Digital Markets, Competition and Consumers Bill (First sitting)

Committee stage
Tuesday 13th June 2023 Public Bill Committees

The Committee consisted of the following Members:

Chair: Mr Philip Hollobone

Carter, Andy (Warrington South) (Con)

† Coyle, Neil (Bermondsey and Old Southwark) (Lab)

† Davies-Jones, Alex (Pontypridd) (Lab)

Dowd, Peter (Bootle) (Lab)

† Firth, Anna (Southend West) (Con)

† Ford, Vicky (Chelmsford) (Con)

† Foy, Mary Kelly (City of Durham) (Lab)

† Hollinrake, Kevin (Parliamentary Under-Secretary of State for Business and Trade)

† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)

† Mayhew, Jerome (Broadland) (Con)

Mishra, Navendu (Stockport) (Lab)

† Russell, Dean (Watford) (Con)

† Scully, Paul (Parliamentary Under-Secretary of State for Science, Innovation and Technology)

† Stevenson, Jane (Wolverhampton North East) (Con)

† Thomson, Richard (Gordon) (SNP)

Watling, Giles (Clacton) (Con)

† Wood, Mike (Dudley South) (Con)

Kevin Maddison, John-Paul Flaherty, Bradley Albrow, Committee Clerks

† attended the Committee

Witnesses

Sarah Cardell, Chief Executive, Competition and Markets Authority

George Lusty, Senior Director for Consumer Protection, Competition and Markets Authority

Will Hayter, Digital Markets Unit, Competition and Markets Authority

Rocio Concha, Director of Policy and Advocacy & Chief Economist, Which?

Matthew Upton, Acting Executive Director of Policy & Advocacy, Citizens Advice

Public Bill Committee

Tuesday 13 June 2023

(Morning)

[Mr Philip Hollobone in the Chair]

Digital Markets, Competition and Consumers Bill

09:25

[The Chair]

We are now sitting in public and the proceedings are being broadcast. I have a few preliminary announcements that Mr Speaker has asked me to draw to your attention. Hansard colleagues will be grateful if Members could email their speaking notes to [e-mail]. Please switch electronic devices to silent.

Today, we will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication and a motion to allow us to deliberate in private about our questions before the oral evidence session. In view of the time available, I hope that we can take those matters formally, without debate.

Ordered,

That—

1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 13 June) meet—

(a) at 2.00 pm on Tuesday 13 June;

(b) at 11.30 am and 2.00 pm on Thursday 15 June;

(c) at 9.25 am and 2.00 pm on Tuesday 20 June;

(d) at 11.30 am and 2.00 pm on Thursday 22 June;

(e) at 9.25 am and 2.00 pm on Tuesday 27 June;

(f) at 11.30 am and 2.00 pm on Thursday 29 June;

(g) at 9.25 am and 2.00 pm on Tuesday 4 July;

(h) at 11.30 am and 2.00 pm on Thursday 6 July;

(i) at 9.25 am and 2.00 pm on Tuesday 11 July;

(j) at 11.30 am and 2.00 pm on Thursday 13 July;

(k) at 9.25 am and 2.00 pm on Tuesday 18 July;

2. the Committee shall hear oral evidence in accordance with the following Table:

[The Chair]

The Committee will therefore proceed to line-by-line consideration of the Bill on Tuesday 20 June at 9.25 am.

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Kevin Hollinrake.)

[The Chair]

Copies of written evidence that the Committee receives will be made available in the Committee Room and circulated to Members by email.

Resolved,

That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Kevin Hollinrake.)

09:27

The Committee deliberated in private.

Examination of Witnesses

Sarah Cardell, George Lusty and Will Hayter gave evidence.

09:29

[The Chair]

Before we start hearing from the witnesses, do any Members wish to make declarations of interest in connection with the Bill? No.

We will move straight on then to hear oral evidence from the Competition and Markets Authority. This morning, we are privileged to have a trio of stellar CMA executives: Sarah Cardell, the chief executive; George Lusty, the senior director for consumer protection; and Will Hayter from the digital markets unit.

Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings in the programme motion that the Committee has agreed. For this session, we have until 9.55 am. Could I ask our three witnesses, starting with the chief executive, to introduce themselves for the record?

Sarah Cardell: I am Sarah Cardell, chief executive of the CMA.

George Lusty: I am George Lusty, senior director for consumer protection at the CMA.

Will Hayter: I am Will Hayter, senior director for the digital markets unit at the CMA.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Q Thank you very much for coming today to give evidence. We very much appreciate your time. The CMA has supported this legislation, and there has been quite a lot of talk about how it provides a different approach to how the EU has taken forward legislation in this area. Do you think we have got the balance right, and why do you think a more flexible approach is helpful? You may have an example that you might want to use from your experience of a shadow digital markets unit.

Sarah Cardell: I will start off, and Will might come in with a specific example. We are talking here specifically about the provisions around digital markets in the Bill. What we have got with the design of the provisions here is exactly as you say—something that is really quite bespoke, quite targeted and flexible. I think that is really important. When we look at the issues that we are seeking to tackle in digital markets, there are many benefits that come from them, but there are real competition concerns. We see a concentration of market power. We see the characteristics of these markets, where there are substantial economies of scope and of scale, and the aggregation of data, and that results in potential harm, both for consumers, in terms of their ability to access a broad range of products and services, and for competing businesses that want to be able to compete and grow and innovate on a level playing field.

What does the Bill do? The Bill enables us to tackle those concerns in a very targeted way. That is critical. You asked about the comparison with the European Union’s Digital Markets Act. In terms of the underlying concern, what we have in the EU is designed similarly—there is no fundamental difference there—but it is a more blanket approach, with a blanket list of prohibited conduct, whereas what we have here is a Bill that enables the CMA to designate particular companies in relation to particular activities, and then to design conduct requirements to manage their market power in relation to those specific activities. That is a much more bespoke system from the outset—it is targeted at the individual company and the individual conduct that is a cause of concern.

I think this Bill also has a greater degree of future-proofing. That is obviously critical in these markets, because they evolve so rapidly. The system in the EU is a slightly more static approach. You have a set of provisions that prohibit certain conduct as things stand at the moment. What we will have is the ability to bring in new conduct requirements if we see new concerns emerging, and to vary those or remove them when they no longer apply. That means that the system over time will be much more responsive and much more future-proofed. Will might want to come in with a couple of specific examples.

[Seema Malhotra]

Q We have quite a lot to get through, so let me just ask a follow-up question. There has been some criticism that the approach of regulating firms with strategic market status would be a discouragement to business investment and confidence in the UK technology sector. What would your view be?

Sarah Cardell: My view is that it is entirely the opposite. Competition and open competitive markets are the foundation of an economy that encourages investment, innovation and growth. We see that from a vast range of economic literature and economic research. The work that the CMA already does is very much tied to driving innovation, investment and growth.

So the starting point is that open competitive markets are good for innovation, good for investor confidence and good for growth. We then need to make sure that the design of the regime delivers that, and that the implementation of the regime, by the CMA, delivers that. I think the design does, for the reasons that I broadly outlined, and obviously the scrutiny is then, rightly, on the CMA to make sure that in practice we deliver the regime in a way that inspires that confidence.

I think we will do that in a number of ways. The first is to look at the outcomes that we deliver, which will ensure that businesses, large and small, are able to grow, invest and thrive in these markets. The second way is to make sure that we have really strong stakeholder engagement. This is not a regime where we want to operate behind closed doors. The whole design of the regime is a participative approach where we will engage with a broad range of stakeholders, businesses and consumers as we consult on designation, design the conduct requirements, and then enforce against them.

[Seema Malhotra]

Q The Government have not taken forward the recommendations from the CMA on tackling consumer detriment in the secondary ticketing market. Do you think that that was a mistake and that that should be in the Bill? Finally, huge new powers are going to the CMA. Do you think that the accountability mechanisms have the right balance? That will be a concern for Parliament. Mr Lusty and Mr Hayter might want to come in.

Sarah Cardell: If I quickly take accountability, George might come in on secondary tickets. Accountability is key. The Bill gives us greater responsibility and power, and with that must come greater accountability. That comes in a number of forms. Parliamentary accountability is critical. We are accountable to Parliament. We do that already through a number of appearances and engagement with Committees, but I am sure that there is more that we could do in the design of that, and we are very keen to work with colleagues in Government and across Parliament to ensure that that happens. Accountability for our decisions through the courts is another important element, and accountability to stakeholders, going back to the previous point, is key as well.

George Lusty: On secondary tickets, the CMA has taken a lot of action in this area. It has taken Viagogo to court. We found ourselves up against some of the inherent weaknesses in the existing consumer protection toolkit when we did that. We effectively had to initiate an attempt to start contempt of court proceedings to get Viagogo to comply with the court order that we had secured. We think that many of the changes in the Bill will address those weaknesses directly by giving us civil fining powers for the first time. We set out specific recommendations back in August 2021 about other things that we think could be done, but ultimately it is a matter for the Government to decide what they want to include in the legislation.

[The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)]

Q How will the enforcement powers accelerate your enforcement action in particular? Remediation needs to come quickly in digital markets, especially with the appeals process, which has been a topic of conversation. Why do you believe that judicial review is sufficient to give proportionatality for people to push back and for keeping the speed up?

Sarah Cardell: On digital markets, the design works very well, because you have an engaged approach where we will work with businesses to secure compliance with the conduct requirements. We hope that that will be a constructive engagement, and that much of that compliance will be achieved without any enforcement activity. That is the aspiration and the goal. Of course it is important to have enforcement as an effective backstop and that that enforcement happens rapidly for the reasons that you stated. The Bill envisages a six-month time limit for enforcement, which is important so that everybody knows that that timing is ringfenced.

On appeals, let me take a minute to talk through the JR standard and why I think that it is effective, because there has been a lot of debate about that. It is critical that the CMA faces effective judicial scrutiny for our work. That should go on the record. We think that the JR standard achieves that. The JR standard applies to much of our work already, including our merger control and market investigations. It applies to a number of regulators for their regulatory work already, so there is an established approach for JR.

What JR is not, certainly in our experience, is a very light-touch procedural review. It looks at process questions, but it also looks fundamentally at whether we have applied the right analytical approach, the kind of evidence that we have reviewed, how we have weighed that evidence, and the rationality—the reasonableness—of our decision making. Take the example of the Competition Appeal Tribunal review of our merger decision, which was a review of the acquisition by Meta of Giphy. We had 100-plus pages in that judgment, with 50-plus pages looking at our analytic framework, how we looked at the effect on competition, the kind of evidence that we took into account and whether we weighed it effectively. It was a very detailed critique of our assessment.

What JR does not do is start a full merits from first instance court process. It does not say, “Back to the drawing board—we are going to set the CMA’s decision to one side and then conduct the process all over again.” That is much more similar to the full merits review that we have at the moment on Competition Act 1998 cases. Our experience there is that it results in very protracted litigation—we often have cases that are in court for five or six weeks. But, fundamentally, it also changes the incentives to the parties that we are engaging with, because all eyes are on that litigation process. That means that, in our process and our own investigations, it is a lot harder to reach constructive, collaborative outcomes, because every point that we are investigating is thrown into an adversarial contest. It means that we have to turn every stone, check every piece of evidence and make sure that every point is covered, which means that our investigations themselves are more protracted and the litigation is much longer.

The benefit of judicial review in this process is that it provides absolutely robust and effective scrutiny, but it also supports an environment that is aligned with the aspirations of the Bill more broadly—to encourage engagement early on and to encourage constructive, collaborative outcomes. Then, of course, parties absolutely have the right to challenge and appeal our decisions and, where they do so, that is resolved effectively through a JR process.

[Paul Scully]

Q So you believe this is the right balance between being robust enough for those with strategic market status and being speedy enough for remediation for challenger tech.

Sarah Cardell: Absolutely.

[Alex Davies-Jones (Pontypridd) (Lab)]

Q Good morning. We have talked a lot this morning about accountability to Parliament. That was highlighted quite heavily on Second Reading by Members from across the House. One of the other things that we have already discussed is the need for the CMA’s strategic priorities to be directed and advised by Parliament. Could you expand on your thoughts on that point? Also, where do you see the priorities for the Digital Markets Bill? That is not intended to be a loaded question.

Sarah Cardell: I will give a high-level response, and Will might come in on some of the specific priorities for the DMU. It is really important to highlight the difference between accountability and independence. The CMA is independent when we take our individual decisions, but, as you say, it is absolutely accountable for those decisions, both to Parliament and to the courts. That is accountability for the choices that we make about where we set our priorities, accountability for the decisions that we take when we are exercising our functions, and accountability for the way that we go about doing that work. I think it is important to have accountability across all three areas.

On the strategic priorities, since I came into the role as chief executive and our new chair, Marcus Bokkerink, came into post, we have put a lot of focus on really setting out very clearly what our strategic priorities are, looking at impact and beneficial outcomes for people, businesses and the economy as a whole. We see those as a trio of objectives that are fundamentally reinforcing, rather than in tension with one another.

We also take account of the Government’s strategic steer. That is in draft at the moment. You can see that there is a lot of commonality between our own strategic priorities that we set out in our annual plan and in the Government’s strategic steer. That sets a very clear framework for our prioritisation.

Will might want to come in on how we will set the priorities for the DMU.

Will Hayter: We are obviously thinking very carefully about where to prioritise action under the strategic market status regime. We cannot jump too far ahead with that, because Parliament is going through this process now and we have to see where the Bill comes out, but, as Sarah says, we will be targeting our effort very firmly at those areas where the biggest problems and the biggest current harmful impacts on people, businesses and the economy are likely to be.

You can get a bit of a sense of what those areas might be from the areas we have looked at already, particularly the digital advertising market, search, social media, interactions between the platforms and news publishers, and also mobile ecosystems. We did a big study there, where we see a range of problems stemming from the market power of the two big operating systems.

We will continue to update our thinking as we go through the next year-plus, building on our horizon-scanning work and understanding of how developments in the markets are shaping up and what that might mean for where the problems are.

[The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)]

Q First, thank you for the work that you do. You are obviously an independent body and you make difficult decisions. You receive more scrutiny than we have ever seen before, with the CMA’s higher profile, and at times that must put you under quite a lot of strain. I appreciate the work that you do. You make the decisions as you see fit, of course, but those often come with criticisms, so thank you.

My question is about innovation. If you speak to some of those who are likely to be designated SMS—strategic market status—businesses, many of them might say, “Well, this will inhibit innovation from our businesses.” I think part of that is about the power to look ahead at where this may take us. What do you say to that? If one of those platforms was opening a new type of supermarket, for example, it might be claimed that this would limit innovation. How would you respond to that?

Sarah Cardell: I have a couple of points, and Will might come in. The general point is that this regime is very much pro-competition and pro-innovation, both from the major platforms, which are likely to be designated in relation to some of their activities, and across the economy. It is important that we encourage innovation that supports competing businesses, large and small. You can have innovation that supports an incumbent by allowing that incumbent to offer additional services, but sometimes at the cost of entrenching their market position. We want to ensure that we have an environment that enables those major players to continue to innovate, sparked and incentivised by the competitive pressure that they are facing, but equally allows smaller competitors to thrive and innovate too. That is the broad point.

As we have said, it is a very targeted and bespoke regime. We will be focusing only on areas where there is substantial and entrenched market power already. Therefore, the principal point is that businesses, large and small, will continue to be free to innovate and to develop their products and services. Of course we want to ensure that that happens in a way that does not reinforce positions of market power. Will, you might want to come in on that.

Will Hayter: As Sarah says, this is all about creating a fertile environment for innovation, and you can think about that at at least three levels. First, it might be that those companies are innovating on top of the platforms that we are talking about here—in mobile ecosystems, through app stores, mobile browsers, and so on. Secondly, there are companies that are seeking to compete directly against some of the big platforms, and we want to ensure that there is a possibility that the current incumbents will be knocked off their perch by tomorrow’s innovators. Finally, increasing competition should increase the pressure on the incumbents—the most powerful firms—to innovate further themselves, in a way that delivers the greatest benefits for people, businesses and the economy.

[Kevin Hollinrake]

Q Would you therefore say that those kinds of worries are ill-founded and that that is not something that would prohibit an SMS organisation from innovating?

Sarah Cardell: I do not think that there is anything in the Bill that prohibits innovation. The fundamental design, and certainly the way that we would intend to operate it, is entirely pro-innovation. We want to ensure that, as the designated companies continue to seek to develop and grow their businesses—of course they will want to, and that brings many benefits—that happens in a way that does not entrench their position, which is disadvantageous either to consumers or to competing businesses. That does not inhibit innovation, but it puts some guardrails around that innovation to ensure that the impact of that is beneficial and positive.

