The Competition Commission's proposal for an ombudsman is flawed, says Kevin Hawkins


In framing a government which is to be administered by men over men," observed Alexander Hamilton, "you must first enable the government to control the governed and then oblige it to control itself." Clearly there is now an emerging political consensus that this country can no longer afford the cost of a nanny state whose interventionist ambitions far exceed its managerial competence. Apart from a long overdue attack on "quangocracy", the coming roll-back should give the cause of better regulation a new lease of life.

A key principle of good regulation is that remedies should be appropriate to the risk posed. Applying this to the Competition Commission's proposed remedies, particularly that of our old friend the ombudsmen, what do we find? As in its two previous reports, the CC concluded that competition in the industry "delivers good outcomes for consumers". Contrary to the familiar claim that suppliers are being put out of business by over-mighty retailers, the CC found "no systematic problem" of suppliers' financial viability. Despite increasing concentration in the intermediate sections of the supply chain, it reported no barriers to entry by small suppliers.

Crucially, while it found no evidence that retailers' buyer power was discouraging product innovation by suppliers, it still insisted this was likely to happen and based its remedies on this assertion. It's interesting to note that the most recent survey of supplier performance in The Grocer reported that variations in firms' propensity to innovate during the recession was driven by internal strategic factors rather than the market power of their customers.

Those who support the idea of an ombudsman have overlooked the practicalities. It is argued that an ombudsman can only work on the basis of anonymity. Yet many suppliers told the CC that they would not complain even if anonymity was assured. Hence the proposal that the ombudsman should investigate "patterns of behaviour". But if such investigations substantiate anonymous tip-offs, the ombudsman is bound to take action against the retailer(s) concerned. The accused must then be informed of the evidence against them and at that point the details will effectively identify the supplier(s) who complained.

Rolling back state control begins with stopping its further extension. This flawed proposal should be dropped.


Kevin Hawkins is an independent retail consultant.