Examination of Witnesses (Question Numbers
581-599)
MS SONYA
BRANCH, PROFESSOR
DAVID FOXCROFT
AND MR
ALAN DOWNEY
2 JULY 2009
Q581 Chairman: I welcome you to what
is the fourth session of evidence in our inquiry into alcohol.
Perhaps for the record you would give us your names and current
positions.
Mr Downey: My name is Alan Downey
and I am the head of public sector at KPMG.
Ms Branch: I am Sonya Branch,
Senior Director at the Office of Fair Trading.
Professor Foxcroft: I am David
Foxcroft, a professor at Oxford Brookes University.
Q582 Chairman: Ms Branch, to what
extent does the OFT take into account the European Commission's
judgment that all policies should be evaluated for their impact
on public health?
Ms Branch: I believe you are referring
to article 152 of the EC Treaty. I should clarify upfront that
that is an article applicable to EU policies and activities. We
are an independent government agency that applies UK competition
legislation which is derived from EC treaty provisions. Article
152 does not directly apply to implementation of or the way in
which competition legislation is enforced. It would however be
relevant if, for example, you were looking at government measures
taken on board at national level, but in terms of the specifics
of competition enforcement, article 152 is not directly relevant.
Q583 Chairman: Do you believe that
there are good grounds anyway for looking at public health measures?
Ms Branch: It is important to
go back to the basics of what we do. We have the UK competition
legislation to enforce and we do that with the wider mission to
make markets work well for consumers. In that respect we look
mostly at competition and the economic benefits to consumers.
We are not a regulator and so do not have the luxury of choosing
what rules we apply. We apply the rules that we have the statutory
duty to do. In that remit we have the statutory role to advise
government where its activities, measures or policies may impact
on competition. For example, if there are measures to respond
to concerns about a social good or perceived public policy issues
that need to be addressed and there are detriments to consumers,
markets or competition in general they are at least flagged so
that in the necessary cost benefit analysis and balance can be
carried out by the policymakers detriments to competition are
taken into account.
Q584 Chairman: Where in all this
should the balance be? Look at the promotion of alcohol in supermarkets
at the moment. In one evidence session reference was made to the
alcohol aisle. The promotion at the ends of most alcohol aisles
is for all to see when they go to supermarkets. Somebody will
argue that there is an issue about competition. This is something
you can buy legally, but when we look at some of the offers we
fall over when we walk into supermarkets at the moment clearly
there are potential public health impacts. Who should win this
argument: public health or competition and the consumer's right
to buy at whatever price is on offer?
Ms Branch: Clearly, there are
wider social policy issues. At times one hears that the obstacle
is perceived to be competition law, but notably not the OFT itself.
As to competition law it is important to recognise that there
are lots of things that industry could do. For example, each of
the grocery retailers could choose to act unilaterally to address
those issues. To go back to basics, concerns would arise if you
had an agreement amongst competing firms, say a set of grocery
retailers, on issues relevant to competition such as pricing,
promotions with pricing etc. But there are lots of industry measures
and collaborations in relation to product placement which, if
they did not have an impact on the competitive dynamics in the
market, would be perfectly acceptable. To a certain degree you
could have trade association guidance in principle on product
placement if it did not have an impact on the way in which the
market players were competing. From our perspective we need to
ensure that the commercial independence and uncertainty that needs
to be there amongst competing market players to get efficient,
competitive markets are not removed.
Q585 Dr Stoate: In your written submission
you suggested that minimum prices would have relatively little
impact on demand. Have you seen the Sheffield report and the view
of the Chief Medical Officer that minimum pricing would have a
significant impact? On what do you base your findings?
Ms Branch: There are two points:
first, we were asked specifically to look at the WHO data. We
have not done any of our own—the OFT has carried out no
specific, relevant research. Second, obviously the OFT, as party
to the debate, educates itself to the extent it needs to as to
the various reports. We made some points about the WHO report.
Clearly, our main concern was to flag up wider issues about minimum
pricing. As to the points we have made about minimum pricing,
first it is important to look at how that was achieved. If you
have a set of voluntary agreements amongst competing undertakings,
for example grocery retailers, about minimum pricing you are straight
into UK competition law issues. If it was done by way of government
legislation, which would immediately take you out of the UK competition
regime could give rise to the concerns that I flagged initially,
there would still be wider economic and philosophical issues about
which we would be concerned. Effectively, you risk bringing in
some form of private taxation and the benefits will go to the
retailers and will not necessarily be passed on to consumers.
Q586 Dr Stoate: That is not my concern.
My concern is whether you believe that would have an impact on
demand. The mechanics of it are well beyond the remit of this
Committee.
Ms Branch: That is not my area
of expertise. I have a sufficient overview of the data but it
is not an area in which I would claim to have expertise.
Q587 Dr Stoate: But you have said
in your submission you believe it would have little impact on
demand. All I am asking is from where you get that assumption
and why you believe the Sheffield study has got it wrong.
