Competition experts on Thursday poured scorn on the Office of Fair Trading’s official explanation for its U-turn on supermarkets.
Privately, many lawyers said the decision raised questions about the OFT’s competence to carry out the role it has been given.
Within the space of six months, the OFT has come to two conflicting conclusions on the question of whether the big four supermarkets should be referred to the Competition Commission. On the face of it, the analysis underpinning one of these reports must have been flawed.
John Fingleton, the OFT chief executive appointed last October, told a press conference the policy change sprang from the competition body using “new powers” to collect more evidence on the sector. “We are not saying there has been a dramatic revelation in the past eight months but we are saying there has been a dramatic increase in what we know about the market because of our new powers,” he said.
According to Chris Jenkins, who led the OFT research: “The evidence was always there. We have only just discovered it.”
But lawyers pointed out that the OFT has had these “new” evidence-gathering powers since 2003, when the Enterprise Act came into force. There was nothing to prevent the competition body gathering more information on supermarkets when it reviewed the sector last year.
Although the OFT denies it strongly, it has been suggested that the competition watchdog may have been influenced by the vociferous criticism that greeted last year’s decision. An alliance of consumers, farmers, environmental interest groups and politicians accused the watchdog of kowtowing to “Tescopoly”: the might of the big supermarkets.
The Association of Convenience Stores challenged the OFT’s decision in the Competition Appeal Tribunal. Under a new chief executive and chairman, the OFT admitted its previous report had been based on “insufficient reasoning” and agreed to take a fresh look at the sector, to see whether a referral to the Competition Commission was warranted.
Mr Fingleton did not criticise Sir John Vickers, his predecessor, on Thursday. But he told the Financial Times the OFT had taken only a “quick look” at the supermarkets’ impact on competition last year, reserving most of its efforts for examining how a code of practice governing relations with suppliers was working.
The OFT head conceded that “maybe” the watchdog should have scrutinised the market more thoroughly last year. But he said: “I don’t feel alarmed about that. We’ve done a good job at gathering new evidence [this time].”
This apparent confidence in the OFT’s record is not shared by its critics.
In January, the public accounts select committee of MPs lambasted the “meek” OFT, citing a National Audit Office report that concluded the watchdog’s cases were too protracted, it was too secretive and had too few well qualified staff.
Greg Clark, a Conservative member of the committee, said it was concerned about the OFT’s “sluggishness” and whether it was using its powers effectively.
Competition lawyers echo these concerns, pointing to the strain placed on the OFT’s resources by the tougher competition regime brought in by the Labour government. This significantly beefed up the OFT’s powers to investigate cartels and other abuses, while shifting the onus for merger decisions from ministers onto the competition authorities.
New rights of appeal against those authorities – allowed to any interested party in relation to mergers and sector referrals – have opened the OFT up to far greater judicial scrutiny than the old regime, when the theoretical right to seek judicial review was seldom exercised. The watchdog appears to be responding to this pressure with ever greater demands for information.
“The processes by which the OFT reaches its decisions have become much more demanding, both from its perspective and from that of the companies affected,” said Mark Jones, a partner at Norton Rose, the law firm.
On Thursday some lawyers, speaking on condition of anonymity, said the OFT was struggling to cope with the demands placed on it by the competition regime.
Others said it was too early to reach a fair judgment. James Quinney, a competition partner at Herbert Smith, the law firm, said: “Even though the competition regime has been in place for a while, I think the competition authorities are still feeling their way a little bit.”