[The Chair]

We now come to a quick-fire round. We have six minutes left and four Members seeking to ask questions, so we want quick questions and quick answers.

[Neil Coyle (Bermondsey and Old Southwark) (Lab)]

Q Do you have the resources to take on the new powers?

Sarah Cardell: The short answer is yes. We are well funded in terms of our budget. We are carrying out significant recruitment, and we have a good breadth of expertise, which is particularly important to developing our digital data technology expertise. We have done a lot of that already, but it remains a key focus.

[Neil Coyle]

Q Do you have an in-house legal team, or will you be taking on additional lawyers, given that it has taken legal action against some companies even to get to this point?

Sarah Cardell: We have very substantial legal resources internally. We have a legal directorate of around 150 people. We will be growing our resource by more than 200 people over the next two years, and growing substantially outside London, which will be key for us.

[Neil Coyle]

And—

[The Chair]

We will have to move on, I am afraid.

[Vicky Ford (Chelmsford) (Con)]

Q I want to ask what success is and what it looks like. Is success giving my consumers greater choice and lower prices, and my businesses ensuring that the UK is an attractive place to invest compared with other markets? If that is the definition of success, how do you measure it both domestically, compared with what has happened in the past, and internationally, compared with other markets?

Sarah Cardell: The brief answer is that in our annual plan we set out our measure of outcomes: benefits for people in terms of great choices and fair deals; benefits for businesses in terms of enabling them to compete, innovate and thrive; and benefits for the economy as a whole in terms of growing productively and sustainably. That applies across the new suite of roles, powers and responsibilities. If you are looking at outcomes for people, what is the impact on prices and choice? Can people access their data? Can they move between services more effectively? What is the impact on businesses? Can they get fair and reasonable terms when they are reliant on the infrastructure of some of these major players in order to innovate and grow? Are we seeing innovation coming from smaller businesses as well as the incumbents? When we look at the benefit for the economy as a whole, do we see the flow-through of greater competition, improving productivity and improving growth? We have our “State of UK competition” report, which reports on that, and that will continue to be an important metric.

We are taking on responsibility for an annual consumer protection study, again looking at areas of consumer concern and the impact of interventions we are taking. You mentioned international benchmarks; I think that is really important. Obviously, a lot of these issues, especially on the digital side, are international in nature. We want to see benefits in terms of changes in international trends—there is a real opportunity here for the UK to set the model for positive regulatory intervention in digital markets, and for that to be adopted by others—and real benefits for UK businesses in terms of their ability to grow and innovate, and the investment that that attracts from overseas.

[Vicky Ford]

Q Really quickly—will you be watching our market compared with what is happening in other markets?

Sarah Cardell: As one of our factors, absolutely.

[Jerome Mayhew (Broadland) (Con)]

Q You say that open, competitive markets are good for growth. I totally agree, but we are one market among a global series of markets. Building on what Vicky Ford just said, where do you see this regulatory innovation sitting? You have referenced the EU and what it is doing, and there are other things going on in the US. Will this draw investment into the UK in this sector, or will it make people say, “Hmm, I’m not sure”?

Sarah Cardell: I firmly believe it will draw investment in. Will, do you have a couple of examples of people you have spoken to?

Will Hayter: You have app developers who are wanting to provide a service through these mobile ecosystems that have pent-up business—I think you are talking to one of them later—waiting to be invested in and to grow. There is also a UK-based search engine looking for opportunities to expand. Those are exactly the kind of businesses that are trying to grow and want this kind of regulatory infrastructure to create the conditions to do that.

[Dean Russell (Watford) (Con)]

Q When I go back to my constituency in Watford tonight and speak to people on the street, what can I tell them will make a difference to their lives, in the simplest terms?

Sarah Cardell: It is opening up choice; it is opening up access to the fullest range of services. It is enabling them to have confidence that their data will be used in an effective way and that they can move between different products and services so that they do not get locked in. When we think about the consumer side, daily we hear and see so much about consumer detriment. We are working as hard as we can to address that, but the consumer reforms will enable us to take a massive step up in terms of the impact we can deliver, the speed with which we can tackle their concern,s and the effectiveness with which we can deliver improved outcomes for people.

[Dean Russell]

Q Will they see that happen, or will they need to be involved in the process to report where there are issues?

Sarah Cardell: Both. On engagement, we work very much with bodies such as Which? and Citizens Advice, which I know you are hearing from shortly, so we have a lot coming in. That is really important, because when we make the choices about the work we are doing, they need to be informed directly by consumer concerns, not be something that we just think is the right thing to do. We want to deliver that visible impact.

George Lusty: I think your constituents will see the CMA directly taking decisions. When we find that something has broken the law, they will find that we are taking direct orders to get their money back for them, and we will be imposing deterrent fines on the firms that do not do the right thing.

[The Chair]

I thank our three stellar witnesses very much indeed for their time this morning. We wish you continued success at the CMA.

Examination of Witnesses

Rocio Concha and Matthew Upton gave evidence.

09:54

[The Chair]

I welcome Rocio Concha, director of policy and advocacy and chief economist at Which?, and Matthew Upton, acting executive director of policy and advocacy at Citizens Advice. Thank you for coming this morning. Would you be kind enough to introduce yourselves to the Committee for the record?

Rocio Concha: I am Rocio Concha, the director of policy and advocacy, and the chief economist at Which?.

Matthew Upton: I am Matthew Upton. I am the acting executive director of policy and advocacy at Citizens Advice.

[Seema Malhotra]

Q Thank you for coming to give us evidence today. I have a couple of questions. First, will you outline how you see the Bill delivering consumer benefits, and how you will seek to measure that impact? Secondly, the Government announced with much fanfare that the Bill would tackle the practice of fake reviews, but they are not mentioned in the legislation; they are instead left to a delegated power. Do you think that more action is needed on fake reviews, and how concerned are you that the Bill will not deliver on the changes needed?

Rocio Concha: Let me start by saying that we are fully supportive of the Bill. We think that it will modernise competition policy and consumer policy in the UK, and that it will deliver clear benefit for consumers, businesses and the economy.

We are very supportive of part 1 of the Bill, which you discussed with the previous panel and which is about the additional powers to introduce a pro-competition regime. That is very important and we think that the regime will be proportionate and flexible, and will deliver benefit to consumers by providing more choice and lower prices.

One thing to say is that it important to look at the regime in its totality. The CMA explained that the regime is very proportionate and consultative. For it to work, it is important that the appeal process is on a judicial review basis, which is what is proposed in the Bill. That should be maintained as the Bill goes through Parliament. Obviously, we are very supportive of the new powers for the CMA to fine directly companies that breach consumer law. Why? Because that is a stronger deterrent to those businesses that may decide to ignore the law.

We are also very supportive of the Secretary of State having the power to act on the practices set out in schedule 18 that are clearly unfair. Why? Because we need a flexible system, particularly in the digital space where things move very quickly. We need that flexibility in the system as we identify additional areas.

You mentioned fake reviews. We welcome the commitment to include fake reviews in the Bill, but basically the commitment is that that will be introduced by the Secretary of State. We do not think that we should wait. Clearly, fake reviews are harmful, so the buying, selling and hosting of fake reviews should be included in schedule 18. We think that drip pricing is another practice that is very harmful. There is a lot of evidence that that is the case, and it should be included on the face of the Bill.

How will we measure this? When we look at our work and at the areas we want to focus on, we do quite a lot on consumer detriment; we also work with the Government and the CMA to see what the big areas of detriment are. We expect to see changes in the behaviours of some companies that decide not to follow the law. With the previous panel, you talked about, for example, the measures that the CMA took in the past on secondary ticketing companies, such as Viagogo. That took six years—six years of harm for consumers. We expect that, after the Bill becomes an Act, we will see action and that all those crimes that do harm will be resolved more quickly.

[Seema Malhotra]

Q Thank you very much. This question may be more for Mr Upton. The Bill goes some way towards tackling the problem of subscription traps, but it does not go as far as what Citizens Advice has called for, or indeed the Labour party’s policy of making subscription renewals opt in rather than opt out. Why do you think that the legislation needs further safeguards? Why, in the light of your experience, is that important for protecting consumers from harm?

Matthew Upton: We have been asking for action on subscription traps for a long time. Any action is positive, but we are seeing this in the context of a cost of living crisis, where anything that takes cash out of people’s pockets stops them getting by from day to day. To be honest, we think that the intent is right, but this is potentially a huge missed opportunity for action on subscription traps. We have to understand how high the incentive is for firms to trap people in subscriptions. There is a huge amount of money to be made, to the extent that it changes the whole incentive structure so that for many firms, rather than thinking about how to provide a quality subscription, the rational thing to do is think about how to design the worst possible customer journey and to trap someone, whether through an online process that makes it difficult to cancel something—you will all have experience of this—or, to give a slightly facetious example, a process whereby you can cancel only when you ring between 2 and 2.30 on a Tuesday and you have wait for 45 minutes in the queue.

Obviously, we want to change that incentive structure so that we have a flourishing subscription economy, which should be encouraged, where consumers want to stay in subscriptions and firms focus on providing quality subscriptions. We do not think that the Bill as it stands will do that. For example, it says that exit has to be timely and straightforward. We do not think that that will work. We have been here before, if we think back to utility bills four or five years ago, when there was a big push to stop people rolling on to expensive contracts and to get them to switch. Regulators were focused on trying to dictate what went into letters to consumers about their renewals. Firms could make so much money by obeying the letter but not the spirit of the regulation that they would find ways round it, and switching rates did not go up. We think that the same will happen here.

The specific change that would make a huge difference and is legislatively straightforward is to provide that, at the end of an annual trial subscription, the default is that the consumer opts out. That is not about things like car insurance, where there is a detriment to people opting out, but for basic subscriptions, opt-out should be the default. That would allow firms to use all their ingenuity, power and influence to persuade consumers to stay in. They could go for it—send as many reminders as they wanted; that is absolutely fine. If the subscription is good, a consumer will stay in. That change will make the difference. We have done some polling on this and about 80% of people agree that that should happen. We think that it will put millions of pounds back in people’s pockets, that it is proportionate and that it will encourage a flourishing subscription economy.

[Kevin Hollinrake]

Q Rocio, on your point about including fake reviews on the face of the Bill, our intention is to legislate in this area. I do not know whether you have seen the evidence from Trustpilot, which was submitted as written evidence. It rightly points to the fact that most of the discussion around fake reviews thus far has been about products rather than services. Does not that illustrate that we need to consult properly about that to ensure that we get the legislation right? Isn’t there a risk that we could get it wrong by rushing to stick this on the face of the Bill?

Rocio Concha: A provision on fake reviews in the Bill should apply to both products and services. There is evidence to show that fake reviews also harm services. I do not think that there is a major risk. We and the CMA have produced a lot of evidence about how fake reviews are endemic on some sites. We have demonstrated the harm that they cause. It is clear what is needed. We know that we need to look at selling, buying and hosting. I do not see a risk to including such a provision on the face of the Bill. Then, in secondary legislation—

[Kevin Hollinrake]

Q Even though there might be some things we have not thought about at this point in time. That would be a good example in terms of Trustpilot’s evidence.

Rocio Concha: If there is something that needs to be improved, you can always do it with the Secretary of State’s power later. There is quite clear evidence to provide a clear steer on what is an unfair practice. Obviously, as with anything in schedule 18, you have that power to modify, to add to the practice as more evidence comes in. We will provide enough evidence to the Committee to show that it can be introduced on the face of the Bill.

[Kevin Hollinrake]

Q Sure, okay. Mr Upton, on subscription traps, do you not feel that the powers that the Bill affords the CMA on civil penalties will address some of the concerns you highlight of people trying to get around the rules, for example? Would that not be something it could act on when it sees gratuitous behaviour such as what you describe?

Matthew Upton: I think it could, but we worry that it will not in reality. It is quite difficult to decide, for example, what constitutes easy and timely exit from a contract. You cannot necessarily measure it incredibly specifically, and I could imagine enforcement being really complicated. I could imagine firms dragging their feet, despite the way powers would speed up the ability of the CMA to act, as I say, because the incentive structure is so great.

One reason for the growth of the subscription economy is that it is a great way to provide services, but another is that it is such an easy way to make money by trapping people in. That is our firm belief and what our evidence shows. I just think a simple default would be much more effective than basically having the CMA chasing its tail and chasing firms. It would not be of any detriment to good firms who want to provide really solid subscriptions that people should want to stay in.

[Richard Thomson (Gordon) (SNP)]

Q The EU has a right to redress for consumers, and there is a schedule in the Bill that would allow the Secretary of State to introduce that again in future through secondary legislation. Do either of you have any sort of sense of the extent to which UK consumers might be at risk of being at detriment compared with their EU counterparts while that secondary legislation is not in place?

Rocio Concha: Our view is that it should be on the face of the Bill. We do not know why the right to redress has not been transposed into the Bill. From our perspective, we do not want to leave it for the Secretary of State to decide once we have an Act. It should be included.

The other thing is that the right of redress does not cover all the practice in schedule 18, only misleading practice and aggressive practice. It does not really cover all the list of unfair practice in schedule 18. I think that the right to redress should also cover that.

[Richard Thomson]

Q On fake reviews, the challenge that came up at Second Reading was about how we might define, judge and act on them. How do you think it is best to tackle the problem of fake reviews? Have you any suggestions while we are engaged in this consultation?

Rocio Concha: You mean how—

[Richard Thomson]

How could we legislate create the framework by which the problem of fake reviews could be best addressed?

Rocio Concha: I think it needs to be in the list on schedule 18, and there is a very simple way to draft that amendment. We are going to suggest an amendment to help you with that, so I do not think that it is a major difficulty to include it on the face of the Bill.

[Dean Russell]

Q You are both at the coalface for consumers in terms of the challenges around all the issues addressed by the Bill. Can you briefly share some real-life examples of why the Bill is so important and what difference it will make to consumers?

Rocio Concha: I can give you some examples from the past so that you can see what consumers face. I already talked about the secondary ticketing problem, but I will give you another example. During covid, there were a lot of issues about people getting their refunds that they were entitled to by law. Many people could not really get them. I will give you another example on the digital side—that was on the consumer side.

At the moment, as you have heard from the CMA, digital advertising is basically controlled by two companies, Google and Facebook. Google has doubled its revenue from digital advertising since 2011 and Facebook used to make less than £5 per user—more recently, it has been around £50 per user. Google charges around 30% more for paid-for advertising than other search engines. All that cost translates into the products that we buy. We expect that once this pro-innovation, pro-competitive regulatory framework is put in place we will see it translate into prices.

We will also see it translate into more choice, in particular on data. At the moment, it is very difficult for consumers to have a choice on how much of our data is used for targeted advertising. You will have seen examples of that. When we talk to consumers in particular on the issues surrounding data, they feel disempowered. When we talk to consumers about the problems that they face in some of the markets where there are high levels of detriment, they also feel disempowered.

Matthew Upton: To be clear, there is a lot of good in the Bill. I echo Rocio’s first comments that there are a lot of positives. It has been a long time coming, and is a testament to the civil servants in the Department who have stuck with it. The main lens through which we see the impacts of the potential changes in the Bill is the cost of living. It is not exactly headline news that people are struggling with their bills. One of the main measures that we look at is whether one of our clients is in a negative budget: whether their income meets their essential outgoings. About 52% of our debt advice clients can no longer meet their essential—not desirable—outgoings with their income.

There are two areas where the Bill can make a real difference. One of the frustrations is that a debt adviser will go in detail through someone’s income and where they spend their money, helping them to balance their bills, and so on. You see the impact of other Government interventions, such as energy price support, putting money in their pockets and uprating benefits. You are combing through their expenditure and you find something like a subscription trial taking £10 a month—a huge amount for a lot of our clients—unnecessarily out of their account. They did not even know that it was there. Often, it is people who are not online, are not savvy, and are not combing their bills every month because they have a lot on. That is hugely frustrating, and things like this, especially if strengthened, could tackle that.

You will see similar things where people are just about balancing their monthly income with their expenditure and they get hit by some big scam bill or are let down by a company. Such companies are too often not held to account in the right way. It is a bit of a tangential example in some ways, but the hope is that the CMA’s increased ability to act and, in effect, to disincentivise poor behaviour towards consumers will lessen such instances as well.

[The Chair]

We have 12 minutes left, and five Members are seeking to ask questions, so we need to increase the pace.

[Neil Coyle]

Q Electrical Safety First and the British Toy & Hobby Association have described Amazon and other online platforms as a bit of a wild west when it comes to product safety for consumers. I appreciate that you both support the Bill as a step forward, but what is missing for consumers when it comes to product safety? Is it a new sheriff for the wild west?

