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The commission found that when, in the hope of gaining competitive advantage, grocery retailers transfer excessive risks or unexpected costs to their suppliers, the likelihood is a lessening of suppliers' incentives to invest in new capacity, products and production processes.
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The commission concluded that, if left unchecked, this would ultimately have a detrimental effect on consumers because it would lead to lower quality goods, less choice of goods or less product innovation. That is exactly the point that addresses the issues raised by the hon. Members for Shipley and for Christchurch, but I do not think they were listening to it-I can come back to it.

During the investigation the commission received details of 380 concerns from suppliers and supplier associations. Nearly half the concerns related to the transfer of excessive risks or unexpected costs from grocery retailers to suppliers, and one third related to requirements for retrospective payments or other adjustments to previously agreed supply arrangements. These practices were identified despite the existence of the supermarket code of practice, which had been drawn up following the 2000 broad-based investigation into grocery retailing conducted under the Fair Trading Act 1973. That earlier investigation highlighted the existence and operation of a group of practices that operated against the public interest in relation to the behaviour of five grocery retailers towards their suppliers.

At that time, the commission decided that any main party with more than an 8 per cent. share of grocery purchases for resale from its stores is, for the most part, able to control its relationship with suppliers to its own advantage, whereas the smaller multiples are not able to do so to anywhere near the same extent. The commission therefore specified that a grocery retailer with a national share of grocery sales of more than 8 per cent. should be required to comply with the code of practice. The supermarket code of practice was the result.

The original five grocery retailers identified by the commission were Asda, Safeway, Sainsbury's, Somerfield and Tesco. Somerfield was later found to have less than an 8 per cent. share and so did not become a signatory. Safeway was subsequently acquired by Morrisons, which agreed to be bound by the supermarket code as if it were a signatory. The OFT has overseen the operation of the code since its creation. It reviewed the code in 2004 and published an independent audit of retailers' compliance with it in March 2005. In addition to the audit, the OFT called for evidence to cover other aspects of the supply of groceries by grocery retailers that had a negative impact on competition.

The OFT decided in August 2005 not to refer the market to the commission. It reconsidered this decision following an appeal to the Competition Appeal Tribunal lodged by the Association of Convenience Stores, and it decided to make a reference in May 2006. One of the factors that persuaded the OFT to reconsider its decision was the existence of evidence to suggest that buyer power had increased since 2000, and that that power could have a deleterious effect on consumer choice.

When it completed its final report, the commission took evidence from a large number of parties and made a convincing case for the need for an independent body to monitor and enforce the code. However, the commission does not have the power to set up new bodies, and it sought over many months of discussions and consultations to obtain voluntary undertakings from retailers to establish an ombudsman scheme. Unfortunately, it was unsuccessful in that endeavour.

As a result of its inability to reach an agreement with retailers, the commission recommended in August 2009 that the Government take the necessary steps to establish
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an ombudsman with the powers to enforce the code and to levy financial penalties on retailers that fail to comply with it. This chain of events culminated in the commission's market inquiry and subsequent report, which contained the recommendation that is the subject of the debate today.

The commission believes that the code will be much more effective if adherence to it is monitored by an ombudsman who can address the "climate of fear" the existence of which under the previous code of practice many of the suppliers mentioned. The Government have already announced that an ombudsman will be able to accept and investigate anonymous complaints. That is a crucial difference and one that paves the way for far more effective enforcement of the code. The commission has recommended that an ombudsman should be able to accept complaints from parties at every stage along the supply chain, rather than just from those who directly supply the supermarkets. Finally, an ombudsman will be able to investigate recurring complaints against a particular retailer. These important differences between the OFT's current role and the proposed remit of the ombudsman will give the new code real teeth and help to ensure that it is more effective than the one it replaces.

