Conclusions and recommendations
A further review before the Bill comes into force?
1. Although
it is not ideal to proceed with legislation based on evidence
obtained largely in the period 2006-08, there is sufficient additional
recent evidence of continuing problems to support the original
data. We therefore reject the need for an additional review at
this time. (Paragraph 46)
Whether to proceed with the Bill
2. We
welcome the substantial investment made by large retailers to
improve compliance with the Code. We also recognise that supermarkets
in the UK continue to provide a highly competitive offering and
hence substantial benefits to consumers. However, many suppliers
still believe that only the establishment of an Adjudicator will
give them the confidence to air their grievances fully. On the
evidence before us, we conclude that there remains a sufficient
level of concern with compliance to justify the creation of a
statutory Adjudicator. Setting up an Adjudicator might also help
address the concerns we heard about the costs of pursuing legal
action for Code infringement. For those reasons, we believe there
that the Government's proposal to introduce a Bill should be endorsed.
(Paragraph 48)
Arbitrations
3. We
conclude that the provisions in the draft Bill relating to arbitration
and potential conflicts of interest of the Adjudicator are satisfactory
and provide the necessary safeguards. (Paragraph 54)
How the Adjudicator will investigate
4. We
conclude that it is right for the draft Bill to include indirect
suppliers within the scope of those whose information can found
an investigation under the GSCOP. The Adjudicator will need to
put effective filters in place to guard against irrelevant or
spurious claims, but that should be an expected early objective
in any event. (Paragraph 69)
5. On balance, we
believe that there is a good case for amending the Bill at least
to allow information from trade associations representing direct
and indirect suppliers to trigger an investigation and possibly
from whistleblowers who are employees or ex-employees of retailers,
provided such information still clearly relates to an alleged
GSCOP infringement. This could be achieved by extending Clause
4(2) to add: "(c) trade associations; and (d) current or
former employees of large retailers." There is what would
appear to be a suitable definition of trade associations in the
Companies Act 2006. (Paragraph 83)
6. The draft Bill
might usefully be amended to grant the Secretary of State the
power to add additional categories of informant in future, based
on evidence and consultation. (Paragraph 84)
7. We believe that
the need for the Adjudicator to act on clear evidence should be
made transparent on the face of the Bill. We recommend that Clause
4(1) be amended to read: "If the Adjudicator has reasonable
grounds, based on evidence, to suspect that a larger retailer
has broken the Groceries Code, the Adjudicator may carry out an
investigation… (continue as in draft Bill)." (Paragraph
85)
8. We do not believe
that the Adjudicator should be given the power to proactively
initiate investigations without any triggering evidence. That
said, the Bill and/or the Explanatory Notes should make clear
that the Bill's provisions do not prevent the Adjudicator from
making contacts that would otherwise be permissible under the
general law. (Paragraph 89)
9. We agree with the
Environment, Food and Rural Affairs Committee and with the Government
that confidentiality for complainants to the Adjudicator is vital.
However, the Government, the Adjudicator and those reviewing the
performance and operation of the Adjudicator should bear in mind
the potentially large cost to retailers of having to respond to
anonymised complaints. The retailers' concern in this area is
valid and should be taken strongly into account in assessing the
practicality and fairness of the regime put in place by the draft
Bill. (Paragraph 98)
Enforcing decisions
10. We
acknowledge that investigations into categories of product rather
than specific products carry with them the risk of increasing
costs both to the Adjudicator and to the parties. The Adjudicator
will need to find ways of working to seek to minimise such effects
while recognising that some cost might be inevitable. It should
be remembered that investigations by category might not necessarily
be as artificial as they at first appear: bad practice in one
product area might well be reflected in a closely related area.