Rocio Concha: Definitely. Legislation is required to ensure that online platforms take responsibility for the products that they sell on their platforms. We have done lots of reviews and gathered evidence that shows that consumers in the UK can buy very unsafe products on those platforms. Online platforms should be doing more to tackle that issue. The issue probably requires separate legislation, but I want to make it clear that we need legislation, and we need it now.

[Neil Coyle]

Q So this is a missed opportunity. There is nothing within clauses 67 to 82 on the investigatory powers that would allow for sufficient tackling of unsafe products, including toys reaching children.

Rocio Concha: No, I do not think that what is in the Bill will really tackle the issue.

[Neil Coyle]

That is disappointing.

Matthew Upton: I have nothing to add.

[Jerome Mayhew]

Q Mr Upton, I want to come back to you about subscription traps. You are saying that the requirement in the Bill that subscription cancellation should be a timely process is not sufficiently detailed. I declare an interest: in a former life, I used to help write European regulations. Is it not an absolutely basic tenet of writing regulations that you design outcomes— you do not list processes unless you absolutely have to, because things change? Given that point, are the Government, or the drafters of this Bill, not correct to focus on the outcome required and leave the process alone?

Matthew Upton: In a sense, I disagree with you because I agree with your point about it being outcomes-focused. In a sense, you are right; it leaves it fairly open, which gives some space for people to interpret, but I think what will end up happening is that firms will get around those provisions in various ways. They will tweak the subscriptions to find other ways to find people to step in. We will have a game of whack-a-mole, where we chase around trying to clamp down, a little bit like we had in the utility-switching space of four or five years ago. Ultimately, whether people agree or not, that led to much heavier intervention in the market.

Just taking one step to move towards opt-out—in a sense, you are right; it is a process step—is incredibly simple in terms of aligning the incentives. I think that would mean you would have to do less of the tweaking, constant interventions and prodding of firms. It just sets up the incentives in a much more simple way.

[Jerome Mayhew]

Q Is the intervention not actually the exact opposite of what you are suggesting, in that, if you have a stricter requirement within the regulations, people find ways to get round that strict interpretation, but if you have an outcomes-focused statement as is currently in the Bill, the onus is on the companies to demonstrate compliance, and the CMA, with the fining power of 10% of global turnover, has the stick with which to enforce it?

Matthew Upton: I disagree, because I think the simplicity of simply saying, “You opt out at the end of a period” gives clarity. I think it is easier for firms to interpret. In reality, under the current set-up, I do not think you will see a lot of firms thinking in a positive way about how to interpret it. I think they will think about how they can push as far as possible.

Customer journey design is so complex—this is the challenge of emerging digital markets. It is not a case of being able to say, “You have two click-through screens versus three,” so that constitutes easy or hard. There are incredibly subtle ways to make it difficult. I think a lot of firms would continue to put their efforts into thinking about how they can stay as close as possible to the law to avoid CMA sanctions, while effectively still making it psychologically and in reality difficult for consumers. An opt-out would just simplify it, and would take that thought process off the table for firms.

[Alex Davies-Jones]

Q You mentioned schedule 18 already and some of the missed opportunities that you see there. Some things that have been highlighted are drip pricing and misleading green advertising. Can I push you a bit further on the missed opportunities in schedule 18?

Rocio Concha: In what respect? On why we want them there?

[Alex Davies-Jones]

Yes. What you would like to be in there.

Rocio Concha: As I said, we would like to see fake reviews and drip pricing included, because there is clear evidence on them. There is also this issue of greenwashing. That should also be considered to be put in schedule 18 —we feel that we know enough to include it there. We have not done as much work in that area as we have on drip pricing and fake reviews, but we would be very supportive of including it in schedule 18.

Why do we want these areas in the Bill, versus them being included later under the Secretary of State’s powers? If they are not in the Bill, they will not be criminal offences, and they should be, because that will be a more credible deterrent for stopping these practices.

[Vicky Ford]

Q When the CMA was answering Dean Russell’s question about how consumers will feel the benefits, one of the things it pointed to was its greater powers to fine companies that are misbehaving. Do you not think that the threat of fines on companies will have a trickle-down benefit to the consumers, and that it will mean that companies will think harder about not acting in ways that are to the detriment of consumers?

Rocio Concha: Absolutely. That is one of the powers of that power. Basically, companies will know that they will not be able to drag the system for years, as happened with Viagogo and some anti-virus subscriptions. They will know that the CMA will be able to act directly. Hopefully, that will make businesses that do not want to comply with the law think twice.

Matthew Upton: I really agree. I cannot share a specific example, but we have had a lot of conversations with regulators and competition authorities after we have uncovered bad practice. We have said, “Listen—go after them.” We were met with a frustrated shrug of the shoulders—“There’s no point because they will run rings around us for a huge amount of time and we will end up with nothing. We have to use our powers where we can more clearly have impact.” As you say, that should now end. In a sense, we are more positive about the disincentive for poor behaviour than the fines themselves.

Rocio Concha: There is an opportunity in the Bill to make that deterrent even stronger. At the moment, in part 1 of the Bill there is the opportunity for private redress, which will allow businesses or consumers to apply to the court for compensation from companies that have breached the conduct requirements in part 1. It is very unlikely that consumers like each of us or a small business will use that power in the courts. But if we allowed collective redress—the co-ordination of consumers and businesses to get redress—that would be for those companies a credible additional deterrent against breaking the law. That is in part 1, in relation to competition.

There is also the opportunity to include a provision within the breaches of consumer law. At the moment, collective redress is allowed for breaches of competition law, but not for breaches of consumer law.

[Anna Firth (Southend West) (Con)]

You have given us a simple, practical way to end subscription traps through the opt-out. Do you have any other simple, practical amendments in the locker that would help better protect my consumers in Southend-on-Sea?

Matthew Upton: I have a very simple one, which echoes what Rocio said earlier: to add drip pricing to the list of banned practices.

Rocio Concha: For me, it would be fake reviews. As I said, we will suggest the drafting of amendments, to make that easy to include in the Bill.

[The Chair]

I thank our witnesses very much indeed for your precious time this morning; we appreciate it.

Ordered, That further consideration be now adjourned. —(Mike Wood.)

10:23

Adjourned till this day at Two o’clock.

Energy Bill [ Lords ] (Eighth sitting)

Committee stage
Tuesday 13th June 2023 Public Bill Committees

The Committee consisted of the following Members:

Chairs: Dr Rupa Huq, † James Gray, Mr Virendra Sharma, Caroline Nokes

† Afolami, Bim (Hitchin and Harpenden) (Con)

† Blake, Olivia (Sheffield, Hallam) (Lab)

† Bowie, Andrew (Parliamentary Under-Secretary of State for Energy Security and Net Zero)

Britcliffe, Sara (Hyndburn) (Con)

† Brown, Alan (Kilmarnock and Loudoun) (SNP)

† Clarkson, Chris (Heywood and Middleton) (Con)

† Fletcher, Katherine (South Ribble) (Con)

† Gideon, Jo (Stoke-on-Trent Central) (Con)

† Jenkinson, Mark (Workington) (Con)

† Levy, Ian (Blyth Valley) (Con)

† McCarthy, Kerry (Bristol East) (Lab)

† Morrissey, Joy (Beaconsfield) (Con)

Nichols, Charlotte (Warrington North) (Lab)

† Owatemi, Taiwo (Coventry North West) (Lab)

† Shelbrooke, Alec (Elmet and Rothwell) (Con)

† Western, Andrew (Stretford and Urmston) (Lab)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

Sarah Thatcher, Chris Watson, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 13 June 2023

(Morning)

[James Gray in the Chair]

Energy Bill [Lords]

09:25

[The Chair]

Order. We resume consideration of the Bill. I am speaking slowly in the hope that the shadow Minister may appear at the last moment—

[Taiwo Owatemi (Coventry North West) (Lab)]

He was just behind me.

[The Chair]

Hopefully, then, he will be here very shortly.

We will resume our marathon consideration of the Energy Bill this morning with the Question that clause 171 stand part of the Bill. That, of course, is grouped with a number of other things: clauses 172 to 174, amendment 101, schedule 16, clauses 175 to 179, and new clause 39. To remind the Minister in case he slips again, the Question will be that clause 171 stand part of the Bill.

I welcome the shadow Minister to his place—all I have done so far is announce the first group. I call the Minister to speak to it.

Clause 171

Relevant heat network

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Clauses 172 to 174 stand part.

Amendment 101, in schedule 16, page 335, line 37, at end insert—

“(aa) their interests in systems that deliver heat efficiently;”.

This amendment defines consumers’ interests expressly to include efficient heat delivery in order to ensure that regulation covers systems that are operational but are operating inefficiently to the detriment of customers.

That schedule 16 be the Sixteenth schedule to the Bill.

Clauses 175 to 179 stand part.

New clause 39—Guarantee for consumer protection—

“(1) Within three months of the day on which this Act is passed, Ofgem must set out a new licence to operate for heat networks that guarantees equivalent protections for heat network customers compared when compared with electricity and gas customers.

(2) Protections under subsection (1) must include but are not limited to—

(a) a price cap for heat network customers;

(b) a licence condition to “treat customers fairly”, analogous to Licence Condition 0 of the electricity and gas supplier licences; and

(c) a licence condition addressing “ability to pay”, analogous to Licence Condition 27A of the electricity and gas supplier licences.”

This new clause would guarantee that heat network customers receive equal treatment to electricity and gas customers.

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)]

Thank you, Mr Gray. It is a pleasure to serve under your chairmanship yet again in this marathon but exciting and engrossing Committee.

Part 7 of the Bill relates to heat networks. The purpose of clause 171 is to define a heat network, clarifying the scope of heat networks regulation. As well as defining “relevant heat network”, the clause includes definitions for both communal and district heat networks.

A heat network provides heating, cooling or hot water to a building or collection of buildings, and its users. A communal heat network supplies heat to one building whereas a district heat network supplies two or more buildings. In both cases, the network must serve separate consumers or premises within the building or buildings to be considered a heat network. The clause provides a clear distinction between communal and district heat networks, which may require different legislative approaches. The definitions explicitly include networks that use heat pumps.

Clause 172 appoints the Gas and Electricity Markets Authority—Ofgem, for the avoidance of doubt—as the heat networks regulator for England, Scotland and Wales, and the Utility Regulator as the regulator for Northern Ireland. The Secretary of State—or, in Northern Ireland, the Department for the Economy—can, via regulations, change the regulator or change who carries out some of the regulator’s functions, assigning them to another body. For ease and clarity, whenever I refer to “the Department” in relation to heat network clauses, I am referring to the Department for the Economy in Northern Ireland.

Clause 172 also provides consequential regulation-making powers for the Secretary of State and the Department to amend this part of the Bill if the regulator is changed or some of its functions are reassigned. This is important to ensure that heat networks regulation remains agile.

Clause 173 provides the Department for the Economy in Northern Ireland power to amend the Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations 2015 to provide for the regulator in Northern Ireland to be the competent authority for the purpose of those regulations. Amendments made under this power would enable the regulator in Northern Ireland to appoint a body as the alternative dispute resolution body in Northern Ireland.

The purpose of clause 174 is to allow the Secretary of State or the Department to regulate relevant heat networks and grant powers to those carrying out activities related to building or maintaining heat networks. Schedule 16 provides further details on the planned use of those powers. Under the clause, the Secretary of State or the Department will be required to consult on any changes before making any regulations under clause 171. Clause 174 also requires UK Ministers to consult Scottish Ministers when legislating in areas that are devolved to Scotland.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Will the Minister give way?

[Andrew Bowie]

I rather expected that. I am happy to.

[Alan Brown]

I thank the Minister; he almost invited the intervention. This is about consultation on matters that are fully devolved. We had a meeting, and the Minister expressed sympathy for our position on the need to find a way to strengthen the “consult” language so that it is not the Secretary of State imposing something. I wonder if he has any further information on that.

[Andrew Bowie]

I thank the hon. Member for his question. I received a letter from the Energy Minister in the Scottish Government, Neil Gray, just last week—I am formulating a response just now—on the very issue of consultation and consents. Discussions are ongoing as to the exact form that will take.

Clause 175 outlines the parliamentary procedures required for the regulations made under clause 174.

Clause 176 establishes that the Gas and Electricity Markets Authority—commonly referred to as GEMA—and the Northern Ireland Authority for Utility Regulation can recover the costs of regulating heat networks using gas and electricity licence fees. The Bill allows the recovery of costs for other bodies operating within the regulatory framework, such as the code manager and other bodies appointed to administer specific functions in regulation. The Government previously consulted on their proposed approach to cost recovery and received broad stakeholder support. The clause will facilitate the implementation of that approach and ensure that heat network regulation is sustainably and fairly funded.

Clause 177 provides power for the Secretary of State to designate, via regulations, GEMA as the licensing authority for the purposes of the Heat Networks (Scotland) Act 2021. The Scottish Government and other stakeholders have agreed to Ofgem being the regulator across all of Great Britain.

Clause 178 enables the Secretary of State to amend, via regulations, the Heat Networks (Scotland) Act 2021 to give the licensing authority compliance monitoring and enforcement powers under that Act. We intend to designate Ofgem as the licensing authority. That designation and the regulations will allow Ofgem to carry out this regulatory role in Scotland. Regulations under this clause must provide that offences created by the regulations are triable summarily only and punishable by a maximum of three months in prison or a fine not exceeding £200, or both.

[Alan Brown]

I thank the Minister for giving way again. He mentioned the possible imprisonment of up to three months. That seems to cross over into the Scottish justice system, because the Scottish Government have effectively set a presumption against short sentences. This would clearly be a short prison sentence, so how would that work in reality, against the wishes of sentencing legislation in Scotland?

[Andrew Bowie]

The hon. Member makes a good point. As I said, the Scottish Government have agreed to Ofgem being the regulator across Great Britain. I will go away and find a detailed answer to his point, which is well made—indeed, it is important to my constituents—about how the crossover will work with the Scottish justice system. It is a completely devolved competency, which we, of course, respect.

Clause 179 provides definitions for the interpretation of this chapter’s clauses. The clause defines “the Department” as the Department for the Economy in Northern Ireland and “the NIAUR” as the Northern Ireland Authority for Utility Regulation.

Schedule 16 covers heat network regulation. Part 1 of the schedule provides definitions of the terms used in the schedule. Part 2 allows the Secretary of State to make regulations about the regulator’s objectives. The main objective of the regulator will be to protect the interests of current and future heat network consumers. Part 3 covers heat network authorisations. The authorisation regime will ensure consistent standards across the industry, raising consumer protections. To carry out regulated activities, persons will be required to comply with conditions of authorisation, and the regulator will have the powers to enforce compliance.

Part 4 covers code governance in relation to heat networks, and part 5 covers the installation and maintenance of licences. Holders of licences will have the additional powers required for installing and maintaining heat network equipment. The regulations may require the regulator to be satisfied that the person applying for the licence is suitable, as well as the criteria they must use when making this judgment.

Part 6 covers the enforcement of conditions in licences or authorisations. The regulator is able to issue orders and penalties when a person is likely to contravene or has contravened a condition. Orders can be used to require compliance with a condition. If breaking a condition has caused damage, loss or inconvenience for a consumer, the regulator can make a consumer redress order.

Part 7 covers the regulator’s powers of investigation. Although it is not considered appropriate to introduce a price cap on the cost of heat provided by heat networks now, the Government do intend to provide for the regulator to investigate whether the prices charged are disproportionate. That enables the regulator to take enforcement action against authorised persons charging disproportionate prices.

Part 8 covers step-in arrangements. The purpose of the arrangements is to facilitate the transfer of a regulated activity in relation to a heat network to a new entity, should the old entity no longer be able to carry on that activity. Part 9 covers the special administration regime. Similar to the provision for other essential services such as gas and electricity markets, this alters the normal administration process to allow for the continued supply of heat. It provides the ability to deploy a backstop should other actions to protect heat supply fail.

Part 10 allows regulations about the supply of heat to premises, including new connections and the metering of supply, and part 11 covers protections for consumers. Part 12 covers payments from the sector to support the special administration regime. It allows for regulations that will authorise the regulator to charge heat networks, via their authorisation conditions, to fund the regime. In that way, the regime spreads the cost of a firm failing across all companies. This is a fair and proportionate way of funding the regime.

Finally, part 13 covers a range of topics, including consultation and co-operation, the objectives of the Secretary of State and Departments across the UK in carrying out their functions, and the creation of offences. I hope Members agree that heat networks play an important role in decarbonising heat and supporting the delivery of our net zero commitments.