Ms Branch: I do not think the
Sheffield study has got it wrong; I do not have a particular view
as to the validity of the Sheffield report. I am aware there are
conflicting views and there is no direct evidence of causation
between the two, but price and demand necessarily have correlations
in every market that we look at. I am just not expert enough to
be able to give you a definitive view.
Q588 Dr Stoate: Has the OFT done
any research on the elasticity of demand?
Ms Branch: On alcohol specifically,
no.
Q589 Dr Stoate: There is nothing
you can let us have in the way of any papers or research you have
done?
Ms Branch: No; we have not done
anything specific.
Q590 Dr Taylor: The OFT submission
is not signed by you but by Chris Jenkins.
Ms Branch: Yes; he is our head
of advocacy.
Q591 Dr Taylor: I refer to just one
sentence: "Minimum prices can encourage firms who benefit
from the restrictions to engage in lobbying government or the
relevant regulator to keep the restrictions in place or extend
them." Is that an advantage or disadvantage? What evidence
do you have for that?
Ms Branch: That was a relatively
generic statement. We are talking about the situation where firms
benefit from a measure that has been adopted and are more likely
to take all steps to ensure it remains in place. If one has in
place minimum pricing and retailers get greater margins obviously
their commercial interests particularly in the current climate
are to ensure that minimum pricing stays in place because it will
over time increase their margins. Therefore, they will take steps
to ensure that the provisions stay in place. We were not making
suggestions specific to this industry. Regulatory capture as economic
theory suggests can happen in a number of areas which are regulated
or have regulated pricing.
Q592 Dr Taylor: Where do minimum
prices exist at the moment?
Ms Branch: Not in this sector.
There is no direct correlation that I can think of with minimum
pricing, but if you have a regulated sector with price caps and
so on theoretically there is always a concern that such issues
may come into play.
Q593 Dr Taylor: So, really it is
all theory?
Ms Branch: It was a theoretical,
hypothetical comment not specific to this industry.
Q594 Dr Taylor: Do you meet representatives
of the drinks industry often? How do you avoid being taken over
and captured by them?
Ms Branch: Generally, we have
had interaction with representatives looking for guidance as to
how the UK competition regime applies to voluntary measures that
they may want to put in place. We have had relatively little direct
contact, but where it occurs we try to be constructive and make
reference to our guidance. For example, in the past we have certainly
had contact with Mr Beadles at WSTA and other industry bodies.
Q595 Dr Naysmith: Mr Downey, you
made an evaluation in 2008 of the social responsibility standards
for the production and sale of alcoholic drinks. Can you tell
us a little about how you carried out that study and its main
findings?
Mr Downey: There were two elements
to our research: first, we consulted various stakeholders both
within and outside the industry; second, we observed practices
and behaviour in premises selling and serving alcohol in eight
locations across England. To say a brief word about each element,
not surprisingly the consultation revealed differences of view
between those in the industry and those outside, the industry
generally favouring self-regulation and those outside expressing
concern about the level of awareness of the standards and their
effectiveness. The second element involving our observation of
behaviour revealed a good deal of good practice within the industry
but also some poor practices in a significant minority of licensed
establishments. Our conclusion was that the standards were not
being consistently adopted and applied across the industry and
had little impact. We were not able to establish a link, either
positive or negative, between standards and harm. We went on to
conclude that the standards should be strengthened, enforced more
effectively through local partnerships between the various agencies
and industry with local government taking the lead role.
Q596 Dr Naysmith: How was the study
funded and by whom was it undertaken?
Mr Downey: It was carried out
on behalf of the Home Office who went through a competitive procurement
process to select a firm to carry out the work on its behalf.
Q597 Dr Naysmith: The Wine and Spirits
Trade Association told us that your report found only "very
few examples where premises flouted licensing laws". Is that
a proper conclusion to draw?
Mr Downey: I do not want to get
into semantics too much; it depends on what you mean by "very
few". It was certainly a minority of premises, but it was
a significant minority.
Q598 Dr Naysmith: What transgressions
did the evaluation find and how serious were they in your opinion?
Mr Downey: The two areas on which
our research tended naturally to focus where there was statutory
force behind the provision of standards were: the serving of alcohol
to people who appeared to be under 18 and the serving of alcohol
to those who appeared to be intoxicated. Based on the covert observation
of our research team, there appeared to be a significant number
of breaches in those two types in particular.
Q599 Dr Naysmith: When the pub trade
was before us they told us that a lot depended on the training
of bar staff. Did you find any evidence of that?
Mr Downey: Interestingly, one
of the positive aspects of the research in terms of performance
of the industry was that our researchers rated the behaviour of
staff very highly in almost all cases. We did not, however, find
a high level of awareness of the standards themselves, so clearly
there is a lot of good training going on. What we could not establish
was that it appeared to be related particularly to this set of
standards.
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