The debate has understandably concentrated on the mistreatment of some suppliers, but I strongly believe we should not lose sight of the fact that grocery retailers are doing a good job overall, as recognised by the Competition Commission in its 2008 report. One instance that has been highlighted is the fact that households are spending less of their income on food thanks to reductions in prices across a wide range of goods. The commission found that between 2000 and 2007, food prices declined in real terms by approximately 8 per cent. That continued a trend that the commission had observed in an earlier investigation, which showed a decline in food prices of 9.4 per cent. I am sure that we are all aware that prices have risen somewhat more recently, but that has been brought about by a number of different supply and demand factors. We also know that an ever-increasing number of consumers use supermarkets because of the convenience, choice and range that they offer. Consumers also benefit from a competitive market that offers good value for money.

Supermarkets are an important source of jobs and investment. Retail accounts for about 10 per cent. of gross domestic product, with groceries making up 50 per cent. of that and providing about 1.5 million jobs. Asda, which the hon. Member for Shipley has mentioned, is a good example. It is based in Leeds and employs tens of thousands of people in the region in its stores, its head office and the cluster of distribution and recycling centres in the Castleford, Pontefract and Doncaster areas. Its parent company, Wal-Mart, which is the largest retailer in the world, has created its international centre of marketing excellence at Asda house in Leeds. That is a tribute to the faith that that major company has in the skills and talent of the people of Yorkshire and the Humber. As the Minister for Yorkshire and the Humber, and as the MP for Doncaster, Central, I am very proud that our region has been chosen as the home of that centre of excellence.

Morrisons, another supermarket chain that has its headquarters in Yorkshire, plans to create 5,000 new retail jobs by the end of the year and will set up a new
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fresh food academy to offer training in retail craft food skills. It also has ambitious plans to increase the number of its staff who take part in its company-wide training scheme to 22,000 by April and to 100,000 by spring next year. Morrisons is believed to have one of the largest retail skills training programmes in the UK. It certainly deserves credit for its efforts to boost the skills of its work force, and I hope that its training targets will serve as an inspiration to other employers.

Tesco also makes a valuable economic contribution. It is one of the region's largest employers, with more than 12,000 staff in more than 100 stores across Yorkshire and the Humber, and it created more than 500 jobs in the region last year in new and extended stores. The Goole distribution centre has a straw-powered combined heat and power plant that can put energy back into the national grid. Next month, construction will start on a new store in Hornsea in east Yorkshire, creating 270 new jobs that will be available through Jobcentre Plus as part of the local employment partnership programme.

Making sure that we have a competitive and diverse retail sector that delivers value for money and promotes consumer choice is an objective that I strongly support. In my capacity as a Minister in the Department for Communities and Local Government, I am the Government's champion for markets. Since taking on that responsibility last year, I have seen how important it is that we do not allow consumer choice in a particular locality to be constrained by the dominance of a select group of large retailers. It is in everyone's interest to make sure that our town centres are vibrant, attractive places to visit and that they offer an interesting mix of large and small retailers. Traditional street markets are an excellent way of drawing shoppers into an area, increasing footfall and benefiting the shops and other businesses nearby. Markets are also a valuable testing ground for entrepreneurs with a good idea but a limited budget. A market stall is a good way of keeping overheads down while trying out new projects and growing a small business. That is why we have taken steps, through our town centre first policy, to promote retail diversity and to prevent local monopolies from developing.

The policy that we have instituted gives local authorities the tools that they need to preserve the character and individuality of town centres across the planning system. We have tried to create the right environment for diversity of retail outlets, and it is important to see today's discussion in the light of that, because the issue is about using a whole range of approaches to shape attractive shopping districts that everyone can enjoy; helping to safeguard the vitality of local communities; and making sure that there is not an over-dominance of one sector.

I welcome a code that has effective enforcement and that helps farmers and other producers to develop their business and contribute to their local economy in the way that I described. The recommendation that led to the commission's code of practice was designed to remedy exactly the kind of problems that smaller suppliers and smaller retail outlets can face. The code of practice strengthens and broadens the existing supermarket code of practice.

