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The Groceries Code was set up in 2009 to address concerns about the commercial relations between the large supermarkets and their direct suppliers, following recommendations from the Competition Commission. The Commission also recommended the establishment of an Adjudicator (at that time called an Ombudsman) to police the Code. In May 2011, the Government published draft legislation to create an Adjudicator, in accordance with manifesto commitments of all three main parties. This Committee agreed to undertake the pre-legislative scrutiny of the Bill, looking at the broad scope of its provisions and the underlying policy issues. The Environment, Food and Rural Affairs Committee also held a one-off evidence session on the draft Bill and wrote to us outlining the conclusions it had reached.
We conclude that there is a need for an Adjudicator, but our report makes a number of recommendations where we believe the draft legislation could be improved.
The Adjudicator is proposed as the principal arbitrator for disputes under the Code and as an investigator of potential Code breaches. The draft Bill allows investigations to be launched based on information from direct and indirect suppliers and publicly available information, and we agree that information from indirect suppliers should be available as a trigger. We conclude that this should be extended to allow investigations to be launched following information from trade associations. We do not, however, recommend that the Adjudicator be given fully proactive investigatory powers.
It is some time since the Competition Commission's principal investigation in this area in 2006-08, and we wanted to explore whether that data could be refreshed without delaying legislation. Ultimately we decided not to recommend any further study. The retailers have made welcome investments in improving compliance but, on balance, we heard sufficient evidence to convince us that an Adjudicator is still needed.
We have recommended making certain provisions of the draft Bill more robust. For instance, we believe that powers to fine should be on the face of the bill, and that the Adjudicator should also be given the power to escalate from a lower to a higher-level penalty if Code breaches continue. However, there will need to be some expectation management around what, and how much, the Adjudicator can do. The Adjudicator will not have powers to regulate prices.
The retailers were concerned about costs, and we note that concern. The Secretary of State should have regard to that when setting the amount of the levy on them to fund the Adjudicators office. It is mainly for that reason that we have recommended a slightly earlier initial review of the Adjudicator's performance than the Government's proposed three to four years. Our hope is that eventually the Adjudicator would succeed through deterrence, thereby minimising costs.
We have undertaken this pre-legislative scrutiny in a truncated timetable in order to meet the Department's ambition to introduce a Bill at the earliest opportunity. We now expect the Government to do so as soon as possible.
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