Relevant document: 16th Report from the Delegated Powers Committee.
Motion on Amendments 1 to 9
1: Clause 9, page 3, line 17, leave out subsection (1)
2: Page 3, line 20, leave out from “to” to end of line 21 and insert “enforce through imposing financial penalties, that means imposing a penalty on the large retailer of an amount not exceeding the amount of the permitted maximum (see subsection (7)).”
3: Page 3, line 25, leave out “and”
4: Page 3, line 26, at end insert “; and
(d) how it must be paid.”
5: Page 3, line 34, at end insert—
“(7) The Secretary of State must make an order—
(a) specifying the amount of the permitted maximum, or
(b) specifying how that amount is to be determined.
(8) The Adjudicator must, within 6 months beginning with the day on which section 1 comes into force, make a recommendation as to the amount that should be specified in the first order under subsection (7) or the method for determining the amount.
(9) Before making a recommendation the Adjudicator must consult any person he or she thinks appropriate.
(10) The Secretary of State—
(a) must have regard to the Adjudicator’s recommendation when making the first order under subsection (7);
(b) may amend or replace an order under subsection (7) only if the Secretary of State has considered whether to do so as part of a review under section 15.
(11) The Adjudicator may not impose a financial penalty in respect of a breach of the Groceries Code that occurs before the first order under subsection (7) comes into force.”
6: Clause 12, page 4, line 20, leave out “and”
7: Page 4, line 22, at end insert “; and
(d) the criteria that the Adjudicator intends to adopt in deciding the amount of any financial penalty under section 9.”
8: Page 4, line 31, leave out subsection (4)
9: Page 4, line 39, leave out “and (c)” and insert “, (c) and (d)”
My Lords, I beg to move that your Lordships do agree with another place in their Amendments 1 to 9. I shall speak also to Commons Amendments 11, 14, 16 and government Amendment 14A to Commons Amendment 14.
Commons Amendments 1 to 9, 11, 14 and 16 all together resolve what has been the most hotly debated topic of this Bill: whether the adjudicator should have the power to fine written on to the face of the Bill. As the Government have said throughout, and as the BIS Select Committee has also acknowledged, this is an issue that is finely balanced. However, at Second Reading in another place there was an overwhelming consensus that fines were necessary. This echoed sentiments expressed in your Lordships’ House. Accordingly, the Government have listened to the clearly expressed voice of Parliament and have tabled amendments to give the adjudicator the power to fine from the outset.
I would like to make clear that I expect fines to be used as a last resort, only for the most egregious or repeated offences. However, the very fact that the adjudicator has the power to impose them will send a strong message to retailers that compliance with the code is not optional. I am confident that these changes will mean that the adjudicator is able to ensure fair play in the food supply chain and keep the industry growing.
This will also benefit the farming industry. While many farmers are unlikely to be direct suppliers to retailers, and thus formally out of scope of the groceries supply code of practice, they will still benefit from increased trust and transparency in the supply chain. It is important to note that the adjudicator’s functions will not be a panacea for all the difficulties of the farming industry. She cannot set prices or address pay and conditions, but improved relationships between direct suppliers and retailers will have beneficial effects along the entire supply chain.
There have been suggestions that the power to impose fines from the outset would make Britain a less attractive place to do business. I would respond by saying that, other than retailers, almost all business groups, including the Federation of Small Businesses, the Food and Drink Federation and the National Farmers’ Union, support this amendment. I would further say that for retailers who comply with the code, an existing legal obligation, there will be absolutely no additional burden, as fines could only ever be imposed for a breach of the code. Retailers will also have a full right of appeal on the merits against the imposition of a fine or its amount.
One further aspect of these amendments is that they set out the process for specifying the maximum penalty. This is clearly a critical part of the power and I consider that it is important that the basis of determination of the maximum penalty be set out in legislation. Equally however, simply to insert a maximum into the Bill without consultation with stakeholders would not be appropriate, and most people would agree that we would not wish to delay the Bill to allow that consultation to be carried out. It is our intention that the adjudicator will set out in her guidance the criteria that she intends to adopt in deciding the amount of any financial penalty.
