HC Deb 16 May 1973 vol 856 cc1601-14

'In section 21 of the Act of 1956, in paragraph (d) of subsection (1), before the word "fair" there shall be inserted the words" in conditions of substantial balance of bargaining power"'.—[Mr. Duffy.]

Brought up, and read the First time.

Mr. A. E. P. Duffy (Sheffield, Attercliffe)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Robert Grant-Ferris)

With this, we are to take new Clause 12—Application to trade associations—standing in the name of the hon. Member for Glasgow, Craigton (Mr. Millan) and the names of his hon. Friends.

Mr. Duffy

I remind the right hon. and learned Gentleman of my interest in this matter and in an organisation specially affected by the Restrictive Trade Practices Act 1956—the National Federation of Retail Newsagents. I have raised this matter before, both in the House and with the right hon. and learned Gentleman's Department. I do so not on the basis of casual interest but on the genuine basis of membership of the federation. But I raise the matter not mainly on behalf of the federation but on behalf of all trade associations, including the Co-operative movement—not merely on behalf of individual traders but also on behalf of small firms, of all small people in business who are unable to combine in face of powerful organisations and especially sources of supply.

It has always been accepted that there are circumstances in which a number of such small firms need to combine in order to deal effectively with a large combine. This is why certain gateways were provided in the 1956 Act. Unfortunately, these gateways have been made nugatory by various court decisions taking a legalistic view of the words used instead of looking at the spirit and intention of the Act.

The problem has been aggravated by the attitude adopted by the registrar, who has not been content merely to bring facts before the court but has adopted a forceful policy. It will be recalled that the gateways contained in Section 21 provide that an agreement may be justified if it is shown that the restriction is required in order to negotiate fair terms for the acquisition of goods from the preponderant supplier of that class of goods. The National Federation of Retail Newsagents has been precluded from ever being able to make effective use of this gateway by decisions of the courts which have tended to fall into three categories.

The first category affects the classification of goods. The term "class of goods" has been interpreted as being so very wide as to include every newspaper or periodical. This ignores the purpose of the Act. Clearly, the gateway was intended to apply to circumstances in which the person requiring to obtain goods could not go elsewhere for them if he was unable to obtain satisfactory terms. In other words, the normal conditions of supply and demand competition were intended to allow bargaining to find its own level at a correct and fair price. In the case of the newspapers, this condition did not apply in that the Sun cannot be substituted by any stretch of imagination by, say, the Financial Times. Yet the courts think that it can. Thus, the purpose of the gateway has been in this instance frustrated.

The second problem arises from the insistence of the courts that the federation's members can never combine in order to negotiate regarding the goods of one manufacturer because they do not acquire the goods directly from the manufacturers. This is true in that newsagents acquire their goods from wholesalers, but it ignores the underlying reality which is that the newspaper manufacturers dictate the terms. The wholesalers may conceivably negotiate on behalf of the retailers, but they have no such interest. They do not wish to negotiate on behalf of the retailers and do not do so.

This leaves retailers with no negotiating voice as the result of the 1956 Act, for the newspaper proprietors flatly refuse even to enter into discussion with them or their representatives. The wholesalers merely wash their hands of the matter, saying that it is not their concern.

I will not go into detail because the right hon. and learned Gentleman knows of the Daily Mirror case. I hope that he will bear in mind what my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) said in Committee—that it was not the outcome of that case that concerned us but rather that it could happen. He argued then that the attitude of the Daily Mirror was to the advantage of the newsagents. That is not our concern. The concern, rather, is that such a position could arise as the result of the Act—a position in which the Daily Mirror could reduce the terms, could in effect dictate them, and in which the agents, when they tried to take combined action, to do what they believed they could do and what they had always done, found that they were unable to do so because of the attitude of the courts.

There is now at this stage no reason to suppose that the situation will alter unless the Act is amended. Thus, the retailers are without any sanction whatever—that is to say, against the manufacturers or against the wholesalers. This is due, in part only, to the practice whereby manufacturers dictate terms. It is also due, I acknowledge, to the system of distribution of newspapers in this country.

