This Bill does not contain any practical proposals to tackle the enormous market power of large multiples nor any effective mechanisms to prevent them from abusing that power. If this legislation is enacted in its current form, it will lead to less choice for Irish consumers, greater consolidation of the market place and, ultimately, fewer Irish food products. The Bill will not provide any safeguards to ensure fair play in the food market and will give the largest retailers a legislative basis on which to squeeze out competitors without fear or sanction. They will be able to use every means at their disposal, including predatory pricing, demands for hello money and the abuse of credit terms or imposition of unfair contract terms on suppliers. If the Minister wants to ensure consumers benefit from cheaper prices, greater choice and competition in retailing, he needs to put real and meaningful controls in place to prevent unfair play in the food sector and to ensure meaningful competition in retailing.
This is an important Bill because, when the Minister decided to remove the 1997 groceries order and to strengthen the Competition Act, he originally intended to push the proposals through the Seanad and the Dáil but was threatened with revolt by the Opposition. The Bill has now passed through the Seanad but, during the debate, the Minister refused to accept any amendments. He reiterated his claim that predatory pricing is already covered by the Competition Act and does not merit further mention. He also maintained that the order is no longer needed. I agree that free trade and competition is important but predatory pricing could easily be incorporated into this legislation without restricting the market.
The seeds of Ireland's booming economy were sown by the rainbow Government and we currently have full employment, a GDP growth of twice the EU average and interest rates at a 50 year low. We are spending more money than ever and people in many areas are experiencing a fantastic quality of life. However, while the phrase "rip-off Republic" is regularly referred to, we have instead a rip-off Government.
We are looking in the wrong place for an explanation for the higher prices in Ireland compared to anywhere else. This week, it was reported that Dublin is one of the most expensive capital cities in Europe. That is one reason for the high cost of doing business here. We need to look at the facts, put aside flawed analyses and hold a serious and balanced debate on why prices in Ireland are higher than elsewhere.
Small businesses are no different from any other consumer group. They too can feel pressure or go under. The reality is that, to survive, small businesses have to put the consumer first because the customer is the bottom line and backbone of any successful company. The boom in the economy was driven by small companies with fewer than ten staff. The definition of SME in this country differs from anywhere else in Europe, yet there is little or no support for service or manufacturing companies with fewer than ten employees. That is a major mistake because large oaks grow from small acorns. The small companies that drove this economy not only work 40-hour weeks but also 40-hour weekends.
A company operating in the trading sector of the economy has no opportunity to increase prices because the market and competitors will not allow it to do so. This is evident in figures which reveal a 12% decrease in factory gate prices and the loss of 38,000 Irish manufacturing jobs since 2002 and is a result of this high cost economy. People can go to Mexico or European countries with lower business costs. The high costs here are driven by the economy and by indirect taxation but the Government has the ability to drive down those costs. Consumers pay higher prices where there is inadequate competition within the regulated services sector. Sectors of the economy which are self-regulated have seen prices rise faster than inflation. This occurs mainly in State monopolies. The entire economy must be subjected to the same level of competition to provide a level playing field.
It is often forgotten that price increases by Irish business do not necessarily mean profit increases. Irish businesses are also vulnerable to cost increases, which are reflected in prices. The reality is that most of the price increases borne by businesses and consumers in Ireland are direct results of Government and public sector utilities. We need to compare like with like. Prices are different in Spain and Portugal because the costs there are lower. Irish wage costs are 134% of the EU average and our VAT rate is 4% higher.
Irish businesses now pay energy costs that are 25% higher than the EU average and 41% higher than those in the UK, including Northern Ireland. These costs are controlled by the Government and ultimately the customer pays. These are the stacked-up costs that affect profitability. Water and waste charges have increased by 31% over the past two years while rents have increased by 22%. Insurance and distribution costs are also way above the EU average. The list goes on.
As someone involved in the retail sector, I do not want protection from my competitors but I want a fair chance to compete. Small retailers do not need different rules or interference in the marketplace but neither do they need the bureaucracy, the stacked-up costs and the excessive regulation. While some regulation is welcome, much of it is not needed. I do not think it is right that some of the larger competitors can avail of a regulatory environment that effectively copperfastens their enormous scale and significant market power.
I have first-hand knowledge of some of the practices that are banned under the groceries order and which the Minister is purporting to outlaw in this legislation. It is time that he and his officials recognised that large retailers are not charitable institutions. They increasingly put pressure on suppliers to extract terms that are often unfair and disproportionate. It is important that the rebates and LTAs are passed on at the end of the year. While I fully agree with the abolition of the 1987 groceries order, it is important that we pay attention to LTAs and the other benefits enjoyed by the large multiples, particularly when we look at the scale of some of them.