[The Chair]

There is no interest from elsewhere. The Question therefore is—[Interruption.] If the shadow Minister wishes to take part in the debate, he needs to let me know; otherwise, we will move on.

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I did raise my hand, but it was my left hand rather than my right hand.

[The Chair]

You might stand up—that might be helpful in future—or tell me, or something.

[Dr Whitehead]

I should start by apologising to you, Mr Gray, for being marginally late. Those who know me will know that although I am usually rather close to the line in getting to my seat, I am rarely not actually there in time. I apologise for that slight problem this morning; I blame the lifts in Parliament.

The regulation of the whole system of heat networks, and combined heat and power for district heating schemes, is an important part of the Bill, which is long overdue in its arrival. Members will be increasingly familiar with district heating schemes in their constituencies, which provide heat, power and sometimes cooling both to properties and to industrial and commercial premises within a network scheme.

District heating schemes are by no means new. A number of them have been operating for many years, such as the system in Pimlico—the system in Westminster has been going for many years. Partly because such schemes have been going for many years, they have fallen out of the spotlight in terms of regulation and bringing their provisions into line with what customers expect from elsewhere in the energy system, particularly in relation to customer-facing retail and so on.

Because district heating schemes are enclosed, they are essentially monopoly providers of heat within their own area. They are generally advantageous to customers because they provide reliable heat, usually at a considerably lower price than the general market. The Government are seeking to promote the idea of local authorities extending heat networks for precisely those reasons. They are potentially very low carbon, and agnostic in terms of heat sources for the network. The key is that the network goes around a particular area, providing heat directly to people’s homes, and, as I said, to offices and industrial premises.

In many ways the schemes just do not fit: they stand aside from what customers are normally expected to pay attention to these days, and the energy, gas, heat and power that they receive. As I said, that is because the heat networks in this country, and indeed the combined heat and power systems relating to heat networks, quite often provide electricity as a by-product of the heat-engine process. But they predominantly provide heat for customers.

A number of problems relate to the customer arrangements, and customer expectations, regarding that closed system. Because each of the individual extant networks in the country is effectively a mini-business in its own right, they have at their heart an arrangement whereby a company, not-for-profit or local authority, in some instances, that runs a scheme is responsible for procuring the fuel as if it were a retail energy company for the network, and then supplying it to customers through the heat engine and the network that goes into people’s homes.

The issue for customers is quite often, first, whether the company that is providing supplies for the heat network has procured them in a reasonable and cost-efficient manner. Secondly, is the system that is delivering the heat for customers efficient in its own right? Particularly in older schemes, there are a number of circumstances in which the system provides heat to customers, but not efficiently. The pipework may be old, furred up and not functioning well. Of course, it is extremely difficult for the customer to recognise whether the system is efficient. Sometimes its inefficiency comes to light only when people start being charged unreasonably large bills. The company that is providing the service will then go through its reasoning about the supplies coming in and the service being provided, but not the efficiency of the service.

There is little customer redress in the systems because they generally are not regulated. They have voluntary regulation, run by the Association for Decentralised Energy, whereby heat networks sign up to a redress programme, but currently it covers only a minority of the total heat networks in operation. Bearing all those things in mind, as well as the system’s likely future, the system is long overdue being regulated in a way that delivers for customers the certainty of a good service, redress where the service is not so good, and access to an understanding of how the system as a whole works, and what the companies that provide the service are doing—hopefully in the interests of customers, but in some circumstances not.

The system as a whole works pretty well: most of the companies that run heat networks are honourable organisations, often set up on a not-for-profit basis to provide a district heating scheme. The issue is at the margins of those schemes that do not run their service particularly well, or that do not provide decent redress for their customers and have a monopoly situation as far as their supply is concerned.

09:45

The remedy of switching is not available as far as heat networks are concerned; someone is either in the heat network or not. People cannot opt to switch to a parallel provider, so other forms of redress and action are required to protect customer interest in relation to heat networks. The customer needs a voice on the activities of the heat network, and we need to ensure that the network works in the customer’s interest, rather than just in the narrow interest of the heat network supplier.

The regulations are way overdue. I have been campaigning actively for a long while to get heat networks regulated. Hon. Members with heat networks in their areas will know of problems arising from the recent energy price crisis, whereby the price of heat from heat networks has increased far more than that of heat from other sources. The particular reason for that is that heat networks are not subject to the price cap and various other regulations relating to mainstream prices. Energy prices have gone through the roof in some areas, but there are no constraints on the companies, and hon. Members, who have brought these issues to the House on a number of occasions, have been left frustrated because very little can be done.

If price caps were applied to heat networks in the same way as they are to large retail companies providing gas or other forms of heat through customer accounts, a succession of companies may well go bust. As hon. Members will remember, when prices went up very high and some companies had not hedged their supplies properly, 29 small, medium and fairly large energy retailers went out of business over a couple of years. Given that heat network operators are essentially small versions of retail companies, that situation may well be repeated. We need something in regulation that applies to the issues, problems and circumstances of the companies providing those services so that they stay in business and provide a good service, and the customer has a good level of redress. The measures we are debating pretty much provide for that, so I substantially welcome the fact that, at long last, we will have on the statute book a pretty comprehensive system of heat network regulation.

Our amendments would not substantially amend or overthrow the regulatory system; rather, they draw attention to one or two things I have mentioned this morning that I am not sure are thoroughly in the system as it stands. Amendment 101, on general regulation, seeks to amend schedule 16, which sets out the detail of the regulation of the network. It would add to the schedule the customer’s interest in systems that deliver heat efficiently. That is the case with most newer systems, but for older systems, set up before regulation, the heat was often not delivered efficiently and nothing was done about it. It is important to set out in the schedule that the regulator’s duty is to regulate not just the system but its efficiency, to ensure that people do not accumulate a lot of expense over a long time because the system is not operating in their interest.

New clause 39 would explicitly state guarantees of consumer protection, which should be—and, I grant, substantially are—within the regulatory framework. It would ensure that Ofgem sets out

“a new licence to operate for heat networks that guarantees equivalent protections for heat network customers…when compared with electricity and gas customers.”

Those protections include, but are not limited to, a price cap of some description for heat network customers. That cannot be the same as the price cap that we will discuss later, which the Government have rather inconveniently removed from the Bill but I hope will restore. That price cap has to be tailored to the circumstances of heat networks. The proposed protections also include a licence condition to treat customers fairly. That is particularly important, as exit is not an option for heat network customers. This is a question of fair treatment, as opposed one of simply switching to another supplier. The final protection proposed by the new clause is a licence condition addressing ability to pay. Again, that needs to be tailored to the particular circumstances of heat network customers, but the arrangements should not be that far off those that already apply to general electricity and gas suppliers.

We have had considerable debates in this House—the Minister and I have taken part in some of them—on so-called pass-through arrangements for heat networks, whereby Government assistance for energy customers did not land with heat network customers because there was an intermediate between the Government and the customers at the end of the process. The Government have certainly found it very difficult to get in place arrangements for additional payments to be made to customers affected by sky-high energy prices. The process has been revisited repeatedly so as to, first, ensure that the heat network agents are passing on the assistance they receive, and secondly, consider the remedy for customers who are not getting what they should be getting.

All of those problems result, at least in part, from the fact that there is no regulatory scheme for heat networks, which means that the circumstances of their customers are not analogous to those in the wider energy sphere. New clause 39 would be a useful addition. It would clarify what Ofgem must do when setting up licences to operate heat networks, and it would provide guidance as to the circumstances under which those licences should be granted.

We very much support the Bill’s content on heat networks, but the minor tweaks suggested by our proposed amendment to schedule 16 and our new clause 39 are in the interests of customers and would help not hinder them when it comes to the end result. After all, I think that that is what everybody on the Committee wants for heat network customers not just now but in the future.

[Alan Brown]

It is a pleasure to serve under your chairmanship, Mr Gray. Like the shadow Minister, I broadly welcome these clauses and the principles behind them. I made a couple of interventions on the Minister. I cannot quite remember, but I have a feeling that clause 174 is not one of those referenced in the letter from Neil Gray, the Energy Minister in Scotland. I will go back and check that. The Scottish Government have concentrated on some of the key clauses, but I will check and reserve the right to come back on this issue on Report if need be. I appreciate that the Scottish Government are working with the Minister. I also appreciate the Minister saying he will come back on my query on clause 178.

As the shadow Minister said, heat networks have been debated in this place for a few years. I have found a couple of speeches of mine from two years ago, when matters were raised in Westminster Hall—primarily by Tory MPs—so this is welcome. If the Committee wants, I can give the thrust of my two speeches from back then, because it is still relevant, or I can just condense them if the Committee prefers. I will take the Chair’s guidance on that.

[The Chair]

Condensing is always a good thing.

10:00

[Alan Brown]

Why do we need this? This is why I also support new clause 39. As far back as 2017, the then director of the Department for Business, Energy and Industrial Strategy director stated that

“whatever you do you end up with 17- 24 per cent district heating”.

That means that some 6 million homes will have district heating, so it is important that we actually facilitate that to allow the transition to net zero. It is even more important that we provide protection for those 6 million homes, or people will not accept the principle of district heating and we will not get to net zero. At the moment, around half a million homes have some form of either district heating or communal hot water.

The numbers we are talking about mean that I agree with new clause 39 that a price cap is needed. It would give surety and protection to customers, and help avoid bad news stories as well. Even when I spoke two years ago, consumers and landlords were reporting price rises of up to 700%, according to a Heat Trust report. That illustrates the need for a cap and protection, so that people cannot just continue to ramp up costs.

Amendment 101 is a simple amendment, and I hope the Government will consider accepting it. It is almost administrative, but it does have qualities. I have in the past reported the fact that communal heat networks sometimes operate inefficiently because they are not subject to technical standards. Some contractors choose to complete heat system installations that come at the lowest form of capital cost, rather than the more efficient, longer-term operational systems that give whole-life savings. I wonder if amendment 101 would protect against that. Could the Minister advise us on how the new regulations will ensure that it is the most efficient systems that will be installed, to the benefit of customers and consumers?

Previously, the Government’s green energy support programme had to address the fact that some people in district networks were classified as commercial customers. That was because, as the shadow Minister has said, it is in effect small independent companies that operate these networks. We need to ensure that those classified as commercial customers are protected as much as domestic customers. I should have intervened on the shadow Minister, but I hope that new clause 39 would provide that protection. We welcome the provision, but in order to convert people to district heat networks, we really need wider, joined-up Government policy.

[Andrew Bowie]

I welcome the broad welcome given by His Majesty’s official Opposition and the Scottish National party to the clauses. I tend to agree with the hon. Members for Southampton, Test and for Kilmarnock and Loudoun. These measures are long overdue, so I thank them again for their positive responses.

I will turn to the points made by the hon. Member for Kilmarnock and Loudoun regarding consent and consult. Notwithstanding my commitment to get an answer for him regarding the criminal justice system in Scotland and how it will interact with these new regulations and their administration in Scotland, I confirm that in the recent letter from the Energy Minister, Mr Gray, the Scottish Government have in fact dropped consent requests on heat networks, so they are very happy to proceed as drafted here. I wanted to give confirmation of that. I will turn to the hon. Gentleman’s other points later.

I thank the hon. Member for Southampton, Test for his amendments, which provide an opportunity to discuss in detail what we are doing here today and why we are not going as far as he suggests we should.

I turn to amendment 101. If not designed and built to high standards, heat networks can experience inefficiencies such as heat losses from the pipes that deliver hot water from the energy centre to homes and businesses. That can lead to consumers paying higher prices and experiencing unreliability of heat supply, as the hon. Member for Southampton, Test said. I reassure him and others that we already have a robust plan to address that issue. The Bill provides for the introduction of technical standards on the design and build of heat networks, which we committed to implementing as part of a regulatory framework in our 2020 heat networks regulation consultation. That will require all new heat networks to be designed and built to minimum standards, and existing networks to make efficiency and performance improvements over time.

As a regulator, Ofgem will enforce the requirement. Heat networks will be required to submit documentation to Ofgem demonstrating that their compliance with technical standards has been certified. As I have set out, the Bill and subsequent secondary legislation will give Ofgem powers to investigate and intervene in networks where prices for consumers appear to be disproportionate compared with systems and similar characteristics, or if prices are significantly higher than those consumers would expect to pay if they were served by an alternative heating system. Ofgem will also enforce minimum standards on the reliability and quality of the heat supply. I hope that reassures hon. Members, including the hon. Member for Southampton, Test, that the Government are already taking steps to improve efficiency on heat networks and—to address some points made by the hon. Member for Kilmarnock and Loudoun—to protect consumers from high prices and unreliability.

I turn to new clause 39, which was tabled by the hon. Member for Southampton, Test. Ensuring heat network consumers are protected from high prices and unreliability is our principal reason for introducing heat networks regulation, so I am pleased to see hon. Members recognising the importance of addressing the issue. I appreciate that they will want to see the sector regulated as soon as possible, which is one of the reasons we are progressing the Bill at this pace. However, it would not be possible nor sensible to ask Ofgem to require a licence regime within three months of the Bill receiving Royal Assent. Secondary legislation authorisation conditions are needed to enable Ofgem to operationalise as a regulator. We will conduct public consultations with industry and consumer groups on secondary legislation and authorisation conditions before they come into force. We expect heat networks regulation to come into force shortly after that.

I recognise that hon. Members want to ensure that heat network consumers do not pay disproportionate prices. However, we do not believe that a price cap is suitable for the sector, given its nascent and incredibly diverse state across the country. A price cap also risks heat network insolvencies prior to step-in arrangements being embedded into the regulatory framework. The Bill provides the Secretary of State with powers to introduce a price cap in future, should one become appropriate once the market has matured. I reassure hon. Members that we are taking steps to tackle high prices across the board.

[Alan Brown]

Can the Minister give us more information on the mechanisms in the Bill that allow the Government to bring forward a cap in future?

[Andrew Bowie]

As has been set out in the Bill and explained this morning, the powers will be given to the Secretary of State, determined at a point in future when the sector matures, which is exactly the process by which he can introduce a price cap. I think we have gone through that this morning.

[Alan Brown]

Will the Minister write to me to give a little more detail on that?

[Andrew Bowie]

Yes, I am happy to write to the hon. Gentleman and provide more detail on exactly that point.

The Bill and subsequent secondary legislation will give Ofgem powers to investigate and intervene in networks where prices for consumers appear to be disproportionate compared with systems with similar characteristics. It will also be able to investigate and intervene if prices are significantly higher than those consumers would expect to pay if they were served by an alternative heating system. We are taking action to address current high prices in the heat network sector. The energy bills discount scheme, which runs from 1 April 2023 to 31 March 2024, provides support to heat networks with domestic end consumers.

On conditions around treating customers fairly and ability-to-pay assessments, I am pleased to inform hon. Members that the Government already plan to consult on introducing comparable levels of service and protection to consumers in other regulated utilities as part of a public consultation on heat network consumer protection rules. We will publish that consultation in due course. I hope that reassures hon. Members that the Government are already taking steps to deliver regulation and tackle high prices in this sector. I therefore ask the hon. Member for Southampton, Test not to move his amendment 101.

Question put and agreed to.

Clause 171 accordingly ordered to stand part of the Bill.

[The Chair]

We now come to the Question on clauses 172 to 174 stand part—we have just debated them. With the leave of the Committee, I will take them together.

[Dr Whitehead]

Do you want to know whether I am going to withdraw amendment 101, Mr Gray?

[The Chair]

No. The hon. Gentleman should not interrupt me while I am putting the Question. In answer to him, however, his amendment 101 comes after the decision on clauses 172 to 174. I thank him for his intervention, but he is wrong.

Clauses 172 to 174 ordered to stand part of the Bill.

[The Chair]

The Question now is whether the Opposition wish to move amendment 101.

[Dr Whitehead]

I will include an indication of our position on new clause 39, Mr Gray, although I understand that any vote on the new clauses will take place at the end of our proceedings and not today. That is right, is it not? I will also say something on amendment 101.

[The Chair]

The hon. Gentleman has already spoken to amendment 101 as part of the group that we have just debated.

[Dr Whitehead]

Yes. I am seeking to state why I might wish to withdraw amendment 101, or otherwise, and in so doing I was seeking clarification, Mr Gray. My understanding is that new clause 39, which is included in the group, will not be up for a vote now, because that would come at the end of our proceedings.

[The Chair]

That is correct. New clauses come at the end of proceedings. If the hon. Gentleman wishes to move amendment 101, he may do so now. Immediately after that, we will come to the Question on schedule 16 —that is the next thing to happen. The Question on new clause 39 comes at the end of our proceedings, so is for a decision later. Right now, the only question is whether he wishes to move amendment 101.

