Supermarkets warn of price rises as watchdog sets competition test to curb 'Tesco towns'

The Competition Commission yesterday outlined plans for an ombudsman to stop stores from using their financial muscle to take advantage of suppliers.

Asda and the British Retail Consortium immediately hit back, warning the scheme could result in stores adding pounds to shopping bills.

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Asda claims that meeting the requirements of a new policing regime, including a tough code of practice, will be expensive for the stores.

It said the industry, which has been reporting record profits, will pass on the costs to shoppers.

The threat will anger millions of consumers who are being hit with big increases in the cost of shopping basket essentials.

The Daily Mail Cost of Living Index shows the price of a basket of popular items has surged 15.5 per cent in a year.

This means a family spending £100 a week on food last year now has to find another £800 a year to put the same products on the table.

Suppliers, including farmers, claim they have been victimised by the all-powerful supermarkets.

Prices have been screwed down in order to allow the big four - Tesco, Asda, Sainsbury's and Morrisons - to generate record profits.

It appears the ombudsman will force the supermarkets to accept the outcome of binding arbitration when a supplier feels he has been cheated.

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It will also impose "significant financial penalties".

BRC chief executive Stephen Robertson said: "This is entirely the wrong time to be thinking about introducing a pointless new multi-million pound quango which will ultimately be paid for by cash-strapped customers."

An existing supermarket code of conduct has failed.

Few suppliers have made complaints for fear of losing vital supermarket contracts.

However, the new regime will ensure suppliers are guaranteed confidentiality.

Campaigners welcomed the ombudsman scheme.

However, they fear the Commission's proposals will not prevent the decimation of traditional high streets.

The Association of Convenience Stores said: "The overriding failing of this inquiry is that the Commission views competition in the grocery market as competition between the big four retailers.

Asda, Tesco, Sainsbury's and Morrisons were all examined during the two-year probe

"This approach ignores the critical need for a variety of retailers."

This was rejected by Commission chairman Peter Freeman, who insisted that supermarkets are generally a positive for consumers.

"Whilst we have been sympathetic to those finding themselves under pressure in this market, particularly independent retailers, this does not mean that competition is not working well," he said.

The Commission is also recommending that planning authorities do not allow any supermarket chain to achieve more than 60 per cent of sales in any area by using a "competition test".

Tesco chief executive, Sir Terry Leahy, challenged the plan for a planning competition test and the need for an ombudsman.

"This test would make the planning-process even slower and jeopardise job-creating regeneration schemes," he said.

"We believe it would take away power from consumers to choose where they shop.

"Quality and choice are better than they have ever been and Tesco prices remain low at a time when the current economy means that families are keeping an eye on their weekly shopping bill."