OFT gets tough on tobacco as price-fixing net is cast wider

Nick Clark
Saturday 26 April 2008 00:00 BST

The Office of Fair Trading is investigating several additional price-fixing scandals in industries that have yet to be publicly identified, the regulator said last night, just hours after announcing a probe into the tobacco industry's links with leading retailers.

Sonia Branch, a director at the regulator, said she was not yet in a position to identify the sectors under investigation, but warned that the OFT intended to continue its increasingly aggressive attempts to crack down on collusion between companies on price.

"We have a number of investigations right across the UK economy," Ms Branch said.

The warning followed the OFT's announcement of one of its most high-profile actions to date, an inquiry into alleged unlawful practices at two of the biggest tobacco companies in the world and 11 individual retailers.

The OFT said yesterday that Imperial Tobacco, Gallaher and retailers including Asda, Sainsbury and Tesco were under investigation over allegations that they arranged to swap information on future pricing. The OFT also believes some of the parties came to an understanding that the retail price of some brands would be linked to rival brands.

John Fingleton, the OFT's chief executive, said: "If proven, the alleged practices would amount to a serious breach of the law."

The retail sector is already at the centre of a price-fixing investigation being conducted by the OFT into the dairy market, which involves 11 companies including household names such as Asda, J Sainsbury, and Tesco.

The OFT's focus on price-fixing is a very serious threat to the profitability of all the companies under investigation, because the penalties in proven cases can be up to 10 per cent of a company's global annual turnover.

Yesterday's announcement marks the latest landmark case announced by the OFT since Mr Fingleton joined the regulator two-and-half years ago. Last week, the watchdog unveiled the findings of its largest ever investigation, formally charging 112 companies in the construction industry as implicated in a bid-rigging scandal. Some of the UK's biggest names, such as Balfour Beatty and Carillion, have been caught up in the investigation.

And on Thursday, the OFT claimed an important victory in the High Court, winning the right to take UK banks to task over unfair charges on unauthorised borrowing. The test case could cost the banks billions.

The OFT was set up in 1973 but has toughened up since Mr Fingleton, a former chairman of the Irish Competition Authority, was appointed chief executive in October 2005. His mandate was to increase the impact of the OFT on productivity growth and to improve the protection of consumers. Mr Fingleton has also changed the emphasis of the OFT's work, with a shift in focus towards targeting larger companies than in the past.

Ms Branch said the cases unveiled in recent weeks reflected that shift. "Over the past two years we have looked to move to high-impact outputs," she said. The office has maintained consistent staffing levels but the management has become more dynamic, with more effective ways of working.

Last year, the regulator handed out fines totalling £116m to supermarkets including Asda, Sainsbury's and Safeway as part of its investigation into the fixing of the prices of milk and cheese. It also slapped a record £121.5m fine on British Airways, after the flagship carrier admitted colluding with Virgin Atlantic over fuel surcharges.

However, the OFT's work has not been plain-sailing. On Wednesday it was forced to pay Morrisons £100,000 and issue a humiliating apology after admitting false accusations against the supermarket related to the dairy price-fixing case. The settlement was agreed after Morrisons began a libel action against the regulator.

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