The guidance will be published in draft form shortly after commencement for a 12-week consultation period. This will allow stakeholders to express their views regarding the maximum level of the fine and will allow the adjudicator to reflect those views in her final recommendation to the Secretary of State. It would be more appropriate for the adjudicator to take the lead in recommending the maximum penalty based on the evidence from the consultation, subject of course to the Secretary of State making the final decision and to parliamentary oversight.
It is therefore essential that consultation be carried out on this matter. Stakeholders, both retailers and suppliers, deserve to have an input into this process. Accordingly, the government Commons Amendments 6 to 9 to Clause 12 require the adjudicator, alongside the initial consultation on guidance, also to consult on what the maximum penalty should be or how the maximum penalty should be calculated and then, via Commons Amendment 5 to Clause 9, to make a recommendation to the Secretary of State. The Secretary of State will then be required to establish this maximum by order. This will ensure that fines can be imposed as soon as possible.
I should like to inform your Lordships that in Committee in another place the Minister, my honourable friend Jo Swinson, gave a personal commitment that, barring extreme matters outside the control of the Government, the order establishing the amount of the maximum fine or how that amount will be determined would be laid within three months of the adjudicator’s recommendation to the Secretary of State.
I also draw your Lordships’ attention to the fact that Commons Amendment 11 to Clause 15 allows the Secretary of State to alter by order the maximum penalty or how the maximum penalty is to be calculated as a result of the findings of a triennial review. To clarify, the wording relating to the maximum penalty or how the maximum penalty is to be determined is used because we envisage that the Secretary of State could set a maximum either as a specific amount—X pounds, which would apply as the same fixed maximum for each retailer—or by reference to a formula, such as X% of a retailer’s groceries turnover, or the value of relevant supply agreements. This approach is set out in paragraph 92 of the Explanatory Notes.
Finally on this topic, I turn to Amendment 14A on the marshalled list, the new government amendment to Commons Amendment 14. Amendment 14A has been tabled in response to a recommendation from your Lordships’ Delegated Powers and Regulatory Reform Committee in their 16th report of this Session. It recommends that the order with which the Secretary of State will set the maximum level of the fine, or the basis upon which it should be determined, should be subject to an affirmative parliamentary resolution rather than through the negative procedure as currently stated in the Bill.
There are already safeguards on the use of the power; it can be exercised only after a recommendation from the adjudicator who must first consult about it. The Delegated Powers and Regulatory Reform Committee recognised that this would usefully serve to inform the Secretary of State’s exercise of the power. However, the committee has advised that because the upper limit of the penalty is not in the Bill the power to fix the limits should be subject to a significant level of parliamentary scrutiny. Amendment 14A will therefore ensure that the order will be subject to the affirmative resolution procedure, thereby ensuring that Parliament will be able to scrutinise and positively approve the order. I beg to move.
My Lords, Members of the House who are present will not be surprised to hear that I regret these amendments made at the other end of the Corridor. I will be brief.
I am speaking as the only member of Her Majesty’s opposition. There is always cause for pausing to think about legislation per se, but when all three Front Benches agree, we can be pretty certain that they have not really thought the matter through—there is no need to and it goes on to automatic pilot. You can also be pretty certain that there will be one or two unintended consequences. My starting position would be, despite my noble friend’s clear and completely comprehensible explanation—the only sign of grace in it being the affirmative procedure—that there are already far too many circumstances in which state functionaries can raise administrative fines. In this case, the groceries code is working. There are 10 supermarkets in hot competition with each other, and they report on complaints and how they have been dealt with. So far, there has been no problem with the speed and accuracy with which these arguments have been settled.
