Grocery Market Ombudsman Bill

Public Bill Committee, 30 March 2010.

Albert Owen (Labour, Ynys Môn)

I beg to move,

That, if proceedings on the Grocery Market Ombudsman Bill are not completed at this day’s sitting, the Committee do meet on Tuesdays when the House is sitting at four o’clock.

It is a pleasure, Mr. O’Hara, to serve under your chairmanship. I will not detain the Committee too long on the procedural motion, but I wish to thank the Clerk and the Public Bill Office for their professionalism and patience in guiding me through each stage of this private Member’s Bill. The motion is purely to safeguard the passage of the Bill through Committee; I am following advice in placing this motion before the Committee. The Bill has broad support and received a comprehensive debate on Second Reading, as did the money and the Ways and Means resolutions. The timetabling of business in the House for the rest of the Session is, to say the least, ad hoc, so I tabled the motion as a safety net to ensure that the Bill completes its passage through Committee.

Clause 1

James Paice (Conservative, South East Cambridgeshire)

They are still in the same order.

I threw them away actually—it was deliberate.

We do not want to create a massive empire or a super-quango of any nature. It makes sense to share certain resources and information with the OFT, but the independent status of the grocery market ombudsman must never be compromised. It is for that reason that the Bill does not tie this or any future Government down to housing the ombudsman in any particular place, or to a specific amount of resources. That can be done at a later date. I repeat, however, that it is of the upmost importance that the principle of the independence of the role and functions of the ombudsman is enshrined in the Bill. The meaning of the remainder of the clause is clear and does not divert from the recommendation of the Competition Commission report.

Andrew George (Liberal Democrat, St Ives)

I appreciate the opportunity to follow the hon. Member for Ynys Môn. May I reciprocate his kind words by congratulating him on handling the issue extremely well during our various debates? All parties are now united behind the Bill. We may debate some of the detail, but it is important to recognise that there is cross-party support for it—and not before time. I should also declare an interest, as I chair the grocery market action group, an organisation in which I have no pecuniary interest. I am not paid and see my duty merely as an extension of my role as a parliamentarian facilitating that important campaign.

I also endorse the hon. Gentleman’s words in relation to the Farmers Union of Wales which, probably more than any other farming organisation, has steadfastly pursued the issue over many years. I would also like to put on the record my congratulations to the Competition Commission on undertaking an extremely thorough investigation into the issue. Its objectivity and the manner in which it has clinically analysed and scrutinised the groceries supply chain will stand the future work of a supermarket ombudsman in good stead.

I stress the importance of clause 1(4). I understand the cost implications of the resources required by a grocery market ombudsman and the benefits of basing the ombudsman in a particular building so that overhead costs can be shared with another organisation—I entirely endorse that approach across Government, as it makes a lot of sense—but ensuring that the body has executive independence is fundamental to the success of the initiative. In whatever form the proposal ultimately goes forward, that element of executive independence is paramount.

Lindsay Hoyle (Labour, Chorley)

I should like to put on the record, Mr. O’Hara, the fact that you are retiring and say what a pleasure it is to serve under your chairmanship once again. I congratulate my hon. Friend the Member for Ynys Môn (Albert Owen), as I think we all wish to do. It is thanks to him that I am a member of this important Committee, on which it is a privilege to serve. We must work together to ensure that we push the Bill forward, because in the end, we all recognise that fair play must be done and seen to be done. That is a good way to proceed. Let us hope that we can work together speedily to ensure a fair result.

Nigel Evans (Conservative, Ribble Valley)

It is a great pleasure to serve under your chairmanship, Mr. O’Hara. I declare an interest as the owner of a small retail convenience store in Swansea. I congratulate the hon. Member for Ynys Môn on being lucky enough to be drawn in the ballot for private Members’ Bills and on having the common sense to introduce a measure that really unites the House.

Such a measure was unnecessary 40 or 50 years ago, because no group had the kind of clout that is now centred in a small number of hands. The retail market has changed dramatically since my grandfather opened his retail convenience store in Swansea in the 1930s. It was only in the 1960s when my father managed the store that supermarkets came on to the high streets in any sort of fashion. Now, of course, a small number of supermarkets are completely dominant, particularly in their relationships with certain suppliers.

