Possible regulation of supermarkets, a clampdown on smoking in public places and the flip-flop over the OFR all add up to the question over the role of the state in regulating our everyday lives.
Briefing comment
The heavy hand of the state is now hovering over the supermarkets. Just four months after the OFT decided against referring the sector to the competition authorities, supermarkets again face the prospect of regulation. The news came after the All Parliamentary Small Shops Group introduced the rather radical idea of a retail regulator. The supermarkets are dead against this, and probably for good reason. Regulation usually implies a role for setting prices and determining returns on capital. Although the biggest supermarket, Tesco, has carved out a third of the market, price competition has served all of us well by keeping prices down.
All this comes down to the role of government in society. Few disagree that the electricity, water and train industries – companies that touch our everyday lives – should be regulated, so why not supermarkets? Even those who do not shop in supermarkets find their lives affected by the social and environmental impacts of one of the fastest growing sectors in the UK (think of the environmental cost of having your exotic fruit and vegetables flown in from halfway round the world). And as we have just seen, the leisure industry has just had one of the biggest regulatory changes imposed on it for the sake of public health after MPs voted overwhelmingly for a ban on smoking in public places. Although supermarkets feel they will suffer from regulatory limbo over the next two years while the Competition Commission investigates, prospects of a regulator must be very slim. High street banks faced a similar prospect in 2000 after the Cruickshank report recommended more regulation.
But banks managed to avoid more regulation (after intensive lobbying) and were virtually shamed into providing better services.
The best-case scenario for all would come if the supermarkets were cajoled into improving their impacts, by properly engaging with campaigners, local communities and small shopkeepers and fully embracing the issues thrown up by their relentless expansion. The same could perhaps be said for business across the board, especially in relation to their non-financial reporting requirements. Political shenanigans of the OFR aside, surely the best way to avoid heavy-handed regulation is (at the danger of repeating ourselves), investor and wider stakeholder demands that drive voluntary action.
Related news
Supermarkets, superpowers
The UK’s biggest four supermarkets – Tesco, J Sainsbury, Wal-Mart’s Asda and Wm Morrison – could face curbs on their expansion after consumer watchdog the Office of Fair Trading said on March 9 it would refer the grocery sector to the Competition Commission for a full investigation. The news of the sector’s third referral to the commission in six years came after a cross-party group of MPs said in February that the takeover of small independent shops by large supermarket groups should be banned until the government has created a regulator to police the retail sector. The big four supermarkets control nearly three-quarters of the grocery sector, with Tesco alone accounting for nearly a third.
After its five-month investigation, the OFT highlighted several areas of concern, such as the way supermarkets sell nearly 3,000 popular products at below cost price and how they use local price cuts and promotions to put pressure on smaller rivals. The watchdog noted stores’ increased buying-power, which they have used to drive down wholesale prices. The stores’ ‘landbanks’ also came under scrutiny: the supermarkets have acquired hundreds of development sites, which the OFT said has been done merely to prevent rivals opening a store.
The supermarkets responded with a prediction the investigation would conclude that their business practices are good for consumers. Lucy Neville-Rolf, corporate and legal affairs director at Tesco said: “We look forward to the debate and a speedy conclusion, which will confirm the OFT’s overall comment that consumers have benefited from competition between supermarkets”.
The decision to seek a full-scale probe represents a U-turn from last November when the OFT said there were no grounds for a full Competition Commission investigation. The new investigation, which could take up to two years, comes after relentless campaigning by small shopkeepers, farmers, environmental groups and even the Women’s Institute. They have accused the big supermarkets of squeezing suppliers, forcing small shops out of business and undermining local communities. According to think-tank the new economics foundation, a greater proportion of money spent at local shops stays within the local economy. And environmental group Friends of the Earth says that small shops are more compatible with a low carbon economy. Contact OFT 020 7211 8000 www.oft.gov.uk
Smoked out
MPs have voted for a total ban on smoking inside pubs, clubs, restaurants and offices. The ban will come into force in the summer of 2007 and will include pubs and private members clubs, which were previously excluded from the original manifesto commitment. MPs voted by 453 to 125 for pubs to be included in the ban and by 384 to 184 for private members clubs to be included. Smoking will, however, still be allowed in homes and places to be considered as homes such as care homes, prisons and hotel rooms. Ministers also announced a £2,500 fine for establishments that fail to enforce the ban, and a £50 spot fine for individuals who flout the ban. While unions and health campaigners have welcomed the vote, smoking groups argue that the move denies freedom of choice to millions of people. Contact Sophie Coppel, Department of Health 020 7210 5707 www.parliament.uk
Very much obliged
Company directors should have a legal obligation to minimise the damage their businesses cause to local communities and the environment, a coalition of not-for profits has said. CORE, whose members include Amnesty International and Oxfam, is pressing the government to make changes to the Company Law Reform Bill, so that it also includes a legal obligation for companies to report on social and environmental impacts; and legal recourse in UK courts for people overseas harmed by the activities of a UK company.
Meanwhile, Friends of the Earth has accused Conservative peers of trying to water down provisions in the draft legislation that give company directors a legal duty to consider their impacts on communities and the environment. FoE say that the position taken by Conservatives in the House of Lords is at odds with the new line being pursued by the Conservative shadow cabinet “which emphasises environmental protection and greater business responsibility”. Contact Paul Eagle, CORE info@corporate-responsibility.orgwww.corporate-responsibility.org; Friends of the Earth 020 7490 1555 www.foe.co.uk
Flip-flop flap
The UK government has agreed to extend its consultation on corporate reporting rules from February 15 to March 24, following protest by campaign group Friends of the Earth. FoE instigated a legal challenge to the Chancellor of the Exchequer’s decision to abolish the OFR in January this year, charging that Gordon Brown had abolished the OFR without following proper procedures or the government’s own consultation policies. The government has also agreed to pay FoE’s legal costs in an out of court settlement.
While the extended consultation will now allow comments on “social, community, employee and environmental matters”, the DTI told the Financial Times that the government’s agreement to consult on reporting requirements is a procedural issue, to meet objections to the lack of full consultation, and does not mean that the government is considering reintroducing the OFR.
FoE is not the only organisation to protest the abolition of the OFR. Jupiter Asset Management, Henderson Global Investors and the University Superannuation Scheme were among the signatories to a letter to the DTI, calling for the government to clarify reporting requirements, in the absence of an OFR, saying: “It is now more difficult for companies to judge the necessary standard of reporting to meet their statutory obligations”.
The letter asked for the government to clarify the legal position by amending the company law reform bill, and to indicate which provisions of pre-existing OFR guidelines would satisfy the review requirements.
Experts have said that the business reviews required by a European Union directive on accounts modernisation are less likely to be useful to investors as they do not have to contain forward looking commentary. Contact Craig Bennett, FoE 020 7490 1555 www.foe.co.uk
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