.
The Bill’s provisions on financial penalties both encourage compliance with the initial enforcement regime and provide an important reserve power should stronger methods of enforcement be necessary. I therefore propose that the provision stand part of the Bill and ask my noble friend to withdraw his amendment.
My Lords, my noble friend starts from a zero base. If we read her words carefully in Hansard, we will find that it is as if we have no idea whether supermarkets are behaving in a fair-dealing way and we have to have in the locker a threat. Yet we have had a code of practice, which was thought not to be satisfactory and has been beefed up. I have heard nobody in this Committee say that the new code is unsatisfactory—I have heard the noble Lord, Lord Knight, suggest that it should be extended but I do not think that anybody has quarrelled with it. It has been in force for two years. All the 10 supermarkets have appointed compliance officers and all of them report publicly—with the exception of a German-owned supermarket that does not report publicly in this country—to the Office of Fair Trading. To say that we need the Bill to ensure compliance with the code is just wrong. We have all the evidence that we need to know whether the code is being complied with. Where other things are not being reported which either come under the code or could be thought to do so, I absolutely accept the need for their inclusion. It was for a list of those things that I was looking.
My noble friend’s taking on large orders for smoked fish with no written contract is beyond comment. She was obviously taking excessive risk, but it was not being passed on by the supermarkets, which no doubt would have been perfectly willing to enter into a written contract. She was undertaking that risk on her own account and I do not see what an adjudicator could do about that, except give some good advice.
Unfortunately, I am unsatisfied with the Minister’s reply and intend to raise the matter at the next stage of the Bill. Meanwhile, I beg leave to withdraw the amendment.
Amendment 37 withdrawn.
37A: Clause 6, page 2, line 30, at end insert—
“(2) A large retailer, subject to any enforcement measure set out in this section, may appeal against those measures to the Competition Appeals Tribunal.
(3) If the Adjudicator requires information to be published, the large retailer may appeal to the Competition Appeals Tribunal—
(a) prior to any information being published; or(b) following the publication of any information.”
My Lords, Amendment 37A essentially would give the supermarkets a right to appeal if they felt that there was a miscarriage of justice or that something has not been done correctly. The adjudicator will be policeman, judge and jury. It seems wrong that there is not some form of mechanism whereby someone who feels that they have been wrongly treated should be able to have recourse. I am sure that the adjudicator will be brilliant but people make mistakes and mistakes are made. On the previous occasion when we were in Committee, the noble Lord, Lord Browne, spoke well on the need for things to be fair and to be seen to be fair. This is an extension of that argument.
I also think that the retailers we are talking about are above averagely susceptible to bad reputation. Naming and shaming is very effective and there should be a way in which they can stop that before it happens if there is likely to be a miscarriage of justice. Noble Lords may recall that during the passage of the Financial Services and Markets Act under the Labour Government, the noble Lord, Lord Saatchi, introduced a right of appeal. I am sure that the Conservative Party would not want to change that sort of precedent. In the interests of justice and fairness, I hope that the Minister will give full attention to what I have said. I beg to move.
My Lords, the noble Lord, Lord Howard of Rising, has made a significant point. He did not specifically mention one aspect of what he is proposing; namely, that in relation to appeals Clause 9(4) already provides for an appeal against the imposition of any financial penalty, which is the most serious penalty that might arise from the adjudicator’s decisions under this Bill.
Whereas the Bill states that the appeal is to the High Court in England and Wales and the Court of Session in Scotland, the noble Lord, Lord Howard of Rising, wants it to be to the Competition Appeal Tribunal. I can see a lot of point in that. After all, the adjudicator’s basis for action is to deal with the excessive risks which are transferred from the retailer to the supplier and the possibility of unexpected costs being shifted from one to the other. Given that those proposals emanated, as we all know, from a report of the Competition Commission, it may be very suitable that any appeal against an adjudicator’s financial penalty should be to the Competition Appeal Tribunal, as the noble Lord is suggesting, rather than the ordinary courts, if I may put it like that—the High Court and the Court of Session.
The Competition Appeal Tribunal has a president who is a High Court judge and specifically experienced in competition matters. The other members of the tribunal are lay members who are appointed because of their knowledge and experience of competition matters. The noble Lord, Lord Howard, has an excellent point but he wants to go further and allow an appeal not only against financial penalties but against any of the other powers of the adjudicator, such as naming and shaming or requiring information et cetera. I do not think, any more than those who devised the Bill think, that there needs to be an appeal on those matters or powers that the adjudicator may exercise.
My Lords, I must admit that when reading through the Bill very carefully, I am somewhat sympathetic to the proposal to have some form of appeal apart from that in Clause 9(4), which the noble Lord, Lord Borrie, just mentioned, where an appeal can be made directly to the High Court. I am grateful to my noble friend for tabling this amendment. I also share the concerns of the noble Lord, Lord Borrie, that it should not affect anything other than the severest penalty of fines. Mischief could be had by way of delay. I have followed proceedings on the Bill all the way through, and when amendments arise I will try to make sure that the issues are dealt with as quickly as possible. I wonder whether it might be helpful—it probably is not—if the provision were added before or after Clause 9(4) rather than in the place suggested by my noble friend Lord Howard of Rising. That might be a better place for it, if the Minister is inclined at all to be sympathetic to the idea. It is reasonable that retailers who are taken to court or held up on grounds of not adhering to the code should be able to appeal in some way. I am no lawyer but I would support having a lesser approach. However, the other one will still be there as well. I do not know how the Minister will respond to that.
My Lords, I support the amendment in part. The complexity of the legislation is such that it takes a bit of figuring out to work out exactly what effect it will have on the regime that will otherwise persist. If I understand the ambition of the noble Lord, Lord Howard, it is to introduce a right of appeal on the part of a retailer in respect of any of the enforcement consequences and that those appeals should all be to the Competition Appeal Tribunal.
In the current structure of the Bill that seems to be unnecessary because there is no enforcement mechanism in respect of recommendations. The matter of whether or not recommendations are accepted is entirely for the retailer. The recommendation is made, which the retailer either accepts or does not, and there is no enforcement mechanism. We will come to my discontent with that structure in a later amendment today, I hope. There is no necessity for an appeal against a recommendation because the retailer is effectively its own appellate body in respect of a recommendation. Retailers can ignore it, and appear to be able to do so without consequence.
On the “naming and shaming”, which is the operative phrase used for the second of the enforcement mechanisms, I agree with the noble Lord that in commercial and reputational terms that could be much more significant for the retailer than a fine. If we get to fines in this structure, I expect that they will be substantial, otherwise they would be pointless. Naming and shaming could be significantly damaging to the reputation of a business built up over decades. I know that witnesses who have given evidence to the BIS Select Committee and been party to the discussions on these matters in the consultation period which has informed our deliberations have differing views on how retailers will respond to naming and shaming and whether it matters to them. I think that an argument can be made that it is a significant penalty and that, in fairness, there ought to be an opportunity for the retailer to have that decision reviewed or appealed in some way before it is implemented.
I note with some interest that the amendment moved by the noble Lord, Lord Howard, creates a right of appeal even after the penalty has been imposed. I can see the merit in that, but it seems to me that if we accept that there ought to be an appeal then we ought to stay the execution until the appeal takes places. There is no point in pardoning an already executed prisoner. That would be a pointless exercise in many ways apart from—well, I do not want to take the analogy too far.
To that extent I support the argument of the noble Lord, Lord Howard, and his amendment—so I support it in part. That may, in my experience of this Committee today, be the kiss of death to the proposed amendment, no matter how sensible or fair it is. The noble Lord has the advantage, of course, of the partial support of the noble Lord, Lord Borrie. That might persuade the Government that there is sense in the amendment, as that seems to be the touchstone in determining whether there will be a positive response from the Treasury Benches. However, the question—and I think it does a service to our consideration—feeds into our later deliberations on the issue of fines. I would just say in passing to the noble Viscount, Lord Eccles, that I agree with much of what he said. Although I do not agree with the reasons why he is making the arguments, I will try to explain later why I agree with much of what he said and why I think that it was really important. There is a fundamental systemic misconstruction in relation to fines in the middle of the Bill which we need to address.
The Committee’s deliberations so far are getting to the heart of the issue of the workability of this regime. I suggest, with respect, that it is incumbent on the Minister to explain why there is this differentiation in approach. Why are there three methods of enforcement? One of the methods is not enforcement at all but is simply a suggestion which can be accepted by the retailer. One is a fairly draconian consequence for a substantial business which will probably operate in all of our communities, and have a replication in all of our communities, but a consequence in which there is no system of appeal at all. The third method, and I will come to it in more detail later, either should be in the Bill or it should not be in the Bill—but it should not be halfway in—and that is financial penalties.
I would say, finally, that I am grateful to the noble Lord, Lord Howard, as I am also to my noble friend Lord Borrie, for their comments on expansion of the Competition Appeal Tribunal. I will need to go away and research the issue. When I first read the Bill I thought that adding to the workload of the already overworked High Court in England, Wales and Northern Ireland and the Court of Session in Scotland may not be a wise thing to do. It almost certainly will be an inordinately expensive process. There will have to be at least five or six wigs on each side of this argument when it gets to that level of debate. If this can be done much more efficiently through the Competition Appeal Tribunal and in a less litigious way then I would support it. However, I will go away and think about that. I suspect that we will have an opportunity at a later stage to deliberate on that, and I may find myself falling in foursquare behind the idea of an appeal to a Competition Appeal Tribunal as opposed to otherwise overworked courts.
My Lords, I have an amendment in this group. Before I speak to it, however, I should like to say briefly that anything that would lower the cost of settling disputes is to be welcomed. The High Court is not to be welcomed in that regard. After all, the intention behind the code of practice was, and is, to provide a method for settling disputes that does not involve the courts or a tribunal at all. As I say, I still hope to find that the Committee can be persuaded that that is the best way of settling disputes.
My amendments go to the naming-and-shaming part of the enforcement by seeking to leave out specifying what information is to be published, how it must be published and the time by which it must be published. I have a later amendment that is a substitution because I would like the criteria that are to be used to cover the matter of publication to be in the guidance under Clause 12. I am on board with the adjudicator being in some form of sensible dialogue with the supermarket about what the information should be and how and when it should be published. However, Clause 8(2) is far too prescriptive and will lead to endless arguments. When we come to the matter of appeals, we have to remember that we do not actually have to write someone having a right to appeal into an Act of Parliament; there is nothing to stop them going to court if they want to do so and think they have a good case. I suggest to the Committee that we should be careful about making the Bill so adversarial, instead of looking for sensible and fair dealing and agreement.
I agree with the noble Viscount that in the current environment it is impossible to stop people going to court. They will find a way to get to court, and that way will probably be judicial review. If one has sufficient resources behind one—we are talking here about the 10 biggest retailers in the country, and no one apart from the Government has resources that can match them—and feels strongly enough about an issue, one is entitled to find a way to get to court. The problem is that if Parliament does not allow a right of appeal then it will probably have to go by some form of judicial review. What is unsatisfactory about judicial review is that it deals with the process more than it deals with the content, although the content quite often enforces the process. Invariably, one then has to start again. Instead of concluding the matter, therefore, that may just cause it to start again at even greater expense. While the noble Viscount recognises that we cannot stop people going to court, I suggest that it is better if we can provide a sensible and efficient method of reviewing decisions that people who are aggrieved can take advantage of.
My Lords, I completely agree. I am not trying to be prescriptive at all. All that I am saying is that if people feel that they are being unjustly dealt with and they have the resources, they will find some way of challenging what they think is that unjustifiable behaviour. We are debating this matter against the background that no one has yet been able to say what sort of behaviour by the supermarkets they want to see investigated by the adjudicator. If we knew that, we would be in a better position to decide how severe the enforcement procedures should be.
My Lords, I rise in support of my noble friend Lord Browne’s position, which he articulated very well. The noble Lord, Lord Howard of Rising, has raised an interesting issue. The Competition Appeal Tribunal came into force in 2003 in order, as its website says:
“To hear appeals on the merits in respect of decisions made under the Competition Act … by the Office of Fair Trading … and the regulators in the telecommunications, electricity, gas, water, railways and air traffic services sectors”.
It does a few other things as well. The noble Lord is asking the Government a reasonable question about whether there should be an alternative to the court in respect of appeals. As my noble friend has said, this is about the merits of the decision as well as the process by which the decision has been made. I look forward to what the Minister has to say.
My Lords, much of the debate about sanctions today has focused on financial penalties. However, I value the opportunity to discuss the rationale behind the other enforcement powers available to the adjudicator. The noble Lord, Lord Howard of Rising, has brought forward two amendments which would together extend the right to a full merits appeal so that it applied to all the enforcement methods and would be to the Competition Appeal Tribunal. The Bill already provides for a full merits appeal to the court against financial penalties, if these are introduced. In the case of recommendations or the requirement to publish information, the Government believe that judicial review is more appropriate.
In the case of recommendations, it must be emphasised that these are non-binding on retailers. There is no consequence which follows if the retailer does not comply, other than the possibility of a further investigation, which could lead to the imposition of a further sanction only if a further breach of the code were found. We therefore believe that, in this case, a full merits appeal would be clearly inappropriate.
The Government acknowledge that for the requirement to publish information the arguments are more finely balanced. However, having considered this in depth, we believe that judicial review remains the most appropriate form of appeal. The reasons for this were set out in the Government’s response to the BIS Select Committee’s report. They include the independence and impartiality of the adjudicator and the breadth of matters that an investigation is likely to consider. The critical difference between the requirement to publish and a financial penalty is that in the latter case there is a very direct and immediate consequence for the retailer, whereas a publication of information is rather different. It should be remembered here that this information will not in itself determine that a retailer has any obligation to a particular supplier. The supplier would still need to bring his case to arbitration to seek damages or any other remedy.
Finally, we have also taken into account the implications that a full right of appeal against a mere requirement to publish could have for the effectiveness of the adjudicator. A full right of appeal, requiring the repetition of a detailed fact-finding exercise, could seriously delay the requirement to publish and so substantially diminish its impact. Taking these matters into account, the Government consider that a full right of appeal is needed only against financial penalties and that otherwise the possibility of judicial review by the court will be sufficient.
In addition, the noble Lord seeks to replace the principle of appeal to, or review by, the High Court or Court of Session with appeal to, or review by, the Competition Appeal Tribunal. While the adjudicator is being introduced on competition grounds, the details of the practices addressed by the groceries code are not the same as anti-trust cases or the other issues dealt with by the Competition Appeal Tribunal. The High Court or Court of Session in Scotland is therefore an appropriate place for such appeals to be heard.
However, I have listened to your Lordships today who support what the noble Lord, Lord Howard, has said or want to question this issue further. Therefore, I am willing to consider this point and will invite the noble Lord, Lord Howard, to a meeting, as well as any other noble Lords who spoke, including the noble Lords, Lord Borrie and Lord Browne, the noble Baroness, Lady Byford, and the noble Viscount, Lord Eccles.
I turn to the amendment proposed by the noble Viscount, Lord Eccles. The Bill contains clear requirements for the adjudicator as to what they must specify to the retailer if they require a retailer to publish information. The noble Lord has suggested that these be removed. I believe that it is important that if a retailer is being asked to publish information, it should be told what information it must publish, how the information should be published and the time by which it must be published. Otherwise, the instruction will be unclear or it could leave too much discretion to the retailer concerned. Given that this is a means of enforcement to be used following a breach of the code, I also believe that it is reasonable for the adjudicator to be able to specify what information is to be published, as well as when and where it is to be published.
Accepting this amendment would make the Bill less clear and would weaken one of the adjudicator’s means of enforcement. In asking the noble Lord, Lord Howard, to withdraw his amendment, I repeat my offer to him to meet me and my officials.
I am grateful to the Minister for giving way; I have no desire to prolong proceedings this afternoon. In anticipating that the noble Lord, Lord Howard of Rising, might accept the invitation to discuss these matters further, I would welcome being a party to those discussions.
Will the Minister ask those advising her to take into account the interaction of Clause 8(3) with the expectation that review will be conducted by way of judicial review? That has the potential to create a multiplicity of actions that are entirely unnecessary. She indicated that there was effectively no enforcement mechanism in relation to naming and shaming. But there is such a mechanism, by way of injunction or specific performance, in Scotland. I can see a judge in the Court of Session in Scotland or in the High Court in England having an application before them and saying, “I cannot go into the merits of this case. They are for another forum”. A judicial review will be raised at the same time and the interaction between the two will have to be worked out by judges in the same courts involving enormous expense all because there is no appeal. That is inevitable.
I think that I may have an answer for the noble Lord now, but as we will be discussing this further we will come back to it. The requirement to publish needs an enforcement mechanism. We should not oust the rights to judicial review and therefore we need both. That is the answer that I am giving now. We shall take it into consideration with everything else. I want at least to be sure that I am giving an explanation that is clear. In the mean time, I ask my noble friend to withdraw the amendment.
