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Where there's smoke...

Robert Peston | 14:16 UK time, Friday, 25 April 2008

As a passionate anti-smoker, my wife this morning said it would surely have been a good thing if tobacco companies and retailers had been conspiring to keep cigarette prices higher than they would otherwise have been.

Cigarettes on saleI doubt that will be the defence put forward by and , the cigarette manufacturers accused - along with a bunch of retailers - of co-ordinating prices to the detriment of consumers.

What, however, is striking about the against Imps, Gallaher, Tesco, Sainsbury, Asda and Shell's forecourt business, inter alia, is it comes after a great wave of attempts by the competition watchdog to crack down on what it sees as harmful collusive behaviour by British companies.

Only last week it accused g. In December, Asda, Sainsbury and others admitted engaging in anti-competitive practices and in total. And the OFT roughed up British Airways something rotten for talking to Virgin about planned increases in the fuel surcharge on airline tickets.

Given how incredibly hard it is to find enough useable evidence of collusive behaviour even to allow a public statement of suspicion, let alone mount a successful prosecution, the great barrage of cases disclosed recently by the OFT may be indicative of a systemic problem in British industry, viz a tendency to share information in a chummy way to the potential harm of consumers.

That said, the OFT is stressing that those in the frame over tobacco prices may not have broken the law. And in some ways this case is less serious than some because the alleged breaches would all be civil offences, not criminal ones.

What the OFT fears happened was that between 2001 and 2003 there was an illegal dampener on proper price competition in cigarettes because retailers allegedly told manufacturers of their pricing plans and those manufacturers then allegedly conveyed that pricing information to other retailers.

A separate allegation is that there was an understanding between each retailer and each manufacturer from 2000 to 2003 that the price of certain cigarette brands would be linked to those of rival brands.

If true, the impact of both of these devices would have been to maintain prices at levels higher than they would otherwise have been.

But although it's embarrassing for the supermarkets, it is the manufacturers that would incur the heaviest fines, not the retailers (if any are levied).

Those fines would be fixed by reference to sales, up to a maximum of 10%.

What's that in real money? Well the market was worth 拢3bn (that's excluding tax), but double counting is allowed, since both makers and sellers are under investigation. So the maximum possible fine would be 10% of 拢6bn, or 拢600m.

However the OFT's fines have been averaging 6% of turnover - which in this case would translate into 拢360m.

At a time when most businesses are anxious about the outlook for sales and profits, that's quite enough for the manufacturers and retailers to work overtime to prove to the OFT that this is a case of smoke without fire.

Comments

  • Comment number 1.

    Perhaps the reason the OFT is bringing so many cases is down to very poor management at these firms.

    Staff are increasingly expected to do more and more with fewer and fewer staff so it is hardly surprising that staff morale plummets. With many jobs being outsourced or offshored staff who feel aggrieved against or abused by their employers may willingly turn as whistleblowers.

    Also now the ease of following email trails and the difficulty with destroying electronic data or messages it must be easier to prove cases. The days of companies shredding files or burning documents is surely in the past.

    For example, the dissemination of a harmful email or memo to hundreds of staff could be clear evidence of an abuse being widespread or systematic.

    With tens of thousands of jobs likely to go in the City expect lots of willing whistleblowers when many of the cases that come out of the credit crunch wind their way through the courts.

  • Comment number 2.

    > to share information in a chummy way to
    > the potential harm of consumers

    I鈥檓 a Canadian, but I live here, and I always get the impression that, in Britain, it鈥檚 almost as if 鈥渂usiness鈥 thinks it鈥檚 somehow independent of the public it serves! Perhaps it鈥檚 a 鈥渃lass thing鈥, whatever "class" means.

    It's good to see it being stamped out - we don't need cosy little clubs.


  • Comment number 3.

    Though the OFT is impartial, I'm sure the government will hope it levies a large fine to help bring extra revenues into the governments accounts to offset its deficits.
    Hopefully recent action by the OFT will deter and stop other businesses that break competition law. Price rigging hurts taxpayers and consumers in general and it's everyone who picks up the cost of inflated goods and services when businesses conspire to set prices. UK Plc needs to be a place where everyone can do business and be safe that such practices do not happen, and if they do then action will be taken to stop them.

  • Comment number 4.

    Could it be that the OFT is now a revenue-gathering arm of the government? They seem to be slavishly following the government's anti-smoking line in persecuting the tobacco industry, but in this case they seem to be doing it with the object of making even more money for the Treasury.
    As for profiteering from the smoker, surely the Chancellor is the greatest culprit?

  • Comment number 5.


    Where do such fines go? Are they an innovative new taxation product?

  • Comment number 6.