Farmers have been mentioned. I represent an agricultural constituency, the hon. Member for Chorley represents many farmers, and the hon. Member for Ynys Môn also has many farmers in his beautiful constituency. We know that clout has shifted completely in negotiations and that the farmers, who in many ways are a disparate group, and have become a desperate group because of the clout of a small number of supermarkets. We need to redress that balance: alarm bells are now ringing in the retail trade, because its members are wary of that body coming forward. They have nothing to fear if they abide by the existing code. I do not think that there is a problem, as all they need to do is abide by their own code, and then I do not believe that the ombudsman will be too troubled.

The ombudsman’s position is laid out in clause 1, and I was grateful to hear what the hon. Member for Ynys Môn said about the amount of money that will be provided for that particular body. We do not yet know exactly how much work the ombudsman will have and how big the office will be, but I hope that it will not be large. I also hope that we will not get ourselves into the situation whereby we create yet another body to add to the huge number already out there that earn enormous sums of money from the public sector. When the hon. Member for Chorley and I served on the erstwhile Trade and Industry Committee we heard from the Ofcom lady, who was earning £217,000 a year to work a three-day week. We were absolutely baffled.

A huge number of people from organisations such as the one we are creating are on six-figure salaries for doing a few days a week or, indeed, for doing non-jobs. I know that the incoming Conservative Government will have a look at many of these so-called quangos and sort them out, but I hope that this new body will be streamlined from the very beginning in the way we would want all quangos and non-governmental departmental bodies to operate. That is absolutely right. I congratulate the hon. Member for Ynys Môn yet again, and I hope that we can get the Bill on the statute book while this Parliament is still sitting.

I add my congratulations to those expressed to the Member for Ynys Môn on promoting the Bill, which, if we are realistic and honest, is a rehearsal for a game that will be played presumably later in the year, depending on the result of the general election and bearing in mind the commitments already made by the major parties.

As the hon. Gentleman rightly says, there are issues of distinction. The Government have gone out to consultation, so clearly we do not have a defined Government approach. We, the Opposition, have said that there are two particular issues. First, we believe that the ombudsman’s office should be within the Office of Fair Trading—I will come back to that—and, secondly, the major suppliers, by which I mean multinationals such as Coca-Cola and Kraft, should be excluded on the basis that they have as much clout as many of the supermarkets. Not everybody agrees with that approach. I have received a briefing from ActionAid—I met representatives of that organisation last week—which believes that that is not the right way forward, and that no one should be excluded. However, we are obviously open to comment upon that.

I have a few general remarks to make about clause 1. I wish to remind the Committee that the Competition Commission’s objective relates to consumer interest. Despite my recognised support for farmers, the Competition Commission proposed this code and ombudsman not out of sympathy for farmers but because of consumer interests and the belief that the supply trade and, therefore, consumers would suffer in the long term. The Competition Commission is right in that, because there is ample evidence to show that suppliers are being affected by some very unfair practices.

The hon. Member for Ynys Môn primarily has livestock farmers in his area. My area deals almost entirely with fresh produce, and those concerned with that industry have numerous contracts with all the major and minor supermarkets. The same issues arise—retrospective discounting, expecting farmers or growers to pay for shelf space, sometimes expecting them to supply labour unexpectedly and to take produce back that is clearly perishable and useless. There is a whole raft of different practices that are wrong, and those are fundamentally addressed by the new code, which supermarkets all welcomed and agreed to comply with. All terms of trade will have to be in the code and be properly explained in it. There should be no verbal terms, of which we are all aware. I have certainly had growers and packers receive the threat that if they supply one of the discount chains, they will not be allowed to supply one of the others. All sorts of unacceptable verbal threats have been made, and they need to stop. That will be stopped by the code.

