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Ombudsman must have power to fine supermarkets which breach new suppliers’ code of conduct, says business group

The Forum of Private Business is calling on the Government to give a new supermarket ombudsman the power to fine retailers for mistreating their smaller suppliers, ahead of tomorrow’s scrutiny hearing of the Groceries Code Adjudicator Bill.

Unless members of the Business Innovation and Skills (BIS) Committee recommend that the ombudsman should be able to impose financial penalties, the not-for-profit Forum is warning that any measures could fall flat and leave suppliers unprotected.

Further, the Forum wants the Government to introduce a ‘multiplier fine’ for repeatedly flouting the Groceries Supply Code of Practice.

The organisation is urging MPs on the cross-party committee to push for the additional financial powers for the ‘adjudicator’ as well as the authority for it to make recommendations to retailers and require them to publish information about investigations.

"Mistreatment of smaller suppliers by supermarkets is a constant, pressing problem and awarding the ombudsman powers to impose financial penalties would be more likely to ensure compliance of the code," said the Forum’s Head of Campaigns, Jane Bennett.

"The Forum is urging MPs on the committee to make a difference to struggling smaller suppliers across the UK and give them some proper protection."

She added: "As it stands the Bill does not allow the ombudsman to fine retailers in breach of the Groceries Code but provides for this ‘if the Secretary of State adds a power to do so’.

"We think this power must be a basic essential for the code to be effective and for the adjudicator to have any real teeth. We have to hit supermarkets which flout their responsibilities where it hurts."

The Forum is also concerned that, according to the wording of the Bill, the ombudsman will arbitrate disputes between large retailers and direct suppliers only – which risks leaving subcontractors further along the supply chain open to continued abuse at the hands of supermarkets.

The Forum is recommending that the new ombudsman should be funded by retailers, based on profit rather than turnover as has been suggested – in order that consumers do not end up footing the bill.

In 2008, the Competition Commission’s investigation into the groceries market concluded that, although it is often difficult for small retailers to compete
with large supermarkets, their future was not under threat.

However, the Forum argued that this finding contradicts evidence from the All-Party Parliamentary Small Shops Group, which in 2006 warned that the majority of the UK’s independent retailers could disappear by 2015, based on the then rate of 2,000 shop closures per week.

Despite 76% of Forum members surveyed in 2009 supporting the introduction of a watchdog to oversee the groceries sector, the protection itself has been painfully slow in arriving.

"We are extremely disappointed at how long it has taken for these measures to be introduced," said Ms Bennett.

"It has been 11 years since the Competition Commission first raised concerns about the relationship between large supermarket chains and their suppliers and three years since the Commission recommended the creation of a supermarket code and an adjudicator to enforce it. The ombudsman itself will not be in place until 2013.

"While we welcome Government action to combat the appalling way supermarkets often treat their suppliers, the process of enacting rules to combat the problem has been slow in coming and many small retailers have been lost during that time. Unless these measures are made more robust, it will have been a long wait for nothing."

The BIS Committee will meet tomorrow (Tuesday, 14 June). Topics it will consider include:
The need for the Groceries Code Adjudicator
Compliance with the Groceries Code to date
The specific provisions of the Bill
The functions and powers appropriate for any Code Adjudicator
The appropriate location for the Adjudicator
Enforcement powers, penalties, appeals, and funding
Coverage of indirect suppliers
Powers to investigate anonymous reports
In the same 2009 Forum survey 74% of respondents said that business owners should be guaranteed anonymity when giving evidence to both the Competition Commission and the Office of Fair Trading (OFT).

Under the present proposals groups representing small businesses, such as the Forum, will have the power to refer complaints under the super complaints procedure.

This measure is welcome, due to the fear that many businesses have over revealing their identity when highlighting late payment practices.

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