Competition authority admits failure to act over illegal schemes

21 January, 2015

The Competition and Markets Authority has admitted to MPs it failed to investigate councils it knew were breaking competition law and could be putting retailers at risk of significant fines and possible imprisonment.

Senior MPs called the CMA to give evidence about Reducing the Strength schemes at the House of Lords yesterday in response to Off Licence News’ campaign into the controversial schemes.

The initiatives, which have been introduced by around 100 councils since 2012, ban retailers from selling certain brands or products above a given strength, typically from 5% and above.

The evidence session was lead by a number of high profile politicians including chair Andrew Griffiths, MP for Burton upon Trent; John Healey MP, former pubs minister and Treasury minister under Labour; Gerry Sutcliffe MP, another former pubs minister; Lord Kennedy of Southwark; and Anne McIntosh MP, chair of the Environment, Food & Rural Affairs Committee.

Griffiths said: “This is an ongoing issue that has been affecting retailers and producers and licensing authorities.

“There are clearly breaches of competition law going on, based on the evidence we have heard. The question for you is how long is the CMA going to continue to allow those breaches to continue before you take some action?”

Dan Moore, director of competition and markets at the CMA, admitted there was “undoubtedly” a breach of competition law in cases where councils, including Hounslow, held meetings where retailers agreed to sign up as a group or visited shops individually and told them about competitors' intentions to join the schemes.

He said: “If retailers are talking in a room about it [sharing future commercial intentions] then it gives rise to significant competition law risk. If there is a co-ordinated withdrawal of a particular product there is a competition law risk.

“If you put pressure on a licensee by saying ‘you have to do this [join a Reducing the Strength scheme] because everybody else is, if they are using the intention of a store’s competitors and sharing those then you have considerable competition law risk.”

Off Licence News has amassed a raft of evidence from across the country, which was presented at yesterday’s hearing, demonstrating authorities using both techniques to get retailers involved.

The dossier included links to councils’ own blogs announcing meetings and publicity shots which had appeared in local papers showing retailers signing up at these group sessions. It also featured case studies from Off Licence News’ readers saying they felt intimidated, were being subjected to “indirect threats” by local licensing officers and were told about competitors' retail strategies

Despite admitting councils were breaking the law, Moore said the CMA was under-resourced to investigate while it focused on competition cases in other industries, including banking and energy.

He said: “We have to look across the whole UK economy and look at where to divide our resources. Enforcement is resource intensive and we have a prioritisation approach where we take on the issues that affect consumers the most.”

Competition lawyer Martin Rees said retailers were at considerable risk of breaking competition law, which carries a penalty of up to 10% of a retailer’s turnover or as much as five years imprisonment.

He said: “In Hounslow the local businesses got together with the local authorities at a conference centre and they agreed to amend the terms of their licenses to stop selling beer and cider over 6% abv. That’s a collective boycott. It’s a very serious infringement of competition law. There is no defence.

“I would feel very sorry for the licensees concerned if there are fines. The CMA has not opened an investigation into these schemes.”

He added: “Limiting supply [of a product] is just as problematic as price fixing.

“I would advise retailers not to go anywhere near this. Agreeing to anything puts you in the frame. You should say: ‘It makes me anti-competitive. I don’t want to hear about that. It’s putting me at risk. Go away and I will continue doing my business as usual’.”

The CMA agreed to Griffith’s call for it to review the guidance it gave councils last December, in conjunction with the Local Government Association, to help them stay within the law.

But Griffiths said the CMA was not doing enough to uphold its responsibility to ensure competition law is not broken.

He said: “I am not reassured by the guidance that’s been given to retailers up and down the country that there isn’t a competition problem with these schemes.”

Hardish Purewal, head of licensing at Tesco and chair of the industry’s Retail Alcohol Standards Group, said: “There is a real misunderstanding around competition law over Reducing the Strength. We are accused of hiding behind competition law, but there are serious consequences if we enter into these agreements. We will be told who has agreed to the scheme to encourage us to sign up. There is a great deal of evidence of sharing of strategy of other retailers.

“We get told one retailer has joined when actually they haven’t. We get told as a big retailer if you join, others will.”

The European Commission is continuing its own investigation into the Reducing the Strength Schemes, following a formal complaint by OLN and a request for it to intervene. 




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