Philip Davies: Customers will pay price if we meddle with supermarkets

Supporters of the Ombudsman claim that it will benefit the supplier, the supermarket and the customer, all at the same time. In his book Paradoxes of Power, the late Sir Alfred Sherman, who was an adviser to Margaret Thatcher, warned people against politicians who offer a "painless panacea".

The idea that everyone will benefit from this policy is utterly

ridiculous and those people who suggest this are treating the public as fools. The key question that the Government seem reluctant to answer is how much will this cost the public? The cost of establishing an Ombudsman is estimated to be 5m, but the real cost will be far higher. The only major purpose of having an Ombudsman for its promoters is to transfer more money from supermarkets to suppliers.

The grocery market in this country is worth almost 130bn a year. If an ombudsman was created, for every one per cent increase in suppliers' income from supermarkets, this would mean an extra 1.3bn bill. Who

will pay this cost? The consumer. In the midst of a recession, with people losing their jobs and struggling to get by, this Bill would pass on billions of pounds of costs to British citizens through higher shopping bills.

Because of the volume of products that supermarkets sell across their stores, by definition the overwhelming majority of suppliers are huge multi-national companies which make vast profits and have huge marketing budgets. The Ombudsman would therefore not be helping small farmers and producers, but bolstering the profits of these already enormous companies, at the expense of hard-pressed supermarket

shoppers. What a perverse redistribution of wealth.

Another central argument in favour of establishing an Ombudsman is to stop supermarkets taking advantage of their suppliers. This myth

overlooks one fundamental point – a supermarket does not become successful by selling fresh air. It is essential to the supermarkets that they maintain a good relationship with their suppliers, particularly to guarantee the right amount of stock on the shelves.

Another myth relates to the issue of special offers. An Ombudsman, it is claimed, would stop supermarkets forcing suppliers into promoting special offers. The reality however, having worked for a leading supermarket for12 years before entering Parliament, is very different indeed. Such "buy one get one free" offers are usually inspired not by the supermarkets, but by customers.

In addition, the strengthened and extended Groceries Supply Code of Practice already tightly regulates the relationship between retailers and suppliers. Therefore the establishment of an Ombudsman is actually a solution looking for a problem.

The Office of Fair Trading already provides independent, effective scrutiny of the existing code, whereby suppliers can raise any concerns or grievances.

In fact, when the OFT commissioned research into the original code in 2005, it found no evidence to suggest that disputes between suppliers and supermarkets were having a significant impact on competition in the market. Therefore, establishing an additional body that duplicates the existing role of the OFT is utterly pointless.

Nevertheless, it is not surprising that the Labour Party are in favour of this. It believes that the state knows best, wants to interfere in everything and thinks that a new quango is the answer to everything. In this case, as in so many others before it, the negative consequences of an Ombudsman will be two-fold; increased interference and an increase in prices. Professor Lyons, a professional economist and one of the panel members during the Competition Commission's investigation into supermarkets, objected to the proposal claiming it would be "counter-productive".

He suggested that an Ombudsman may find a role "proactively

representing the interests of suppliers, including global manufacturers and large intermediaries". He even went as far as to state that an independent Ombudsman would be "susceptible to external pressures and regulatory creep".

If proponents of an Ombudsman want to see money transferred from supermarkets to suppliers, they should be honest about the fact that the cost will be borne by the customer. All too often MPs shy away from being open and honest and explaining the full extent of the

consequences of their actions. Is it any wonder that MPs are held in such contempt? Not only would a grocery ombudsman negatively affect our successful supermarket industry, but it would also hit the consumer where it hurts – in the pocket.

Philip Davies is the Conservative MP for Shipley.