I thank noble Lords for their support, which is something that I am not really used to but is nevertheless very welcome. The essential difference is between financial penalties and naming and shaming. Those of us who are old enough to remember a certain gentleman referring to his jewellery being cheaper and not quite as good as a Marks and Spencer sandwich will know that that was the end of his business. It was finished. The businesses that we are talking about are very susceptible to reputation. They work on very thin margins and do not need many people to move for those to be affected. I am very grateful to the Minister for agreeing to look at the issue. When she does so, she will need to look at two or three ancillary points as they all tie in together. In the mean time, I beg leave to withdraw the amendment.
Amendment 37A withdrawn.
Clause 6 agreed.
Clause 7 : Investigations: enforcement using recommendations
Amendments 38 and 39 not moved.
40: Clause 7, page 2, line 35, at end insert—
“( ) In the event that a recommendation has not been followed, the Adjudicator may invoke the remaining enforcement measures referred to in section 6.”
My Lords, the amendment addresses the issue referred to in the ninth report of the BIS Select Committee as “escalation of enforcement”. I am sure that the noble Baroness will be very familiar with that report. The issue is encapsulated with all the arguments in a couple of pages of that report, starting at paragraph 120.
If I have understood the Bill correctly—leaving aside the issue of fines which we will come to in some detail shortly—the Government propose that the adjudicator will have enforcement powers that include making recommendations and what has come to be known as naming and shaming. We have had a discussion about that so I shall not go back over it in any detail. If, however, the retailer involved ignores the enforcement mechanism of recommendations, there is nothing that the adjudicator can do except to bear it in mind for the next time. Or, if a further complaint resurrects that issue, I understand from what I have read that there is a possibility of further investigation and then of going back to the original set of penalties to see if an appropriate one can be imposed, taking into account that on the previous occasion the retailer ignored the lesser penalty which was designed to start the process off.
As with many other aspects of the Bill, I can see why the Government in seeking some form of light-touch regulation—although that phrase is out of fashion at the moment—have built an escalator into the Bill. I fundamentally disagree with this but the Government are seeking Parliament’s permission to do very ill defined things at some time in the future by way of a process that is totally inadequate: for example, by increasing the powers of the adjudicator in relation to fining. They are asking Parliament to give the adjudicator a similar type of power; that is, to be able to escalate their response as the record against an individual retailer builds up. I have proposed this amendment because that is totally unsatisfactory. It is inappropriate to ask Parliament to do that.
The much simpler answer to this is to say that if the adjudicator’s recommendations are ignored, the adjudicator should be able to escalate. They should be able to go back and say, “Well, I gave you a chance but you ignored me, so I’m now going to ratchet the penalty up because your behaviour in ignoring my recommendations has exacerbated the original behaviour”. As the noble Viscount, Lord Eccles, points out, it would be much better if we were doing all this against a body of evidence showing that that was how the retailers were behaving, but we are not. However, all that has been discussed and, it would appear, investigated over the best part of a decade, with recommendations having been made and accepted. There is quite significant support for this process, but if it is to mean anything there has to be some element of common sense about it.
It seems entirely inappropriate to leave the adjudicator in a position where, if their recommendations are ignored, the adjudicator either has to find some method of starting again or has to store that up for a later date, saying, “The next time that you come round, I will take that into account in the penalty that I will impose”. If the adjudicator ratchets up the naming and shaming, we may have to wait until we have these promised discussions about naming and shaming and other enforcement to find out whether the adjudicator will be in any stronger a position on that than on recommendations. Simply put, Clause 7 concerns “enforcement using recommendations”. There is no sanction provided in the event that recommendations are not followed. There needs to be a sanction and this amendment provides it from the Bill itself.
Interestingly enough, that is the Government’s position—or, at least, it was the position articulated by the Government’s Minister to the BIS Select Committee in his evidence. When Ed Davey gave evidence to the BIS Select Committee, he answered the question about this matter by saying that that was the Government’s expectation of the adjudicator. He had subsequently to explain that he was sticking by the mechanism in the Bill, but his intuitive position—the phrase that the Select Committee uses in recording and commentating on his evidence—was that the adjudicator should have the opportunity to escalate. He is right. The Government should be consistent with the intuitive position that their Minister holds and put to us legislation which reflects that, as this amendment would do. I beg to move.
My Lords, I support the amendment. My commitment to the issues lying behind the legislation goes back a very long way. In terms of suppliers and retailers, it is rooted in the issues of the locality in which I have lived for the past nine or 10 years. This instinct has been reinforced by my experience more widely. Wherever possible, I have been trying to urge us to move forward on this and it is greatly encouraging to see that something is happening at last. At the root of this is the issue of the fairness of the market. Going back many years, when there were lots of debates about how effectively employers and employees were represented in the labour market, the key issues were its fairness and whether the balance of power was too strong in one direction or the other. That is the problem with which we are dealing. Anything that we can do to ensure that the legislation as finally enacted gives the adjudicator proper teeth so that abuses can be addressed. Some of the abuses that have come to my knowledge have been quite hair-raising. I hope that we support this amendment and that we make sure, if it appears that what is required is being ignored, that we allow the adjudicator the possibility of taking other forms of enforcement.
It is very useful to have the views of the right reverend Prelate the Bishop of Wakefield. He has attached his name to one or two amendments later, so we look forward to further contributions from him. I agree with my noble friend’s wish to ensure that if recommendations made by the adjudicator are not carried forward, he or she can come back to the Bill to see what other action can be taken, including the possibility of financial penalties.
Addressing a question to the Minister rather than to my noble friend, who proposed the amendment, Clause 6 states,
“the Adjudicator may take one or more of the following enforcement measures … recommendations … information to be published … impose financial penalties”.
I wonder whether the Bill already enables the adjudicator to go from one to the other if the first proposal—recommendations—is not accepted, or is it the Minister’s view that he can do only one of those things and not come back and open up lines of discussion as to whether one of the other measures can be taken later?
My Lords, I am grateful for this amendment. It gives me a chance to seek clarification yet again. My understanding from the noble Lord, Lord Borrie, was that the adjudicator would go choose between (a), (b) and (c). I did not think that it would be (a) or nothing, (b) or nothing, or (c) or nothing. I hope that as it stands it will be able to look at different ways of coming back to it.
I go back to an earlier contribution that I did not come in on. It keeps being said that there is little evidence. It is not surprising that there has not been much evidence in the past; that is why the Bill is necessary. In the past an individual supplier was the only person who could bring evidence. That individual supplier was known and future trading was very difficult.
Only this morning, I was in conversation with a vegetable supplier whom I happened to meet informally. She was telling me that one of the retailers she supplies had agreed a contract which had gone through, but, because the retailer thought that the circumstances were different, it had asked for a rebate on the contract that had been agreed. Surely that is extremely unacceptable. I hope that the Bill will deal with that. The reason that we have not had evidence is that people would not have come forward as the Bill will enable them to do.
I accept that, and in some instances it is possible, but sometimes with perishables it is not. If you take the contract away, what do you do with the goods? They are already lost. Although I accept my noble friend’s interjection, I do not agree with it because certain things have no shelf life; they are there or they are gone.
Yes, but perhaps my noble friend was in a better position than that supplier; there was clearly a problem there.
I welcome the amendment and am glad that we have a chance to debate it. I hope that when we come to later amendments concerning fines, we will be able to strengthen the provisions. I do not know whether that will make this amendment unnecessary—I seek clarification on that, because I do not know the Minister’s point of view. If we fail later to strengthen the whole section on fines, the amendment will be extremely important.
My Lords, the point raised by the noble Lord, Lord Browne of Ladyton, is important and the Government have considered it carefully. It was also raised by the Business Select Committee in pre-legislative scrutiny, as the noble Lord mentioned, and the Government amended the Bill in response. I take the opportunity to respond to the noble Lord, Lord Borrie, who asked whether the Bill already allows such escalation. That is not our intention. In Clause 6, subsections (a), (b) and (c) are not intended to be sequential. One or more measures would be imposed at the same time following one investigation. I hope that that is helpful.
The question is: what should be the adjudicator’s options if a retailer does not follow a recommendation? Before answering this question, I emphasise two things. First, recommendations are not mandatory. If they were, that would give too much power to the adjudicator: he or she could essentially tell retailers how to run their business. Recommendations are meant to be the lightest touch form of sanction, not the most severe. Secondly, there may be good reasons why a retailer has not followed a recommendation. For example, a retailer might decide that it can more effectively comply with the code using a different method than that recommended by the adjudicator.
Having said that, there must be some way in which the adjudicator can follow up recommendations. After considering the BIS Select Committee’s report, the Government chose to provide for this in three ways. First, Clause 7(2) requires the adjudicator to monitor whether a recommendation has been followed. Next, Schedule 2, paragraph 1(2) provides the adjudicator with powers to require information from a retailer for the purpose of monitoring whether a recommendation has been followed. Thirdly, Clause 4(1)(b) allows the adjudicator to begin a further investigation if there are reasonable grounds to suspect that a retailer has failed to follow a recommendation. It is possible that a failure to comply with a recommendation could indicate that a retailer was continuing to breach the code, but a new sanction could be imposed only if a further investigation found that this was the case. Taken together, these clauses provide an effective means for the adjudicator to follow up a recommendation while still being fair to the retailer in question.
My concern about the amendment in the name of the noble Lord, Lord Browne, is that to impose a new sanction without a second investigation could be unfair and damaging to the retailer. After all, just because it has not followed a recommendation does not mean that it has actually broken the code.
I hope that noble Lords will agree that the Bill as it stands already encapsulates the principle embodied by Amendment 40.
With respect, I do not think that the Minister has properly addressed the notion that at some point, reluctant as the Government may be, they may agree to the adjudicator having the power to fine. If naming and shaming has not worked, then surely it is reasonable for the adjudicator to escalate to impose fines without having to reinvestigate, with all of the delay consequential to that, before using the power to fine. Is this just an indication that in reality the Government do not ever want to offer the adjudicator the power to fine?
That cannot be the case, because we have made an arrangement that fines can be imposed, though it will be the Secretary of State who allows that. Yes, if there is a continuing breach—not just a failure to follow a recommendation—obviously that would be the response.
My Lords, I am extremely grateful to the right reverend Prelate the Bishop of Wakefield, my noble friend Lord Borrie, and the noble Baroness, Lady Byford, for their support. The noble Lord, Lord Borrie, is a very wise and knowledgeable man. At least, today he has displayed that; I am not sure if he was so consistent the other day. I am very grateful for his support, and I must at least be fairly near the right answer on this occasion.
The Minister’s response disappoints but does not surprise me, because there has been a consistent recommendation that the adjudicator should have the power to escalate right throughout all of the consultation process on the Bill. Indeed, the Business, Innovation and Skills Select Committee, at the end of its deliberations, supported escalation. I know that the Government’s position was not to support it.
Let me respond to the Minister in this way, as I am sure we will debate this again: in the first instance, if there is a recommendation, that means the retailer has—in the view of the adjudicator—broken the groceries code. We are starting from the point that the adjudicator is dealing with someone in breach of the code. The powers of enforcement following investigations cannot be imposed unless the adjudicator is satisfied that a large retailer has broken the groceries code.
Of course, failure to follow a recommendation is not evidence that a large retailer is continuing to break the groceries code. There may be any number of reasons why a large retailer may refuse to accept, carry out or respond to, a recommendation. I agree with the Minister in that regard. However, in her argument she said that the Government have granted the adjudicator the power, in those circumstances, to consider as part of the follow-up a yet further investigation, because a refusal to accept a recommendation will in some circumstances imply a continued breach of the code. Those are the only circumstances that I can see in the Bill where the adjudicator can initiate an investigation where he has no reasonable grounds to believe. It is the failure to follow a recommendation that gives him the power to institute the new investigation.
The Government conveniently say, “Of course, common sense tells us that if a large retailer refuses to accept a recommendation, then that retailer is at it and is probably continuing to breach the code, so we should give the adjudicator the power to institute a new investigation on the basis that that is a reasonable inference”. However, then, sentences later, they say, “Of course, the refusal to respond properly to or to implement a recommendation does not mean that the large retailer is continuing to breach the code”. One can ride two horses only so far and eventually they start to tear one apart. These two horses are going in different directions. The reason that the Minister has to present these apparently contradictory arguments to this Committee in sequence is that the logical answer to this problem has not been accepted. The logical answer is just to give the adjudicator the power to escalate, which, interestingly, the noble Lord, Lord Borrie, to a degree supported by the noble Baroness, Lady Byford, thought was in the Bill, although I agree with the Minister that the provisions in Clause 6 are intended to be alternatives or choices for the adjudicator. He can choose more than one of them, but not to be delivered in sequence. If you appear before a criminal court, you can from most judges receive a community penalty, be fined or be sent to prison, but the judge cannot do all three things to you, unless there is a specific power to do so.
However, the adjudicator has that power here, so there is an answer. The answer is for this clause to imply that the adjudicator can impose one or more penalties and suspend one of them on condition that the other is implemented. The common law will probably allow that, so we might have the answer already in the Bill, whereby the adjudicator, having once had recommendations ignored, says, “I tell you what, in this case, I make certain recommendations and I propose also to name and shame, but I will suspend the naming and shaming on condition that you implement the recommendations”. We then get the sequence without the statutory power.
I do not ask the Minister to respond to that now, because we will have the opportunity of a discussion about penalties and another debate, but it seems to me that that will happen. If I were appointed to be the adjudicator, I would certainly take legal advice as to whether this is what I could do.
Before I withdraw the amendment, I say in response to the noble Baroness, Lady Byford, who properly intervened on me to see whether I was on the right side of the argument of there being enough evidence to justify the measures, that my approach to this part of the proceedings—this is not Second Reading—is one of support for the legislation. I am convinced by the evidence that has been accumulated over a decade that there is a need for a code and for an enforcer of it, be it a referee, adjudicator or whatever. There is a need for somebody to play this role. I am interested in making the legislation work in a way that does not involve some poor person being in litigation with some of the best resourced organisations in the world for the rest of his or her professional life.
Before the noble Lord withdraws his amendment, to which he will no doubt return on Report, it might be useful for me to comment. It is possible for a retailer to have breached the code and the adjudicator to decide that a recommendation is enough. The adjudicator will not know for sure whether a failure to follow a recommendation is also a breach of the code. That will need to be further investigated to be fair to the retailer.
I am very grateful to the noble Baroness who is utterly generous in responding to every point that is made in these debates. It is very helpful in understanding how this complicated system will work. Essentially, this is a plea to make this legislation less complicated. If it is occupying so much of our time in trying to work out what it all means, perhaps it is just too complicated and we are trying to be too clever. I beg leave to withdraw the amendment.
Amendment 40 withdrawn.
Amendment 41 not moved.
Clause 7 agreed.
Clause 8 : Investigations: enforcement using requirements to publish information
Amendments 42 to 44 not moved.
Clause 8 agreed.
Clause 9 : Investigations: enforcement using financial penalties
45: Clause 9, page 3, line 17, leave out subsection (1)
My Lords, Amendments 45 and 47 in my name relate to the ability to impose fines, which has been referred to and anticipated by several speakers today. Under the Bill, it is assumed that naming and shaming will be sufficient to bring errant retailers into line, which requires a specific second-stage decision by the Secretary of State for the adjudicator to be able to levy fines. I believe that this is a cumbersome process which will lead to delays, including, possibly, changing the behaviour of supermarkets. It would undermine the freedom and independence with which the adjudicator should be able to act.
The amendments in my name and those of my noble friends would remove references to the Secretary of State and would therefore allow the adjudicator to impose fines from the outset. Of course, the adjudicator does not have to impose a fine if he or she finds a breach of the code. He could simply admonish the retailer concerned and make recommendations. I fully accept that the loss of reputation for retailers would be the key punishment. A reputation takes years to build and can be lost in a day. Therefore, the loss of reputation will matter to them considerably. For some retailers, it may be that breaches are sufficiently frequent to justify fines. I believe that having to wait for the Secretary of State to make the decision to ensure that fines can be levied is lengthy, cumbersome and unnecessary.
The history of this legislation is rather tortuous. I say that with absolutely no criticism of my noble friend the Minister or this Government. I make no criticism of the previous Government. I am simply pointing out that it has taken years to get to this stage. We are now moving to a legislative basis. Let us not put any further hurdles in the way of a fully effective system.
I shall speak to Amendment 46, which is in my name and that of the noble Lords, Lord Borrie, Lord Knight and Lord Grantchester. Here we come to the crux of the Bill. I am sure that the Minister has gathered that there is great support for the Bill. A couple of colleagues do not feel that way, but the majority of us want the Bill to succeed. I tabled the amendment because I felt that if the adjudicator has to go back to the Secretary of State, that will delay things. Briefings from the Food and Drink Federation, the NFU, the Federation of Small Businesses and the CLA all support the adjudicator being able to impose fines.