[Dr Whitehead]

Yes. I was actually trying to save time, Mr Gray.

[The Chair]

Leave that to me.

[Dr Whitehead]

Right.

On amendment 101, I do not think that there is anything explicit in schedule 16 relating to the position of efficiency in regulation. Having had a look at the schedule again, I am confirmed in that view. I take what the Minister said about the intention to ensure that that is part of regulation, but I am afraid we are a little in the hands of what the Minister may decide about the regulations as far as efficiency goes. The Minister is an honourable one, so I am sure that he will seek to carry out what he has said today to the letter. I am therefore happy not to move amendment 101, but I note that that was one of the purposes of regulation should have been made rather more explicit in the schedule.

[The Chair]

The amendment is therefore not moved.

Schedule 16 agreed to.

Clauses 175 to 179 ordered to stand part of the Bill.

Clause 180

Regulations about heat network zones

Question proposed, That the clause stand part of the Bill.

[Andrew Bowie]

Chapter 2 of part 7 covers heat network zoning in England. Heat network zoning is a key policy to deliver the scale of expansion of heat networks required to meet net zero. The process brings together local stakeholders and industry to identify and designate areas within which heat networks are expected to be the lowest-cost solution for decarbonising heating.

The clause provides a definition of heat network zones, gives the Secretary of State the general power to make regulations about heat network zones, and outlines the parliamentary procedures that must be followed when doing so.

Regulations made in relation to any of the following three matters will be subject to the negative procedure: first, any requirements on zone co-ordinators to consult on zone designations, revocations, or reviews; secondly, reviews of the designation of areas as heat network zones by zoning co-ordinators or the heat network zones authority; thirdly, any requirements for zone co-ordinators and the authority to consult on the zoning methodology, and reviews of the heat network zoning methodology by the Secretary of State. All other regulations will be subject to the affirmative procedure.

10:15

[Dr Whitehead]

I do not have much to say other than that we now move on to heat network zones as opposed to heat networks themselves, and we will be debating what the term means and how the zones work. Clause 180 sets the stage, and as we will be debating amendments on a future clause, I have nothing further to say about this one.

Question put and agreed to.

Clause 180 accordingly ordered to stand part of the Bill.

Clause 181

Heat Network Zones Authority

[Dr Whitehead]

I beg to move amendment 102, in clause 181, page 152, line 27, after “the Secretary of State” insert

“or the Gas and Electricity Markets Authority”.

This amendment is to ensure that the Gas and Electricity Markets Authority may be designated as the regulator for heat network zones.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 115, in clause 181, page 152, line 30, at end insert—

“(5) The Heat Network Zones Authority shall be responsible to and regulated by the regulator.”

This amendment makes the regulator responsible for Heat Network Zones.

Clauses 181 and 182 stand part.

[Dr Whitehead]

We have tabled two amendments to clause 181. As far as I understand it, the clause adds to the heat network system, which, as I have said, has evolved over the years into a number of heat networks in various parts of the country.

A good idea for future heat network development would be to have a much more systematic approach and an understanding of where our heat networks may be most appropriately sited and the best conditions for them to be established. We know a number of potential good and bad conditions for heat networks. For example, a certain density of population, buildings and so on is needed for heat networks to be efficient, although there are in existence small heat networks that serve very small communities. Indeed, heat networks can range from being marginally larger than a few properties to covering large parts of cities.

There are five major heat networks in my city of Southampton, one of which serves the whole city centre and surrounding areas, and has an 18 km heat delivery pipe network. It is connected to a geothermal scheme in the city centre, so it efficiently provides heat to that whole area. It is connected not just to domestic properties but to a number of commercial users, which I think includes the nation’s only geothermally heated supermarket, civic centre, health authority centre, and so on.

One component of a decent heat network is what is in the network to validate the load that is supplied. A heat network may be just for domestic properties, as is the case in some housing developments in Southampton, but that is not the most efficient way of developing a heat network because the load from domestic properties changes seasonally. If a heat network is connected both to a number of properties—an estate or whatever—but also has industrial or commercial users, the load can be spread out and equalised over the years.

The Southampton schemes operate quite efficiently within the right places for zones. Nevertheless, it is—or should be—a function of local circumstances that heat networks are more likely to be applied in constituencies where there is a considerable gathering of industrial and commercial activities and population zones, and are less applicable in large rural constituencies, although there are some heat networks in small towns and villages. Within that zone understanding, there may be arrangements that pertain to local circumstances: for example, zones may be organised in such a way that ensures the likelihood of success for the heat network is relatively high.

I understand that this section of the Bill seeks to ensure that local authorities are required to look at research, to consider where it would be good to have a heat network and to produce a heat network zone plan, so that as we develop heat networks for the future we have a much better picture of where the schemes would work well, where investment may best go and the extent to which success is likely to be high, rather than someone perhaps taking a flyer on something that probably will not work well for the future.

We are happy with the idea of heat network zones being put into the Bill, that we approach them in the way that I have described and that they complement the regulation of the system in as much as the whole system now is much more in the mainstream of energy planning and energy futures as a whole. I hope that our amendments are complementary to the general scheme of things. They simply try to align the regulation of the heat zone development process with that of heat zones themselves, proposing that the process of heat zone discovery and development should be regulated by the same regulator that regulates heat as a whole: the Gas and Electricity Markets Authority.

It is important that there should be a regulator for this particular activity so that it does not stand alone from everything else happening as far as heat networks are concerned. I do not think that would impede the development of heat networks—on the contrary, it would assist them by making sure that the way we were bringing forward heat zone arrangements was generally of assistance to heat networks as a whole.

What if a local authority or similar body involved with developing heat network zones were not interested in heat networks? It might locally regulate heat zones in a way that did not take seriously the whole question of heat network development. The regulation of heat zone arrangements under the circumstances that I am discussing would ensure that there was a pretty uniform approach as far as heat network development was concerned. Those engaged in it would know that someone was looking over their shoulder to make sure that they were doing the job properly. That is all we want to add to the measure and I think the Minister will agree that it is a pretty positive addition. It certainly does not detract in any way from the validity of the heat network process and the idea that there are right and wrong places for heat networks. We must get them in the right places so that they can succeed for customers as well as they possibly can.

[Andrew Bowie]

I thank the hon. Member for his amendments, all of which are designed to ensure that the regulatory frameworks for heat networks and the building-up of capacity in this country for heat network zoning gets to a place that will support the growth of the industry in the future. I resist the amendments only because I feel that the powers in the Bill meet the required level of engagement and regulation necessary at this stage for what is currently a nascent but will in time become an incredibly important part of the wider energy mix.

I turn first to amendment 102, which relates to designating GEMA as the heat network zones authority. The zones authority will be a national body responsible for zoning functions that require national-level standardisation or are most efficiently or effectively carried out at a national level. This approach will allow for national standards and consistent rules to apply in the initial identification of a potential heat network zone.

As for who could fulfil the zones authority role, clause 181(3) is explicit that

“The Secretary of State may, but need not, be designated”

as the zones authority. Therefore, the clause, as drafted, already provides that regulations may appoint GEMA as the zones authority.

The zones authority will fulfil a different function from the heat network regulator, which we propose, as set out in clause 172, should be fulfilled by GEMA for Great Britain. That role will cover all heat networks, both within and outside heat network zones. We do not envisage a separate regulator for heat network zones in England.

We will specify the zones authority’s functions and responsibilities within the regulations when they are brought forward. That will be subject to further consultation in due course as we continue to develop our policy proposals, and we look forward to engaging with Parliament on that. Appointing the zones authority in regulations will allow for amendment, should that be required, as and when its functions change over time and as heat networks become more established throughout the United Kingdom. I hope that has helped to clarify our proposed approach and the scope of the powers already provided for in the Bill.

I turn to amendment 115, regarding the relationship between the Heat Network Zones Authority and the heat network regulator. As I have said, we intend for GEMA to fulfil the heat network regulator role in Great Britain. The zones authority will be a national body responsible for certain zoning functions. We will consult on who should fulfil the zones authority role in due course, but we do not consider that the zones authority should itself be subject to oversight by the heat network regulator. I hope this has helped to clarify our proposed approach regarding the zones authority and how its role relates to the heat network regulator, and I therefore ask the hon. Member for Southampton, Test to find it within himself to withdraw his amendment.

10:30

Clause 181 gives the Secretary of State the power to make regulations that appoint a body as the Heat Network Zones Authority, which is known as “the Authority”. It allows the authority to delegate any of its functions to other persons specified in the regulations. In practice, that may allow for certain entities, such as local authorities, to collect information on behalf of the authority in zones. As set out in the clause, the Secretary of State may be designated as the authority. We intend to consult further on roles and responsibilities within heat network zones in due course.

Clause 182 gives the Secretary of State powers to make regulations about zone co-ordinators. Zone co-ordinators will support the delivery of heat networks in heat network zones and will have ongoing responsibilities to ensure that the operation of local heat networks complies with the zoning legislation. Zone co-ordinators will also enforce zone requirements where necessary and collaborate with the national zones authority and national heat networks regulator when required.

The clause describes what regulations the Secretary of State can make about the zoning co-ordinator. It also enables the zones authority to intervene, for example, in cases where there is a risk that a substantial heat network zone may not be realised. Those powers may be necessary in cases where a local authority fails to act or is unable to act. In those instances, the zones authority may carry out any function of a zone co-ordinator, may direct a zone co-ordinator to carry out its functions and/or may require a local authority to establish a zone co-ordinator.

[Dr Whitehead]

Once again, the bona fides of the Minister are not in any question at all, but what he is saying to us relies quite a lot on the regulations that will follow from the Bill and how the Secretary of State may designate under clause 181 a person to act as the Heat Network Zones Authority. If the Secretary of State decides that there should be a Heat Network Zones Authority, we are not sure exactly how that will come about. It may be that we do not have an authority as such, but the Department effectively operates as the authority, or a complete Heat Network Zones Authority could be set up with offices and civil servants or quasi-civil servants, although that might be a bit bureaucratically overbearing.

Again, the Bill does not specify how that authority, whatever it is, will be tucked into the system as a whole. The Minister says, “I’m sure it will be, because we are sensible people and we will make sure we do it,” but that has not been put on the face of the Bill, which is always good practice. Whatever our intentions may be today in this Committee—and they are good intentions—a piece of legislation has to stand in circumstances where those intentions may not be so good under a future Government. That is why we tabled our amendment, but I hear what the Minister has said, and that is on the record. Given my boundless trust in the Minister’s good intentions for the future, I hope that he will do what he has said regarding heat network zones authorities, and their regulation and operation. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 181 and 182 ordered to stand part of the Bill.

Clause 183

Identification, designation and review of zones

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clauses 184 and 185 stand part.

[Andrew Bowie]

Clause 183 gives the Secretary of State the power to make regulations to establish the process for creating heat network zones, which we have just discussed. In the legislation that is referred to as identifying and designating a zone. The clause also gives the Secretary of State the power to make regulations to establish the process for the review of zone designations. A review of zones could lead to changes in the boundary—for example, making the zone larger or combining two existing zones.

Subsection (2) provides that the regulations must require the identification of zones to be done in accordance with the zoning methodology, which is established under clause 184. Subsection (3) outlines further matters that the regulations may specify in relation to the designation of areas as zones. Subsection (4) outlines what may be specified in regulations regarding changing or revoking zone designations. Subsection (5) outlines regulations that can be made about the review of zone designations.

Clause 184 gives the Secretary of State the power to establish a methodology for identifying heat network zones. The methodology will standardise the identification of zones nationally. Proposals for the use of, and approach to, that national methodology received widespread support from stakeholders during the Government consultation.

Clause 185 allows the Secretary of State to make regulations about the ability of the zones authority and zone co-ordinators to request the information required to support the national methodology for the identification, designation and review of heat network zones. The clause, and the regulations that follow, will facilitate the zones authority and zone co-ordinators in requesting and receiving the necessary information to ensure that heat network zones are situated in the right locations. As I discussed in the context of zone reviews under clause 183, the location of heat network zones can be changed as necessary to reflect the impact of changing technologies and neighbourhoods over time.

[Dr Whitehead]

The Minister reflects that circumstances may change over time so it is necessary to have such a power. He is right that circumstances are not static; indeed, we may well miss a lot of good opportunities if we place too much emphasis on the static nature of what we have designated for the future. I think that we will debate, in a future clause, circumstances concerning the development of heat networks within zones, but on the changes that may be necessary in order to keep heat network zones up to date, this is a sensible provision that we support.

Question put and agreed to.

Clause 183 accordingly ordered to stand part of the Bill.

Clauses 184 and 185 ordered to stand part of the Bill.

Clause 186

Heat networks within zones

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss that clause 187 stand part.

[Andrew Bowie]

Clause 186 allows the Secretary of State to make regulations about heat networks within heat network zones. That includes specifying which buildings may be required to connect to a district heat network within a designated zone. Subsections (2)(a) and (2)(b) allow regulations that specify the types of buildings within zones that will be required to connect to heat networks, when they must connect, and how they are notified of that requirement.

Subsection (2)(c) allows the regulations to specify when and how the zone co-ordinator can grant exemptions from the requirement to connect to the heat network. Subsections (2)(e) to (2)(h) allow regulations to make provision about requiring heat sources in zones to connect to a heat network. Subsections (2)(i) and (2)(j) allow regulations that provide for the zoning co-ordinator to set local limits on emissions from heat networks and any grace period to comply with that limit.

Subsection (5) allows regulations to specify when the zoning co-ordinator may or must ask a heat source to connect to a heat network, the types of heat source that can cover, and how the heat source owner can appeal against the requirement to connect. Subsection (6) allows regulations to specify how local limits on emissions from heat networks in zones are set. Subsection (7) provides details about what regulations can be made about grace periods for local emissions limits.

Clause 187 allows the Secretary of State to make regulations about the delivery of district heat networks within heat network zones. Those regulations will give structure to the zoning co-ordinator’s role and responsibilities. “Delivery” refers to the design, construction, operation and maintenance of heat networks. His Majesty’s Government recognise that there are several feasible models for delivering heat networks in zones depending on local circumstances, including the level of involvement of the zone co-ordinator. The clause, and the regulations that flow from it, aim to provide a flexible approach to zone delivery.

The engagement we have had with the heat network industry and with local government has highlighted a desire for flexibility in how heat networks are delivered within zones, as there are a range of ownership and delivery models that could be employed in the future. The Government’s expectation is that the regulations will define what decisions zoning co-ordinators and other bodies can take regarding zone delivery, with guidance from the zones authority to help inform their decisions. The clause provides that regulations may determine when zone co-ordinators may decide what heat networks are delivered in their zones, and by whom, including circumstances in which the zoning co-ordinator may deliver heat networks themselves.

The Government recognise that there is a risk that leaving decisions about zone development solely in the hands of zone co-ordinators could risk a heat network zone not being developed. Therefore, subsection 5(g) allows regulations to define the circumstances in which zone co-ordinators may lose the ability to make decisions about heat network delivery in zones. The intent is that that will happen if the zone co-ordinator has not taken certain steps to develop the zone following a set period after the zone designation.

[Dr Whitehead]

Clause 186 rather reminds me of Bertrand Russell’s definitions of propositions that are automatically members of their own class and propositions that are not automatically members of their own class, but I do not think we will debate that to any great extent this morning.

[The Chair]

No. We will avoid that at all costs.

[Dr Whitehead]

It is an interesting debate in its own right.

[The Chair]

Perhaps for some other time.

[Dr Whitehead]

For no other time, probably. Clause 186 is a relevant and necessary proposition concerning the development of heat zones and heat zone authorities, but one thing that does rather concern me is that although it is important that heat networks are able to develop in the most appropriate way and under the most appropriate circumstances, it is also important that the connections between heat networks can develop in the most appropriate way within a particular area.

I mention that point because there are circumstances in which heat networks may develop independently in parts of cities. The geographical and other siting considerations could lead to the development of interconnections between heat networks so that their joint efficacy is improved. If an extensive heat network, such as the one in Southampton, has a number of independent networks relatively nearby that have developed under different circumstances but are providing the same thing, there is considerable advantage in ensuring that they are interconnected so that they can share heat production and, if necessary, heat network inputs.

As I am sure the Minister is aware, heat networks are agnostic as to the fuel that goes into them. It could be from a heat engine, a geothermal source or a low-carbon source—hopefully, we will develop those to a much greater extent—such as multiple ground source heat pumps or hydrogen engines, which are already in existence and can replace gas engines in heat networks.