I must not go into detail, but the right hon. and learned Gentleman knows what I am talking about. The country is divided between the wholesalers. Every district will have one wholesaler, or at most two. There is no competition between them. A newsagent is entirely at the mercy of the wholesaler—now and then, literally so. That is to say, if he falls out with his wholesaler, he is without supplies. That has happened. The wholesalers do not intrude on each other's territory.

Therefore, a newsagent cannot look to the wholesaler next door for his supplies. It has happened that an agent when deprived of supplies has nevertheless sought them elsewhere but has had to travel a very long way to get them. He could not go next door for them. Therefore, in practice, the retailer cannot obtain alternative supplies. He has no redress in law because the local wholesaler is not a "preponderant supplier". The retailer has no one with whom he can effectively bargain without combining. He can make no compensatory arrangement under the gateway as drafted. Section 21(1)(d) of the 1956 Act has given rise to the third problem. It will be recalled that the Act provides that a restriction may be justified if it can be shown that its exercise is required, "to negotiate fair terms". The courts have held, in applying this section, that it must be shown that terms which have been offered are unfair. This, I submit, is an impossible burden of proof in real life.

8.15 p.m.

In any bargaining position it is extremely unlikely that the terms proposed by either party could be called unfair, though they may be completely unsatisfactory. For example, we could have a situation in which a 1½ per cent. increase is being sought and a 1 per cent. increase is offered. It may be difficult, or impossible, to show that 1½ per cent. is fair but 1 per cent. is unfair to the satisfaction of the court. It is clear that the intention of the gateway was to provide for a parity of bargaining position rather than that the court should concern itself with the actual terms to be negotiated. New Clause 9 is designed to this end.

These problems could be settled fairly and justly without prejudicing the Government's policies by altering the gateway in Section 21(l)(d). At least a start could be made by accepting new Clause 9.

I recognise and understand the Government's reluctance to open these gateways or to add to them for fear that it would make inroads into the 1956 Act. I hope that the Government will equally recognise and understand that the new clause and my general argument are intended purely to rectify matters which have gone wrong in the operation of the gateways in practice. The consequences of not doing so are serious. They amount to a frustration of what was Parliament's original intention, that is, to permit combination to overcome unfairness.

Section 6(7) of the 1956 Act says that where recommendation is made the Act shall apply as if the trade association constitution contained an instruction to all members to comply. New Clause 12 says that a trade association shall have the right to apply to the court for relief where the provision of Section 6(7) would put trade association members at a disadvantage.

I want briefly to offer a couple of illustrations of what I am getting at. A trade association such as, say, the Newsagents Federation, may have an order against it as a result of a group of members agreeing not to handle newspapers, say, at Christmas time. There is agitation on this matter again and again, so this is a live example that I am offering to the House. The effect of the general order applying to all members would mean that the monopoly suppliers can decide, if they wish, to publish newspapers on, say, Good Friday. The retailers are unable to resist collectively, while if they resist as individuals the supplier can deny them supplies for ever more.

This is yet a further instance of the frustration of what was Parliament's original intention, to permit combination in order to overcome unfairness, whether in respect of small traders, small firms, or trade associations such as the National Federation of Retail Newsagents, or the Co-operative movement. My hon. Friends recognised this in the Committee proceedings and I want to pay them tribute. I sincerely hope that the Government will also recognise the seriousness of the position, even at this late stage.

Mr. Millan

I fully support my hon. Friend the Member for Sheffield, Atter-cliffe (Mr. Duffy). He has presented the case so cogently and comprehensively that there is little for me to add. He is especially concerned with newsagents. Most of us look upon the restrictive practices legislation as being essentially for the protection of consumers, of people who are not in a strong bargaining position to combat practices which, comparatively speaking, more powerful individuals and companies might otherwise adopt against them. That is basically what the legislation is about.

It does have some consequences which paradoxically have exactly the opposite effect. These have been graphically described by my hon. Friend. There are cases in which powerful economic interests, in this case the newspaper proprietor and publisher or the newspaper wholesaler, is by this legislation accorded an overwhelming degree of superiority over the small retail newsagent in circumstances in which any action on the part of that newsagent to place himself in a more equal position is frustrated by the legislation. This is highly unsatisfactory. Although it obviously must be technically difficult to rectify it without driving a coach and horses through the whole of the legislation, it is something which the Government must find a way of remedying.

