Tesco investigated by new regulator

  • Published
A Tesco storeImage source, Getty Images

Tesco is to face another investigation, this time into its relations with suppliers, amid concerns it breached the Groceries Supply Code of Practice.

The Groceries Code Adjudicator (GCA) joins the Serious Fraud Office and the Financial Reporting Council in investigating the supermarket chain.

The adjudicator, Christine Tacon, said she had "reasonable suspicion" that the code had been breached.

She said other supermarkets might also be investigated.

However, the GCA will not be able to fine Tesco for past offences.

In a statement, Business Secretary Vince Cable said: "Last week I secured the final agreement in government to proceed with legislation to enable the regulator to impose hefty fines for those supermarkets found guilty of mistreating suppliers."

These penalties on large retailers could total up to 1% of their annual UK turnover.

But Ms Tacon told the BBC that despite this legislation, she could not force Tesco to pay a penalty, because the offences would have been committed before she was given the power to impose fines.

Image source, Christine Tacon

Christine Tacon, groceries code adjudicator

  • Named by the government as the first supermarket ombudsman in January 2013
  • The role grants the power to fine misbehaving supermarkets
  • The post was recommended by the Competition Commission in 2008 to settle disputes between grocers
  • Makes sure supermarkets follow the groceries supply code of practice
  • Ran the Co-operative's farming unit for 11 years

The GCA will look into Tesco's profits and delays in payments to suppliers and the investigation is expected to take up to nine months.

Mr Cable said: "This is an historic day for the groceries code adjudicator and shows we have created a regulator that has real teeth.

I have also agreed an increase of almost 40% in the adjudicator's funding for the coming year, so that it can carry out more of its important work.

Now that a formal investigation has been launched, I would encourage anyone with any evidence of wrongdoing to come forward and to be confident of being able to do so confidentially, as their anonymity will be protected by law."

Ms Tacon said: "This is the first investigation I have launched and it is a significant step for the GCA.

"I have applied the GCA published prioritisation principles to each of the practices under consideration and have evidence that they were not isolated incidents, each involving a number of suppliers and significant sums of money."

Analysis: Kamal Ahmed, business editor

One frustration Christine Tacon will be feeling this morning is over her inability to fine Tesco - or any other supermarket for that matter - if she finds that supplier regulations have been breached in the past.

As Panorama revealed last month, she first applied for powers to fine supermarkets up to 1% of UK revenues in December 2013. In Tesco's case, that would mean a figure well north of £400m.

There was then a delay of over a year before the government finally acted to grant those powers last month - two weeks after the BBC revealed the delay.

Vince Cable blamed inertia in the Treasury for the snail's pace approach.

Ms Tacon cannot use her fining powers retrospectively, so is left with "legally binding recommendations" and naming and shaming in her arsenal of sanctions against Tesco if wrongdoing is found.

Ms Tacon has called for evidence to be submitted by 3 April.

A Tesco spokesperson said: "We have worked closely with the office of the adjudicator since its creation to put in place strong compliance processes.

"An internal review we carried out and shared with the GCA identified some areas of concern.

"We have taken action to strengthen compliance and, as we have announced, we are changing the way we work with suppliers."

Clive Black, an analyst at Shore Capital stockbrokers, told the BBC that the GCA investigation "feels very much like self-justification by an organisation that has talked much but not actually done anything of note in practical terms to our minds".

Chris Brook-Carter, editor in chief at Retail Week said: "This is not great news in terms of [Tesco's] reputation, but that reputation took such a dent last year."

He added: "I'm not sure that even if they are found guilty it is going to put them in much worse a position at the moment."

Analysis: Mark Broad, business producer

Despite being set up more than 18 months ago the Groceries Code Adjudicator still does not have the power to fine retailers that break the code.

A Whitehall blockage has delayed the necessary legislation, meaning that if Tesco is found guilty the punishment could be as little as issuing an apology in the national press.

If the legislation had been passed and a supermarket was found guilty, it could be facing multi-million-pound fines.

Unlike other industry regulators, the GCA is a modest organisation - it has just five staff.

The head of the organisation, Christine Tacon, works a three-day week.

What's more, many supermarket suppliers say they fear going to the GCA to complain as they depend on the major retailers for their survival.

The GCA hardly sounds like a regulator with teeth.