The new grocery supply code of practice, which came into force on 4 February this year, applies to all companies that are active in the sector and have an annual retail groceries turnover of £1 billion or more. Retailers such as Waitrose, Iceland, the Co-op and Marks & Spencer
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will all be subject to the provisions in the code for the first time. It introduces independent, binding arbitration for the first time, and makes it clear that retailers may de-list a supplier-in layman's terms, stop trading with them-only for genuine, commercial reasons. A retailer cannot stop trading with a supplier simply because the supplier has complained that the retailer has not kept to the terms of the original agreement. That is very important, as many suppliers told the commission that they were reluctant to use the complaints process in the old code due to their concern that they might be identified, and because of the resulting likelihood of being de-listed by the retailers.

The new code also places the burden of proof on the retailer to demonstrate that where the supplier has complied with requests made, that was achieved voluntarily. It introduces an overarching fair-dealing provision, requiring retailers to act in good faith, and without distinguishing between formal and informal agreements.

In broad terms, the Bill introduced by my hon. Friend the Member for Ynys Môn seeks to enact the Competition Commission's recommendations, establishing an ombudsman to oversee the code that I have just described. As I stated at the outset, the Government are sympathetic to the Bill's objectives. The Bill seeks to establish the independent grocery market ombudsman; to provide funding for them; and to provide a duty to establish and publish procedures and guidelines for undertaking their work.

The Bill would also give the ombudsman responsibility for investigating and adjudicating on alleged breaches of the code, and grants powers to gather information, impose monetary penalties, award costs, and enforce monetary penalties and costs orders. In addition, it would require the ombudsman to give reasons for decisions. It would also provide for appeals against decisions and for the publication of reports on all complaints, as well as for an annual report on the discharge of its functions.

I shall be clear with the House about what we said in July 2008, when we set out our formal response to the Competition Commission's report. I quote:

The Government are also on record, in a reply to the hon. Member for St. Ives, as committing themselves to carrying out a full consultation before deciding on the way forward. I know that the hon. Gentleman met my ministerial colleague with responsibility for competition with a delegation from the Grocery Market Action Group, which he chairs.

The Government have listened to all sides of the argument relating to the introduction of a groceries ombudsman. The issue is not straightforward. There are many aspects that need to be carefully weighed up, but we have taken it very seriously. After careful consideration, the Government have recognised that
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there is a legitimate need for the grocery supply code of practice to be independently monitored and enforced. At the same time as ensuring effective enforcement of the code, we are keen to preserve flexibility in commercial negotiations between suppliers and retailers over prices and other commercial elements of the supply agreement.

We are determined not to place any unnecessary costs on business, particularly in a period of economic difficulty. That is one of the reasons why we are consulting on the scope, scale and responsibilities of the new ombudsman. We want to make sure that we get this right. The Competition Commission inquiry raised a number of complex and important issues for the groceries market, consumers and the wider economy. We are seeking views on the following issues: what powers the body monitoring and enforcing compliance with the code should have, in addition to being able to hear anonymous complaints; which existing bodies might assume these responsibilities; how the body should be funded; what the access arrangements should be for the new body; whether a sanctions regime should be introduced; and how might it operate alongside an appeals mechanism.

The consultation exercise is due to close on 30 April, and we hope to receive a large number of responses, encompassing as broad a spectrum of views as possible. No doubt many hon. Members in the Chamber will wish to respond to the consultation in as much detail as they have spoken this morning. I am sure that my hon. Friend the Member for Ynys Môn will be delighted to know that we have produced a Welsh language version of the consultation, which was published on 5 February. We want to ensure that the views expressed by respondents to the consultation are adequately reflected in the legislation that brings the ombudsman into being.

Because of the pressure and the hard work that many of my hon. Friends have put into ensuring that the Government are fully cognisant of all the important issues at stake, and because of the support from Members in other parts of the House, we support the principles of the Bill. I pay tribute to my hon. Friend the Member for Ynys Môn for all the work that he has done in introducing the Bill. We may need to table amendments to the Bill at a later date. However, the principles that he has encapsulated in it are exactly the right ones.