However, that is not why we have these fines. It is because it is said that what is going on now is only the tip of the iceberg due to a climate of fear, which means that many other things go on that do not get attended to, and we therefore need a third party to create a triangular relationship—the adjudicator, who now needs the power to fine. My problem with that is that I very much doubt whether the climate of fear, if it exists, will disappear. If it does, and fines are imposed, one has to question whether it is sensible to put in a state-funded and mediated procedure involving 10 highly competitive supermarkets and their suppliers. When we get into that argument, everyone says, “We understand. We are talking not about Nestlé or Kellogg but the small and medium-sized suppliers. We are also”—this is where we come to the heart of the matter—“talking about the dairy industry”. I fully accept that that industry has significant problems. This is not the time to analyse them but I hope that we would have the opportunity to discuss this issue in much greater depth in this House at an early date. I hope that my noble friend on the Front Bench will promote the suggestion that we discuss the dairy industry in some depth and detail. The supermarkets want to sell as much milk, cheese and other products containing milk as they can. That is their interest. It is not in their gift to solve the dairy industry’s problems. It is wrong for us, as a Parliament, to put it about to a certain extent that if you have a grocery code adjudicator it will be a cure-all for some of the undoubted problems that exist, not least in the dairy industry.
My view is that because the code works pretty well, the investigations that come outside the present practices under the code and arrive with the adjudicator will prove to be intractable or unnecessary. I am pleased that I am not looking for the adjudicator to be busy. It is a misapprehension to think that a lot of the things going on out there will give the adjudicator the opportunity for fruitful investigation and fining. I am pleased that the order that is to come is to be affirmative. I guess from what my noble friend said that it should be with us for debate in about nine months. I hope that we debate it seriously.
Finally, if investigations and fines were to become the practice, grocery prices would rise. That would surely be an unintended consequence.
My Lords, I support the Bill and the amendments the Minister has presented today. However, I am left pondering that if we have a situation here where we are concerned about a customer abusing a supplier, should we also not be alert to the issue in banking where we have suppliers potentially abusing customers? Should there not be a similar mechanism in place in which customers of banks, and I think here particularly of small businesses, have the right to appeal to an independent adjudicator about the treatment they are receiving from the banks? It is right that we should be concerned about a situation of customer abuse but the potential for supplier abuse in the banking industry, which is even more concentrated than the supermarket industry, is clearly higher.
I know this goes beyond the Minister’s brief and I do not for one minute expect him to give a detailed reply, but I suggest to your Lordships’ House that if we are seized by the importance of this Bill and believe that it is the right and proper thing to do, most of the arguments on which we have drawn apply with even greater force to the banking industry.
My Lords, my noble friend Lord Myners made a similar very interesting point at Second Reading. It was interesting then and it is interesting now, but it is not a point I am going to dwell on and he will understand that. I am very sorry to disappoint the noble Viscount, Lord Eccles, that as the lead for Her Majesty’s Opposition I am not opposing more on this Bill but the Government have found the right way of doing things. They have taken a policy that was developed by the previous Labour Government and have bought it forward in legislation. As the Bill has gone through Parliament, they have listened to voices, including from Her Majesty’s Opposition, pressing for the adjudicator to have teeth from day one with the right to fine. I am delighted that they have given concessions. Even before the introduction in the House of Lords, following the BIS Select Committee and pressure from my own party, they removed the restriction on third parties, such as the National Farmers Union, from submitting evidence. Then we had a concession from the Government on powers to fine. We had argued that right from the outset.
I am absolutely delighted and I pay tribute to the Minister, Jo Swinson, and her colleagues, including the Minister, for listening to the arguments made in both Houses. I also pay tribute to my colleagues Ian Murray and Huw Irranca-Davies in the other place for the work they did on this Bill and take this opportunity to thank the noble Baroness, Lady Wilcox, for listening to our arguments on accountability when we were debating this Bill in the Lords. She most graciously conceded the points so that there will now be an annual report before Parliament. A final concession with an amendment in the Marshalled List today will see a move from a negative to an affirmative procedure around the level of fines. That, too, is extremely welcome.
I am delighted with the Government’s approach. I would like to see that repeated in many other ways across legislation. We are looking forward to the Queen’s Speech. Perhaps in that we can look forward to the Government having listened to Labour policy and brought it forward in legislation, and then listening to the Labour Party and changing things as they go through. We have not got everything we wanted—we believe that the code needs to remain a live document. The noble Viscount, Lord Eccles, made a good point about the possible abuse of power in the supply chain by Nestlé, Kellogg and other intermediaries. We have concerns about that. Commercial pressure and bullying in the supply chain that can drive down food standards and health and safety remain a concern, even with the code and this adjudicator. Recent scandals around horse meat, pressures from the horticulture industry to abolish the Agricultural Wages Board and ease immigration rules to drive down the cost of wages to meet the demands of supermarkets are all evidence that this is an extremely competitive industry where competition can at times lead to abusive behaviour.