The new clauses would help the position considerably. I cannot see that there can be any objection to new Clause 9 because it seeks to make effective what the original gateway in Section 2l(l)(d) of the 1956 Act was intended to do. It does not introduce any new concept or principle. It seeks simply to define it in a way which makes it effective in practice. We know that, unfortunately, at present the legislation has not proved effective. If the Minister can give me some examples of circumstances in which this subsection has worked effectively, I shall be delighted. I am not aware of any. It certainly has not worked as most of us would like to see it working for the retail newsagents.

New Clause 12 is in a sense in rather wider terms but is basically designed to give some kind of protection to the trade association in the circumstances with which we are dealing at least to argue its case in a way which it does not have open to it at present. If the case is a bad one and cannot be proved, if the complaint of the trade association is invalid, if it is trying to impose restrictive practices which are to the detriment of the consumer, then this new clause will not help because the case will not be accepted by the court. The new clause gives opportunities for the trade association at least to argue its case in a way it is not able to do at the moment.

My hon. Friend has dealt with newsagents but these new clauses are not specifically directed towards one section of the economy. They have a wider application. We have had representations in the last few days by the NFU on exactly the same grounds as those raised by the newsagents. The argument of the farmers is that small fanners are not individually in a position to compete with more powerful economic interests and are prevented by the legislation from banding together in trade associations or co-operatives because such action would mean that they would fall foul of the Restrictive Trade Practices Act.

I am not so familiar with the particular practices which the NFU feels are unfairly prevented by the existing legislation as I am with the particular practices that my hon. Friend the Member for Sheffield, Attercliffe mentioned in respect of retail newsagents, but I find that the arguments of the NFU in the document it has sent us in the last few days are in every respect, in principle and in much of the detail, exactly the same as the arguments my hon. Friend has just put to the House.

During the Committee stage of the Bill the Minister said that for agriculture he could not promise to put anything in this Bill but that there were already provisions in certain agriculture Acts which helped the small farmer in this situation, and he promised that amendments would be introduced into further agricultural legislation. Without knowing what these amendments are or what their effect would be, I am not able to say whether I think they are sensible and reasonable amendments. Obviously, the NFU has no information about what they might be and is extremely apprehensive that they will not meet the kind of case it has been putting to the Minister.

But I see no reason in principle why small farmers should be specially pro-tected through agricultural legislation while other people in exactly similar circumstances in other branches of the economy are not so protected. If there is a case for the small farmer—and I think the NFU puts up a very strong case indeed—it seems to me that that case ought to be met as far as possible within the restrictive trade practices legislation and that the legislation should be drafted in ways which will similarly protect other small business men in exactly the same position. It seems to me to be highly undesirable that the problem should be recognised in one area of the economy and the remedy provided for pieces of legislation which refer specifically to that area alone and do not bring the benefits of the legislation to other small traders who may be in exactly the same position. If the case for the fanners is to some extent accepted by the Government, the case for retail newsagents and other small business men ought to be included and the remedies provided in this Bill.

The two clauses to which my hon. Friend has spoken seem to go a good deal of the way towards providing these remedies without vitiating the general purpose of the restrictive trade practices legislation. That is why I fully support them.

8.30 p.m.

Mr. S. C. Silkin (Dulwich)

I congratulate my hon. Friend the Member for Sheffield, Attercliffe (Mr. Duffy) on the case that he made. I find myself in a slightly delicate position because such knowledge as I have of the particular industry to which he refers arises out of professional knowledge in representing one of the parties. It is always a dangerous thing in such circumstances to take part in a debate. Perhaps it is even more dangerous if, as in this case, one has stepped into the shoes of the noble Lord, the Lord Chancellor, who previously represented them.

I do not intend to deal with the particular case but merely to draw on knowledge I have acquired in relation to the general question. There at least I can say that, if I have spent perhaps two or three weeks on a matter against the registrar, which for all I know will go on almost for ever, I spent 46 days on one case on behalf of the registrar, so the balance is very much on the registrar's side.

