8 Funding
What the draft Bill provides
for
155. Clause 20 sets out powers for the Adjudicator
to require large retailers to pay a levy to meet the Adjudicator's
expenses, subject to the consent of the Secretary of State. Any
surplus remaining at the end of the relevant financial year must
be refunded to the retailers. As currently drafted, the levy will
be payable by the large retailers in equal shares, but there is
power for the Secretary of State to make an Order requiring them
to pay "different amounts based on criteria broadly intended
to reflect the time and expense that the Adjudicator expects (in
the light of previous experience) to incur in dealing with matters
relating to different retailers."[126]
In other words, the shares can be adjusted to take account of
behaviour.
The impact assessment's estimates
of costs
156. A breakdown of anticipated costs was given by
the Department in response to a request from the Committee.[127]
Essentially, the estimated costs break down to £220,000 set-up
costs, followed by annual costs of £800,000 in administrative
costs and £1,200,000 in costs related to individual investigations
(i.e. an estimated £2m estimated annual costs depending on
the actual costs of investigations).
157. The Impact Assessment estimated that the Adjudicator
was likely to be engaged in something like two arbitrations per
year (one complex and one more simple) and between two and four
investigations per year.[128]
However, the OFT's own response to the 2010 consultation emphasised
the difficulty of making reliable estimates of caseload.[129]
In dissenting from other Competition Commission panel members
on whether the Adjudicator should be established, Professor Lyons
cited concerns about the costs of setting up an independent body
as one of his reasons for opposing the establishment of an Adjudicator.[130]
158. Sainsbury's and the British Retail Consortium
were among those who were concerned about investigation costs
spiralling out of control. Sainsbury's said:
Without guidance on how the Adjudicator will
operate we have no way of knowing how accurate the figures are
in the Regulatory Impact Assessment (RIA) prepared by Government
for the Adjudicator set up and running costs. In any case Government
should seek to set a limit on the budget for the Adjudicator and
retailers should (a) receive an annual report about how their
funds have been used, and (b) be consulted each year about the
size of the retailer levy for the coming year.
We believe that the suggested £120k cost
a year per retailer in the Regulatory Impact Assessment is likely
to be an underestimate given our experience of investigations
by the OFT. Ensuring appropriate thresholds about when and how
the Adjudicator will operate will be crucial in determining final
costs.[131]
159. Sainsbury's provided additional evidence of
the costs it had already incurred in complying with GSCOP which
suggested that this concern was not unfounded.[132]
Given that the £800,000 budget includes staffing costs, we
were worried in this context that the Department had not yet determined
the Adjudicator's salary. [133]
160. On the other hand, the Fairtrade Foundation
referred to the relatively low level of resourcing anticipated
for the Adjudicator compared with the Advertising Standards Authority,
whose running costs it cited as £3.45m compared with industry
turnover of £3.94bn (i.e. approximately 0.1%). In similar
vein the Rural Shops Alliance told us:
There is a danger of this whole area blowing out
of proportion. The costs we are talking about are a tiny fraction
of the profits of the companies involved. For a lot of them, it
is a red herring that they are raising, rather than a real issue.[134]
161. The British Retail Consortium proposed a budget
cap. However, the Competition Commission was concerned with the
potential for abuses of this by the large retailers. The Commission
wanted an annual budget with a contingency fund available in addition,
arguing (at the time that the Adjudicator was to be known as an
Ombudsman):
We consider the existence of a generous contingency
fund to be important for the effectiveness of the Ombudsman. Without
this, retailers may attempt to exhaust the Ombudsman's budget
in the knowledge that it would be unable to function effective[ly]
once this had been achieved.[135]
162. The Minister reminded us that the Secretary
of State has to sign off on the Adjudicator's overall budget,
which amounts to a cap.[136]
163. We have concerns that the Impact Assessment
may not reflect the costs in any realistic manner. When it brings
forward a Bill, the Department will need to demonstrate that its
assessment of costs is sufficiently evidence-based to stand up
to scrutiny.
164. Ultimately, if the Adjudicator's office succeeds
in creating a culture of greater compliance with the GSCOP, its
value might be largely in deterrence rather than in active investigation.
In that case, we would expect to see the Adjudicator's funding
being appropriately pared back, possibly to part-time rather than
a full-time role, with a small back office providing supporting
functions.
The levy model
165. On the proposed flat-rate levy, the Co-op commented
that while the flat rate was in its view unfair, it recognised
that "at least initially it is a simple and transparent funding
option."[137]
In the longer term the Co-op preferred a levy based system which
reflected the time spent by the Adjudicator in dealing with each
retailer in each year.
166. By contrast, both Asda and Waitrose wanted the
funding model redesigned from the start. Asda said:
If the costs of investigations are spread across
all retailers (as part of the Adjudicator running costs) then
this further exposes those retailers that abide by the Code of
Practice to claims against other retailers. […] The proposed
funding model would punish those that adhere to the Code and needs
to be revisited.[138]
167. We agree with the Government's proposed initial,
flat-fee model for the levy, but recommend that the model be refined
as soon as possible toward one that clearly rewards compliance
with the Code.
126 Clause 20(5) Back
127
Responses to questions at Ev 93, Heading 2 Back
128
See Impact Assessment page 2, and paragraph 106 Back
129
Response to Consultation, paragraph 13 Back
130
Paragraph 11.347 of the Report Back
131
Ev 84 Back
132
Ev 85, and see reference to set-up costs in the section on compliance
to date Back
133
Q 339 Back
134
Q 262, Parsons Back
135
Q 340 Back
136
Ibid. Back
137
Ev 72 Back
138
Ev 59 Back
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