The British Retail Consortium believes that it speaks on behalf of the supermarkets. I say “believes” because the supermarkets themselves have generally been much more relaxed about an ombudsman than the BRC. I am sure that all members of the Committee had the same briefing as me, which was pretty vitriolic in its opposition to the measure. As others have said, if supermarkets comply with the code properly, the ombudsman will have very little to do. However, to suggest—as the BRC does—that we should wait two years to see how the code beds down is to ignore the fundamental point that the ombudsman’s purpose is to know whether the code is bedding down and how it is operating in practice. The two go together, and I am pleased that my party has agreed to this approach, which recognises the power of the Competition Commission’s inquiry and the arguments that have been made by hon. Members from all parties, as has rightly been stated.

We have already been round this course to some extent. Hon. Members will remember that an earlier code of practice was introduced by the OFT. It was much vaguer, and left too much to individual interpretation, but it is arguable that if the OFT had monitored and enforced it more effectively, we might not have reached the current position. However, this is where we are.

I agree with the hon. Gentleman’s comments about the previous voluntary code of practice. He suggested that the ombudsman might be housed within the OFT’s offices, but has he been there and identified that there would be space? His assumption is that the OFT has unused space for such a function.

The straightforward answer is no, I have not, but I do not mean literally in the same building. We all know that when a new public body is set up, a whole panjandrum of boards and so on is often also set up. We do not need all that. We just need a discrete little organisation operating within the OFT’s facilities. That is relevant because one concern that the supermarkets rightly expressed is regulatory creep, and that the ombudsman, especially if they do not have much to do, will look for more things to do to expand their role. As expected from a political party that views all regulation with an element of suspicion and wants to keep the burden of regulation on business down, we do not want that mission creep, and it would be slightly restrained if the ombudsman operated within the OFT’s facilities. That is hugely important.

Our view is that funding should come entirely from the supermarkets through whatever process the ombudsman comes up with. Again, that would be a control mechanism against mission creep, because if funding suddenly increased massively, the supermarkets would quickly speak to my colleagues in the DTI or whatever Department will be responsible. There would be that opportunity to complain.

I believe that that is the right way forward, and that it is hugely important for consumers, the supply trade and British farmers, many of whom we represent in different ways. ActionAid has expressed concern that indirect suppliers—for example, a farmer who supplies a dairy, which supplies a supermarket—would not be protected. That concern is not restricted to the UK, and a cocoa bean producer in Africa who supplies a middleman might not be protected. I understand that concern, and there is a grave risk—perhaps the Minister will comment on this—of opening up a huge amount of mission creep. Such suppliers should have the opportunity to complain to the ombudsman—the code would not apply to second-tier suppliers, and the ombudsman’s direct role should not apply to them—and to have complaints investigated. Otherwise, the organisation that supplies the supermarkets will simply pass down what may be pretty onerous terms directly to the supplier.

I will finish with this warning, Mr. O’Hara, which I have expressed at many meetings up and down the country, not that I expected to be reported this afternoon. There is a feeling among the farming community that somehow an ombudsman is its salvation. I expect the hon. Member for Ynys Môn would agree with me that it is not. This is not going to put the price of milk up by 3p a litre or whatever farmers may seek. It would be foolish to allow that belief to get currency, because it is not going to happen. However, it is a step towards balancing an extremely unfair market situation, with 10,000 or 11,000 milk producers producing for a handful of processors of cheese and liquid milk. It is a step forward, whatever the product, including for overseas development.

We support the objectives of the hon. Member for Ynys Môn in the Bill, though I do not think it has a chance of becoming legislation before the election. It probably should not have, as we have not had time to scrutinise every line with due diligence. There clearly is not time to do that. It is a worthwhile rehearsal for what is likely to come later in the year, from whoever wins the election. The sooner an ombudsman in some capacity is in position, the better for the consumer and producer.

Peter Bottomley (Conservative, Worthing West)

I thought that my hon. Friend the Member for South-East Cambridgeshire was going to finish by saying the sooner the election came, the better for the consumer. Allow me to say it for him.

I join the tributes to you, Chair, and to the Bill’s promoter. We clearly know that having laws and codes does not make everyone obey them. There would not be 2 million Americans in jail tonight if laws stopped offences. We have to be aware that many retailers suffer with perishable goods in the same way that suppliers do. It is not only fresh produce; some publishers dump periodicals on retailers causing them a great deal of trouble. I go along with those who object strongly to retailers being told they have to allow retrospective discounts without negotiation.