On balance, we are very happy with this Bill. We support the amendments made in the other place and those before us this evening and we look forward to its speedy implementation.
Having played a very small part in the early stages of the Bill, I want to congratulate the Government on listening. I am not in agreement with the noble Viscount, Lord Eccles. He knows that. I have listened to many NGOs in the farming community and I think he underestimates the feeling out there. It is important that the adjudicator is able to hear from anyone now. It is important that they can initiate investigations based on their own assessment as to whether there has been a breach, and it is also important they have a full set of tools to be able to change retailers’ behaviour. Retailers can be fined and required to take out a newspaper advertisement saying they breached the code. The GCA can provide clarification on how to interpret the code and can recommend changes in its scope. That is roughly the gist of it. I concur with the noble Lord, Lord Knight, that the Commons amendments have been just what was wanted.
My Lords, I am grateful to all noble Lords for their contributions, particularly the noble Earl, Lord Sandwich, and the noble Lord, Lord Knight, although I warn the noble Lord, Lord Knight, that he should manage his expectations for the future.
The issue of whether to give the adjudicator the power to impose fines from the outset has always been, as I have said, a finely balanced policy decision. The BIS Select Committee acknowledged this in its 2011 report. We continue to believe that the sanction of requiring a retailer to publish information—the so-called name and shame—will be a powerful one and will suffice in the great majority of breaches. However, the Government have listened carefully to the arguments made in your Lordships’ House, at Second Reading in another place and by third parties that the ability to fine from the outset would help to give the adjudicator more teeth.
Turning to the questions raised by noble Lords, my noble friend Lord Eccles effectively asked why we need an adjudicator at all. He may not have said it in those words but that was the gist of it. I accept that he feels very strongly about this and he has argued his point eloquently here, as he has at previous stages in the passage of the Bill. I hope he will accept that the weight of opinion in both Houses, as well as that of the Competition Commission and the BIS Select Committee, is strongly in favour of the establishment of an adjudicator.
We recognise that supermarkets are a vital part of our economy and that they do much good through increased employment, consumer choice and their own commitment to corporate social responsibility. We also recognise that the groceries sector is generally very competitive.
My noble friend talked a bit about the suggestion that there is a climate of fear. Currently, complaints must be made to the supermarket involved and, given the purported climate of fear to which he refers and which has been indentified among suppliers, this could indeed limit complaints. Very few suppliers would be willing to challenge a retailer on which they are likely to be highly financially dependent. An independent adjudicator to whom suppliers can complain confidentially is therefore essential to enforcing the code.
He asked about how it could help farmers. The adjudicator has a very tightly defined remit. She will enforce the Groceries Supply Code of Practice based strictly on the Competition Commission’s findings that retailers were transferring excessive risk to their direct suppliers. She will therefore not be able to set prices for produce. Similarly, issues arising between farmers and processors will be out of scope. She can only consider interactions between retailers and their direct suppliers. It is important to note that most farmers are not direct suppliers to retailers. Most farm produce tends to be sold to wholesalers, processors or other intermediaries. However, we are confident that by reducing the pressure on direct suppliers the adjudicator will allow them to make longer-term decisions and to increase innovation and investment, which will benefit the entire supply chain including farmers.
My noble friend was also naturally concerned about the prices paid by shoppers when they go to supermarkets, and he said that he would not wish to see the adjudicator’s work leading to increased costs for hard-pressed consumers. I reassure him that the retailers themselves, when giving evidence to the BIS Select Committee, said that the cost of compliance with the code had not led them to raise the prices paid by consumers. Ultimately, this is a pro-consumer measure. The Competition Commission’s 2008 report clearly identified that the supermarket practices that the adjudicator will confront could have a detrimental effect on consumers if left unchecked.
The noble Lord, Lord Myners, raised a question about the financial sector. It was an interesting point, if I may say so. I have a feeling that the financial ombudsman has an important role to play, and I am sure that the noble Lord will make his point again on a perhaps more relevant occasion.