To cite the CLA’s brief, it believes that it should be the sole responsibility and a significant power of the adjudicator to impose financial penalties on large retailers where it is clear that there has been a serious breach of the groceries code and where the other two enforcement actions—making recommendations and requiring information to be published by a large retailer—are inadequate in relation to the nature and size of the breach. Indeed, it may very well be the case that a supplier will not be able to continue unless there is financial redress for the damages caused by the infringement. It believes that the Bill must make it clear that the adjudicator retains the power to impose financial penalties and that awards to those suppliers affected by the breach of the code by large retailers must come from the proposed consolidation fund.
My noble friend has just explained, but I reinforce my concern about delay if the Bill remains as drafted. One of the problems of suppliers is getting paid for things that they have supplied. I go back to the earlier comment of my noble friend Lord Howard of Rising when he said that it is up to the person who supplies to go away. The arrangement that I heard of this morning was done retrospectively. The contract had been agreed, the whole supply had been sold, so they could not say, “No, you cannot have it”, because they had already had it but were changing the ground and asking for a reduction in the agreed payment. They could not take the goods back, because they had been sold.
I am happy to support the lead amendment in the group, but if the Bill is to succeed, it must give the adjudicator the chance to impose financial penalties. Clause 9(1) clearly states, “The Adjudicator may”—it does not say that it must—
“enforce through imposing financial penalties”,
but only if it goes back to the Secretary of State. Is what is proposed the norm or have we taken a new step? Why is there that reluctance to allow the adjudicator to impose fines?
To go back to our earlier debate on appeals, if some form of appeals system is strengthened and if the amendment we debated earlier would assist, the requirement for it to go back to the Secretary of State would be even less needed than under the Bill as it stands.
My Lords, once again I support the general tenor of the amendments. Some of the same issues that were raised by the noble Lord, Lord Browne of Ladyton, in the previous debate are here. It seems to be about complexity, and the ability to take action swiftly is crucial. The Minister talked about fairness to retailers but it seems to me that part of the issue is getting fairness into the system. There is a clear unfairness to suppliers and it is once again about trying to change the culture and address the question of balance within the market.
I shall give two examples. The first concerns an individual retailer who insisted that a particular supplier of dairy products must, if he wanted to continue to be a supplier across the board of this very large retailer, pay a premium of £150,000. Without that premium the products would no longer be retailed in a very large number of stores within the chain. The supplier refused for two reasons. First, he felt that there was a lack of morality in the demand and secondly, he could not afford to do it. Happily he was switched on enough to be in touch with people who immediately complained that they could no longer get the products. In our marvellous electronic world, he was able to send them down the road to another local retailer. That is one example with one retailer.
The other example, which we all know about only too well, has been a continuing debate in the past 10 years on the issue of milk suppliers and getting a fair price for milk. Here it involves not just one retailer but a series of retailers acting together in their own best interests. I can understand their best interests. Perhaps if I were one of them I might want to push the same line. But in the end, it has the effect of driving suppliers into an impossible position.
First, we need swift action because it soon becomes clear that whatever legislation we produce is effectively weak as it gets pushed back all the time. Secondly, I take the debate about naming and shaming, and costs, but I only have to refer noble Lords to yesterday’s news about Barclays Bank. Whether the management of that bank will survive in their present roles, I have no idea, but it will not do them very much good to find that they have to pay £290 million in fines. I am not suggesting that we are talking about that level of fine here, but unless there are serious mandatory controls, we shall enact legislation that in principle is thoroughly positive and good, but which in practice does not get the market more evenly balanced.
My Lords, I am very happy to follow the right reverend Prelate as I agree entirely with everything that he said. He gave useful examples. I attached my name to the amendment tabled by the noble Baroness, Lady Byford, because I was convinced—I think I said something like this at Second Reading—that this provision should be in the Bill rather than there being just a possibility of a statutory instrument being laid at some later stage, with all the delays and question marks that that would involve. It should be in the Bill that there is a possibility of a financial penalty.
The noble Baroness, Lady Randerson, used a word with which I entirely agree, saying that the Government’s approach by not putting the power in the Bill is cumbersome. It is a cumbersome way of going about things. I am so glad that the noble Viscount, Lord Eccles, is here. If I may refer to some of the things he said earlier this afternoon, if this power goes into the Bill, I do not envisage the adjudicator taking a great deal of time thinking about penalties, the amount, and all the rest of it. I use a word most often used in criminal law, which I hope will appeal to my noble friend—deterrence. The possibility of a financial penalty —whether anywhere near that imposed by the Financial Services Authority on the bank yesterday—has a deterrent effect that is extremely important. The adjudicator will not be judged on the amounts of fines that he imposes to prove that he is a good or a useful man in his post—he will be judged as much by the effect of his powers upon the industry.
My Lords, my understanding of both these amendments is that they are intended to have the same effect. One may be more elegant than the other, but I think that they probably have the same effect, and I support both.
I do not intend to rehearse the arguments that the noble Baroness who moved the amendment made comprehensively. However, there are some other points that are worth making, and points that we have debated already this afternoon which are worth drawing on.
First, the noble Viscount, Lord Eccles, as we began our deliberations this afternoon, encapsulated the problem at the heart of the Bill in relation to penalties. He set out quite fairly the fine as a penalty and enforcement mechanism, and the choices that face the Committee and Parliament in relation to the Bill. Either we have a piece of legislation that includes financial penalties or we do not—or, because of the road that the Government have gone down, we have a piece of legislation that kind of includes financial penalties.
However, the decision on whether these financial penalties will ever become operative lies outwith the control of those who are being asked to legislate—other than that they will, by the interaction of Clause 9, Schedule 3 and, I think, Clause 23, get an opportunity, via a statutory instrument, to have a short debate which will probably be conducted with very few people in the room, in a comparatively short time and with no power to amend. If the Secretary of State comes to the view that the history of the adjudicator’s experience thus far reveals that the operative penalties—the recommendations and the naming and shaming—have proved to be insufficient, these financial penalties can be activated.
That means that, in terms of this Bill, we cannot have any debate on what level of penalty is appropriate, what sort of circumstances would trigger a penalty as opposed to one of the other enforcement mechanisms or whether we would like rules to be made so that violations of the code can be differentiated by their nature and attract different types of penalties. I do not think that that is constitutionally appropriate. Given the nature of the sort of penalty that we must expect, it is not appropriate for Parliament to be denied the opportunity to have such a debate if the penalty is to be meaningful. I say that because this code can be enforced only against the top 10 retailers in the country. These are enormous businesses. If financial penalties are to have any effect on them, they will have to be significant.
However, there is a much more concerning issue about this construction. I am sure that the noble Baroness—or those advising her—may say, or even be able to find, an example of where something similar was done in the past in order to support doing it again—although the example will probably turn out not to have been extraordinarily successful. I am sure that in responding the Minister will say that Parliament has supervision of this to the extent that it allows this mechanism and that it is entirely proportionate—and I am sure that the word “proportionate” will be used regularly in the response. Of course, the mechanism does not give Parliament any role if it disagrees with the Secretary of State’s persisting view that financial penalties are not appropriate.
The Secretary of State holds all the cards now. The Secretary of State is constrained by this to allow financial penalties only if he concludes that the other powers are inadequate. If the Secretary of State does not conclude that, how are they accountable to Parliament? How on earth can Parliament make the Secretary of State accountable in terms of these mechanisms for not triggering this power, other than the inadequate process of Questions or maybe a Question for Short Debate? There is no mechanism whereby Parliament can say, “This is not what we intended. There are egregious breaches of this going on and the Secretary of State is not willing to trigger this power”, and that is inappropriate. There is not even a continuing method for amending this legislation or a clause that can be resurrected in some fashion. There is just no method for making the Secretary of State accountable for a continuing failure to recognise what is going on and to leave a piece of legislation ineffective because a part of it has not been enacted.
My Lords, when first I was looking forward to reading the Bill, there were two areas that I felt were of key importance. One was that we managed to expand the number of people who could bring a case to the adjudicator for the adjudicator to judge from then on, and that was well satisfied by the Government and the Minister in our discussions on the previous Committee day. The other area is this one: is this an adjudicator that counts or one that is there merely for form? Yes, there may be a question of reputation, but not all retailers are that concerned about reputation in every sense. This is a powerful tool and we know that the restricted population of these retailers is going to be sensitive to it but, to show that Parliament and the Government are serious in this legislation, there has to be a direct ability on the part of the adjudicator to be able to make fines. It is a measure of whether this is a serious creation of an appointment. It is for that reason that the amendment put forward by my noble friends is important and goes to the heart of making the Bill something that the industry on both sides will pay attention to. On that basis, I hope that the Minister’s response will be positive.
My Lords, we were very pleased to put our names to the amendment in the name of the noble Baroness, Lady Byford, and support the noble Baroness, Lady Randerson, as well. Should the Minister, with her charm and grace, agree to these amendments, then Schedule 3 will be unnecessary, so this is the stand part debate as well. As we have heard, the adjudicator has the power to fine retailers, subject to permission—I think that my noble friend Lord Browne made good points in respect of that. We will go on to talk about the cumbersome number of hurdles that must be breached in Schedule 3 in a later debate. Schedule 3 sets out a hugely drawn-out process, which will do nothing to instil much-needed confidence in those farmers and small businesses that may have been severely affected by retailers that breached the code. We are grateful to the right reverend Prelate the Bishop of Wakefield for giving us some more examples. We need those people to have confidence in the adjudicator. The noble Lord, Lord Teverson, is right to say that giving that adjudicator the power to fine from day one would give a strong indication that Parliament and government are serious about this adjudicator being able to take on these extremely powerful retailers. As it stands, however, it is likely that fines for anti-competitive practices are even further away than 2015, given the hurdles that would have to be gone through based on Schedule 3.
I will draw a footballing analogy, because I am a bit of a fan. Let us say that on Sunday evening in the final of the European Championships, Germany is facing Spain. There are 85 minutes on the clock and Podolski is bearing down on goal. He is cynically hacked down inside the box as he goes through. Clearly, the defender is about to get the early bath—but hang on. Much like the adjudicator, the referee’s final deterrent or punishment, the red card, is outside the stadium and back at the referee’s hotel. It is not much good then for him to try to take effective action if he has got to get in his car, drive for a couple of hours, pick up the card and get back to the stadium—by which time the Spanish have of course gone on to claim the cup and we all have our collective disappointment. By not placing the power to fine into this Bill, that is precisely what the Government are doing. The red card will indeed be available to the adjudicator, but it will not be in their breast pocket where it can be issued fast and effectively on the offender as necessary.
We believe that it is of the utmost importance that the adjudicator can truly tackle the problems. In order to do so, they must have the power to fine those retailers who flout the rules. That will be the most effective deterrent and it is what this amendment proposes. Why are the Government not willing to listen to the Business, Innovation and Skills and the Environment, Food and Rural Affairs Select Committees? In its report on the Bill, the BIS committee said that the power to fine,
“would allow the Adjudicator’s effectiveness to be evaluated on the basis that a full spectrum of remedies was available from the start”.
The question is of course raised as to whether naming and shaming will be sufficient. In answering that, the submission that the Food and Drink Federation put into the EFRA Select Committee is pertinent. Paragraph 7 of its evidence states:
“we do not believe that the Adjudicator’s forms of enforcement such as making recommendations or requiring a retailer to publish information relating to an investigation would act as a sufficient deterrent. In particular, our concern is that name and shame mechanisms tend to be highly transitory and may not have the desired effect given that their effectiveness and impact may depend on external factors”,
such as “the wider news agenda”. If a big issue of the day is dominating the news, naming and shaming is less effective. I am sure that the first name-and-shame case will be highly effective and poisonous to that retailer and the second quite poisonous, but less so. It depends on whether it is news. I put it to the Committee that we need to have the power to fine so that it is available to people should naming and shaming become less effective over time.
I also remind the Committee of the perils of weak regulators. The charge is put that my party, when in government, listened too much to the Opposition of the day, who said that we should deregulate the banks more. We have seen the results of the FSA’s regulation—and yesterday, its investigation over a number of years into Barclays—but it is a fair charge that the banks should perhaps have been regulated better. It is a fair charge that the energy companies are not regulated sufficiently and that we need a fairer deal for consumers of energy. It is a fair charge that the Press Complaints Commission is a toothless beast and has not been able to regulate the media sufficiently. We can see the perils of weak regulation on our news agenda every single day at the moment. If we are going to set up a brand new regulator, I would put it to the Committee that we need to give that person the power from day one, with all of the tools in the box—and a power to fine is fundamental. I hope that the Government are listening to voices from all Benches, including the Lords Spiritual in this case, and will be persuaded to make the power to fine available to the adjudicator from day one.
Before my noble friend replies, perhaps I may just say that whatever my view of the proper fate for Clause 9, and however the Bill turns out, I think that the message sent out by these debates to an industry attempting to provide the best possible service to the public is a very important one. I should like to say two more things. On the production of milk, it is a problem. God gave dairy farmers different natural resources. Some dairy farmers need one leg shorter than the other; some do not have to have that disadvantage. The production of milk in this country has nevertheless been remarkably stable over the past five years. There has been no decline. In other markets farmers in general are doing rather well. For example, rapeseed is extremely successful at the moment and so is the production of beef. Dairy products as a whole do not provide an adequate argument. Finally, I think that there have been just one or two references in this debate to the costs of all this—the noble Lord, Lord Browne, made some reference to cost—and there has been absolutely no reference to who ends up paying.
My Lords, the question of financial penalties has been one of the most hotly debated throughout the development of this policy. As the BIS Select Committee acknowledged at pre-legislative scrutiny, the point is finely balanced. The Government believe that the remedies already provided—to recommend changes and compel the offending retailer to publish information about the breach of the code—will be sufficient and will provide a more proportionate means of enforcement. In a highly competitive market, these powers, in particular the ability to name and shame large supermarkets, will be effective in enforcing the code. If naming and shaming had ceased to be news there would be a good argument that it was inadequate, but it is news. Big supermarkets competing with each other will not wish to see themselves named and shamed in front of their competitors, who would be only too delighted.
Furthermore, as I mentioned earlier, the very existence of the reserve power to fine will contribute strongly to ensuring compliance with the groceries code. Large retailers will be conscious that there is the prospect of the swift introduction of financial penalties if there is evidence of significant non-compliance with the groceries code and the existing regime seems not to be sufficiently effective.
It is a very good question but I am not sure that I have an answer—but I will come to it.
As I was saying, the very existence of the reserve power to fine will contribute strongly to ensuring compliance with the groceries code. Large retailers will be conscious that there is the prospect of the swift introduction of financial penalties if there is evidence of significant non-compliance with the groceries code and the existing regime seems not to be sufficiently effective. Clearly all large retailers will prefer to avoid such penalties being introduced. In answer to a question asked by my noble friend Lady Byford, we already have a strong right of appeal to the court on the merits against financial penalties.
One of the final points concerned culture and the Bill’s intention. The right reverend Prelate the Bishop of Wakefield mentioned the word “culture” and I was very pleased to hear it because that is really what much of this is all about. We do not want to punish retailers, as that does not really help suppliers or consumers. We want to bring about a culture change to ensure that the code is consistently followed. An adjudicator exercising proportionate powers provided that the strong fining powers are there in reserve has the best chance of achieving this change of culture. On the other hand, the introduction of fines from the outset would be far more likely to bring about an antagonistic relationship with heavy penalties imposed and retailers appealing every decision.
The noble Lord, Lord Browne, asked whether it is right to hand all the cards to the adjudicator now without the benefit of experience as to whether they are all needed. I respect that there are strongly held views on this issue. However, I believe that introducing the Bill as it stands will bring about the best result for suppliers. If fines prove necessary they can be quickly introduced, and I will be happy to discuss the mechanisms for doing so in a future grouping when we consider Schedule 3. I do not think that it would benefit the Committee to deal with those questions now. I therefore simply ask the noble Baroness to withdraw the amendment.
I am grateful to the Minister. With respect, although I understand that we will come on to discuss Amendments 50 and 51 to Schedule 3, when the terms will be quickly and swiftly explained, perhaps the Minister could say—just to help us in the context of this debate—how many months she thinks it will take to go through the processes in Schedule 3.
How do the Government plan to streamline the process of introducing the fines? Is that what the noble Lord is asking? I cannot give a definitive answer now as we need to discuss it in more detail before the next stage of the Bill. That would be the right way to do it, if the noble Lord does not mind. I can give one more answer, which I think is to the question asked by the noble Lord, Lord Browne. The Delegated Powers and Regulatory Reform Committee ruled that the procedures were appropriate and the Secretary of State can regularly be held to account at departmental Questions if he does not introduce the fines when Parliament considers them necessary. That partly answers the noble Lord’s question. If the noble Lord, Lord Knight, can wait until we consider Schedule 3, all will be revealed. I ask the noble Baroness to withdraw the amendment.
My Lords, I thank the Minister for her detailed response. I also thank noble Lords who have spoken in this short debate in support of the amendments. I especially thank my noble friend Lady Byford for her very similar amendment aimed at the same thing. However, I am afraid that I am not reassured so far. Perhaps the answer will come when we get the definition of “swift” in the context of Schedule 3. I am not so far reassured that this process is not cumbersome. I retain the view that fines will have an important deterrent effect and that that effect will be sharpened if the fines are ready to be levied rather than subject to the approval of the Secretary of State.