I am a great believer in trade unions, trade associations and federations of businesses, so that people can have a more equal way of dealing with folk. One reason for having Members of Parliament is not just to hold Government to account, but to raise a voice on behalf of the small trader—whether a street, shop or stall trader—to say when things are not fair. When there are sufficient examples and MPs have been sufficiently persistent, as the hon. Member for Ynys Môn has been with his Bill, action is likely to follow. So I pay tribute to him.

Whether the Bill can be agreed in the wash-up is above my pay grade, but I believe that we are making progress. Whether in this Parliament or the next, I hope progress is made, and that the ombudsman will try to use publicity as much as diktats and directives to make the situation significantly better. I hope there will be frequent reports on how the consequence of this initiative has been good for the consumer, by being fair to suppliers and retailers alike.

I thank you, Mr. O’Hara, for chairing the Committee and offer my congratulations on your forthcoming retirement. I also add congratulations on behalf of the Government to my hon. Friend the Member for Ynys Môn, who has promoted the Bill in an exemplary fashion. I am sure he will be congratulated by his constituents from all four corners of the island of Anglesey, from Holyhead in the west to Beaumaris in the east, from Amlwch in the north to Llanfairpwllgwyngyllgogerychwyrndrobw- llllantysiliogogogoch in the south.

To clarify the Government’s position on the Bill, there is a lot of genuine agreement between Front-Bench teams on this matter. To echo the remarks of the hon. Member for South-East Cambridgeshire, the Conservative spokesman, this is ultimately about the consumer. That was the purpose of the Competition Commission inquiry and the basis on which the Government decided to support the creation of an enforcer—or ombudsman—of the code. That was done because of the danger—clearly identified in a serious piece of work by the Competition Commission—to the supply chain and ultimately to the consumer in the longer term.

I echo the remarks made by the hon. Members for South-East Cambridgeshire and for St. Ives.

As my hon. Friend will know, on Second Reading, the Government took a neutral stance on the Bill. We support its general principles, but as has been mentioned, there is a consultation out at the moment. Before today’s Committee, I received briefing papers from several organisations with an interest in the outcome of the Bill. None of them has yet submitted formal detailed responses to the consultation, but I look forward to receiving those. Of course, different organisations have differing opinions about some of the detail that we are debating.

I do not want to detain the Committee long because the Government made their position clear on Second Reading. We support the Bill in principle, but as we have outlined, there is an ongoing consultation and the Government will want to see the result of that regarding how far the legislation progresses and at what pace.

I will respond briefly to the comments made by hon. Members on both sides of the Committee. The hon. Member for St. Ives was right to thank the Competition Commission for a thorough investigation—I should have done that in my opening remarks. He highlighted the issue of cost, which we are all concerned about, and we all want to ensure that the ombudsman is independent, impartial and well resourced to do the job. The hon. Member for South-East Cambridgeshire was right to say that two years—which is what some of the retailers are calling for—is too long. We want to know straightway and get this provision bedded down as soon as possible to see how the code is working. The best way to do that is to have an independent ombudsman.

My hon. Friend the Member for Chorley is right: we are talking about fair play—nothing more, nothing less. There is no hidden agenda and we are following the Competition Commission’s recommendations. The hon. Member for Ribble Valley is a regular visitor to Ynys Môn, and he is right when he speaks from personal experience and says how beautiful it is. I echo that. He talks from experience as someone who has grown up in the grocery business and understands the changes that have taken place. As a constituency Member of Parliament, he also understands the situation that farmers have found themselves in when on the receiving end of a powerful retailer. He was right to echo the points raised on Second Reading that retailers have nothing to fear from the code, or from an ombudsman overseeing it.