The noble Lord, Lord Knight, essentially raised the issue of a living code. If the adjudicator considers that the code should be changed, then he or she is required by the Bill to make a recommendation to that effect to the Office of Fair Trading. It should be emphasised that this is a narrow duty on the part of the adjudicator. Under the existing provisions of the Enterprise Act, it would then be for the OFT to decide whether to advise the Competition Commission that a variation of the code was appropriate by reason of a change of circumstances. However, these provisions allow for the code to be adapted to changing circumstances in the groceries market to ensure that suppliers are treated fairly.
I hope that that addresses most of the issues raised and I recommend these amendments.
Motion on Amendment 10
10: Clause 15, page 5, line 37, leave out subsection (5) and insert—
“(5) The review must also consider whether it would be desirable—
(a) for an order to be made under subsection (10A) (if no order under that subsection is in force), or
(b) for any order under that subsection to be revoked.”
My Lords, I beg to move that your Lordships do agree with the Commons in their Amendments 10, 12 and 13. New subsection (10A) enables the Secretary to State to restrict the sources of information that the adjudicator can consider when deciding whether to carry out an investigation. This is a reserved power, and it can be exercised only after a triennial review has been completed.
This is a contingency measure and it was introduced in case the adjudicator becomes overwhelmed by a high volume of complaints of variable quality. She will have only a small office. This provision will enable her office to focus on enforcing the code effectively in the event that there is a flood of complaints. It also acts as a reminder to trade associations to use the adjudicator responsibly and to ensure that they ask the adjudicator to consider only issues that are likely to fall within the scope of the Groceries Supply Code of Practice. We do not think it is likely that trade associations will behave irresponsibly, but it provides an incentive for them to behave well and not to swamp her office.
As set out by my honourable friend the Minister for Employment Relations and Consumer Affairs, we think it is very unlikely that this power will ever be used, and we hope that it will never be necessary. The power could also be invoked only after a triennial review, as I said, and only if that review revealed that poor-quality or irrelevant complaints were affecting the adjudicator’s ability effectively to carry out her functions.
Concerns were none the less raised in the other place about the scope of this power. Government Amendments 10, 12 and 13 were therefore introduced to respond to those concerns by putting additional safeguards in place regarding when the power can be exercised.
Amendment 10 provides that the ability to restrict sources of information should be reversible. The amendment means that if circumstances change so that, for example, it is beneficial to the adjudicator to again allow wider input from trade associations and others, the Secretary of State can revisit his decision at each subsequent triennial review.
Amendment 12 provides that the power can be exercised only if it will make the adjudicator more effective. It cannot be used on a whim.
Amendment 13 makes the power subject to the affirmative rather than the negative procedure. This gives Parliament the opportunity to scrutinise and positively approve the exercise of the power.
I hope your Lordships will agree that these additional safeguards make it clear that sources of information will be restricted by the Secretary of State only if it is felt absolutely necessary to do so.
Motion on Amendments 11 to 13
11: Clause 15, page 5, line 38, at end insert—
“( ) A review may consider whether it would be desirable to amend or replace the order for the time being in force under section 9(7).”
12: Clause 15, page 6, line 18, leave out lines 18 to 20 and insert—
“(10A) The Secretary of State may by order provide that this Act has effect as if the section set out in subsection (11) below were inserted after section 4.
(10B) An order under subsection (10A)—
(a) may be made only if, as a result of the findings of a review, the Secretary of State thinks that making the order would enable the Adjudicator to be more effective;
(b) may be revoked only if, as a result of the findings of a review, the Secretary of State thinks that revoking the order would not impair the Adjudicator’s effectiveness.
(11) This is the section referred to in subsection (10A)—”
13: Clause 23, page 10, line 21, after “section” insert “15(10A) or”
Motion on Amendment 14
14: Clause 23, page 10, line 21, leave out “9(1) or”
Amendment to the Motion
14A: At end insert “and insert “section 9(7) or section””
Amendment to the Motion agreed.
Motion, as amended, agreed.
Motion on Amendment 15
15: Clause 26, page 11, line 3, leave out subsection (2)
Motion on Amendment 16
16: Schedule 3, page 15, line 36, leave out Schedule 3