The noble Lord, Lord Browne, made an important point. He said that the Bill does not give Parliament a role if the Secretary of State holds the view that there should not be financial penalties, although Parliament’s will is that there should be financial penalties—in other words, if the adjudicator’s report shows that the provision is not working as the Government optimistically believe that it will. The noble Lord, Lord Knight, pointed out that the practical implication of Schedule 3 is that fines will be levied in 2015 at the earliest. The Minister may well contradict that, but I would be very concerned if that were the case.
I hope that the Government will look at this again. There has been Select Committee support for fines. To put it this way, I believe that fines undoubtedly have a deterrent effect. If those fines are in the back pocket of the adjudicator, ready to be produced, that deterrent effect will be quicker and stronger than if the retailers believe that the Secretary of State will be asked to introduce fines only in the case of an overwhelming failure of the system. We could, of course, have a Secretary of State who set his or her mind against fines whatever the evidence, because the Bill does not require it. I believe that imminent fines would be much more of a deterrent and would change culture, which is a key point. We are talking about changing culture, as the Minister said earlier. I believe that fines will help to change the culture. I thank the Minister for her answer and beg leave to withdraw my amendment.
Amendment 45 withdrawn.
Amendments 46 to 47A not moved.
48: Clause 9, page 3, line 33, leave out “the Consolidated Fund” and insert “a fund, the proceeds of which are to be used to support innovation in the grocery market supply chain”
My Lords, the issue of proceeds of fines has become prominent since last year, when the Office of Fair Trading fined certain supermarkets for raising their prices in 2003 in response to a concerted push-up on prices from dairy suppliers through their processors. Dairy farmers were responding to very low returns. The supply chain was being receptive and wished to respond without disturbing the competitive status quo. The supermarkets wanted a sustainable supply chain but the Office of Fair Trading, with its primary concern focused on prices to the consumer, fined the supermarkets, with the proceeds going to the Exchequer. That took further resources out of the supply chain, which brought it great alarm, and many in the dairy industry thought that this was unfair and counterproductive.
I will not comment further, as I understand that this case may yet be unresolved. However, the proceeds of fines levied on supermarkets for anti-competitive behaviour in a supply chain can be seen, in many regards, as different from those for most other wrong-doing. The Consolidated Fund helps taxpayers, not consumers. The complainants insist on anonymity. Rather than take money out of the grocery trade, surely we could be more imaginative.
We have doubts about whether the Government ever intend the adjudicator to levy a fine. If, on reflection, the Government find their nerve and agree that the adjudicator’s powers need to have teeth, the industry may be looking at significant sums of money if the level of fines is to have some meaning to supermarkets with multi-million pound turnovers. The proportionality of fines to the offence should also be taken into account. Have the Government done any thinking on this? Our amendment offers scope to undertake more positive action.
In early February, the House debated the report of Sub-Committee D of the European Union Committee, Innovation in EU Agriculture. The report’s main conclusion was that the UK must show leadership within the EU in order to develop a strategic approach to food production. The CAP budget should be rebalanced to increase allocation to research and innovation. All sides of the House, including the Government, welcomed the report. We have a wonderful opportunity to increase innovation in our groceries supply chain with proceeds from fines. “Innovation” includes all aspects of development in farming and the supply chain, technological development, product development, and marketing. The amendment at this stage does not seek to name a specific recipient, but rather to seek agreement to this idea.
Much of the innovation in farming originates in the supply industries that provide farming inputs: genetics of crops and animals, plant protection, animal health products and treatments, plant and machinery, and a range of expert services for financial, technical, environmental and marketing purposes. The BBSRC—Biotechnology and Biological Sciences Research Council—and the Technology Strategy Board urgently need to reposition UK agriculture at the forefront of technological advance. As an alternative, we have the Agricultural and Horticultural Development Board, as well as sector centres of excellence such as the dairy innovation centre.
The noble Lord, Lord Knight, received only today a letter from the Minister, dated 29 May, following our debate at Second Reading. In the letter, which the noble Lord has shared with me, the Minister mentions where money should go. I quote:
“There is … a risk that if the funds were earmarked for funding groceries supply chain initiatives this could lead to lobbying or even litigation over who the most suitable recipient was”.
I am not sure whether we need at this stage to specify in the Bill where precisely the money should go—the area is surely sufficient. Could that not be included as an amendment to secondary legislation under Schedule 3? Other examples do not seem to have caused a problem. For example, the regional growth fund is quite able to make awards without challenge. We have mentioned this idea to stakeholders in the industry and have received encouragement to explore this option with the Minister.
The Groceries Supply Code of Practice was needed precisely because anti-competitive behaviour stifled innovation. What better way to promote innovation in the supply chain than by using the money raised in fines from such behaviour to undertake this work? It would be the best way to provide redress to suppliers, who must be assured of confidentiality if they are to come forward without fear of reprisal. It is a pro-growth measure; pro-supplier and pro-consumer: a win-win-win. I beg to move.
My Lords, I shall speak to my Amendment 49. There is an opportunity here, as the noble Lord, Lord Grantchester has said, to be a little more innovative. I have certainly put down one suggestion in my own amendment, though I am not saying that it is exactly the right way to go. At this stage, we are talking about the principle.
I know that the Government are often concerned about what they would see as creeping hypothecation, and that fines should generally go into the Consolidated Fund. However, I was interested to read the Statement today from my right honourable friend the Chancellor of the Exchequer about the Barclays crisis, where he stated that fines paid to the FSA are used to reduce the annual levy on other financial institutions. We have an example there of where such fines do not go into the Consolidated Fund, as pointed out very conveniently by the Chancellor. If anyone knows about these Treasury issues, it is probably him—we hope, at least.
The Chancellor goes on to say that he wants to change that, and that proceeds of fines should go back into the Consolidated Fund. The reason that he is iffy about that system is that the money goes back to the financial sector. Here, we are not suggesting that it should go back to the rest of the retail sector; we are suggesting it should go to the people whom this Bill is trying to protect and promote—that is, the supply chain. There is an opportunity here for innovation, for goodwill and for common sense. I do not think that it will be the end of the Treasury trying to meet its targets in reducing the public debt. It will not be that significant, but it will be important to the industry.
My Lords, I need to leave fairly soon, so I want to add something about this particular suggestion. I want to address also a broader point, since this is tied into the whole issue of financial penalties.
I was grateful to the Minister for her comment about changing culture. This is another small way in which the culture might be changed. But the crucial issue we need to grasp is that changing any culture will require whether we like it or not—and it is not a pleasant word—coercion. That is at the heart of much of what we are saying here. I do not know enough about the latest statistics to be able to respond to what the noble Viscount, Lord Eccles said a few moments ago, but, certainly, in our part of the world dairy farms are still closing and, certainly, an analysis of the past 10 years would show that the capacity for milk production has reduced. I do not know what the figures are for importing milk, but I think they have gone up significantly over these years.
All these things lead us back to innovation, which seems to be a key word to use. It is a positive word. It goes back to changing cultures and is not about punishing people. It is about trying to find a proper balance within the market, so that suppliers and retailers are doing something which has a synthesising effect: they are working together. Therefore, I hope very much that some sort of response will come from the Government at this stage. If it does not, I fear that these same questions will be asked on Report. I would gently support this pair of amendments, but in the end they push us back to the same issues that we have been looking at. If we do not face those issues, we shall still end up in a situation where we do not alter the present culture.
No. It depends on what you mean by “coercion”, which can mean something very unpleasant indeed. It does mean that people will not necessarily change the way that they operate simply because we ask them to be nicer. That is the point. We know that, otherwise we would not have produced the sort of legislation that we are debating today. Even if we do not go down some of the roads that we have been debating, the whole Bill seems imply that the adjudicator must have some powers by which the present situation is changed. How you want to use the word “coercion” is another matter. I would not want it to be overpressed. After all, the worst form of coercion always leads to war and that is not what we are talking about—we are talking about precisely the opposite—but it will need firmness and robustness.
My Lords, the amendments being discussed here are very interesting. However, in considering them it is important to remember the purpose of the financial penalties. The financial penalties in this context, if they are imposed, are supposed to be punitive rather than restitutory or to fund any particular activity.
The amendments of my noble friends Lord Teverson and Lord Razzall raise two difficulties with regard to paying any of the proceeds to a supplier. First and most fundamentally, an investigation does not determine the liability of a retailer with respect to any individual supplier. Given this fact, it would be inappropriate to pay all or part of the fine to the supplier. Any supplier who did wish to reclaim damages from a retailer would be able to do so using the arbitration provision in Clause 2.
The second reason is linked to the climate of fear. One of the key drivers of this Bill is the need to address this problem. One of the principal reasons for investigations, as they are set out in the Bill, is to allow suppliers to complain in confidence to the adjudicator, who can then carry out an independent investigation. If an adjudicator began making payments to individual suppliers, it would become obvious who had complained and open up those suppliers to potential retribution from a retailer.
I turn to the amendments of the noble Lords, Lord Knight of Weymouth and Lord Grantchester. Given that financial penalties are a civil sanction, it would be inappropriate for financial penalties to be paid to a supplier or to a third party which did work that supported the groceries sector. In accordance with the standard principles of managing public money, financial penalties are therefore to be paid to the Consolidated Fund.
I think not; I shall go back again. Given that financial penalties are a civil sanction, it would be inappropriate for financial penalties to be paid to a supplier or to a third party which did work that supported the groceries sector. I must refer back to the standard procedures for managing public money. Standard practice for such penalties is that they are paid into the Consolidated Fund. This is in accordance with common practice elsewhere in competition regulation. Fines imposed by the Office of Fair Trading are also paid into the Consolidated Fund.
I thank the noble Baroness for her words and I will read very carefully through Hansard. We will confer and no doubt bring the amendment back, perhaps by exploring it in another way, because the supply chain is rather keen that such an opportunity is made available. I beg leave to withdraw the amendment.
Amendment 48 withdrawn.
Amendment 49 not moved.
Clause 9 agreed.
Schedule 3 : Order conferring power to impose financial penalties
50: Schedule 3, page 15, line 4, leave out from “penalties” to end of line 5
My Lords, if I am following correctly where we have got to, I am moving Amendment 50, which is in my name, and speaking to Amendments 51, 63 and 64. These are all amendments to Schedule 3 or Clause 12 and are to try to streamline the process, should we be unsuccessful in persuading the Government to have powers to fine from day one. In the exchange that we had on earlier amendments I got the impression from the Minister that she may be minded to concede a little on this, so I will be extremely brief to give her maximum time to elucidate on whatever concession she may or may not have available.
I remind the Committee that my understanding of how things stand is that the adjudicator would be established and would operate without fines. They would then perhaps do some investigations and find that they are not really having much of an effect with naming and shaming, so would recommend to the Secretary of State that the powers to fine would be useful to him or her. The Secretary of State would then make an order under Clause 9 but would have to consult a variety of people on whether to make such an order, as set out in paragraph 6 of Schedule 3. The order would then be published and we would have the time taken by Parliament to consider it. Eventually, it would be passed—at which point, the adjudicator has to issue guidance as to how he or she would then use the financial penalties and consult on that guidance. At the end of all that, the adjudicator would be able to use those powers to fine. In my judgment, that would take at least a couple of years, probably more, which is why I mentioned 2015 earlier. I am delighted, however, that the Minister is about to tell us that it is going to be a lot better.
My Lords, I want to refer to Amendment 52 in my name. I will also be brief, as I am sure noble Lords will be relieved to hear. My amendment would simply remove paragraph 6 from Schedule 3. It fits neatly with my previous amendment, to which I spoke, because it removes the cumbersome nature of the consultation. Regarding the list of people to be consulted, in my experience with legislation the moment that you start being as precise as this is, the very next year it is out of date. Then you have to change the list by secondary legislation or amendments, and so on. It is also a strange list because it starts by being very precise and then goes on in very general terms:
“one or more persons appearing to the Secretary of State to represent the interests of suppliers”.
There is the same in relation to consumers and then, finally,
“(g) any other person the Secretary of State thinks appropriate”.
Why not just have general consultation and leave who is consulted to the common sense of the Secretary of State? Why not move to a much swifter process than this cumbersome list indicates? I urge the Minister to take this opportunity to think again about this aspect of the Bill.
I apologise to the Committee. I should have set out what we are proposing as the streamlining. In essence, we are suggesting in Amendments 63 and 64 that the adjudicator could publish straight away the draft guidance about how they might use the financial penalties, so that we at least remove that stage in the process. I am looking forward to hearing what is said.
It would be helpful to the Committee if the Minister were able to indicate the scale of fines that the Government have in mind if these financial penalties were ever activated. I cannot imagine that we have got this far without the Government having some idea of what the scale of those fines is likely to be. If we do not know, we are significantly disadvantaged in our debates about what this power masks, because it masks quite a lot from what I can see in the schedule.
I fully agree with that. What industry needs is certainty. What it cannot live with is uncertainty. It needs to have as many of the factors that are going to influence what it does and the way it does it as settled as possible. Uncertainty is the enemy of good business.
My Lords, as has been mentioned, I listened very carefully at Second Reading when the subject of Schedule 3 was discussed. I know that many noble Lords feel that the process set out there is too clunky—I think that was the word that was used—and bureaucratic, and that it should be simpler and quicker. I assure the Committee that it was not the intention of the Government to introduce a clunky process, so this is something we are willing to look at, and if it is clunky we will need to amend it.
However, while the Government are willing to consider amendments in this area, I feel that those that have been laid today go a bit too far. In particular, the Government believe that financial penalties should be available only if the other powers are inadequate. After all, if the other powers are adequate, why do we need fines? We should not seek to punish the supermarkets for the sake of it, given the strong contribution that they make to the UK economy and to employment.
Similarly, I feel that stripping out consultation altogether is not appropriate for a significant measure. Evidence is important and consultation takes only three months. I believe it would be more appropriate to look to streamline and simplify that consultation process rather than eliminating it altogether.
The noble Lords, Lord Knight and Lord Grantchester, have put forward two amendments, both requiring draft guidance on financial penalties to be published within a year of the adjudicator being introduced. These amendments are identical except that one requires consultation and one does not. I will therefore address the principle of both together.
The publication of guidance is intended to ensure that those dealing with the adjudicator have a proper understanding of how it will act and of what is expected of them. Draft guidance on a power that the adjudicator does not have would not provide such clarity. Rather, we need to find a way to streamline the production of guidance if it is necessary, rather than producing it in advance.
I can answer two questions. To the noble Viscount, Lord Eccles, yes, the consultation will be carried out in the usual way. I hope that that is reassuring. To the noble Lord, Lord Browne, the reason for not prescribing the maximum fine in the Bill is that it is more appropriate that such a maximum be informed by experience—for example, how much retailers may be gaining from non-compliance. That experience can be gained only once the adjudicator is operational. Should the Secretary of State make an order to introduce fines, that order must specify the maximum penalty that may be imposed or how it is to be calculated.
I would like to discuss those points in more detail with the noble Lords who proposed the amendments before the next stage of the Bill, and the Government will carefully consider whether we want to bring back an amendment on the subject. With that, I ask the noble Lord to withdraw his amendment.
I am most grateful to the noble Baroness for that commitment to discuss and the potential commitment—if a potential commitment is possible—to a government amendment. Although I am disappointed by some things that she said, I will not pick up on those but quit while I am ahead, even if it is only by a nose. I look forward to exploring with her how to make this a swift process, in common with her speaking note earlier. I therefore beg leave to withdraw the amendment.
Amendment 50 withdrawn.
Amendments 51 to 53 not moved.
54: Schedule 3, page 15, line 18, leave out “large retailers” and insert “retailers mentioned in Article 4(1)(a) and (b) of the Groceries Supply Order”
My Lords, I shall set out the reasoning behind the amendment. As well as moving Amendment 54, I shall speak to government Amendments 91, 109, 113, 115 to 117, 119, 120 and 123 as well, as they are all establishing the same principle.
The adjudicator is intended to uphold the groceries code, which applies to those retailers specifically named in the groceries supply order. The code also applies to their subsidiaries, as Article 4(4) of the groceries supply order provides that each designated retailer will procure that its subsidiaries comply with the order. That means in particular that subsidiaries that deal with suppliers should incorporate the code into their supply agreements and then comply with it.
The Government’s policy has always been that that the adjudicator’s functions should apply to whichever companies in the retailer groups enter supply agreements and are bound by the code. However, since the Bill’s publication, we have realised that it is drafted in a way that technically would not allow the adjudicator to investigate subsidiaries or deal with any breaches of the code by subsidiaries. The amendment will correct that anomaly.
The main change is simply to include subsidiaries in the definition of “large retailer” in Clause 22. The other changes are to ensure that a more limited definition—that is, parent companies only—still applies in certain clauses. In particular, when specifying which companies have to pay the levy and which would have to be consulted, it would not make sense to include subsidiaries. I hope that noble Lords will agree that this amendment is technical, intended to deliver the policy as originally envisaged rather than to extend it, and will be able to give it their support. I beg to move.
