Competition rules announced

Single supermarkets will no longer be able to dominate a local area and suppliers are to get protection from a new independent ombudsman, the Competition Commission has announced.

The measures follow a two-year investigation into the UK's supermarket sector.

The Commission said that while most areas had good choice, a number of local areas suffered from limited competition, and shoppers were losing out as a result.

Going forward, the Office of Fair Trading (OFT) would have to be consulted on all planning applications to build new larger supermarkets or extend existing ones and would apply a "competition test".

The report fails to address this issue of "land banks", areas of undeveloped land held by retailers, as the supermarkets will not be forced to sell such land. However they will not be able to impose any restrictions on what can or cannot be built on land they sell.

For suppliers, a new supermarket ombudsman will oversee a stronger code of practice that will cover all grocery retailers with a turnover greater than £1bn.

It will investigate any complaints made by suppliers against supermarkets, and the Competition Commission recommends that it should have the power to "levy significant financial penalties" on retailers if they do not comply with the ombudsman's findings.

A key factor for suppliers will be the fact the ombudsman can accept confidential information about retailers, to try to encourage suppliers and producers to come forward with complaints.

"Retailers with good practices and relationships should have nothing to fear," the regulator said.

However, there was little comfort for independent retailers, who feel they are being squeezed out by the larger chains, the report concluded smaller shops were "not in terminal decline".

"It is not impossible for them to compete and in the current economic climate the benefits of vigorous competition are as relevant as ever," the report said.