The difficulty seems to me to be—and this is where I feel that this legislation shows signs of creaking and breaking down—that the original purpose of the legislation was to do precisely what the wording of the amendment suggests—that is, to try to create conditions in which there is a reasonable balance of bargaining power between those who are dealing with one another in the commercial field. That is a laudable objective.

In a situation where there are a few mammoth suppliers and a large number of small traders, irrespective of whether there is an intermediate stage of wholesalers, inevitably the facts of life dictate that the few mammoth suppliers will be in a powerful position compared with the large number of small traders unless those small traders are able effectively to combine. That is the whole basis of our trade union system. It is exactly why trade unions became necessary.

When we translate that into commercial terms, there may be a reasonable balance in the ordinary course of events without legislation such as the 1956 and the 1968 legislation, or the combines may have it all their own way, or the sheer weight of numbers of the small traders may outbalance the power of a few large combines. I appreciate that the question of balance is extraordinarily difficult. I do not feel that we have solved it. The provisions of the 1956 Act have succeeded in tying the hands of the small trader to an extent that puts him at a disadvantage compared with the large combine. I know that it is difficult to prove these things, and that circumstances vary from one industry to another. Perhaps one should not generalise too much, but I am speaking only of what I have seen.

I have no doubt that the right hon. and learned Gentleman must be sympathetic to the general propositions that I am putting forward. I know him of old, and I know the way his mind works. If we continue in a particular industry with a situation such as I have described, almost inevitably the small trader will come to an end and there will be a greater and greater degree of vertical organisation within that industry.

Some people may say that that is a good thing. It is a question on which my wife and I may differ when we are dealing with the weekend shopping. Is it better to go to the big super store or to the little man around the corner? Many people want the little man around the corner to continue in business, but if the system is driving him gradually out of business, and if that is the consequence of trying to balance the power between the supplier and the retailer, something has gone wrong.

I can understand a Government—I do not say necessarily this one—having the deliberate purpose of driving out the small trader on the ground that the large combine is more efficient. If that is not the purpose, and I do not think it is the purpose, of the 1956 Act or of this Government, then, if the system is not succeeding in keeping the small trader efficiently in business, or looks as though it may not, if one can see into the future and see that his hands are gradually being tied so that he will not be able to operate, then is the time that one ought to start looking at the system again.

It is in that spirit, and that spirit only, that I invite the right hon. and learned Gentleman to give his attention to the problems which I have seen arise, not merely in the industry represented by my hon. Friend but in other similar industries.

Sir G. Howe

The House will be grateful to each of the three hon. Members who have spoken to the amendment for the careful and moderate way in which they have argued what is undoubtedly a difficult case, and one which requires attention.

As the hon. Member for Sheffield, Attercliffe (Mr. Duffy) appreciates—as do both the other hon. Members—this was a matter to which we gave attention in Committee, not only in the debate on this point at the suit of the newsagents' federation but in the other debate that we had on the new clause moved by the hon. Member for Bedford (Mr. Skeet), which is mirrored precisely in an amendment which has not been selected today, which is coupled with the name of my right hon. Friend the Member for Thirsk and Malton (Sir Robin Turton).

This matter obviously gives rise to concern on both sides of the House. It is fair to say that Governments of both parties have found themselves confronted with this argument at different stages and have found it equally difficult to solve.

One ought to say, first, that the registrar, whose function it is to administer this legislation, ought not to be criticised in this context. The hon. Member for Attercliffe referred to him, en passant, in a critical way because he is in the middle of the legislation. The legislation has raised so much anxiety that one perhaps ought to look there, and therefore to us, for the solution of it.

The hon. Member for Glasgow, Craig-ton (Mr. Millan) reminds us of the object of the legislation, which is to produce a machinery for arriving at a balance between the weak and the strong. The hon. and learned Member for Dulwich (Mr. S. C. Silkin) elaborated on that. I am sure he would be the first to acknowledge that we are really dealing with concepts on which it is difficult to arrive at just conclusions, although the courts often have to deal with fairness in some senses. Fairness in these economic balancing contexts is, first of all, difficult for Parliament to formulate in the legislation and difficult for the courts to apply. Certainly there is a common case and a common thread running through not only the newsagents' representations but those of smaller businesses generally.