10:45

The development of individual heat networks with different forms of fuel may well mean that the fuel can be boosted considerably through association with other heat networks. In Southampton we have one geothermally heated network, which is boosted by a gas engine, and another system, around the general hospital, that is run by a gas engine. The hospital trust is thinking about what to do about that, given that a gas engine is not the best low-carbon solution, although the system is very efficient. At the moment, the scheme just heats the hospital, but if it were developed effectively it could also heat the surrounding residential properties and industries. That would considerably benefit the hospital trust’s income over time. The trust is thinking about joining the city authority in looking for a geothermal solution to its district heating arrangement when it replaces the gas engine. If it does that, how far it puts its geothermal well from the well that has already been drilled for geothermal purposes could be an important element in ensuring the two schemes work as efficiently as possible in relation to the aquifer under the city, which informs the current geothermal scheme.

We should allow connections and co-ordination among district heating schemes to ensure that they are working as well as possible. Booster engines around circuits could make the networks more efficient over time. They may be supplied by another scheme at the end of the network, if the operators of the first scheme are worried about the scheme’s reach if it changes its fuel source. The development of schemes should also be co-ordinated in the way I have described: it may be that the net efficiency output of two or three schemes will be less than optimal unless they are connected in some way, at least in relation to the fuel source and network development.

It does not seem to me that these clauses fully provide for that eventuality. Is there a responsibility or duty for the zone authority to optimise the processes of heat networks within heat network zones, or is it something that may or may not happen, depending on the good will of the various schemes in various areas? Indeed, does it depend on how alert or otherwise the local authority is in seeking to do what is good for all schemes in its area, rather than individual schemes doing their own thing in particular places within the zone?

Does the Minister think that the circumstances I have set out, in which it may very well be in the interests of individual district heating networks within a zone to collaborate to a much greater extent than they have done, could be encouraged as part of the operation of heat network zones? It may well be that we need an additional push to ensure that that happens. The Opposition have not tabled an amendment to that effect, but I hope that the Minister will reflect on how that co-ordination can best be achieved in the interests of all the networks within the zones. [Interruption.] I see that he has just received some excellent inspiration. Again, it goes back to the best interests of customers and ensuring that customers collectively are best served by the networks in their particular zone.

[Andrew Bowie]

I thank the hon. Member for his questions. He made mention, almost in passing, of heat network zones doing their own thing within zones. It is important to point out that in clause 186 there are several protections against heat network zones doing their own thing. Zones will inherently represent areas where heat networks are expected to provide the lowest-cost low-carbon heating solution. Customers will be able to apply for exemptions from the requirement to connect where it would be inappropriate. Ofgem’s consumer protection framework will provide protection for domestic consumers and microbusinesses, and we will consider consulting on whether protections should be extended to other consumer groups, such as larger non-domestic consumers, which are in scope of the requirement to connect to a heat network. I know that the hon. Member’s points were not specifically directed at that issue, but he mentioned zones being able to do their own thing, and it is important to ensure that consumer and business protections are built into the regulations.

We talked about hospitals, albeit in passing. We are not setting out specifically which buildings will be required to connect to a network, but we can require certain buildings in zones to connect to a heat network. Doing so encourages investment in the heat networks and accelerates the deployment of low-cost, low-carbon heat. The categories of buildings chosen to connect will strike a balance between this investment certainty and individual consumer choice. That will develop as the heat network market in England grows. We may need to refine these categories. This is a nascent industry in the early stages of its development, so describing them will provide that flexibility. The Government will consult later this year on which types of buildings can be required to connect and in what circumstances.

On the hon. Member’s substantive point about why the Bill does not make provision about heat network delivery in zones, we are providing that zone co-ordinators shall have powers to decide what heat networks are built in zones and by whom. There are many ways in which heat networks could be delivered in zones and many ways in which zone co-ordinators could exercise their decision-making powers around delivery. As set out in the green finance strategy, we envisage heat network zoning bringing forward a significant increase in private sector investment in heat networks in England. Decisions around delivery may have significant implications for the scale of heat networks built in a zone, the pace at which networks are built and the effect on consumers. The Government intend to consult later in the year on how a zone co-ordinator may take those decisions, so that we get it right. Again, I emphasise that we will be consulting on this later this year.

Also, the way in which decisions are made may need to change over time, reflecting how the market matures and, indeed, learning from experience. The regulations will, of course, be subject to the affirmative procedure, which will allow for parliamentary scrutiny. I am sure that the hon. Member will play his part in such scrutiny, as will his colleagues.

Question put and agreed to.

Clause 186 accordingly ordered to stand part of the Bill.

Clause 187 ordered to stand part of the Bill.

Clause 188

Enforcement of heat network zone requirements

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clause 189 stand part.

[Andrew Bowie]

These are quite a simple couple of clauses. Clause 188 will allow the Secretary of State to make regulations about enforcing the requirements to apply within zones. It will support the previous two clauses on the delivery of heat networks in zones and the requirements placed on networks, buildings and heat sources within a zone. The clause includes the ability for the zoning co-ordinators to issue notices to people if they are suspected of not complying with the relevant requirements; to issue notices to outline what the person must do to satisfy the requirement; and to issue penalties to those who do not comply with the notices.

Clause 189 will allow the Secretary of State to make regulations about the penalties that apply for not complying with zone requirements under clauses 186 and 187 or for not complying with an information request under clause 185. That includes regulations about the maximum penalty amounts, the process for issuing a penalty, grounds for appeal, recovery of penalties, and to whom the penalties are paid.

Question put and agreed to.

Clause 188 accordingly ordered to stand part of the Bill.

Clause 189 ordered to stand part of the Bill.

Clause 190

Records, information and reporting

Question proposed, That the clause stand part of the Bill.

[Andrew Bowie]

This is another simple clause. The Government consider that various types of data will be essential for the identification and designation of areas as heat network zones and for the development of heat networks within them. Clause 190 will allow the Secretary of State to make regulations about zone co-ordinators and the zones authority collecting, storing, and sharing information about zones, including information relevant to identifying areas that would be suitable for the construction and operation of one or more district heat networks, as well as areas designated as heat networks under clause 185. It also includes information requests made to owners of thermal heat sources under clause 186. Information gathered by the zone co-ordinators and the authority, when carrying out activities related to the wider heat network regulations, would also be in scope of these regulations, as would information gathered in relation to the zoning methodology, including its review and update.

There are two circumstances in which information may be shared. First, a zone co-ordinator may be able to share zoning information with other zone co-ordinators, the zones authority and the regulator. Secondly, the zones authority may be able to share zoning information with zone co-ordinators and the regulator.

Question put and agreed to.

Clause 190 accordingly ordered to stand part of the Bill.

Clause 191

Interpretation of Chapter 2

Question proposed, That the clause stand part of the Bill.

[Andrew Bowie]

Clause 191 is the final clause in chapter 2, which concludes part 7 and the clauses on heat networks. The clause covers definitions for the heat network zoning clauses.

[Dr Whitehead]

I have nothing to add, other than “Hooray, we’ve got to the end of that part!” We now have lots of regulations in place, which is a good thing.

Question put and agreed to.

Clause 191 accordingly ordered to stand part of the Bill.

Clause 192

Energy smart appliances and load control

Question proposed, That the clause stand part of the Bill.

[Andrew Bowie]

Clause 192 introduces part 8 of the Bill, which relates to energy smart appliances and load control. It defines the key concepts relating to that part, namely energy smart appliances, energy smart function, load control signals and load control.

The smart energy market is in its early stages but is growing rapidly, as we discussed in detail on Thursday. As the take-up of electric vehicles and other devices such as heat pumps increases, we need to remain agile in responding to new developments in the market. This is to ensure that we maintain grid stability and protect consumers from cyber-security risks. Transitioning to a smart and fully flexible electricity system will play a vital role in decarbonising the power system by 2035. Such a transition could reduce costs by up to £10 billion a year by 2050.

I will briefly set out some key definitions. Energy smart appliances are electrical consumer devices that are communications-enabled and capable of responding automatically to signals such as energy price changes. In response to such signals, they can adjust their electricity consumption or production in line with consumer choice and cost preferences. Load control refers to the act of sending and receiving those signals and adjusting the consumption of the product in response.

Subsequent clauses in part 8 will limit powers to make regulations to products with functions such as refrigeration, cleaning, battery storage, electrical heating, and air conditioning or ventilation.

11:00

[Dr Whitehead]

We have now moved smoothly and efficiently to the question of energy smart appliances and load control; I will have something to say about load control later. The arrangements for energy smart appliances are important, given the increasing range of activities that appliances can now undertake. The specified purposes set out in clause 193—refrigeration; “cleaning tableware”, or dishwashing; “washing or drying textiles”, or using washing machines; and energy storage—are all circumstances in which things can be added to devices to allow them to operate independently, to operate at particular times and to respond to dynamic demand requests. For example, a chip can be put in a refrigerator to allow the appliance to respond to signals from outside saying, “Switch yourself off between 3 am and 4 am,” which will save some power or regulate the power in a better way.

Appliances increasingly have the potential to operate as mini-computers in their own right: they have IP addresses and various other things. It is possible to capture a series of washing machines that are smart-enabled and use them as locks under certain circumstances. Indeed, I think there was a recent prosecution of some young men who had done just that; I am not quite sure for what purpose, but they secured a number of smart devices in order to operate them in concert. It is important that we have energy smart regulations that enable us to deal with such circumstances and get them in hand. Of course, this is potentially a subset of the debate about AI and the extent to which our devices in the home may be subject to the control of other authorities entirely.

From the customer’s point of view, it is important that they know that they are in control of their own devices. Smart appliances offer various exciting advantages such as allowing people to change central heating controls before they get home, by pressing a button when they are 50 miles away, but the principle behind the security arrangements should be that the customer—the person in the home—is the eventual arbiter of how those things work. Does the Minister think that the way the clause is drafted will ensure that the customer—the person who is operating those smart systems, or who thinks they are—actually has eventual control, and particularly the consent for the operation of those smart devices in the way that we have described?

[Alan Brown]

I realise that this is an introductory clause and the Minister was doing some scene setting. The clause mentions load control signals and digital communications. I draw the Minister’s attention to my written parliamentary question No. 186867, submitted following a meeting I had with representatives of the Energy Networks Association. They tell me that to take forward a proper smart grid, the energy network companies need additional radio spectrum access. The Government need not just to put in place regulations, but to facilitate that radio spectrum access.

In response to my question, the Minister for Energy Security and Net Zero, the right hon. Member for Beverley and Holderness (Graham Stuart), said that the Government are moving forward on the issue with a study and a calculation of costs. I know that the Under-Secretary cannot write a blank cheque, but the reality is that radio spectrum access will be needed. I just put that on his radar.

[Andrew Bowie]

I thank hon. Members for their questions and points. The hon. Member for Kilmarnock and Loudoun is right that this is just an introductory clause; we will talk about the regulations in much more detail during the rest of the morning and this afternoon. I thank him for putting that point about radio spectrum access on my radar.

The smart energy market is at an early stage. That is why we are regulating. We need to ensure that consumers and businesses, and indeed the grid and access to it, are protected. We intend to regulate in close consultation with industry and in a way that allows the market to evolve and supports innovation.

Question put and agreed to.

Clause 192 accordingly ordered to stand part of the Bill.

Clause 193

Energy smart regulations

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clauses 194 to 198 stand part.

[Andrew Bowie]

Clauses 193 to 198 establish the regulatory regime for energy smart appliances.

Clause 193 provides powers to introduce energy smart regulations in Great Britain. The regulations will mandate that energy smart appliances with specific purposes must comply with a set of requirements. The appliances that will need to comply with the requirements include those with specific purposes, such as electric vehicle charge points, or devices that are used in connection with the following specific purposes: refrigeration; cleaning battery storage; electric heating or ventilation, and air conditioning or ventilation.

Subsection (3) sets out a number of factors that the Secretary of State must have particular regard to when making regulations. Those include, for example, ensuring that the energy smart function does not undermine the delivery of a consistent and stable supply of electricity. Where an energy smart appliance does not meet the requirements set by the regulations, its placing on the market may be prohibited.

Clause 194 builds on clause 193, setting out that energy smart regulations may refer to technical standards and published documents. Energy smart regulations may also refer to requirements imposed under Acts of the Scottish Parliament. The clause establishes that prohibitions imposed by energy smart regulations may extend to load control for appliances that are not compliant with the regulations, and to any appliances modified in a way that would make them non-compliant with the regulations.

Energy smart regulations may prohibit the placing on the market of appliances that do not comply with the requirements of the regulations. The regulations may also prohibit the placing on the market of non-smart electric heating appliances and electric vehicle charge points. Finally, the clause specifies that energy smart regulations do not provide for enforcement action of any kind against the end user of an energy smart appliance.

Clause 195 makes provision for the enforcement of the requirements of energy smart regulations. The clause allows the Secretary of State to designate enforcement authorities that will ensure compliance with the requirements or prohibitions made under the regulations.

[Alan Brown]

Before the Minister goes on too far, what timescale does he anticipate for the introduction of regulations under clauses 193 and 194 to mandate smart appliances?

[Andrew Bowie]

I am not able to give any firm dates right now, but the Government’s hope is that we will move quickly to consultation on the regulations as soon as the Bill receives Royal Assent.

Relevant economic actors will be required to monitor and report on their compliance with the terms of the regulations, as well as to take specified steps to remedy any non-compliance. Clause 195(2) includes provision for a range of investigatory powers to track and assess non-compliance for use by enforcement authorities. Those include powers of entry, inspection, search and seizure, and powers to enable the testing of energy smart appliances by enforcement authorities. Finally, the Secretary of State may make payments or provide resources to the enforcement authority for the purpose of enforcing the energy smart regulations.

Clause 196 establishes that energy smart regulations may impose a range of sanctions for non-compliance. A full list of offences will be set out in the final regulations, on which the Government will consult publicly and which will be subject to debate in both Houses. I hope that answers the question from the hon. Member for Kilmarnock and Loudoun. The clause sets out several offences, including contravening requirements imposed by enforcement authorities or knowingly providing false information to enforcement authorities. Punishments for such offences will be provided for in regulations. The punishments will not include imprisonment. Regulations may also allow enforcement authorities to recover their costs by means of civil fines.

Clause 197 makes provision for the regulations to include a right of appeal to a court or tribunal against a requirement or civil penalty made by an enforcement authority. The right of appeal to a court or tribunal against a requirement or penalty for non-compliance, as set out in energy smart regulations, can include, but is not limited to, provisions set out in subsection (2). The right of appeal can be extended by the regulations beyond those parties against whom the requirement has been imposed. The Secretary of State may revoke or amend subordinate legislation, including an Act of the Scottish Parliament or the Senedd, where they consider it appropriate for the purpose of any provision falling within subsection (2).

Clause 198 sets out the procedure by which energy smart regulations will be made. The clause begins by setting out that energy smart regulations made under clause 193 may provide for exemptions or exceptions in their coverage. It requires the Secretary of State to consult before making regulations that subject a specific type of energy smart appliance to regulations or that amend the list of relevant purposes in clause 193. It also sets out the cases in which the affirmative scrutiny procedure is to be used when making regulations under clause 193. I commend the clauses to the Committee.

Question put and agreed to.

Clause 193 accordingly ordered to stand part of the Bill.

Clauses 194 to 198 ordered to stand part of the Bill.

Clause 199

Power to amend licence conditions etc: load control

[Dr Whitehead]

I beg to move amendment 160, in clause 199, page 170, line 3, at end insert—

“(f) regulate or prohibit the provision of load control in relation to appliances that are provided by high risk vendors.”

[The Chair]

With this it will be convenient to discuss the following:

Amendment 161, in clause 199, page 170, line 21, after “section” insert

“‘high risk vendors’ means vendors of appliances that pose potential or actual security and resilience risks to energy networks,”.

Clause stand part.

Clauses 200 to 203 stand part.

That schedule 17 be the Seventeenth schedule to the Bill.

New clause 40—Designated load controller—

“(1) The Secretary of State may give a designated load controller direction only if the Secretary of State considers that—

(a) the direction is necessary in the interests of national security; and

(b) the requirement imposed by the direction are proportionate to what is sought to be achieved by the direction.”

This new clause ensures that load controllers undergo national security checks to establish the nature of connections to potentially hostile actors and the threats they may pose.

[Dr Whitehead]

We now come to the section of the Bill concerning licensing of load control. Load control is very much associated with the previous debate, inasmuch as it relates to how energy smart appliances operate overall, and such appliances will often operate under the aegis of a load controller—a body or person who is responsible for the network within which they work. It is important that we regulate and license not only the appliance but the bodies and people that control the load arrangements that smart appliances potentially give rise to.