The debate has been very thorough, and some excellent points have been made, particularly by Labour Members. The principles in the Bill are a sound basis on which to proceed, and the Government are therefore content for it to go forward into Committee.

1 pm

Albert Owen: I shall briefly respond to what, as my right hon. Friend the Minister said, has been an excellent and, in many ways, measured debate. She was right to spell out the detail of the Competition Commission's findings, and I too support its work. It has done an awful lot of work over a long period, and that is to be welcomed.

I shall briefly make a couple of important points. The hon. Members for St. Ives (Andrew George) and for Weston-super-Mare (John Penrose) were clear that the fundamental point of this Bill is fair dealing, not price setting, and I too make that clear. The Bill is in the interest of supermarkets, as the hon. Member for St. Ives
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said, and I believe that by embracing the ombudsman, they will have a charter to look to for the future. That is important.

My hon. Friend the Member for Stroud (Mr. Drew) rightly said that he, as a Co-operative party member, needs to lobby the co-operative movement harder, because, importantly, all the mutuals are now trying to break ranks and get on board with the ombudsman. It will not be long before the big four supermarkets come along with them.

The hon. Member for Christchurch (Mr. Chope) made a brief-by his standards-12-minute contribution. I did not agree with much of what he said, although he made a good attack on the common agricultural policy and Europe. Interestingly, he said that the consensus in the House was not good for legislation, but I think that on this occasion the consensus among the Opposition and Government Front Benchers is very welcome.

My hon. Friend the Member for Llanelli (Nia Griffith) is a champion of consumers and suppliers not just in her constituency, but in Wales, and a great supporter of farmers and, in particular, dairy farmers. The hon. Member for Weston-super-Mare is right-and I am happy to say it-that the Bill needs a little tweaking in Committee. We cannot include everything, but in Committee we will have to look at the issue of the OFT and where the ombudsman is housed. The safeguards that he asked for, however, can be added in Committee.

The hon. Member for Shipley (Philip Davies) seemed to say that just because he has worked in the industry, nobody else understands it, and that was disappointing. I did not boast about this at the beginning of the debate, but I have spent more years in retail than he has. We do not have to be experts on everything, however, because in this House we are generalists. We can understand what is going on; we can understand what is going on in the lives of our constituents; and we are here to be champions for them. I repeat: the Bill is not anti-supermarket; it is pro-suppliers and pro-consumers.

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Question put, That the Bill be now read a Second time.

The House divided: Ayes 44, Noes 0.
Division No. 100]
[1.3 pm


Bottomley, Peter
Brown, Lyn
Burt, Alistair
Cairns, David
Campbell, rh Sir Menzies
Chapman, Ben
Corbyn, Jeremy
Dismore, Mr. Andrew
Drew, Mr. David
Evans, Mr. Nigel
Follett, Barbara
George, Andrew
Gerrard, Mr. Neil
Gove, Michael
Herbert, Nick
Hillier, Meg
Howarth, rh Mr. George
Johnson, Ms Diana R.
Jones, Helen
Jones, Mr. Kevan
Kaufman, rh Sir Gerald
Keetch, Mr. Paul
Khan, rh Mr. Sadiq
Kirkbride, Miss Julie
Mackinlay, Andrew
MacShane, rh Mr. Denis
Mates, rh Mr. Michael
McCarthy, Kerry
McCarthy-Fry, Sarah
Merron, Gillian
O'Hara, Mr. Edward
Owen, Albert
Pearson, Ian
Penning, Mike
Penrose, John
Pound, Stephen
Rifkind, rh Sir Malcolm
Smith, rh Angela E. (Basildon)
Steen, Mr. Anthony
Taylor, Ms Dari
Taylor, Matthew
Waterson, Mr. Nigel
Williams, Mark
Winterton, rh Ms Rosie
Tellers for the Ayes:

Nia Griffith and
Mr. Roger Williams

Tellers for the Noes:

Mr. Christopher Chope and
Philip Davies
Question accordingly agreed to.
Bill read a second time.

Bill to stand committed to a Public Bill Committee (Standing Order No. 63).

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