Amendment 54 agreed.
Debate on whether Schedule 3 should be agreed.
My Lords, I think I am at the right place. I gave notice that we intend to oppose the Question that Schedule 3 be the Third Schedule to the Bill. All of us in the Room have debated this matter very fully this afternoon, and I do not propose to go through it again. I have also heard the response from the Minister that she wished to take it away and think about it. I want it recorded that, at the moment, we are looking to have some alterations to the schedule as it currently stands. I do not know if the Minister wanted to respond but if she could clarify the fact that she will take this away and think about it, I would withdraw my opposition. I hope I am correct.
My Lords, while the Minister assesses whether there is a speaking note for the stand part debate on Schedule 3, and in addition to what we have already said, the other aspect of the schedule that I would like her to think about as she ruminates on it is that at the moment it is entirely with the Secretary of State as to whether the Secretary of State thinks that the adjudicator’s other powers are inadequate. Select Committees and other parliamentarians should have some voice within that. That is something else that she might want to think about.
Schedule 3, as amended, agreed.
Clause 10 : Recovery of investigation costs
Debate on whether Clause 10 should stand part of the Bill.
My Lords, perhaps unsurprisingly, Clause 10 causes me quite a lot of concern. We are debating the anticompetitive effect of imposing unexpected costs on suppliers. Now, in this clause, we will impose unexpected costs on retailers, so Parliament is doing something that the Competition Commission considers to be anticompetitive. We are doing this because of a number of factors. As I understand it, it is not the intention that the adjudicator should mount an investigation when a supplier has lodged a complaint against a retailer. That matter will go its normal course under the code of practice. The complaints that trigger investigations come either anonymously or from a trade association. Of course, there are provisions in the Bill for people to agree that they can be named, but in general it might well be that they do not.
I have heard it said that one investigation that might take place and would be, as it were, between a dispute between a supplier and a retailer, and a full-scale Office of Fair Trading/Competition Commission inquiry, is an inquiry into pig meat. I am not quite sure where I heard that but it might have been at Second Reading or somewhere. I think that it was said at the time that if there were an investigation into some alleged breaches of the code of practice in relation to pig meat, then it might be sensible for the adjudicator to bring in other forms of meat—that might be lamb or beef. If that were to happen, the next question is how many suppliers and retailers he would bring into the investigation, and how far back up the supply chain he would go. My understanding is that the adjudicator is free to do whatever he or she considers is the best way to proceed. Eventually, a report will come out that, of course, respects anonymity. The adjudicator now sends out a series of bills, not necessarily just to an individual retailer, as the clause specifies, but possibly to three or even 10 of them, whatever the number may be. Those retailers are then responsible for meeting the costs.
There is a requirement to specify the grounds, how much is to be paid, and by when. The grounds must be quite tricky if anonymity in the supply chain is going to be preserved, so I do not think that they will be very detailed. Also, they might be quite historic in the sense that if a really thorough investigation is undertaken into pig meat and other types of meat, it could easily take around 18 months. There is an appeal process, which is absolutely as it should be, but it is quite difficult to appeal unless you are provided with information about how the costs were reached in the first place. I worry about this clause and I am looking for guidance.
I want to make one other point which is similar to something I said earlier. This kind of clause attempts to portray what is happening as if no one is suffering. The consumer is not paying, the taxpayer is not paying, but the supermarkets are paying—and of course they can afford to do so. It is a populist move. The trouble is that if the supermarkets pay and their net margins are, as is the case for the Co-op, 2.8%, they will pass the costs on by increasing their prices. They do not have much of an alternative because they need to make a return on capital in order to keep on refurbishing their stores and opening new ones, so they do not have many options. I would ask this: where is the right place for these costs to fall? My answer to that is that the less regressive place would be the taxpayer. I do not think that these costs should be passed on to the supermarkets—
I promised myself that I would not intervene on the noble Viscount, but he has been speaking for about five minutes. Is he aware that Tesco, as the largest of the retailers in this country, will have made, in the time that he has been talking, a profit of around £22,500? Perhaps Tesco could afford to pay these costs out of some of its profits.
It is certainly true that Tesco has a higher margin than the Co-op. Its net margin before tax is around 5%. It also just happens that its margin in the UK is slightly lower than its average margin because it achieves somewhat better margins abroad. The size of Tesco’s profits is, in my view, irrelevant. Tesco is running a business that needs to achieve a margin on which it pays taxes, and it needs to make a return on the capital employed, which of course is very large. The Tesco store around the corner from where I live has just been completely reconfigured, perhaps I may say, to the advantage of the consumer. There are now more goods in the store and there is not much room to move around. In fact, if you go there between 12 pm and 2 pm, you are mown down by members of the Civil Service buying sandwiches for lunch. Nevertheless, in its broadest sense, Tesco provides an extremely good service to the public. Quoting arbitrary sums of money does not recognise the reality of life. It is to take a mythological position to say that because people are making quite a lot of money, they can always afford to pay all the costs that are thrust upon them.
If Parliament wills that there should be an adjudicator, that he or she should sit in the Office of Fair Trading, conduct investigations, have a staff and cost money, then rather than having an endless argument about how it defends invoices it has sent for investigation costs, it would be much better if they were paid out of taxes—out of the combined OFT and adjudicator budget—and do not fall on the elderly ladies with their small shopping baskets whom I see in another supermarket, called Sainsbury’s, who cannot afford to pay more for what they are getting there. The taxpayer has broader shoulders than the consumer. I beg to move.
I congratulate the Government on this clause. It is balanced, it puts the costs where they should be and acts as a break on frivolous claims and complaints. I do not understand the argument about it putting up prices, because if that is the case it is because we have an oligopolistic market. The way that markets work is that the price is set not by the cost of fines but by competition in the market and the crossing of supply and demand. If we have competition in that market—that is a big “if” and I will come back to it in a minute—the individual firm takes a hit on the fine, but it cannot put up the price because there is competition in that market. That sector argues very strongly that there is strong competition in that market, so it does not affect price. That is fundamental capitalist economics. If there is a problem, it is because there is insufficient competition in the grocery market. Frankly, if that is the case, the remedy is not here, but is clearly somewhere else altogether—in the Competition Commission or whatever follows it following any legislation this year.
As I said at Second Reading, I am a great advocate of multiple retailers. They have brought a great deal of benefit to this country, although there may be downsides as well. It is clear that if people cause the costs of an investigation, it should take responsibility for them. That is absolutely the right way to do it, and the clause reflects that. If you believe that fines will put up costs, you have to go to something other than fines. What do you go to? I do not think you go back to taxpayers. That is impossible. You would have to go back to an FSA-type system where you have approved people and you disqualify them from being in the grocery trade, but there is no way that that would work. Otherwise, I suppose you put them in jail under the criminal code, and that is clearly utterly inappropriate. I congratulate the Government on the clause. It is absolutely balanced and correct.
I am pleased to follow the noble Lord, Lord Teverson. I think his answer to the noble Viscount, Lord Eccles, was exactly correct about the interaction of financial penalties and the truth of the noble Viscount’s arguments about the efficiency of competition. We cannot make a decision about these issues based on an entirely arbitrary judgment about what aspects of the finances of this business are relevant to this decision and ignoring the others. The noble Viscount is right about that, but he has to apply that logic to himself. He cannot say that it is all about margins and not about the scale and nature of these businesses and the amount of profit that they earn, because they are relevant to this.
That having been said, this is a very odd clause given other parts of this legislation because, however you dress this up, this is a financial penalty. I asked the noble Baroness a simple question: what scale of financial penalty are the Government prepared to countenance in relation to this legislation? The answer that I got was, “Without the experience of the adjudicator working, we have no idea”. The adjudicator has been given a blank cheque without any experience.
I have appealed consistently for the logic that is applied to one part of the Bill to be applied to the others. I agree that the costs of investigations that conclude that there has been a breach of the groceries code should be transferred, at least in part, to the legal person who caused the problems in the first place—the retailer who is legally responsible. That is a principle that we apply in many other areas of law without any offence to justice. People accept that. In civil litigation, costs follow success. If you force someone to take you to court and they win against you, you pay their expenses. That is the principle that should apply.
However, under Clauses 4 and 5, if an adjudicator concludes that there has been a breach of the groceries code, he will then look to the powers in Clause 6 and say, “In this case, the appropriate penalty is to require information to be published but the nature of the breach is such that this expensive investigation would have been utterly unnecessary if the breach had not continued. Therefore, I am passing some of that cost back”. The retailer will not be able to appeal the part of the decision that requires information to be published, but will be able to appeal the part that awards costs against it.
We will then have an inevitable judicial review of the adjudicator’s decision, which will go into how the first part of that decision was made. In a separate process in the High Court or the Court of Session in Scotland, the retailer will argue on appeal that it should not have to pay costs. To establish whether the adjudicator was justified in awarding the costs, the judge will need to look into the merits of the case. The judge will be disqualified from making a decision on the merits of the case, but the view that he has reached on those merits will inform his decision about the expenses, the costs. My noble friend Lord Borrie’s view is that that may well disqualify that person from being called a judge. In any event, the judge will be restricted. This seems unnecessarily complicated. Parts of the Bill need to be rethought.
I am listening intently. Will the noble Lord, Lord Browne, deal with the issue of anonymity? If my amendment were accepted, if the adjudicator believed that one retailer had breached the code, I can see that it would still be complicated but not quite as complicated. If the adjudicator has a duty to preserve anonymity, I cannot see how he could do so without widening the investigation in such a way that means it is not easy for people to identify who is being investigated. At that point, the investigation costs go up and the way of presenting them so that they are eventually paid by whatever means becomes much more difficult. How would the noble Lord deal with the dimension of anonymity?
I do not know if I am grateful to the noble Viscount for asking me that question. If I were standing where the noble Baroness is, then I would feel I had to answer it. The only answer I can give the noble Viscount is that I will think about it. However, I suggest that for the purposes of the Committee, the fact that it is not easy to answer makes the point that he wishes to make.
There are all sorts of complexities about this legislation, many of which are necessary. I believe that anonymity at the heart of this process is necessary to build confidence in it and ensure that people come forward in this unequal bargaining position. The noble Viscount himself said that the consequences of people being exposed may be significant for them as suppliers to the retail industry. However, all of these complexities are going to keep the adjudicator awake at night in any event. This complex structure that we are creating—and we are all now willing participants in this if we do not speak out against it—is taking a reasonably good idea, which could be delivered simply, and complicating it beyond all belief. It is so complicated now, and I have taken such an interest in this over the last couple of weeks, that I might go back into practising in the legal profession, because I can see opportunities here that were not there when I practised before, and niche practices are places to make decent money now in the legal profession.
I do not support the argument that the noble Viscount puts forward, because I think costs should fall. The nature and scale of what we are dealing with here is such that if people cause this draconian step to have to be taken, then they deserve all they get in my view. They should then have to go out and compete in the market in order to make that money up in some other way.
There is another point about this clause that disturbs me, which is the part that the noble Lord, Lord Teverson, likes and is designed to avoid vexatious complaints. This is entirely the wrong way to go about this. We should be saying that the adjudicator should stop vexatious complaints and not pursue them. I cannot believe that we will be satisfied if we appoint somebody to be the adjudicator who has to resort, after an investigation, to imposing the costs of the investigation on to a vexatious complainer. I want an adjudicator who says, “I have looked at this, it is vexatious and I am not doing it”.
I am not going to present the Minister’s case, but it seems that the whole way that the early part of the legislation is written, which we dealt with in the previous sitting, was that the adjudicator is under no obligation to pursue anything that he or she feels is vexatious. That is inherent in the Bill, hence you then move on to this. I take the noble Lord’s point.
I am grateful to the noble Lord and I think he has got my point. It seems to me that we ought to front-load the assessment of vexatiousness and not leave this bit at the end, as if somehow it balances everything and makes it appear much better than it is. We should give the adjudicator the power to say to people who bring complaints that are vexatious or without merit—and that will be revealed very quickly—“I am not taking these any further and that’s it”. People have to have confidence in this. The decisions that we want the adjudicator to make in relation to this issue will be decisions of moment and will have to be serious and important points. We do not want an adjudicator running around doing lots of small investigations. We want one or two key investigations that go to the heart of the inequities in this market, which people want the Government and Parliament to address. The previous Government started to do that. I am uncomfortable with this particular clause for a number of reasons but am grateful to it because it exposes the false logic of a lot of the rest of the provisions of this Bill.
My Lords, I understand my noble friend Lord Eccles’s reluctance to see individual retailers or complainants having to pay the costs of investigations. However, I think this is justified in both cases and take this opportunity to explain why this clause should stand part of the Bill.
In the case of retailers, they can be required to pay the costs of investigations only if the adjudicator is satisfied that they have broken the code. In this situation, the need for investigation and enforcement follows from their actions. It would seem unfair on retailers who have not breached the code to incur additional costs through a general levy when there is a party who clearly bears responsibility for the costs being incurred. I know from our debate at Second Reading that many noble Lords feel strongly that the costs should fall on those who breach the code rather than those who do not, wherever possible.
This is not a financial penalty or a blank cheque; it simply ensures that if a retailer breaches the code, the cost of the investigation can be borne by them, not by the other nine retailers. In the case of costs being borne by complainants, the Bill is clear that they can be expected to pay the costs of an investigation only if the adjudicator is satisfied that their complaint was vexatious or wholly without merit. That is a strong test directed at clearly irresponsible complainants rather than simply erroneous or weak ones. Without such a power, individuals might be motivated to make complaints that they know to be false or completely unjustified, wasting the adjudicator’s resources and placing unfair burdens on the retailers it investigates. Of course, the adjudicator should not pursue a case that he or she knows to be vexatious, but that may not be clear at the outset. That is simply a safeguard in case an investigation turns out to have been based on vexatious complaints.
Finally, I note that in each case, the clause says that the adjudicator may require a party to pay the costs of investigation. That is strictly discretionary. For instance, if a breach was found in a retailer but it was understood to be a matter of simple error, the adjudicator might decide that it would be disproportionate to require it to pay all of the costs. I hope that helps the noble Lord, and I support the Question that the clause stand part of the Bill.
My Lords, I start with a technical question about the wording of the clause to which I am not looking for an immediate answer. It states that the adjudicator may,
“require a large retailer to pay some or all of the costs of an investigation”.
It is not self-evident that that means only the adjudicator’s costs. Of course, a lot of the cost will fall on third parties, including the retailer, and there are bound to be a lot of costs. My proposal that suspicion should be replaced with belief would go a long way to create more certainty about the adjudicator’s ability to turn down not just vexatious complaints but complaints for which there is too little evidence. It is my perception that when the Bill becomes law, a lot of cases will be brought for which the evidence will be sketchy, and the adjudicator will have to use his or her best judgment.
If those considerations can be given some thought and we can have a more—I criticise myself here—coherent and consensual discussion at the next stage, I withdraw my objection to the Question.
Clause 10 agreed.
Clause 11: Advice
Amendment 55 not moved.
56: Clause 11, page 4, line 13, leave out “may” and insert “must”
The amendment would enable both retailers and suppliers to request advice and get it from the adjudicator. As expressed at the moment, it is voluntary for the adjudicator to give guidance. It would be most unfair to either side if they were not in a position to get advice if they requested it. We all know that there is an existing code, but there may be times when the adjudicator may take a slightly different view; he may interpret something differently. It would be quite extraordinary if the people who were going to be bound by this, and bound by his decisions, are not in a position to be able to ask him how they should go about their business. It is very difficult to abide by the rules if the person making and interpreting those rules is not prepared to say what action should be taken in order to comply with them. This is especially so during the initial period, when there may be differences of opinion. I beg to move.
My Lords, I shall speak to Amendment 57 in this group, standing in my name. A number of references have been made to the importance of the adjudicator as the driver of a changed culture. I have heard the adjudicator’s role referred to as a role which the Government hope will develop into a role operated by the person in the country who knows the code best. Clearly, that person and that office is the place that people should be able to look to for advice and guidance, because it will be the repository of the best advice and guidance about the code.
Consequently, I support the amendment of the noble Lord, Lord Howard of Rising, that the adjudicator should be required to give advice to those people. As the Minister said, the expectation is that a culture of changed practice will be created rather than a culture of litigation. If the adjudicator is required to provide the advice, that is an element of changing the culture. As I have already said, at Second Reading the Minister referred early on to the fact that anybody can make a complaint to the adjudicator. In winding up the debate—it is Column 764, for the purpose of the Official Report—she made reference to the importance of the public and to their desire for this area of commerce to operate in a way that addressed their expectations but which was also fair.
The public therefore have a role to play in this. They can make a complaint; they are consumers of the whole objective of improving the competition of this part of the economy. However, they are excluded from the list of people to whom the adjudicator can give advice. It seems contradictory to encourage anybody, including any member of the public, to make a complaint but not give the adjudicator the statutory power to give advice to the public. I have amended this, therefore, to include the public in the list of bodies. The noble Baroness is right that the public will want to know and understand how this code operates. Without the vires or the powers, the adjudicator will not be able to give them advice. The adjudicator ought to be able to do it.