In Committee we had a debate in the light of the Bolton Report, and in relation to the National Farmers Union problem. The hon. Member mentioned also the Co-op problem, but although the Coop question can arise in this field, to some extent it does raise problems of a different kind, which I have discussed with several of my hon. Friends and with which we are still hoping to be able to deal, although not at this stage.

So there is a common thread here. It may well be—indeed, I think I acknowledged as much in Committee—that we have not got the answers absolutely right, as the hon. and learned Member for Dulwich put it. Certainly I would not wish the House or anybody else to have any doubt about the importance which I attach, and which the Government attach, to the continuing rôle of the independent trader, the individual retailer, and to the value of independence in this as in any other field.

Having said all that, and having acknowledged the reality of the problem, let me say we have looked again at the solution now propounded by the hon. Member for Attercliffe, in the two new clauses to which he has spoken today. New Clause 12 is the less easy to respond to enthusiastically, partly because it is rather wide, as the hon. Member for Craigton, put it, and partly because I fancy that the formulation suggested in subsection (2) is less apt than most for defining a justiciable issue. The concept of would be at a substantial disadvantage in bargaining power is not easy to translate into practical application.

I am not sure that the proposed new Clause 9 very much alters the substance of the test, because the concept of fairness is to be qualified by the phrase in conditions of substantial balance of bargaining power". I am not sure how far it alters the position on the three points canvassed by the hon. Gentleman.

If it does, one fear is that it invites the possibility of substantial loopholes, of enlarging the gateway into something larger than a gateway. The difficulty is that the kind of association to which the gateway, if enlarged, would apply need not be one consisting entirely of small firms. It could itself be one with powerful members, and any attempt to reformulate the balance which might be suitable for a collection of "tinies" as then to be judged to see whether it applies to a collection of tinies, middles and large ones.

Mr. Millan

If it applied to large firms as well, it is unlikely that it would add anything, because in normal circumstances they must already be in a strong bargaining position. However wide it may appear on the surface, this would in fact protect only small traders, which is the object of the clause.

Sir G. Howe

I see the force of the point. Again, this is a matter of balance. One also has to take into account the fact that if one opens the gateway too wide, even a collection of tinies can generate enormous strength and take collective action which could tip the balance artificially.

When we considered this matter in Committee I said that we were willing to re-examine the situation, without implying that we would find it easy to put forward a different answer. We have re-examined it, and we do not think that this proposal represents an alternative answer. The quality of the case has been emphasised by this evening's debate. In other words, the diagnosis has been underlined, but I am not sure that the prescription has been any further clarified. I cannot, therefore, advise the House to accept the clause.

Although the case is to a greater or lesser extent common, and although the representations made on behalf of the NFU have some of the same qualities, they are, as I said in Committee, being considered by my right hon. Friend the Minister of Agriculture, Fisheries and Food. It may be illogical to distinguish them, save that it has been possible to find some solutions there in relation to certain kinds of agricultural co-operation on a more or less tailor-made basis.

Putting that on one side, and bearing in mind what the Bolton Committee said and my opinion on that point in Committee, the newsagents' federation seems to be the spearhead, both forensically and intellectually, of this grievance. If the federation—or, on its behalf, representatives steeped in a combination of legal learning, sense of justice and understanding of the case put forward—wishes to have discussions with any of my officials about this matter between now and the proceedings in another place, and if the federation thinks that it has something which looks like a new shot at a prescription—I know that it discussed this 12 months ago—I should be willing to arrange for such discussions to take place. I do not want to raise high hopes, because everyone who has grappled with this has found it as miasmic as it is attractive.

I cannot commend this set of amendments, but I make that offer to the hon. Member, hoping that he will go on living in the hope, if not the expectation, that a solution may be found to an undoubted problem.

8.45 p.m.

Mr. Duffy

I am obliged to the right hon. and learned Gentleman. I note what he said about the quality of the argument and his judgment that this has contributed to the diagnosis of the problem. I also bear in mind his invitation to the federation to continue to search for an appropriate prescription. I am grateful that he expressed his willingness to await representations between this stage of the Bill and the occasion when the matter is again raised in another place. I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

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