Time to bring on the referee? The Government's proposed Adjudicator for the Groceries Code - Business, Innovation and Skills Committee Contents

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)


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)


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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Prepared 28 July 2011