(Paragraph 102)
11. The arguments
on whether to introduce fines from inception are finely balanced
but we agree with the Committee on Environment, Food and Rural
Affairs that the Competition Commission's recommendation on this
should be adhered to. We therefore recommend that the Government
amend the draft Bill to include fines as a sanction available
to the Adjudicator. This would allow the Adjudicator's effectiveness
to be evaluated on the basis that a full spectrum of remedies
was available from the start. (Paragraph 113)
12. We believe that
the provisions on costs allocations are reasonable, but the fact
that retailers would in certain circumstances be liable for a
substantial share of costs despite being exonerated suggests that
the Adjudicator's guidance should set a demanding evidential threshold
for the launch of an investigation. (Paragraph 116)
13. We are not convinced
that a right of judicial review, restricted as it is to grounds
of illegality, irrationality and procedural impropriety, is an
entirely adequate remedy against a wrong decision of the Adjudicator
leading to a large retailer being named and shamed. We invite
the Government to reconsider its position on this further and
investigate the potential for a speedy and effective appeal mechanism
which would also negate the ability to proceed by judicial review.
(Paragraph 119)
14. We believe that
the Adjudicator should be given the power to escalate penalties
for non-compliance in the event of continuing breach. The Government
should consider ways to achieve this, consistent with there being
appropriate judicial review and/or appeal rights for large retailers.
(Paragraph 126)
Advice and guidance by the Adjudicator
15. The
Adjudicator's guidance will need to take full account of the views
of those who have a stake in making the office successful, fair
and efficient, and reviewing the guidance will be an important
part of the first overall review of the Adjudicator's efficacy.
That should help address the concerns that Parliament will not
have seen the guidance before enactment. (Paragraph 138)
16. Work should commence
now on determining suitable precedents and parameters for guidance,
so that once the Adjudicator is appointed there is minimum delay
in finalising the guidance and opening for business. (Paragraph
139)
Reporting and accountability
17. We
believe that a review after only a year of operation would be
disruptive to the development of the Adjudicator's office. On
the other hand, and given the concerns we express about funding,
we agree with the retailers that three years is too long to leave
before taking a first look at a permanent funding model and at
expenditure—particularly as the draft Bill defines review
periods in a way that could delay first review until nearly four
years after inception. We recommend a first review as soon as
possible after two full years of operation, consistent with annual
review periods ending on 31 March. Thereafter we agree with the
Government's proposals for reviews every three years. (Paragraph
147)
18. We agree with
the Government's proposal for the Adjudicator to be located within
the Office of Fair Trading but as a separate body. However, we
recommend that the draft Bill be amended to allow secondment on
merit from organisations other than just the Department for Business,
Innovation and Skills and the Office of Fair Trading. (Paragraph
154)
Funding
19. 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. (Paragraph 163)
20. 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. (Paragraph 164)
21. 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. (Paragraph
167)
Possible extension of the Code
22. The
evidence we received suggested that it would be premature to extend
the GSCOP to relations other than directly with retailers and
that the GSCOP in its present form, duly enforced and administered
by an Adjudicator, might well bring benefits to other elements
of the supply chain. However, we believe that this area should
be closely monitored as we suspect that large retailers may to
some extent have been taking the blame for the practices of certain
processors and intermediaries. (Paragraph 172)
Should the Adjudicator distinguish between different
sizes of supplier?
23. Although
we are sceptical whether large suppliers will need the protection
of the Adjudicator, we accept that in practical terms it would
be difficult to draw a justifiable distinction between classes
of supplier. Given that many larger suppliers will generally have
the negotiating power to look after themselves, however, we expect
that the Adjudicator will wish to prioritise cases from smaller
suppliers. (Paragraph 176)
Making progress with the Bill
24. This
Bill has been some time coming. In order to push matters forward,
we have, exceptionally, undertaken the pre-legislative scrutiny
stage of the draft Bill in eight weeks rather than the usual twelve,
and we trust that the Government will now proceed with legislation
speedily. (Paragraph 182)
25. We have suggested
a number of areas for amendment to the draft Bill. We expect that
the Government will give due consideration to all our suggestions.
The truncated timetable we have worked to has meant that we were
unable to present all of our recommendations as amendments to
the draft Bill. It would be helpful, if the Department, in its
response to our Report, could provide us with an outline of how
those recommendations could be incorporated into any future legislation.
(Paragraph 183)
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