The top four multiples in the UK operate in forecourts and small stores and sell newspapers, groceries and much more, but in some small towns in Britain there are no retail outlets. This is not just about the development and retention of small grocery stores but also about retail distribution and the life and soul of towns and villages. This issue is especially important in light of the suburban development throughout this country, with thousands of houses being built every year. In that context it is very important that a local retail culture is promoted and encouraged to avoid traffic congestion such as that which will occur on the M50 with the Ikea development. The new cathedrals of this country are the shopping centres, which are full on Sundays, with people driving 50 or 60 miles to get to them.
When one looks at the level of development throughout this country, one should bear in mind the example of the UK. Small retailers do not want a form of protectionism, but they are concerned with equality of access for customers in small villages and towns. With regard to the provision of comparable services, companies such as Musgraves, BWG Foods and similar groups are well able to compete with the multiples on terms, merchandise and price but they cannot compete with unfairness or predatory pricing.
Some multiples with enormous buying power run a promotional offer in only two stores, even though they have 100 outlets. For the sake of fairness, they should be obliged by law to run such offers in every store for the same period. There should also be no restriction on such offers, where a customer can buy only two products, for example. If a customer wishes to buy ten products, he or she should be allowed to do so. The multiples' practice of allowing only two items per customer on a promotion is predatory pricing. It is a way of attracting customers with lead-in pricing and minimising risk. I am amazed that the Minister has not taken this issue on board. We must remember that the retail space per head of population in Ireland is nine times greater than in the UK.
I am aware of the practice of demanding so-called hello money and of the abuse of credit terms and the devastating impact these can have on cash flow and investment by food companies. I am alarmed that the Minister, in this legislation, is only introducing an equivocal ban on the demanding of hello money and the imposition of unfair contract terms while expressly omitting any provision to deal with the abuse of credit terms. The legislative provisions categorise such unfair practices as misdemeanours, which renders enforcement very difficult.
It is inconceivable that any supplier would initiate legal proceedings against a retailer to seek redress. It would be commercial suicide for any food supplier to sue a retailer, even if the process were more straightforward than that provided for in this Bill. This is why an impartial referee is so important for the effective implementation of the legislation.
Sadly, I do not share the Minister's belief that the Competition Authority can deliver the goods for consumers or act as an arbiter of competition in this sector. When I was Chairman of the Committee of Public Accounts, the Competition Authority appeared before that committee to discuss its work progress. It was a sad, disappointing and uninspiring performance by the authority, which indicated that it had a very low expectation of its work output and a very strange set of investigative priorities. In fact, the authority had done little or no work at that point. There seemed to be an unwillingness to tackle large problems within the economy but a preparedness to go for softer targets. The authority was unable to take on the big guns but could deal with the small fry. The Minister's confidence in the Competition Authority is misplaced. Such confidence should be earned rather than given without question.
I am concerned that the Minister has not made any provision to deal with unfair trading practices by larger companies in the retail grocery sector. The Competition Act does not provide an effective mechanism to deal with such abuses. It requires a finding of dominance at either national or local level, which can be difficult to secure. Without effective controls over abusive behaviour by non-dominant multiples, significant damage will be inflicted on the indigenous retailing sector. Ultimately we will see less competition, employment and investment in the retail sector.
The primary effect of this Bill will be to consolidate the retail grocery trade, to make the big players even bigger, to reduce the choice of retailers and to impact negatively on the food industry. The Minister needs to face up to this before he blindly walks us into more difficulties.
I am concerned about the operation of the provisions of this Bill and also about the fact that it only applies to food and drink and excludes household and personal hygiene products. The groceries order applied to food, alcohol and household necessities, but now a swathe of products formerly covered by the order can be subject to unfair trading practices without recourse to the new protection offered by the legislation. The Bill contains no provision to deal with predatory pricing. The Minister has argued that predatory pricing is adequately dealt with under existing competition law but I dispute that. It is very disappointing that he has not acted on that issue.
The Bill outlaws resale, price maintenance, the demanding of hello money and the imposition of unfair contract terms, but only for goods covered by the legislation and only if it can be shown that these practices reduce competition in the State. In other words, the legislation does not impose an outright ban on such practices. Furthermore, the Bill does not treat engagement in such practices as criminal offences, contrary to every other prohibition within the Competition Act. It effectively treats these practices as misdemeanours that will not attract any criminal sanction. No one will be fined or imprisoned for breaching the provisions of the Bill when it is enacted and that is a major deficit.
The removal of the 1987 groceries order was a good thing. It served the retailing sector effectively but the grocery sector has changed with the huge growth in the economy. The experience in Britain, where the four main players are totally dominant, is that very few retailers are second generation traders. It is important that the Minister realises that the retailing sector in Ireland is not afraid of competition but it wants fair terms by which people can compete. We do not want a monopoly within the State. Up to 70% of the market in Ireland is controlled by three main players and the Minister must strive to increase this number in the coming years. The alternative would be regretted by the small communities that have invested in and been served by economic growth in the retailing sector.