The hon. Member for South-East Cambridgeshire may feel that this is a dummy run or a dress rehearsal, but we are providing an appropriate vehicle to take the provision forward. He talked about issues of distinction and suggested that certain suppliers should be exempt. I am not clear about that, as I feel that the Bill could deal with such a matter. Complaints can be brought against powerful suppliers just as they can be brought against powerful retailers, and there is scope in the Bill to deal with that. He was right to say that this is not about providing a lifeline for small producers and farmers. It is about the market failure and helping the consumer in the long run. I was glad that he repeated his opinions on the OFT. He has been a long-term supporter of it, and I pay tribute to him. However, the OFT must not play the role of a supervisor for the ombudsman, although it could help with wages, rations, support and other things.

The hon. Member for Worthing, West is right to say that MPs are elected to the House to voice the concerns of the small trader against large retailers—David versus Goliath. He is also right to say that we do not want retailers being brought to book in that way; we want them to be named and shamed. Once the code beds down and an ombudsman is in place, the retailers will come on board and support it. It will be in their interest, as well as that of the consumer and supplier.

Finally, the Minister, my hon. Friend the Member for Cardiff, West is a regular visitor to Llanfair PG—that is easier to say for the benefit of Hansard. He has circumnavigated the island on a number of occasions, but he has not matched me by walking around it. I am one of the few MPs who can say that they have walked every inch around the coastline of their constituency. He made a serious point: we are here as much because of the consumer as the Competition Commission or anybody else. I am a little disappointed that people have not responded to the consultation in a direct and detailed way. The Government had a neutral stance. I am hopeful that we are prodding and moving them in the right direction, as we and other parties have tried to do over a long period. The Bill exists because of the perseverance of many who believe that it is right.

Clause 1 deals with the setting up of the ombudsman and with the ombudsman’s role, and I commend it to the Committee.

Clause 3

Clause 4

David Drew (Labour, Stroud)

It is a delight to serve under your chairmanship, Mr. O’Hara. I shall not detain the Committee very long, but I should like to ask my hon. Friend the Member for Ynys Môn a question. Subsection (1) says that when an investigation is not pursued by the ombudsman, it will be explained in writing to the complainant and the OFT. Is the implication that that explanation will eventually be made public? I am aware that clause 4 links to clause 10 in terms of reporting requirements, but I am interested to know what happens. To my mind, this should be about transparency. When an investigation is clearly taken forward, the reporting procedures ensure that that will be made known, that there will be a report and that the report will be made public. I want to know that when there is no reason for the ombudsman to take an investigation forward, it will still be published, because that way the general public will have some idea that a complaint was made and that a decision was taken not to pursue it.

We give the responsibility to the ombudsman. None the less, my hon. Friend is right that we need to have transparency. If he remembers, the formula works on the number of complaints and the number of complaints that are upheld. However, if there were a series of complaints on malicious grounds against a particular company, the ombudsman should have that right and responsibility to put into the public domain what they feel necessary.

Clause 6

Nia Griffith (Labour, Llanelli)

It gives me great pleasure to speak on this Bill and I should like to echo the congratulations on its introduction that have already been offered to my hon. Friend the Member for Ynys Môn. We want the clause to provide the Bill with teeth. Any Bill that establishes an ombudsman must give that ombudsman the power to do something. It is not that we want to see massive penalties imposed, but we want people to know that they are there and can be used. The threat needs to be taken seriously and therefore the work of the ombudsman needs to be taken seriously. We do not want people to simply think, “Oh well, so what? If I get taken to the ombudsman it doesn’t really matter because at the end of the day it is pretty meaningless anyway.”

We want to ensure that the clause will make the ombudsman respected and make everyone who is involved in any way, whether in providing evidence, making a complaint or being criticised, judged, adjudicated or possibly even punished by the ombudsman, take the whole process sufficiently seriously to make it a worthwhile exercise. Are there are any further plans afoot to clarify the way that the Secretary of State may go about this and will my hon. Friend make every effort to ensure that the clause is strengthened as much as it can be?