My Lords, providing advice and guidance will be important in the adjudicator’s role of promoting compliance with the groceries code. I understand, therefore, why my noble friend Lord Howard of Rising wishes to see a requirement on the adjudicator to provide advice and why the noble Lord, Lord Browne of Ladyton, wishes such advice to be available to the public as well as to retailers and suppliers. I agree with the noble Lord, so it is important that the adjudicator clarifies certain issues around how he or she will work and indeed, how the public as well as suppliers and retailers will have an interest in this.
However, under Clause 12 the adjudicator has a duty to provide guidance on how he or she will investigate and has powers to provide further guidance on any issue related to the code. This guidance will be published and available to all. It is therefore the most suitable format for any obligatory communication by the adjudicator and is the best way for the adjudicator to deal with the public. Conversely, advice is more likely to be given on an individual basis to clarify specific issues with retailers and suppliers. It is likely to be given where the adjudicator notices that certain retailers or suppliers do not have a clear understanding of the code. It is also likely to be given to retailers or suppliers who are not sure whether a specific practice that is relevant to them is within the code. Advice is therefore suited to individual, potentially technical discussions of the code with those to whom the code is more directly relevant—suppliers and retailers. Any statements of general principles can be made through the power in Clause 12 to provide guidance, and those statements will be available to the public.
On whether the provision of advice should be mandatory, the adjudicator would normally be expected to provide advice when it is requested. However, the adjudicator will have a limited budget and will need to prioritise their work accordingly. It is therefore appropriate that they should have the freedom to choose whether in a particular instance giving advice is the best way of encouraging retailers to comply with the code. There could also be circumstances when giving advice would be inappropriate; for example, due to a conflict of interest. I ask noble Lords not to press their amendments.
Perhaps I may ask the Minister a relatively simple question. If a member of the public thinks that he or she is in possession of knowledge that should support a complaint to the adjudicator, are they entitled to phone the adjudicator’s office and ask for advice as to whether that is appropriate? If not, is it common sense?
I do not imagine that the adjudicator will put up a barrier to people telephoning and asking questions. I imagine that they will have with them a group of people who will be able to assist anyone who comes. Looking at the adjudicator’s incidental powers, they may do anything that is calculated to facilitate the carrying-out of their functions, or is conducive or incidental to it. It is not for Ministers to interfere at this stage with how the adjudicator decides to work. I think that that covers the noble Lord’s question.
It does indeed, and I am very grateful to the Minister for her immediate response, but she may want to compare that response with the one that she gave to my attempt to add the public to those who can get advice. It seems that the answer now is not that there are two types of communication, one appropriate to retailers or suppliers and another, which we are supposed to find in Clause 12, appropriate to the public. The answer is actually that the way in which the Bill has been drafted allows the adjudicator to give advice to the public if he or she wishes to do so. It would therefore appear that my amendment is unnecessary and that all the other responses I have just received, suggesting that it was inappropriate, are not correct.
I thank the Minister for her reply, but there remains an essential difference. Under Clause 12, the adjudicator chooses what he will give guidance on. Should there be a point on which he has not given guidance and on which either the retailer or the supplier would like guidance, it would be completely contrary to any form of natural justice if they could not get it. If the guidance under Clause 12 is so absolutely brilliant, nobody is going to ask him for it under Clause 11. Should he make a mistake or omit something which he should have included, he has to be made to give an answer. That is the fundamental point.
The noble Baroness said that you have got to look at the costs of all these things. As it stands, the adjudicator has an unlimited budget. I will return to this later in our deliberations on the Bill, but I have seen no cap. The adjudicator can turn around and say to the supermarkets, “Let’s have a bit more, mate”. I beg leave to withdraw the amendment, but I will come back to it later.
Amendment 56 withdrawn.
Amendment 57 not moved.
Clause 11 agreed.
Clause 12 : Guidance
Amendments 58 to 60 not moved.
61: Clause 12, page 4, line 20, after “investigations;” insert—
“(ba) the criteria that the Office of Fair Trading intends to adopt towards the content and timing of information to be published under section 8(2);”
My Lords, I will be brief with this one. This is my substitute for the words that I wish to see left out in Clause 8, which are,
(a) what information is to be published;
(b) how it must be published; and
(c) the time by which it must be published”.
I suggested to the Committee that that was too prescriptive, but I quite accept that retailers need to know how the publishing of what has been described as naming and shaming information will take place. It would be much more appropriately included in guidance. That is why I have suggested the addition to the subjects on which the adjudicator must publish guidance and the criteria that the adjudicator—I have to amend my amendment, because I was still fighting for the Office of Fair Trading at the time—
“intends to adopt towards the content and timing of information to be published under section 8(2)”.
I put that in because I am keen to remove as much of what might be called the prescriptive, mandatory or antagonistic features of this Bill as possible, and to try to engender as much co-operation, discussion and agreement as we possibly can.
If we are going, finally, to depart from self-regulation for other forms of regulation at the same time as I am supporting a Government who claim that they are a deregulating Government, we should try to make sure that the very sensible code of practice is applied by agreement and not coercion, if I may come back to that word. This is just another small attempt to get into the Bill words which encourage co-operation rather than depending upon coercion. I beg to move.
My Lords, my amendment in this group is along the lines of my previous one, such that the adjudicator “must” publish guidance. It seems absolutely inconceivable that he is not compelled to give guidance and to publish it. Imagine him refusing to let retailers know what steps they have to take to comply with his code. Another point here is one of natural justice. The adjudicator is paid by the retailers. The least that he could do is to provide them with the information on how he is going to treat them; after all, they are footing the bill. As I have said before, his interpretation may be different on these things. However, rather than waste the Committee’s time repeating the arguments, I will leave it at that.
My Lords, having listened with great interest to nearly two days of discussion on the Bill, it does not look as if I am going to be able to trouble the scorers during the rest of the day. I should declare that I have no interest to declare in these matters. However, I feel that the point made by my noble friend Lord Howard of Rising and supported by the noble Lord, Lord Browne, is compelling. As the leader of a local authority, if I published a parking order and then did not publish guidance about what people had to do to comply with it, or if the authority did not put up notices or signs approved by the Department for Transport, the authority would be taken to court very quickly and would be acting improperly and unfairly. Concerning Clause 12(3)(b) in particular, not to require the adjudicator to give guidance on,
“steps that large retailers need to take … to comply with the … Code”,
seems an offence against natural justice. I apologise for breaking my long silence but of the many things we have discussed, this is the one where I hope that my noble friend will listen to my noble friends Lord Howard of Rising and Lord Eccles and the noble Lord, Lord Browne, who is opposite.
My Lords, the guidance provided by the adjudicator will help to ensure that all interested parties have a proper understanding of what they can expect of the adjudicator. Several noble Lords have brought forward amendments on what should be included in the guidance or on how that guidance should be produced.
With regard to the amendment moved by my noble friend Lord Eccles, the adjudicator will already have to publish guidance on how he or she will decide which enforcement powers, if any, to use. The adjudicator will also have powers to provide more specific guidance on how exactly he or she will go about requiring a retailer in breach of the code to publish information. However, I do not believe that the adjudicator should have to publish guidance on how he or she will approach the publication of information before such investigations can be started, especially as the approach to publication might be dependent on what breach is discovered. We must balance the need for retailers and suppliers to be informed of the principles under which the adjudicator is working with the need for the adjudicator to be able to start working promptly.
The noble Lord, Lord Howard of Rising, has tabled two amendments that I would like to address. The first is on the requirement for the adjudicator to publish guidance on a range of matters set out in Clause 12(3). Here I note that the requirement to publish guidance in Clause 12(1) is focused on specific issues, and under Clause 12(5) the requirement to publish information is given the context of a specific timetable. The adjudicator should be required to publish guidance, and he or she has to. Clause 12(1) states:
“The Adjudicator must publish guidance about —
(a) the criteria that the Adjudicator intends to adopt in deciding whether to carry out investigations;
(b) the practices and procedures that the Adjudicator intends to adopt in carrying out investigations; and
(c) the criteria that the Adjudicator intends to adopt in choosing whether to use the enforcement powers and which ones”.
While other guidance is valuable, it is not clear what would be achieved by a general requirement to publish guidance on broad topics such as the application of any provision of the code. Rather, these overarching topics are intended to indicate likely areas of guidance and ensure that the adjudicator can give guidance when the need arises.
Regarding my noble friend’s second amendment, guidance can relate to a wide range of the adjudicator’s activities and functions. It would be inappropriate to include a requirement to consult retailers without equivalent requirements to consult supplier representatives and other interested parties, which would create further bureaucracy, something that I am sure we would all try to avoid. This change is not necessary, given that the Bill already requires the adjudicator to consult any person whom he or she considers appropriate. I hope that that is helpful to noble Lords and I ask my noble friend to withdraw his amendment.
My Lords, I am not quite sure how to put this, but I think the Committee is being let down. Once again we are being told that we are starting from a zero base, that nobody knows anything about the operation of the code and that the adjudicator will start with a blank sheet of paper. The code came into effect on 4 February 2010, having been published in 2009. All 10 supermarkets have gone through the procedures that it requires them to go through. They have included it in their conditions of purchase and sale; they have appointed compliance officers; and they have made two sets of annual reports to the Office of Fair Trading. Disputes have been running in the past 24 months and disputes have been settled.
To say that there is no base of information that the Government can rely on in drafting the details of this Bill and that before deciding how guidance should be given they have to wait for the adjudicator is indefensible. I will return to this on Report. I hope that before then there is some rethinking about the position under the code, instead of us being told time and time again that it is as if the code did not exist. I beg leave to withdraw the amendment.
Amendment 61 withdrawn.
Amendments 62 to 73 not moved.
Clause 12 agreed.
Clause 13: Recommendations to Office of Fair Trading
Amendment 74 not moved.
Clause 13 agreed.
Clause 14: Annual report
Amendments 75 to 77 not moved.
78: Clause 14, page 5, line 9, at end insert—
“( ) The report must include an evaluation by the Adjudicator of how well the code is working.”
My Lords, in moving Amendment 78, in order to ease time a little, I shall speak to Amendment 82 in the next group, and in support of Amendment 87C tabled by the noble Baroness, Lady Randerson, which I support very much. They are all in connection with the annual report in Clause 14. Amendment 78 proposes that instead of reporting only when it occurs to the adjudicator that there is an issue on the code, he should have to report every year on the code’s effectiveness. That would be a more active stance and follows our concern that it should be a living code that is thought about regularly to make sure that it is always fit for purpose.
Amendment 82 reflects our wish that Parliament should have more of a role in respect of the adjudicator. Although we appreciate that the annual report, once given to the Secretary of State, would then be published and that Parliament would get a copy, it would be more satisfactory for Parliament to be listed as one of the organisations to which the annual report would be submitted.
Finally, in support of Amendment 87C, we think that the people who pay the levy to fund the adjudicator should be able to see clearly what are the operating costs. Whether they are paying a reasonable sum for the running of the adjudicator should be transparent. If Amendment 87C is accepted, so that the manner in which the levy is calculated by the adjudicator is regularly reviewed, that will provide the transparency that ensures that the adjudicator is not operating in a frivolous fashion. On that basis, I hope that the Minister is listening, as ever, and I beg to move.
My Lords, I shall speak to the three amendments tabled in my name in this group, Amendments 85A, 85B and 87C. I shall take Amendments 85A and 85B first. As the Bill stands, the Secretary of State will review the adjudicator’s performance initially after two years and then every three years. The amendments provide that that review should take place initially within a year and then annually. We believe that the proposed two-year review period is too long before we hear anything about the achievements of and progress made by the adjudicator, and that a period of three years between reviews is too long.
If the adjudicator is doing well, retailers will change their culture and behaviour, and three years is a long time with no judgment on how the adjudicator is working. As I said earlier, it has taken a long time to get to this stage. It has taken six or seven years to get this far, so we need to know how the new system is working sooner than two years after the adjudicator has been established. I point out to noble Lords that, under the groceries code, retailers have to submit compliance reports to the OFT within 10 weeks of the end of every working year, so why should the adjudicator not report to the Secretary of State or be reviewed by him every year?
I turn briefly to Amendment 87C. Clause 15(4) sets out the detail of what the review must cover. This amendment would add a new paragraph (c) that would ensure that the Secretary of State considered both the funding for the adjudicator and how the levy was calculated. This introduces what is in many ways a different issue. It concerns the equity of a levy that is to be established on the basis that it will be set at a flat rate. This amendment introduces the concept that the levy might vary according to the amount of work done by the adjudicator in respect of each of the supermarket chains. In other words, those retailers who trouble the adjudicator a great deal by generating a lot of work—because there are a lot of complaints about them—will pay more than those retailers who generate hardly any complaints. Further, a flat-rate levy would not reflect the relative size of the different supermarket chains.
We do not have time to do so today but it would be interesting to look at the relative size of the 10 large retailers. Although they are the 10 largest, the biggest is significantly larger than the smallest of them. The flat-rate levy does not seem to reflect that. It will nurture a sense of unfairness among the retailers if there is no movement from a flat rate to a levy that reflects the amount of business that they have brought to the adjudicator—if I could put it that way. The Minister may give us some words of reassurance on this but, as a probing amendment, it is important to raise the issue this afternoon.
My Lords, I speak to Amendments 87A and 87B in this group. They stand in the names of the noble Earl, Lord Sandwich, and the right reverend Prelate the Bishop of Wakefield, who are unable to be here, so, as the third name, I am here to speak to the amendments.
As the noble Baroness, Lady Randerson, said, Clause 15 deals with the supervision of the adjudicator and his work and performance by the Secretary of State’s reviews. The times of the reviews were discussed just a moment ago by the noble Baroness. I sympathise and agree with the points that she made. The amendments of the noble Earl, Lord Sandwich, the right reverend Prelate and me are designed to link the Secretary of State’s reviews of the adjudicator’s work with the original objectives of the Competition Commission for the code. One of the objectives of the groceries code was to stop the transfer by supermarkets to suppliers of excessive risks and unexpected costs. The amendments would spell that out in the Bill.
Amendment 87B is concerned with the level of the climate of fear among the supplier community and would recognise it as a potential factor that might impinge upon the adjudicator’s ability to fulfil his or her functions. In particular, it is possible that the supplier climate of fear might be a reason for zero action by the adjudicator—but that is not a reason to abolish the adjudicator. Rather, the adjudicator would need to improve his or her processes in the light of the supplier context. We have not yet come to Clause 16, which deals with the possibility of transferring the adjudicator’s functions or even of abolishing the adjudicator, but it is plain, as we shall see, that the Secretary of State’s reviews of the adjudicator’s work may be grounds for activity on the part of the Secretary of State under Clause 16.
The point of Amendments 87A and 87B is to clarify the grounds on which the adjudicator might be reviewed or criticised by the Secretary of State and to make clear in the Bill that there is an important link—which one wants to spell out because it is not there at the moment—between the original objectives of the groceries code and the actual work of the adjudicator, which is of course reviewed from time to time.
My Lords, regarding the amendments tabled by the noble Lords, Lord Knight of Weymouth and Lord Grantchester, the purpose of the annual report is to provide and publish a factual description of the adjudicator’s activities. This increases the adjudicator’s transparency to scrutiny and helps suppliers, retailers and other interested parties to understand the adjudicator’s role and functions. The noble Lords have suggested that the report should include an assessment of how well the code is functioning. I understand from previous debates and discussions that they are enthusiastic to ensure we have what they are calling a living code. However, this amendment is not a suitable way to provide for it. As I said before, the annual report as it stands is a simple description of the adjudicator’s activities. Amendment 78 would make the writing of the annual report a much greater strain on the adjudicator’s resources. More fundamentally, the adjudicator does not have responsibility for keeping the code under review. That is a matter for the Office of Fair Trading, although the adjudicator has a statutory duty to recommend changes to the authorities where she or he considers such changes appropriate.
With regard to the amendments tabled by the noble Lord, Lord Borrie, I fully agree that it is important that in this review the Secretary of State should consider any factors that have prevented the adjudicator from effectively enforcing the code, and that the purpose of the groceries code is to prevent the transfer of excessive risks and unexpected costs to suppliers. However, I do not agree that it is necessary to set this out explicitly in the Bill. I believe that the existing provision, that the Secretary of State must,
“assess how effective the Adjudicator has been in enforcing the … Code”,
provides the Secretary of State with the appropriate remit to carry out a thorough triennial review. This can include an assessment of any factors that have hindered the effectiveness of the adjudicator.
My noble friend Lady Randerson proposed another amendment requiring the Secretary of State to consider the funding of the adjudicator and, in particular, the manner in which the levy is calculated. As the Secretary of State must give consent to any levy, an explicit requirement to consider this would be unnecessary. I will be happy to discuss my noble friend’s amendment further when we address levy funding in the 30th group of amendments. In general we should avoid specifying areas for the Secretary of State to consider in his review of the adjudicator, unless setting them out in statute is clearly necessary. A long list of issues to consider in the review is more likely to be treated as exhaustive, whereas the current drafting makes it clear that the Secretary of State is considering the adjudicator in broadly defined terms.
