Tesco facing multi-million pricing fines

TESCO, SAINSBURY and other supermarket giants face fines of up to pounds 250m under a government crackdown on price-fixing. They will be the first to face stringent penalties when the Competition Act's pro- competition rules become law on 1 March next year.

The Competition Commission announces next Easter the results of its inquiry into allegations of unfair pricing. Sources within the Department of Trade and Industry said Tesco is facing the most stringent criticism.

The potential for huge penalties will result from new regulations to be announced today by Stephen Byers, the Trade and Industry Secretary. This allows the Office of Fair Trading (OFT) to fine companies guilty of anti-competitive behaviour 30 per cent of their annual turnover, with payments spread over three years, a far stricter sanction than expected.

This new system of fines is tougher than that enforced under European law, under which companies are hit with a one-off fine of 10 per cent of turnover. Crucially, the fine will be calculated from corporate-wide turnover of a company, not just the section operating anti-competitively.

"For example, if a bank sets mortgage prices unfairly high, we will nail the whole of the bank's turnover, not just its mortgage business," a ministerial source said.

"But it will be Tesco and the others who will be first hit by this and the message is that the fines could be bigger than anything ever seen in this country.

"We want to follow the lead of the United States. The US believes in free markets but will come down hard on anyone who breaches the anti-cartel rules."

Although car companies and football clubs have been warned about price- fixing, ministers believe supermarkets are of particular concern.

Tesco has more than quadrupled its annual profits to pounds 866m in the past decade. Sainsbury's is up to pounds 735m, Asda's to pounds 404m and Safeway from pounds 161.9m to pounds 410m.

An inquiry by the OFT into activities of the big four was launched earlier this year. The OFT called for a full investigation by the Monopolies and Mergers Commission, now the Competition Commission.

The stores insist they have nothing to hide, but consumer groups say Britons pay too much for many goods, from cars to clothes and food. A survey showed UK grocery prices up to 36 per cent higher than in France, 45 per cent more than in America and 54 per cent higher than in Germany. British stores have profit margins of 6 per cent, compared with 2 or 3 per cent in continental Europe and America.

Mr Byers said last night that too many consumers believed they were being ripped off by unscrupulous companies. "For too long the British consumer has paid the price for uncompetitive behaviour through higher costs. With these new penalties it will be the companies who flout the law that will pay the price."

The OFT's budget has been increased by pounds 15.4m over the next three years to help fund an increase in responsibilities.