I am grateful to the hon. Member for Worthing, West and my hon. Friend the Member for Llanelli. I did not understand what the hon. Gentleman meant but he made the point earlier when he said that simply highlighting problems would be an embarrassment for the retailers. That is one of the biggest penalties. To have it exposed in the newspapers and in trade journals would be a huge disincentive to any retailer. In later clauses it will become clear that the Secretary of State will lay regulations before the House and that those regulations will have to be agreed by both Houses. That will strengthen the penalties even further where necessary. It is up to the ombudsman. We will give him the freedom to do the job and to carry out the role that we expect of him. There will be the ability to have penalties, but I emphasise that naming and shaming is also a tough penalty.

I agree that naming and shaming is most important. Nobody wants it emblazoned across the six o’clock news that unfair practices have taken place. However, on fines, none of us knows what sort of sums we are talking about at this stage. Where would he envisage the money ending up?

The formula says that it is self-financing, so it would end up in the ombudsman’s department. The OFT would collect the money. I am looking to the Minister to help me here. The point of the Bill is that there will be monetary penalties. That will be paid for in the formula. That formula will be looked at annually. The OFT and the ombudsman would be able to consult if they needed to vary any of the penalties. I do not have a direct answer for the hon. Gentleman but I can assure him that we are trying to ensure that the code and the penalties work. They can be reviewed regularly but they have to be agreed by both Houses.

Clause 10

Clause 12

Edward Timpson (Conservative, Crewe and Nantwich)

It is a pleasure to serve under your chairmanship, Mr. O’Hara—I suspect it will be for the first and the last time.

You are not that pessimistic, are you?

I gave the Minister the opportunity and he could not resist taking it.

I want to pick up on two aspects of clause 12. The first relates to subsection (2), which states:

“The aim of the Formula will be the calculation of each retailer’s contribution to the costs of the Ombudsman by reference to the proportion of complaints made and upheld against each retailer.”

“will contribute more to the costs associated with the Ombudsman”.

“The Ombudsman must investigate and determine any complaint or dispute which the Ombudsman thinks should be investigated,”

Clause 12(5) indicates that the OFT must follow the ombudsman’s recommendation on how much retailers should contribute according to the formula for any particular period unless there is good reason to vary it. Will “good reason” be defined more clearly in guidelines? If so, what does the hon. Gentleman believe would be a good reason for varying the recommendation? We must bear in mind the importance of the need for the ombudsman to be independent and for it not to feel that it is being imposed upon by the OFT when making its judgments.

Further to the point made by the hon. Member for Crewe and Nantwich, and in addition to the idea that the formula should reflect the number of complaints and subsequent penalties, I wish to point out that, in my survey of the grocery retailers that fall within the orbit of the grocery supply code of practice and the measure under discussion—in other words, those retailers that the Competition Commission defines as having a turnover of more than £1 billion—Aldi, Waitrose and Marks & Spencer indicated conditional support for the concept of an ombudsman at a relatively early stage. I had discussions with several retailers at various stages and, although some equivocated, it became clear that they wanted a fair system of penalties and rewards, as well as a formula that might also reflect the capacity of a retailer according to its size and turnover.

I am grateful to the hon. Member for Crewe and Nantwich for raising those points. I must say that he has good links with Ynys Môn, while we are on that subject. He made a good point about the number of complaints and issues. Of course, we are following the guidelines and recommendations of the commission’s report and the idea that the provision needs to be varied at a later stage is exactly because it is new and there should be proper guidelines. We need to look at it and let it bed down to see how the formula is working. The formula is set up by the OFT, which is why I do not think that it breaches the independence of the ombudsman. In fact, there needs to be co-operation, which strengthens the argument about the cross-departmental workings of the ombudsman with the OFT. I understand what the hon. Gentleman is saying. I expect there to be strong guidelines once the formula is up and running so that everyone understands it clearly and openly.

The hon. Member for St. Ives raised the fairness of the formula and the ombudsman’s being awash with money. I want to put on record that it is not my intention for the ombudsman to pay himself huge bonuses with any surplus money. Again, that is the reason for varying the formula at a later date. The clause is in the Bill for that purpose. Hopefully, there will not be much at all. That is the intent. If the code works properly, there will be no need for great fines, great moneys and the ombudsman’s being awash with money, but I have explained the reason why the formula needs to be varied at a later stage and why the OFT needs to work with the ombudsman.

Clause 16