Finally, my noble friends Lady Randerson, Lord Razzall and Lord Teverson have tabled two amendments, which together would mean that the adjudicator was reviewed after each year. We of course believe that the adjudicator should face proper scrutiny from the Government and Parliament. However, this must be balanced with both the need for the adjudicator to be independent and the practicalities of such frequent reviews. The adjudicator is expected to undertake only a few reviews a year and to report on their work once each year. This does not provide a very broad basis for the Secretary of State to consider how much the adjudicator’s powers have been exercised and how effective the adjudicator has been in enforcing the code. Therefore, it would be unlikely that each review could make very clear or authoritative judgements. Allowing three years will, we feel, provide a broader range of evidence to be considered.
Annual review would also mean consultation in each year of the adjudicator, the Competition Commission, the Office of Fair Trading, all 10 large retailers, one or more supplier representatives, one or more consumer representatives and any other appropriate person. As well as providing a burden on them to respond, this would be likely to reduce the quality of each of these consultation responses, further weakening the scrutiny of the adjudicator. It is not customary to undertake reviews of independent office-holders so regularly, and introducing annual reviews in this case might bring into question the adjudicator’s independence from the Government.
One further amendment has been proposed by the noble Lords, Lord Knight of Weymouth and Lord Grantchester, to the effect that a copy of the adjudicator’s annual report should be sent to Parliament. I set out in an earlier response to the noble Lord, Lord Browne, why I did not believe it would be appropriate to send a copy of the report to the devolved Governments, as this is not a devolved matter. A copy going to Parliament, however, could have merit. I emphasise that the adjudicator will already publish the report, so this would not be a question of making additional information available to Parliament but would simply emphasise that the adjudicator’s work should be open to parliamentary scrutiny.
I would like to give this matter further consideration, both on the principle and, if this is appropriate, on how precisely it is delivered—for instance, whether it should be a matter of simply sending a copy to Parliament or if it would be more suitable to place a copy in the House Libraries or lay it before Parliament. I am therefore happy to discuss this matter further with the noble Lords concerned before the next stage of the Bill. I hope that has gone some way towards answering the questions in the amendments that were put down, and I ask noble Lords to withdraw them.
Amendment 78 withdrawn.
Amendments 79 to 84 not moved.
Clause 14 agreed.
Clause 15 : Review of Adjudicator and guidance from Secretary of State
Amendments 85 to 90 not moved.
91: Clause 15, page 6, line 2, leave out “large retailers” and insert “retailers mentioned in Article 4(1)(a) and (b) of the Groceries Supply Order”
Amendment 91 agreed.
Amendment 92 not moved.
My Lords, noble Lords will appreciate that the target was to finish the Committee stage of the Bill this evening. There have been discussions among the usual channels, taking into account the position of the staff of the House. The usual channels propose to continue debate on the Bill until 7 pm, with the hope of completing the Committee stage.
93: Clause 15, page 6, line 18, at end insert “or a retailer”
My Lords, this is a small matter of equity. Clause 15(4)(a) concerns information that may be considered when deciding whether to investigate. It confines the adjudicator to a fairly narrow range of people involved in the industry. My amendment proposes to add, to the information provided by a supplier, the words “or a retailer”. It seems perfectly possible that a retailer will have information about the operation of the code and possible breaches of it, which means that they would like to provide information. I think that they should have that opportunity in any event. I beg to move.
My Lords, I shall speak to my Amendments 95 and 123A. The issue we are raising is that, as the Bill is currently written, it would appear that when the workings of the adjudicator are reviewed—this is specifically in relation to the ability of third parties such as trade associations to make representations and complaints to the adjudicator—and if the review decides that the arrangement is not working well and wants to change it, all that the Bill currently allows the Secretary of State to do is to completely remove the ability of third parties to complain to the adjudicator. It is a very black and white position: either all third parties can complain or all third parties cannot complain.
These amendments seek to give the Secretary of State the ability by order to list specific third parties who would still be allowed to submit information to the adjudicator. Should irresponsible third parties abuse the right that the legislation gives them to submit information to the adjudicator, the Secretary of State could restrict the number of third parties to those that behave responsibly. This would be a pragmatic way for the Secretary of State to operate should the review disclose something that he is unhappy about.
Amendment 123A simply seeks that the affirmative resolution rather than the negative resolution is used in order to give Parliament extra scrutiny if the Secretary of State wants to limit the number of individuals permitted to submit information to the adjudicator. I beg to move.
My Lords, Amendment 94 is quite straightforward: it seeks to insert a new paragraph in proposed new Section 4A(1) which allows for the adjudicator to consider,
“information provided by a trade association”.
Trade associations are important and should be involved in the structure of the Bill, and the amendment would involve them in this part of the work delineated by the Bill. It is as straightforward as that.
My Lords, I am grateful to noble Lords who have raised the important issue of what any restrictions on the sources of information under Clause 15(10) should involve. The Government hope and believe that third parties such as trade associations will provide information to the adjudicator in a responsible and helpful way and that this clause will never need to be activated. Nevertheless, it is important that we give proper scrutiny to the details of how the clause can be activated and what it should include.
The clause as drafted provides the most suitable way to restrict information. The sources that would still be allowed to provide information are those identified as most suitable by the Government following their consideration of pre-legislative scrutiny by the Business, Innovation and Skills Select Committee. These have been carefully considered as sources that could provide useful information without the risk of the adjudicator being deluged with complex but essentially weak complaints.
My noble friend Lord Eccles suggested that retailers should be included in the list of sources of information. Clearly retailers will have relevant information about whether a breach has occurred and this will be central to investigations. However, the place for this to be heard is in investigations, where the adjudicator can seek relevant information without revealing details of complaints. The decision to start an investigation is based on complaints or other information giving reasonable grounds to suspect that the code has been breached, not on an attempt to weigh all the arguments.
My noble friends Lord Razzall and Lord Teverson suggest that trade associations should be added to the list. However, trade associations are the primary group that this power to limit the sources of information is intended to address. The power has been introduced in the light of concerns that trade associations might raise complex but unjustified complaints. This could put a strain on the adjudicator’s time and resources, as well as unnecessary burdens on the retailers.
The noble Lords, Lord Knight and Lord Grantchester, suggest that the Secretary of State should be able to specify sources through guidance. However, such an extension would be a more serious matter than is suited for guidance, which the adjudicator must “take account of” but which is not strictly binding.
Clause 15(10) has been deliberately written to restrict the sources of information to those that are most likely to have information regarding a breach of the code. This will ensure that trade associations and other third parties have a clear incentive to act responsibly. It would be invidious to put the Secretary of State in a position where he or she had to pick which third parties or classes of third party were responsible and which were not, and such an amendment could lead to the very lobbying and campaigning that we hope to avoid.
Finally, the noble Lords, Lord Knight and Lord Grantchester, have also proposed an amendment to Clause 23 that is relevant here. It would mean that Clause 15(10) required an affirmative resolution. Throughout the Bill we have striven to ensure that a suitable level of parliamentary scrutiny is provided for any orders.
The Government believe that the negative procedure is suitable here as the content of the order is very clearly defined in the Bill, and because an order can be made only as the result of a triennial review involving widespread consultation. The Delegated Powers Committee considered this order specifically and confirmed that it was satisfied with our reasons for this being a negative procedure.
I hope that these answers to the amendments have been helpful. I therefore ask the noble Lord to withdraw his amendment.
Amendment 93 withdrawn.
Amendments 94 and 95 not moved.
Clause 15, as amended, agreed.
Clause 16 : Transfer of Adjudicator functions and abolition etc
Amendment 96 not moved.
Clause 16 agreed.
Clause 17 agreed.
Clause 18 : Confidentiality
Amendment 97 not moved.
98: Clause 18, page 7, line 23, after “Adjudicator” insert “, or the Deputy Adjudicator or any person acting on behalf of the Adjudicator,”
My Lords, I do not think I shall detain the Committee for very long. I am hopeful that the Minister will have a simple answer to this particular problem.
The amendments are designed to do two things: they would extend the obligation of confidentiality beyond the adjudicator to his or her deputy and staff, and would provide a criminal sanction for a breach of the obligation of confidentiality. The arguments are comparatively simple. Clause 18, on a straightforward reading, limits the obligation of confidentiality to the adjudicator. If that reading is correct then this is far too narrow. The persons connected to the adjudicator should also be covered by the statutory provision, and these include, at the very least, the deputy adjudicator and the adjudicator’s staff.
The obligation of confidentiality in Clause 18, with the wording that has been adopted, can be argued to be discretionary rather than mandatory, and the amendment deleting the word “may” and inserting the word “must” clarifies that the obligation is mandatory. Amendments 102 and 103 are consequential amendments on those two provisions.
The obligation provided by Clause 18 must be enforceable, and in my view the provision of a statutory offence will ensure that the obligation is respected. I beg to move.
My Lords, the duty of the adjudicator to keep complainants’ identities confidential is central to this Bill. The initial market investigation, consultation and pre-legislative scrutiny all indicated that suppliers would be reluctant to complain if they thought that they would be identified, and noble Lords have made the same point in the House. The protection of the identity of parties to arbitration is likewise important. The proposed amendments on confidentiality therefore need careful consideration.
The noble Lord, Lord Browne of Ladyton, proposed a number of amendments with the clear aim of making the requirement on the adjudicator to maintain confidentiality as tough as possible. I agree that this needs to be a strong requirement. However, I believe that the Bill already achieves this.
Two of the amendments in the name of the noble Lord, Lord Browne of Ladyton, specify that the adjudicator “must not” rather than “may not” make unauthorised disclosures of information that might break confidentiality. I am confident that “may not” and “must not” have the same force here. The words “may not” are intended to be prohibitive: the adjudicator is in either instance required to refrain from making unauthorised disclosures.
Another two amendments in the name of the noble Lord, Lord Browne, specify that the duty to maintain confidentiality also applies to the deputy adjudicator and any staff. I agree completely with this as a matter of principle. However, the Government are confident that the deputy adjudicator and staff seconded to the adjudicator would already be bound by the duty of confidentiality as set out in the Bill and that therefore the amendment is unnecessary.
The noble Lord’s final amendment on this clause makes any knowing breach of confidentiality by the adjudicator or his or her staff an offence and introduces fines for anyone found guilty of such an offence. I do not believe that the threat of fines is necessary to make the adjudicator act responsibly. The adjudicator will be a public authority and will be bound to take the responsibilities under Clause 18 very seriously, as well as being bound to respect the human rights to privacy of the relevant parties. It is true that there is no sanction for breach expressed in Clause 18 but a breach would be a breach of statutory duty by the adjudicator and would in principle enable a person who suffered from a breach to claim damages from the adjudicator or to seek an injunction to prevent the disclosure if the person knew in advance.
I do not think that my noble friend Lord Eccles will be speaking to his amendments.
My Lords, I am reassured by the noble Baroness’s comprehensive response, and now that her words are on the record, it will be very clear that the requirement of confidentiality applies not just to the adjudicator, as the Bill states, but to the deputy adjudicator and the staff. In making a plea for plain English, which is where we started our debate, I wonder why we do not just say what we mean in legislation, in order that we do not have to read Hansard to find out that it applies to other people. A few words here would not cost us that much. If “may not” can have as strong a construction as “must not” and the Government prefer “may not” when they mean “must not”, I am content with that as well. However, I still think that it would be better if we said what we meant rather than left it to what lawyers understand of these things.
I am impressed by the Minister’s confidence that in future this confidentiality will be respected. I have had the privilege to hold some quite significant offices in government and I have discovered, sometimes to my frustration, that where one expects confidentiality most is where one least gets it. We have a media industry that substantially operates on the basis of leaks. These stories will be of interest to many people. They will sustain the front pages of newspapers that are competing with an internet that is utterly uncontrollable. I would not be surprised if very quickly we find that trying to stem leaks out of these investigations is a problem, and I believe that we will regret that we did not put down a criminal offence to discourage that. In the current circumstances, though, and at this time of day, I do not intend to insist on this any further. I beg leave to withdraw the amendment.
Amendment 98 withdrawn.
Amendments 99 to 106 not moved.
Clause 18 agreed.
Clause 19 : Levy funding
107: Clause 19, page 8, line 5, leave out “may” and insert “must”
My Lords, the origin of the Bill, as we all know, stems from a Competition Commission report that found fault with major supermarkets in ways that I shall not trouble to delineate now. It seems appropriate that the levy should be imposed on major supermarkets to pay for the financing of the groceries code adjudicator’s position and office. However, I prefer the wording of the amendment of my noble friend Lord Knight, so I will not push my amendment. I certainly will not push the point about not requiring the Secretary of State’s consent.
My Lords, I shall speak to Amendments 108 and 112, and to Amendment 121, which refers to Clause 20, because it is related to the same point. For the sake of efficiency I will do it in that way. Indeed, I shall speak in relative support of the amendment of my noble friend Lord Borrie. I am relaxed about whether the wording is “must” or “shall”. I am sure that there are parliamentary draftsmen who have a very strong opinion on the most effective word as long as the meaning remains. For the sake of plain English we need to be clear about what we are doing here in Parliament. I believe that it is the Government’s intention that the adjudicator’s office should be fully funded by the levy on the major retailers and that the taxpayer should not fund it. If that is the Government’s intention they should say so and be clear in the Bill in the same way as they are about other bodies that are funded by levies. That clarity would help everybody and that is what the amendments would do.
Amendment 121 to Clause 20 would remove the option for the Secretary of State to make grants to the adjudicator so that, again, the office would be fully funded by the major retailers. That is all that that amendment would do. Amendment 112 would remove the provision for a flat rate levy from the 10 major retailers and replace it with a requirement for the levy to be calculated in proportion to annual turnover. As we have heard, there is a significant difference between the sizes of major retailers whose turnover is more than £1 billion. I think that it would be fairer, certainly initially, for the levy to reflect turnover. It may be that in time the levy would reflect those retailers that occupy the most time for the adjudicator and cause the highest number of substantiated complaints and investigations. However, for now, relative to turnover is a better solution. As I recall I think that that was what the Competition Commission recommended. I look forward to a willing Minister.
I shall speak to Amendment 110A in this group, which seeks to impose some form of parliamentary discipline on the amounts of money that the adjudicator can charge. In effect, the adjudicator is imposing a tax. That is, he is compulsorily taking money from private organisations to fund his office. It would be unreasonable for such power not to be overseen. There is provision in the Bill for the Secretary of State to do so, but a parliamentary order—we all know that they are, in effect, rubber stamps—would at least give Parliament the benefit of being able to look at what is happening and comment on it. There will then be some form of external discipline over the adjudicator when he decides how much money—some call it a levy but I call it a tax—the retailers should pay.
My Lords, I shall speak to Amendment 111A, which would amend Clause 19 by removing subsection (5) and replacing it with a new subsection. This concerns the same issue of the flat-rate levy. Clause 19(5) specifies that it should be the same for all retailers unless the Secretary of State decides otherwise and makes an order that allows it to reflect expense and time. My amendment does away with the first phase of the flat-rate levy. It is on very much the same ground as other amendments in this group. Mine would enable the Secretary of State to decide the criteria that should be applied for a variable levy.
I repeat what I said on Amendment 87C, which referred to this issue. There is a basic problem in that a flat-rate levy will not change behaviour because there will be no reward to retailers for avoiding getting into trouble and behaving well. We need to start on a strong footing and, as the noble Lord, Lord Knight, has just said, on an equitable footing that reflects the size of the different retailers. I am conscious that the Minister has said that she will deal with this issue when she responds to this group of amendments.
My Lords, I shall speak to Amendment 114, which is very straightforward. Under Clause 19(5), the Secretary of State must make an order to allow the adjudicator to differentiate. My noble friend Lord Razzall and I believe that the adjudicator should have this direct ability. Again, we have this indirect method of making decisions through the Secretary of State. I am sure that the Secretary of State has far more important things to do than decide the specific division of the levy among the small population of large retailers. If we are to have a serious adjudicator, we should give that person the authority to undertake that task. If we feel that the adjudicator’s decisions are wrong, I am sure that other provisions in the Bill will ensure that that is communicated to him or her.
My Lords, many noble Lords have given close consideration to how the levy to fund the adjudicator should be raised. The noble Lords, Lord Borrie, Lord Knight of Weymouth and Lord Grantchester, proposed similar amendments, respectively suggesting that the Bill should specify that the adjudicator “must” or “shall”, rather than “may”, levy funds from the retailers. I agree with the principle that the adjudicator should raise its funds from the retailers. This is intended as the adjudicator’s primary funding source. Other forms of income, such as payment for the cost of individual investigations or loans and grants from the Secretary of State, are intended to be secondary.