11:15

We have some concerns about what all this means for energy security as a whole, particularly in the context of how smart meters are arranged through load controllers. A smart meter is essentially a smart appliance that enables things to happen in the way that we have described for other appliances, except that it is a meter that, made smart, can respond to external signals and is specifically designed to send material out independently of the customer of a particular energy account. Indeed, not having to send energy readings ever again is advocated as a good reason for having a smart meter—it will all work much better, it is said, because the meter will report readings to the person running the system and the customer will not have to sit with a torch at their electricity meter trying to read the numbers and probably getting them wrong, with interesting results ensuing.

The fact that these devices send out material independently of the householder or the system itself is generally a good thing. Smart meters send out information relating not only to bills, but to the status of the service coming into the home, and that information can be used in aggregate to look at how efficient a load system is in a particular part of the grid, or whether the grid is under strain. Certainly, meters in junction boxes and various other things can now predict when a particular area or part of the system might fail, so that the controller can intervene early to put the system right.

The way smart appliances work in relation to the system’s controller is tremendously advantageous to the resilience and integrity of the system as a whole because of the way they provide information independently of the customer. However, that has a potential downside. The information that goes out and the uses it may be put to are closely regulated, but smart systems often have elements that can, in principle, enable that information to be misused or sent out for purposes other than those that we generally think are appropriate for these systems to work as best they can.

Early smart meters were made by UK and German companies, as well as one or two others, and were installed by third-party installers on a generic basis across households. But more recently, a company called Kaifa Technology entered the UK smart meter market with an aggressively low-priced offer—for SMETS2 meters in particular—that is attractive to third-party installers because they save considerable money on installation as a result. As part of the smart meter roll-out, about 250,000 Kaifa smart meters, based on that company’s proprietary technology, have been installed. As a matter of interest, the price of those smart meters is about 30% lower than the prevailing price for smart meters, so that company has about a 6% or 7% entry into the smart meter roll-out market, with potentially a lot more to come by, say, 2025.

Kaifa Technology is controlled by a subsidiary of the state-owned China Electronics Corporation, or CEC, a company that manufactures technology for the Chinese People’s Liberation Army. This therefore falls very much into our security debates about telecoms—including Huawei’s substantial foothold in UK telecommunication markets, the UK Government’s reaction to Huawei technology, and the links that Huawei had to particular state actors for Chinese Government purposes—given the imperative in China, unlike in the UK, that everything produced in such circumstances, including delivery and technical design, is subject to the wishes of the Chinese Government.

That is significant because, first, all smart meters have “kill switches”—remote switches that can be used to disconnect homes from the national grid—and, secondly, as I said, smart meters routinely transmit a host of data that is of use in aggregate to the development of UK energy markets. I do not in any way wish to promote the Daily Mail view of smart meters as the spy under the stairs—in general, they are not, and their use is well regulated—

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

On a point of order, Mr Gray. I apologise to the hon. Member for Southampton, Test, but I want to make this point of order before the sitting concludes. We will shortly move on to discuss energy performance certificates and insulation of privately rented properties. In the past, I have been advised that I did not have to register the fact that my wife has a rental property and that her family have rental properties, but I seek your advice, Mr Gray, for the next sitting: will I have to make some sort of declaration before I comment on those areas of the Bill? I wanted to get that in now, so that a ruling can be made for this afternoon.

[The Chair]

If the interests are declared in the Register of Members’ Financial Interests and the right hon. Gentleman believes that they are relevant to the debate, it would be prudent for him to call the Committee’s attention to the register. That is not enforced entirely, but the question is whether there might be a perception of bias. Therefore, if the Member has interests that he believes might be of importance, it is probably worth his calling them to the attention of the Committee before he speaks.

Dr Whitehead, will you be concluding in the next 20 seconds?

[Dr Whitehead]

I will not be that brief.

[The Chair]

In that case we will adjourn, it being as close to 11.25 am as it can possibly be.

11:25

The Chair adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Two o’clock.

Energy Bill [ Lords ] (Ninth sitting)

Committee stage
Tuesday 13th June 2023 Public Bill Committees

The Committee consisted of the following Members:

Chairs: Dr Rupa Huq, James Gray, Mr Virendra Sharma, † Caroline Nokes

† Afolami, Bim (Hitchin and Harpenden) (Con)

† Blake, Olivia (Sheffield, Hallam) (Lab)

† Bowie, Andrew (Parliamentary Under-Secretary of State for Energy Security and Net Zero)

Britcliffe, Sara (Hyndburn) (Con)

† Brown, Alan (Kilmarnock and Loudoun) (SNP)

† Clarkson, Chris (Heywood and Middleton) (Con)

† Fletcher, Katherine (South Ribble) (Con)

† Gideon, Jo (Stoke-on-Trent Central) (Con)

† Jenkinson, Mark (Workington) (Con)

† Levy, Ian (Blyth Valley) (Con)

† McCarthy, Kerry (Bristol East) (Lab)

† Morrissey, Joy (Beaconsfield) (Con)

Nichols, Charlotte (Warrington North) (Lab)

† Owatemi, Taiwo (Coventry North West) (Lab)

† Shelbrooke, Alec (Elmet and Rothwell) (Con)

† Western, Andrew (Stretford and Urmston) (Lab)

† Whitehead, Dr Alan (Southampton, Test) (Lab)

Sarah Thatcher, Chris Watson, Committee Clerks

† attended the Committee

Public Bill Committee

Tuesday 13 June 2023

(Afternoon)

[Caroline Nokes in the Chair]

Energy Bill [Lords]

14:00

[The Chair]

Before proceedings commence, may I indicate that I am very relaxed and if Members wish to remove their jackets, that is fine by me?

[Dr Alan Whitehead (Southampton, Test) (Lab)]

On a point of order, Ms Nokes. It has come to my attention that an article published today by Politico says that the Secretary of State has

“signaled a coming U-turn on the government’s plan to put a levy on household energy bills to support the nascent hydrogen gas sector in the U.K.”

The article reports the Secretary of State as saying that

“while hydrogen was a ‘great opportunity’ for the U.K. it was ‘unlikely’ that the gas would be a major future source of domestic heating.”

Pertinent to this Committee, he said that the Government did not want to see

“a situation where a levy is penalizing people who don’t use it”

—almost the exact words that were discussed in Committee—and added that hydrogen would be

“a better bet for heavier industry”

and transport.

The Secretary of State was also reported as saying:

“We’ll look at ways to create a levy or a financing that works for everybody as best as possible”.

What I take from that is that the Government are actively looking at ways to undertake a form of levy different from the one we discussed in Committee recently. You will recall, Ms Nokes, that you had to cast the deciding vote on the relevant amendment. I am sorry that the Minister was unable to give us the information that the Secretary of State has given us in that article, in particular that the Government are actively looking at developing an alternative levy arrangement. It is more than conceivable that had that information been available to the Committee at the time, that vote may have had a different outcome. In particular, the convention of the Chairman casting the deciding vote in favour of the status quo, which you quite correctly did at that time in your position as Chair, Ms Nokes, could have meant that a vote could have been cast for a different status quo—that is, one in which the Government were actively looking

“at ways to create a levy or a financing that works for everybody as best as possible”.

The original formulation in the Bill would therefore have fallen, in effect.

Ms Nokes, do you have any guidance on how we could rectify this problem? Might we invite the Government to table a new clause, which could be discussed at the end of our deliberations on the Bill? As Chair of the Committee, would you accept a new clause later in the Bill that might allow a debate to take place in the light of the information we now have before us? It is entirely in your hands to decide, Ms Nokes.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

Further to that point of order, Ms Nokes. It is great to serve under your chairmanship. I am sure the hon. Member for Southampton, Test recalls the comments that I made in the fourth sitting when I abstained on the vote. Hansard will confirm the exact language that I used, but I believe I said that the Government had said to me that they were actively looking to table an amendment on Report. The article that has been produced today ties in with the comments that I made on the record a few sittings back, and I am relieved to hear that because it shows that we are moving forward. I do not believe there is any material change in what has happened because, as I said, I was told that the Government were actively looking at making an amendment on Report.

[Dr Whitehead]

Further to that point of order, Ms Nokes. I thank the right hon. Member for Elmet and Rothwell for his point of order, which related to mine. Far be it for me to downplay his importance in proceedings but, although he is quite right, the material difference is that I was quoting what the Secretary of State said, even though the right hon. Gentleman was clearly well informed in what he said to the Committee.

[The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)]

Further to that point of order, Ms Nokes. I said in Committee at the time, in response to contributions from the hon. Member for Southampton, Test and other right hon. and hon. Members, including on the Government Benches, that we are listening and carefully considering the situation regarding that specific clause. We are listening to all the concerns raised in Committee, on the Floor of the House on Second Reading and in the other place. I gave that commitment in this Committee and see nothing that contradicts that in what the Secretary of State said to Politico this morning.

[The Chair]

In response to Dr Whitehead, I want to confirm that what I cannot do as Chair of the Committee is go back in time. It is of course open to the Government to table further amendments in the later stages of the Bill, and I think we have had an indication from the Minister that that is potentially what might happen. I will say no more than that.

Clause 199

Power to amend licence conditions etc: load control

Amendment moved (this day): 160, in clause 199, page 170, line 3, at end insert—

“(f) regulate or prohibit the provision of load control in relation to appliances that are provided by high risk vendors.”—(Dr Whitehead.)

[The Chair]

I remind the Committee that with this we are discussing the following:

Amendment 161, in clause 199, page 170, line 21, after “section” insert

“‘high risk vendors’ means vendors of appliances that pose potential or actual security and resilience risks to energy networks,”.

Clause stand part.

Clauses 200 to 203 stand part.

That schedule 17 be the Seventeenth schedule to the Bill.

New clause 40—Designated load controller—

“(1) The Secretary of State may give a designated load controller direction only if the Secretary of State considers that—

(a) the direction is necessary in the interests of national security; and

(b) the requirement imposed by the direction are proportionate to what is sought to be achieved by the direction.”

This new clause ensures that load controllers undergo national security checks to establish the nature of connections to potentially hostile actors and the threats they may pose.

[Dr Whitehead]

It seems rather a long time since I got through the first half of my remarks on this clause, but I am happy to continue. I will recapitulate briefly what is in the clause, and then we can move on to the next business.

Members will recall that, with amendments 160 and 161 and new clause 40—I appreciate that it will be voted on later in proceedings, not today—we are drawing attention to the possible risks attached to certain load controller activities relating to appliances that are under the authorisation of load controllers. As we have discussed, appliances that are used in smart energy networks may be able to undertake autonomous information and data transmission activities—and, indeed, activities relating to their own operation—independently of the consumer or the person who installed the device.

I previously drew attention to a company that secured a 6% or 7% share of the market in SMETS2 smart meters by putting its price 30% below the market average, thereby ensuring that energy companies have an interest in commissioning third parties to purchase and install that brand of meter. I pointed out that that company, Kaifa Technology, has very close links to—indeed, is controlled by—the state-owned China Electronics Corporation, which has been sanctioned by the United States regarding high-risk activities concerning data and electronics. Kaifa smart meters are not available for installation in the United States as a result of that sanction, yet in the UK we are apparently going ahead with no concerns whatsoever.

I am not saying that Kaifa smart meters are necessarily a source of the possible transfer-link use of data. I pointed out this morning that there are remote-switching facilities within smart meters, so it is possible that a smart meter could be switched off by an outside agency, or that its data could be transferred for not necessarily very good purposes. We have a pretty strong regulatory regime, which was recently strengthened by an information security Act. I am certainly not pointing the finger at Kaifa smart meters and saying that they are definitely not to be pursued, but we do not have any method in our current legislation—nor, indeed, in this Bill—that would enable scrutiny to be brought to bear on companies such as Kaifa in relation to national security and resilience, so that our questions can be answered. We should be as certain as possible that, should these things come to be a part of our smart energy network environment they do not, as it were, just slip in under the carpet. It should be done consciously through a review of what they mean as far as our energy security is concerned and, indeed, in respect of the security of smart energy networks.

[Alec Shelbrooke]

The hon. Gentleman is making an important point about energy security and the ability for outside players—certainly, if we consider this from a Chinese perspective—to take control. On energy security, does he share my concern about the fact that 98% of the materials used in renewable energy come directly out of China? Does that not in itself represent a similar security risk to the one he is outlining?

[Dr Whitehead]

I thank the right hon. Member for his intervention, but I do not quite share his implied view that everything that comes out of China needs to have that level of security clearance. There are concerns about the proportion of our solar panels that are made and manufactured in China, for example, and a concern that one particular country has effectively captured the market in solar panels. It would be a good idea for those purposes, not for the purposes I am talking about, to rectify that situation. China is also increasingly manufacturing components for wind turbines and various other renewables, so yes, it would be a very good idea to have a much more diverse supply chain for renewables. As far as China is concerned, that is an issue of commerce; I am talking about a potential issue of national security and resilience. Yes, it involves the same country, but there are different concerns and, indeed, concerns about other countries that may be in the same position as I outlined as far as their smart energy technology offerings are concerned.

14:15

Our amendment 160 seeks, by the insertion of a new paragraph (f), to

“regulate or prohibit the provision of load control in relation to appliances that are provided by high risk vendors.”

Amendment 161 defines—something we always should do in Bills—high-risk vendors as

“vendors of appliances that pose potential or actual security and resilience risks to energy networks”.

That would enable the Department to take a proactive stance on our energy security and resilience, not necessarily to pronounce guilt on anybody but to review the situation with respect to our overall energy security and resilience. Indeed, new clause 40 sets out circumstances in which the Government may invoke those sorts of arrangements, and Members will see that they are exceptional circumstances. The new clause would give the Government permission to do that but only when very real concerns about national security and resilience are expressed in respect of the things that the Secretary of State might review.

This suite of amendments, and the new clause, would attach, as it were, that concern and its potential resolution to the otherwise very good things in the Bill as far as load control and smart energy networks are concerned. We have already discussed those things and said that we are generally happy with the clauses, but we think the addition of a requirement to take account of particular circumstances would be a prudent and helpful thing to do at this juncture, particularly as we are in the process of completely overhauling all our smart energy facilities. A lot of equipment and new forms of load control will come in over the next few years, so it is really important to get it right at the outset.

[Andrew Bowie]

It is an absolute pleasure to serve once again under your chairmanship, Ms Nokes. I thank the hon. Member for Southampton, Test for his amendments; he is of course right to consider the security impacts of load control devices. We share his concern that grid security should be protected, which is why I am happy to reassure him that we have already spent considerable time preparing means to manage the risks associated with hostile actors and the transformation of our energy system.

The outcome of our recent consultation on delivering a smart and secure electricity system confirmed our intent to regulate all organisations that remotely control large electrical loads, using the Network and Information Systems Regulations 2018, or the NIS regulations. Under those regulations, load controllers would be required to take appropriate and proportionate security measures to manage risks to their network and information systems. They would also be required to report to the relevant authority incidents that disrupt the continuity of services and take action to rectify those incidents.

The application of the NIS regulations in the energy sector in Great Britain is based on outcome-focused principles, using the cyber assessment framework developed by the National Cyber Security Centre. This approach focuses on proportionate risk management. Moreover, the licensable activities established through the powers in the Bill could impose security requirements on those organisations within its scope. The licence would complement our separate enhancements to the NIS regulations made through the Bill.

Finally, the National Security and Investment Act 2021 includes a broad range of powers enabling the Secretary of State to intervene in transactions that give rise to national security concerns. That includes the power to scrutinise transactions based on national security risks for electricity purposes. That incorporates acquisition of ownership of load controllers, who control electricity on behalf of their customers. On that basis, a power to direct a load controller on national security grounds, which new clause 40 would introduce, would be excessive in comparison with the rest of the electricity sector.

The Secretary of State does not have powers to direct private companies outside of an energy emergency or crisis scenario. Establishing such a precedent may risk undermining the development of the sector, with little compensatory benefit in additional security protections. Given our existing measures to control foreign investment, and our intentions to increase the cyber-resilience of load controllers, an additional power for the Secretary of State to direct on national security grounds would be disproportionate.

Amendments 160 and 161 centre on alleviating any security risks posed at the device level in the provision of load control. Amendment 160 would give the Secretary of State the power to regulate or prohibit the provision of load control by or to appliances supplied by vendors that are deemed to be high risk. Amendment 161 would define that group as

“vendors of appliances that pose potential or actual security and resilience risks to energy networks”.