    The people who have been harmed by the actions get nothing back in reality.

    I would like to see the directors of firms involved been sacked and unable to manage a company again i would then feel as though at least something other than lip service was being paid to what is endemic among these types of companies but very difficult to prove.

    An example must be set when people are caught.

    Nice little earner for the chancellor though in these difficult times.

  • Comment number 7.

    The kettle calling the pot black springs to mind the government has taken billions from smokers. It has also taken tax from the tobacco firms Do they now want them to reduce there prices so that a few more kids can afford to smoke them.The term in the interest of smokers is a laugh after years of trying to stop people smoking and telling it was in there interest.

  • Comment number 8.

    It amazes me that they would need to actively collude. The supermarkets are always telling us how they constantly check their prices so they probably know how much each is charging for everything anyway.

    With all the worried bank staff, estate agents and homeowners about perhaps the next boom will be in cigarette sales, time to buy shares in tobacco companies ?




  • Comment number 9.

    Whether the big boys collude ( or competitive price parity) isn't so much of an issue with me . What bothers me more is the mark up. Recently a respected popular weekly scientific publication showed the costs , for example , of coffee on the supermarket shelf. After all the growers, shippers and processing costs had been met the shelf price was about ten times that of the product that left the factory in this country . It's the justification for that sort of price hike - plus any other of that magnitude - I would like to see investigated , specially when one large chain talked of 拢2.8billion not long ago.

  • Comment number 10.

    Distortion of this nature is a concern and I think this is another impediment to a free market. We already have enough barriers to capitalism with the likes of Darling and Brown messing around with the public finances, without the private sector imposing unecessary taxes on consumers as well.

  • Comment number 11.

    I am a smoker and have been for many years if the companies listed are fined am I going to get money back. I DOUBT it very much as my proof has gone up in smoke unlike people who may get there bank charges back

  • Comment number 12.

    Why has the Office of Fair trading picked this moment to bring these allegations ?

    Have the OFT been asleep for the last decade ?

    Or is there some special reason why now is the moment to unleash their accusations ?

    All sounds very political to me.

    Again, it's worth noting that most of the Shares in Tobacco companies (just like the Banks) are owned by our Pension Funds.

    Who else ?

    Lets all shoot ourselves in the foot again.

    When we come to collect our Pensions in years to come we'll all end up the poorer for it.

    Except maybe for the new Lord Peston, oops he's not inherited his title yet !

  • Comment number 13.

    Robert,

    Just a new source of easy revenue for a desparate government that is broke.

  • Comment number 14.

    Perhaps the sudden flurry of activity is to divert attention from the banking cartel?

    If the tobacco companies are fined for fixing the market then they'll get fined 拢370M.

    The banks on the other hand, keep the profits and the taxpayer gets "fined" instead.


    A 拢100B fine for the taxpayer to buy a bankrupt businesses, Northern Rock.

    And another 拢50B fine for the taxpayer for the bad business practices of the banks.

    As the recent court case shows the OFT had to go to court to see if it was ALLOWED to rule on merely part of bank business practices.

  • Comment number 15.

    I agree with geoffthereff and other comments, that this is politically driven.

    Isn't itnteresting that over the last 18minths or so, all the regulating departments that this govenment have created since in government to ensure competion within their domain, that have laid dormant for years and done NOTHING at all, have suddenly surfaced and are flexing their muscles. For instance, BA being find humdreds of millions for supposedly fuel price fixing, OFGEM recently fined national grid 拢40million for some petty wording in a contract for meters that didnt allow competion, and now the OFT wittering on about price fixing on ciggerettes. This government is broke and is desperate for money. I think the Prime minster has kicked the backsides of all the 'OFwhatever' departments and told all of them to find something, anything, so that companies can be fined. Because where does all the money go? To the treasury!

  • Comment number 16.

    Ah, the Pensioners of the future, being made to pay for the whims of the present.

    Every Fine levied will reduce the value of the Shareholdings held by UK Pension Funds.

    Of course helping the Banks helps UK Pension Funds (a bit).

    So maybe it evens out ?

    But I doubt it, in the end the Ordinary Pensioner will no doubt be worse off,
    again.

    Their does seem to be a lack of respect endemic in our Culture towards our older Citizens.

    The lowest State Pension in Europe, and our Pension Funds,being directly and indirectly raided, for every Soundbite and popularist cause.

    And the Media likes to make out that everyone wants to work for the rest of their lives !

    Personally, I don't know anyone who wants to work over the age of 60.

    I know a few people who HAVE to, no choice.

    And I suspect if our UK companies keep having their Shares bashed, nearly EVERYONE will not be able to afford to retire.

    Wageslaves to the Grave.






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