However, simply specifying that raising funds is obligatory would not have a clear outcome unless the Bill specified when the adjudicator must do so. The current drafting is intended to allow the adjudicator to levy funds whenever he or she deems it necessary, not to impose a schedule of when he or she may or must raise funds. I believe that we agree on the principle that the adjudicator should be funded by the retailers, but I also believe that the current drafting gives the adjudicator greater flexibility and is preferable.
The noble Lord, Lord Borrie, proposed a further amendment removing the need for the Secretary of State to give consent before a levy is raised. I am sympathetic to the principles of avoiding unnecessary hurdles and the need for independence for the adjudicator. However, this amendment would give the adjudicator a completely free hand to raise funds from the retailers without the oversight of Ministers. The Secretary of State needs only to give consent and may not direct the adjudicator to raise any levy, but some accountability is necessary.
The noble Lords, Lord Knight of Weymouth and Lord Grantchester, proposed that the levy should initially be divided according to the large retailers’ turnover. That possibility was considered during pre-legislative scrutiny, but the Government believe that it would be unfair to assume that a retailer’s size correlates with how much it breaches the code or with how much of the adjudicator’s resource it is likely to demand. The principle of fairly sharing the cost of the adjudicator is better served by the ability to vary the payments of retailers based on the estimated expense and time of dealing with them in the light of experience.
I turn to Amendment 110A, tabled by my noble friend Lord Howard of Rising. This would require an order to be made before a levy is imposed, and would mean that consultation must take place before imposing the levy and before any subsequent increase in the levy. I believe that unnecessary bureaucracy should be avoided wherever possible. The Government’s intention to fund this body via a levy has been clearly set out in previous consultations and policy documents; the mechanism for a levy and how it is to be imposed can be read from the Bill. I therefore see no need to require the imposition of an order, or for a further round of consultation, before imposing the levy, particularly when the levy is subject to the approval of the Secretary of State and not simply at the adjudicator’s discretion.
On my noble friend’s question about limiting the amount of the levy, a limit on how much can be raised could tie the hands of the adjudicator, particularly if there was a costly appeal for which funds were needed. The fact that the Secretary of State must approve each levy is an assurance that it will not be misused.
This brings me to Amendment 114, tabled by my noble friends Lord Razzall and Lord Teverson. This would remove the requirement for the Secretary of State to make an order before the adjudicator can vary the way the levy is made. Given the principles of avoiding bureaucracy that I have just set out, I am willing to look again at whether an order is necessary before a levy can be varied in the proportionate way set out in the latter part of subsection (5). The fact that individual levies would still need to be approved by the Secretary of State could provide an adequate safeguard, and I will happily discuss this issue further with my noble friends Lord Razzall and Lord Teverson before the next stage of the Bill. I hope that the noble Baroness, Lady Randerson, will also be happy to discuss this issue, as I believe that her amendment shares the same objective of avoiding bureaucratic delay. However, the Government feel that varying the levy should be a matter for the independent adjudicator and that the role of the Secretary of State should be simply to give consent.
In response to Amendment 121, tabled by the noble Lord, Lord Knight of Weymouth, the Government believe that the adjudicator should be funded by a levy on the 10 large retailers. This point has been discussed at length previously, including in pre-legislative scrutiny. We believe that, given that the code and adjudicator are a response to practices by the large retailers, it is suitable that they should fund the adjudicator. This is underlined by the fact that the adjudicator is being established by statute only because the retailers did not give the Competition Commission suitable assurances that they would set up an independent adjudicator themselves.
I re-emphasise that the intention in allowing the Secretary of State to make grants to the adjudicator is absolutely not to make this the principal way that the adjudicator is funded. Rather, it provides flexibility for exceptional circumstances where the Secretary of State feels it is suitable to fund some particular cost that should not fall on the retailers.
I hope that those answers and responses to the amendments tabled by noble Lords will help and therefore request noble Lords to withdraw their amendments.
My Lords, I think that my noble friend Lord Borrie has already said that he will withdraw his amendment in favour of mine and I will be happy not to press mine. I am slightly disappointed in the Minister’s answer. Particularly if there are fines that are then paid to the Consolidated Fund, she is opening up the Secretary of State for considerable lobbying from the major retailers, who will say, “Well, you’ve just had a whole load of our money, so can we just waive the levy for the next year because you’ve already got the funds for the adjudicator?”. That would create some weird incentives and disincentives. It would be much more straightforward to be clear right from the outset. I know that she will reflect on that and I am happy to withdraw my amendment.
Amendment 107 withdrawn.
Amendment 108 not moved.
109: Clause 19, page 8, line 5, leave out “large” and insert “the specified”
Amendment 109 agreed.
Amendments 110 to 112 not moved.
113: Clause 19, page 8, line 12, leave out “large retailer” and insert “of the specified retailers”
Amendment 113 agreed.
Amendment 114 not moved.
Amendments 115 to 117
115: Clause 19, page 8, line 14, leave out “large” and insert “the specified”
116: Clause 19, page 8, line 17, leave out “retailers” and insert “specified retailers and any subsidiaries”
117: Clause 19, page 8, line 18, leave out “large” and insert “specified”
Amendments 115 to 117 agreed.
118: Clause 19, page 8, line 25, leave out “may” and insert “must”
I will not keep the Committee long as I am mindful of the 7 pm deadline. The idea that the adjudicator might have a surplus is a triumph of hope over experience, rather like divorcing and getting married again. However, if there is a reasonable surplus—there should probably be a minimum above which this does not have to operate—it should be returned to those people who have paid it or, the following year, they should have a corresponding reduction. I beg to move.
My Lords, the Government’s intention in giving the adjudicator discretion over whether to repay retailers at the end of the year is to avoid unnecessary bureaucracy where the adjudicator is required to repay retailers before then immediately raising further funds from them. I believe that noble Lords on all sides of the House are supportive of the adjudicator being able to carry on his or her work with as little bureaucratic burden as possible, especially as in this case the burden would fall on the retailers as well as the adjudicator. I therefore ask the noble Lord to withdraw his amendment, if he feels that this is a good explanation.
Amendment 118 withdrawn
Amendments 119 and 120
119: Clause 19, page 8, line 26, leave out “large” and insert “specified”
120: Clause 19, page 8, line 27, leave out “subsection (9)” and insert “this section—
“specified retailer” means a retailer mentioned in Article 4(1)(a) or (b) of the Groceries Supply Order;”
Amendments 119 and 120 agreed.
Debate on whether Clause 19 should stand part of the Bill.
My Lords, I apologise that I was not able to be present at Second Reading because of a local authority meeting. I am also sorry to detain the Committee on an issue that is not solely related to this Bill at this late hour. However, I hope, given the length of the proceedings and that it will take a little time to develop my argument, that Members of the Committee will be indulgent. It is the first opportunity that we have had to comment in detail on a matter that I understand is intended by some to be a pilot to many—if not all—Bills in future. I refer to so-called plain English—or, rather, those cheery questions in italics added above the normal side headings in Bills. My noble friend Lady Byford said at Second Reading, at col. 742 of Hansard on 22 May, that she found these headings “folksy” and not very helpful. The noble Lord, Lord Knight of Weymouth, said at col. 760 that he rather liked them and found that they helped clarity. I do not think that they help clarity.
I tabled amendments to remove Clauses 19 and 21 because I was advised by the Public Bill Office that this was the only way that a Member could raise this question and I did not want to hold up consideration of the rest of the Bill. However, I think that it merits some attention. I have no idea where these new headings come from. I have seen that they are a pilot for plain English legislation, but it seems to me that they must emanate from some quite high-up person in government—one of those well meaning men or women with time on their hands and clearly unworldly enough to think that the public might want to read Bills while sitting alongside me on what I hope will be the 7.33 to Twickenham.
As I was not able to speak at Second Reading, I gave my noble friend Lady Wilcox notice that I would question this approach. I did not want her to worry that by opposing Clause 19 I was opposing the whole Bill—whatever I think of the Bill, that is not my aim. My noble friend, with typical courtesy, sent me a swift reply. She told me that the intention was to make legislation more accessible to the public. Her letter referred to the demands of accessibility. I am not sure who they are coming from, but once again I see the smiley face of the high-up person in government come up before my eyes. My noble friend was kind enough not to dismiss my fear that there might be issues of logical consistency, questions on the interpretation of parliamentary intent and, indeed, the risk of value judgments that could emerge if this process spreads. I will illustrate briefly what I mean.
The heading above Clause 19 reads:
“How is the Adjudicator funded?”.
I think that means “funding” in plain English, substituting one word for the well meaning, accessible five.
However, that is not my main point. How many hours in this Committee and others do we spend debating “shall”, “may” or “must” amendments? Big questions turn on those words, and Parliament rightly considers very carefully the appropriateness of each. As regards this clause, the noble Lord, Lord Borrie, has suggested “must” for “may” in line 5; the noble Lord, Lord Knight of Weymouth, has suggested “shall” for “may”; and my noble friend Lord Howard of Rising has just suggested a “must” for “may”. I am not taking a stand on any of those debates.
The Bill is clearly drafted with a “may” in the funding power it affords to the adjudicator. It implies that he did not necessarily take a levy; nor, indeed, need the Secretary of State give consent, grants or loans. Yet the accessible heading says:
“How is the Adjudicator funded?”—
and not “How may the Adjudicator be funded?”. Some might ask, what is the intention of the Government or Parliament? Is it that he will be funded come what may—as the heading implies—or that he may secure funding, as the text of the Bill suggests? I think this is a circle that you can square.
However, we in Parliament do not have the power to amend such headings; that is why I have had to table a clause stand part amendment rather than suggest leaving out “is” and putting in “may”. To my knowledge, presently the courts do not construct any arguments on the basis of descriptive headings in a Bill. But when a new practice comes into the writing of law—and in Bills more high-profile than this—could some creative lawyers bear to stand idly by? What happens when, as here, a heading says that something “is to be done” and the Bill says it “may be done”?
I hate to intervene on my noble friend. Perhaps it would be going too far to suggest that he is verging on a Second Reading speech, which I would not want to do that. I happen to know that my noble friend has some quite comforting words to give that might enable him to abbreviate his speech on this clause stand part debate.
Perhaps the noble Lord will allow me to interrupt him, the comfort is to be found if he simply looks at it. The heading applies to Clauses 19 and 20, so the funding that comes from the public purse and the Secretary of State is encompassed under this heading. This is how the adjudicator is to be funded.
My Lords, I hear what my noble friend says, and I am conscious that everybody needs to go. It is a great pity when a Member wishes to raise a point of substance on the way in which law is written—something that this House is here to deal with—he is very swiftly interrupted by a member of his Front Bench. I will try to accelerate my remarks, having been patient in this Committee.
I hear what the noble Lord, Lord Browne, says, but to answer his point, let us look at the heading on page 5, line 21:
“How is the Adjudicator supervised?”.
That smothers in obscurity the power to abolish the adjudicator in Clause 16. Only Clause 15 is about supervision, yet this Committee has been concerned about abolition. What value judgment is this, when the Bill highlights supervision and passes over abolition?
Above Clause 21, the heading reads:
“Will this law mean other changes to the law?”,
which I will now speak to. This is a nonsense, because when the Bill is commenced what is in Clause 21 will already be law, so that will just lie on the Bill as an otiose and rather foolish idea.
Finally, I will give one more example before I accept the strictures and sit down. However, I will, having been made to sit down, return to this matter on Report, and I will also listen very carefully to what my noble friend says. This matter is intended to help electronic access to legislation. If you look at the heading,
“How does the Adjudicator handle information?”,
the normal practice is that when you click on a heading on an electronic screen, the screen shows text starting from the point of the heading. Why, then, does this heading come above Clause 18 and not above Clause 17, which covers the Secretary of State’s right to require information from the adjudicator? Surely, anyone interested in how information is handled should be signposted to that new power for the Executive. Who decided to put the heading there and not above Clause 17, and why can Parliament have no say in the matter?
I will sit down now, but I submit that potentially significant issues are raised by this new practice, and I apologise, after eight and a half hours of proceedings on this, for venturing to speak for eight minutes.
My Lords, this is the first time that I have had occasion to respond to the noble Lord, Lord True. I know the noble Lord to be an elegant wordsmith with a passion for our beautiful language, so I would not, therefore, take lightly anything that he has said, even if he feels that he has had to be a little briefer than he would have wished.
Regarding the points that the noble Lord has raised, they are both interesting and technical. They are points on which I will seek legal advice, and I will make sure that when I return he is a happier person than he is today. I am happy to speak to him about this before the next stage of the Bill, and I therefore wonder if he would be prepared to withdraw his amendment.
Could I just point out to the Minister that this is as much a point of principle as it is of detail? The point of principle should be addressed, and that is not necessarily something that concerns only lawyers, but Members of this House and Members of Parliament in general.
My Lords, my suggestion to the Minister is that it might be helpful for her to write to the Committee, and in particular to address the very valid point that the noble Lord, Lord True, has raised; namely, that Parliament cannot amend these words. I am happy with the words in this Bill, but if this is a pilot, it would be interesting to hear the views of those conducting the pilot as to whether any consideration has been given to us being able to amend those words.
I thank my noble friend and other noble Lords, in particular the noble Lord, Lord Knight of Weymouth. It is reasonable for a parliamentarian to raise a point of principle in relation to law-making at the first opportunity that he has. I am grateful for the indulgence of the Committee. As I said, I do not necessarily think that some of these are clear-cut cases, but there is enough doubt and uncertainty raised by this procedure. A parliamentarian must place on record in Hansard for the attention of Members of both Houses something that potentially affects the way in which Parliament is able to deal with legislation. With those comments, I beg leave to withdraw my opposition to the clause and will not oppose the Question that Clause 21 stand part.
Clause 19, as amended, agreed.
Clause 20: Payments by Secretary of State
Amendment 121 not moved.
Clause 20 agreed.
Clause 21: Amendments and transition
Amendment 121A not moved.
Clause 21 agreed.
Clause 22: Definitions
Amendment 122 not moved.
123: Clause 22, page 10, line 8, at end insert “or a subsidiary of a designated retailer”
Amendment 123 agreed.
Clause 22, as amended, agreed.
Clause 23: Orders
Amendments 123A and 124 not moved.
Clause 23 agreed.
Clause 24 agreed.
Clause 25: Commencement
125: Clause 25, page 10, line 35, at end insert—
“( ) This Act will cease to have effect following the second review period required under section 15, unless a statutory instrument disapplying the provisions of this subsection has been laid before and approved by a resolution of both Houses of Parliament before the end of the second review period.”
My Lords, I speak to this amendment, which introduces a sunset clause. This should please the Minister, as it is in line with government policy both to have sunset clauses in new legislation and to get rid of quangos. Two for the price of one, as a supermarket might put it. A sunset clause is necessary because during our debate I found myself, as a businessman, a supplier to supermarkets and a farmer, drawing different conclusions from those expressed by other noble Lords. My noble friend Lord Eccles has already commented on some of the examples quoted by the noble Lord, Lord Knight, in his robust defence of the necessity of having an adjudicator. Putting aside the fact that most of the examples were provided by pressure groups—which brings to mind the famous phrase, “They would say that, wouldn’t they?”— I would like to touch on the tales of woe about the cavalier treatment of new product development by supermarkets, quoted by the noble Lord. I do not believe that they stand up.
If a product is unfairly rejected by a supermarket, and it is a good or profitable product, it will be saleable to another supermarket. In fact, it will probably be grabbed with alacrity. If the product is not good enough to be sold to any other supermarkets, the promoter of the new product has made a bad commercial judgment. It is not the business of government to provide underwriting for commerce.
Supermarkets are always competing to provide something new and better. This is self-evident. As was said on a number of occasions at Second Reading, in the past 30 years there has been an explosion of foods available at supermarkets, without a corresponding increase in prices. That can have been achieved only by retailers constantly looking for new and innovative products. Supermarkets are constantly looking for good new products and these will find a market, if not with one supermarket, then with another. I believe—I speak as someone directly connected with supermarket supply—that this new quango will be expensive and will contribute absolutely nothing except increased costs to shoppers, who will be the ultimate payers of those costs. It is only sensible to have a finite date—which, after all, can be extended if I am proved wrong and the quango does end up making a contribution to food retailing.
My Lords, the Government in general support the use of sunset clauses to avoid the risk of overregulation and to ensure that regulators remain in place only where they are strictly needed. However, the Bill already contains provision for sunset and review, in that the adjudicator must be reviewed every three years and can, following such a review, be abolished if the Secretary of State considers it appropriate. Many noble Lords have expressed their desire to ensure that any power of the Secretary of State to amend the adjudicator’s powers or functions should be subject to proper scrutiny, and the Government believe that the Bill provides for that. To remove the same scrutiny for the cessation of the Act would therefore be disproportionate.
The Bill is fully in line with the Government’s broader policy on sunset and review. Therefore, I think that the job is done and I ask the noble Lord to withdraw his amendment.
Amendment 125 withdrawn.
Clause 25 agreed.
Clause 26 agreed.
Amendment 126 not moved.
Bill reported with amendments.
Committee adjourned at 6.51 pm.