I assure the hon. Member for Southampton, Test that measures to maintain the security of energy smart appliances are already in place. For example, the Electric Vehicles (Smart Charge Points) Regulations 2021, which are already in effect, require most private charge points for domestic and workplace use to meet minimum device-level cyber-security requirements. In addition, we committed through our response to the consultation on delivering a smart and secure electricity system to ensure that licences for the purpose of domestic and small non-domestic load control should include cyber-security requirements. We are confident that, taken together, the existing regime is sufficiently robust and that a further power to amend the licensing condition is unnecessary. I hope that with those reassurances the hon. Member will be able to withdraw his amendment.

Clause 199 sets out how the Secretary of State may modify conditions of licences granted under the Electricity Act 1989 and certain licences granted under the Gas Act 1986 for purposes of load control. It also provides powers for the Secretary of State to modify industry codes that are maintained under those licences for such purposes. More generally, the powers give the Secretary of State the flexibility to amend existing regulatory arrangements to reflect the introduction of a new licensing regime for load control. That new licensing regime will be introduced using the powers provided for in schedule 17.

Clause 200 sets out the process that the Secretary of State must follow before making changes to the conditions of licences, or documents maintained under them, for load control or related purposes, as set out in clause 199. The requirement to consult the parties listed in subsection (1) before making changes to licence conditions or documents maintained reflects standard practice in such cases and is consistent with other clauses. When modifying the conditions of a licence, the Secretary of State must specify the date on which the modification will take effect and publish the details of any modifications as soon as reasonably practicable after they are made.

Clause 201 establishes that the Secretary of State may make a modification to a standard condition of a licence using clause 199. It also establishes that that does not prevent any other part of the condition from continuing to be regarded as a standard condition. In essence, the power will allow the Secretary of State to make targeted changes to parts of a licence, without changing the overall status of that licence, or changing any other standard conditions to that licence. When the Secretary of State makes changes, the Gas and Electricity Markets Authority will amend future licences so that the amended standard conditions apply to future licensees. The authority will also publish the modification to the licence.

Clause 202 extends the regulatory provisions in relation to licensing that were established in the Gas Act and the Electricity Act to load control. The clause amends the Gas Act, the Electricity Act and the Utilities Act 2000 to apply several provisions of those Acts to the Secretary of State’s exercise of regulatory powers to load control. More specifically, the clause will extend several of the duties and obligations on GEMA within the Acts, particularly those in relation to protecting the interests of current and future consumers of electricity. GEMA would need to apply to the Secretary of State when exercising powers under clauses 195 to 197. Finally, clause 202 defines “gas licence” and “electricity licence”.

Clause 203 introduces schedule 17, which makes provision for the regulation of the load control of energy smart appliances. Schedule 17 amends the Electricity Act, allowing the Secretary of State to make regulations that amend the list of activities subject to the licensing framework to include activities connected with load control. The schedule sets out the terms of that regulation-making power, including the extent to which the regulations can make consequential or transitional provisions.

[Dr Whitehead]

I heard what the Minister had to say about the amendments. I am pleased to hear that the Government are taking this seriously, and I hope that the measures that he suggests by which they will do so are sufficient for the purpose. I think that the Secretary of State in question for the National Security and Investment Act is the Chancellor and not the Secretary of State for Energy Security and Net Zero, so the option to do anything about it will be at one remove from his Department, although I am sure the Secretary of State would be able to communicate with the Chancellor were there serious issues.

On the understanding that the Government are going to pursue this as a serious issue as part of the development of energy smart networks, and will incorporate that view at the heart of the arrangements, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 199 to 203 ordered to stand part of the Bill.

Schedule 17 agreed to.

Clause 204

National Warmer Homes and Businesses Action Plan

Question proposed, That the clause stand part of the Bill.

[Andrew Bowie]

The Government have carefully considered the effect of the clause, which was added on Report in the Lords. On 17 May, I tabled an amendment indicating my intention to oppose the clause. The Government do not consider that it would be effective in helping to deliver our commitments to improve the energy performance of buildings and to deliver net zero. However, I know that opinions among Committee members differ, and I look forward to the discussion that we may well be about to have.

The heat and buildings strategy, published in autumn 2021, sets out how the Government plan to reduce emissions from buildings and provides a clear long-term framework to enable industry to invest and deliver the transition to low-carbon heating. The Climate Change Committee already plays a key role, providing independent advice and scrutiny, and holding the Government accountable by publishing statutory progress reports to Parliament. Those are comprehensive overviews of the Government’s progress. The clause would simply duplicate those efforts.

The Government have already set out our aim to phase out the installation of new and replacement natural gas boilers from 2035, in line with natural replacement cycles, while scaling up the installation of low-carbon heating. We recognise that there are many options with the potential to play an important role.

The Government remain committed to the aspiration for as many homes as possible to reach energy performance certificate band C by 2035 where cost-effective, affordable and practical, as set out in the clean growth strategy. There has been good progress towards achieving that aim, with 47% of homes in England having reached EPC band C, up from a measly 14% in 2010.

In our net zero growth plan and energy security plan, the Government announced that we will publish a consultation on options for upgrading houses in the owner-occupier sector by 2023. The content of the consultation has not yet been finalised, and we need to gather further evidence on the potential impacts of interventions in that sector. More time is needed to ensure thorough consideration of options in this area, and the clause would not allow that time.

We are also taking significant steps to encourage businesses to reduce their energy demand through voluntary schemes and regulations. In the 2020 energy White Paper, the Government proposed that the trajectory for the minimum energy-efficiency standard for non-domestic rented buildings should be EPC band B by April 2030, with an interim milestone of EPC band C by April 2027.

We are evaluating the responses to our consultation and will publish the Government response in due course. It is important that the impacts, such as those on business and supply chain readiness, can be fully considered. The clause would pre-empt the response and commit the Government to a timeframe for implementation different from the one that has been consulted on.

The Government have set an aspiration to introduce the future homes standard by 2025. We will publish a full technical consultation for it in 2023. We intend to introduce the necessary legislation in 2024, ahead of implementation in 2025.

I thank Baroness Hayman and Lord Foster of Bath in the other place for raising these matters.

14:30

[Dr Whitehead]

We are in a curious position with this clause, which is a bit akin to my writing to the then Energy Minister to ask him to reintroduce the Bill as soon as possible. The Government at the time seemed not to want to introduce their own Bill as soon as possible, whereas we wanted them to do so. Clause 204 was introduced as an amendment in the House of Lords, so it has come to us as a substantive part of the Bill. We therefore find ourselves in the position—if I can persuade Opposition Members to vote accordingly—that we support the Bill as it stands and the Government apparently do not.

That is made more curious by what the clause actually says. With one small exception to do with dates, it takes things that the Government have already agreed to do—by the way, as far as I know, the future homes standard is not an aspiration; it is something the Government have already said will be mandatory by 2025—and says that the Secretary of State must produce an action plan for how they will be done. That seems to me a pretty good idea in any legislation, and in anything that anybody says will be the case in legislation. It is really not good enough to go around saying that things may well happen and that there might be legislation, and then not have any idea how that legislation can be properly discharged.

The clause puts that right by making sure that there is some kind of plan in place for these things to be achieved. It draws attention to the following targets: achieving

“100% of installations of relevant heating appliances and connections to relevant heat networks by 2035,”

which is in the energy security strategy; achieving

“EPC band C by 2035 in all UK homes where practical, cost effective and affordable,”

to which the clean growth strategy and the heat and buildings strategy contain specific commitments; achieving

“EPC band B by 2028 in all non-domestic properties”—

that is in a consultation that has already taken place, and the Government intend to produce either regulations or legislation to ensure that it happens, as I have mentioned—and introducing

“Future Homes Standard for all new builds in England by 2025,”

which the Government have already said they want to do.

In a sense, the clause is a bit of a break with how things have been done before, but in another sense it is not, because it just recapitulates things that already exist, puts them in order and states that we need some form of plan to ensure that they happen. Frankly, I am really surprised that the Government have decided that they want to knock the clause out. It is not superfluous. In fact, it supports the Government in delivering their plans and ensures that we all know where we stand.

That brings me to the purpose of this Committee. The amendment that the Government tabled to remove the clause has not been selected, which means that the only way for them to achieve their desired outcome is for the Committee to vote against clause stand part. That puts Committee members in a different position from that of voting on an amendment.

The likelihood of anybody having a go at any member of this Committee for voting in favour of this Bill is remote. Therefore, I would have thought that Committee members should be allowed to exercise their own judgment as to whether they support or oppose the clause. By asking us to vote against clause stand part, the Government are in effect asking the Committee to vote against itself. If members on both sides of the Committee support the Government’s targets and aspirations—and I would have thought that everybody does—and if they think that it would be a good idea to encapsulate them in an action plan, I do not think that they should be sanctioned for voting in favour of that and, in a sense, securing Government policy.

That is code for saying that no one should be pulled up by the Whips—although perhaps the Whips have a different idea—if they vote in favour of the Bill. I assume, although I do not know this yet, that every Opposition member of the Committee will vote to retain the clause, and I would hope that every Government member will also—

[The Chair]

Order. May I gently suggest, Dr Whitehead, that you have moved away from the substance of the clause and are somewhat straying into whipping arrangements?

[Dr Whitehead]

As always, you are right, Ms Nokes, so I will temper my remarks. I hope that common sense will prevail and that a thumping majority will ensure that the clause is retained so that the Bill can progress to its next stage intact. The clause is important to Government policy, so it should not be taken out and disabled in the way suggested.

[Olivia Blake (Sheffield, Hallam) (Lab)]

It is a pleasure to serve under your chairship, Ms Nokes. I rise to speak in defence of clause 204, and I agree with the shadow Minister, my hon. Friend the Member for Southampton, Test, that the Government have suggested an interesting tactic.

Our housing stock has been described as the least energy-efficient in Europe. That means we are the least prepared to absorb future price hikes, like those experienced in recent years, and to address future temperature changes. In England alone, more than 13 million homes—59% of them—are below a C rating on the energy performance certificate standard. As a result, housing is one of the main sources of carbon emissions in the UK, accounting for around 20% of total emissions.

We should be making massive efforts and strides to improve in this policy area, yet energy efficiency programmes have been cut and home insulation rates have plummeted over the past decade. In 2013, the coalition cut energy efficiency programmes, after which insulation rates fell by 92%. The number of energy efficiency insulations peaked at 2.3 million in 2012, yet fewer than 100,000 upgrades were installed in 2021. That is rather pathetic, it has to be said.

The Bill and clause 204 in particular provide a golden opportunity to put in place the financial structures and programme to give the necessary upgrades to the 19 million homes in our country that are below band C on the EPC scale. Clearly, that is what a Labour Government would do.

[Mark Jenkinson (Workington) (Con)]

Has the hon. Lady heard of our ECO4 scheme?

[Olivia Blake]

Yes.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

Has the hon. Lady heard of the issues with the ECO4 scheme? The energy companies have not met the target number of properties because it needs to be rewritten.

[Olivia Blake]

Those are the exact problems. In recent years a number of Government schemes have either failed because they have not had the workforce to deliver them, or experienced challenges because people have been drawn into other roles, particularly in the building sector and in relation to cladding issues and so on. That is exactly why the Opposition would be very pleased if the clause were protected. We need that action plan. Delivery is only worth something when it happens. We cannot just have targets that we repeatedly continue to miss. It would be exceedingly challenging to argue to the public that we should not prioritise getting their bills down by £1,000 a year or come up with an action plan to deliver that.

[Katherine Fletcher (South Ribble) (Con)]

Yes, the British public would experience significant benefits through bill reductions as a result of insulating their homes, but who is the hon. Lady suggesting should pay for the intervention that would produce that benefit? It would be a significant scheme, especially given that 30% of the housing stock is really old. Who would foot that bill?

[Olivia Blake]

Moving away from this Bill, Labour has a fully costed plan for achieving that and it is targeted at the 19 million homes.

[Andrew Western (Stretford and Urmston) (Lab)]

Does my hon. Friend agree that although the Government are reticent about placing this clause on the statute book, surely the fact that they are Government targets means the money will be found anyway?

[Olivia Blake]

Absolutely, and I will come to that point. This issue is so significant: it is important that we find the funding for these sorts of interventions because almost 9,000 neighbourhoods in England and Wales have very low incomes but higher than average energy costs because of poor insulation. That requires Government action, and I fully support Labour’s plans, which I believe would cost £12 billion a year—I might be wrong about that.

[Kerry McCarthy (Bristol East) (Lab)]

It is £6 billion.

14:45

[Olivia Blake]

Sorry, £6 billion—I have doubled my ambition. That is a large amount of money, but it would be very welcome in meeting the challenges we face.

I am not alone in my concerns about delivery in this space. In January, the Environmental Audit Committee rightly said that we need a national war mobilisation to improve energy efficiency and reduce carbon. The public are crying out for action to address fuel poverty and household emissions: 80% of respondents to National Energy Action’s polling supported funding retrofits for those on low incomes and, according to the New Economics Foundation, 64% of Conservative voters and 65% of people in the north support a national retrofitting taskforce.

Without the clause, the Bill will be another missed opportunity to tackle the cost of living crisis, to bring forward the emergency energy efficiency measures we need, and to start a national 10-year mission for home insulation. Delivery is important, and without an action plan I am not clear how those millions of homes, and the millions of people living in them, will benefit from better energy efficiency. We need to get on top of our carbon emissions and we need to ensure that housing is not forgotten, given its vast contribution to emissions.

It would be a mistake for the Government to remove the clause. All it is asking for is a warmer homes and a business action plan to set out how His Majesty’s Government intend to deliver energy efficiency. It is important to keep that clear ask in the Bill. I will be deeply regretful if the Government do not support the clause, because it will be another missed opportunity.

[Andrew Western]

It is a pleasure to serve under your chairship, Ms Nokes. At the risk of repetition, I too rise to defend clause 204. It is interesting that, in my first Bill Committee, we appear to be having something of a groundhog day moment. When we had a similar discussion about low-carbon heating last week, the Minister stood up and gave us various assurances that these things would be done, while resisting with all his might any attempts to compel the Government to do that in law.

It is incredibly challenging when the Minister says that superb progress is being made on these issues and that we have gone up to 40% over the past 13 years. In fact, on current projections we have something in the region of 200 years to go to upgrade the energy efficiency of the UK’s draughty housing stock. National Energy Action says that progress on energy efficiency is too slow, and the UK Business Council for Sustainable Development has calculated that the pace of the Government’s recently announced scheme would take almost 200 years to reach homes in need of upgrade. It is clear why the Opposition are so keen to see the targets in the Bill; clause 204 is therefore so important.

I warmly welcomed the addition of the clause in the other place because although the Minister talks about the energy White Paper, the net-zero strategy, the heat and building strategy that was published alongside it, and the future homes standard, none of those things actually compel the Government to act. That is the problem. The Government can miss their targets time and again because there is nothing that forces them to take the action needed. Warm words will not provide warm homes—it is that simple. This will not get us where we need to go unless it is on the statute book. We know that because we are already missing the targets.

[Bim Afolami (Hitchin and Harpenden) (Con)]

I respect the hon. Gentleman greatly. Obviously, it is a matter of political debate whether he accepts the warm words of the Conservative party—that is a legitimate, democratic debate that we should have—but what exactly does he propose would be the remedy for his not trusting the Minister’s word? Ultimately, that is his political point. He is entitled to make that point, and he has made it clearly, but trust cannot be legislated for, so I gently suggest that he accept that some things will always be a matter of political debate. I trust the Minister’s word. The hon. Gentleman does not have to do so, but that is ultimately what we are in politics to do—to argue and debate these things.

[Andrew Western]

I thank the hon. Gentleman for his intervention, but whereas trust cannot be legislated for, targets can. It would be a very simple remedy to place the targets in the Bill in order to remove any question of trust, and to give the industry and homeowners struggling under the weight of high energy bills certainty that the Government are taking the action required. In fact, I do not see this as a question of trust: it is a practical step. Indeed, if Conservative Members are so satisfied that the Government will take the action needed to meet the targets, why be fearful of their inclusion? If they have no issue with hitting a target, why not place it in the Bill? That is the fundamental point.

By not including the targets they have set, it opens up the argument that the Government do not feel they will meet them. In making that argument, I remind colleagues of the words of the National Infrastructure Commission, which says:

“Government is not on track to deliver its commitments on heat or energy efficiency…A concrete plan”—

which is what the clause would require the Secretary of State to introduce within six months of the Bill becoming an Act—

“for reducing energy demand is required, with a particular focus on driving action in homes and facilitating the investment needed.”

[Katherine Fletcher]

I share the hon. Gentleman’s zeal and passion for insulating the UK’s homes, but he has referred again and again to a concrete plan and investment, and I cannot believe that either of those things come with a price tag of zero. Given that it is important to be fiscally responsible, will he outline how he plans to fund the implementation that he wants to write into the Bill?

[Andrew Western]

The same applies to the Government’s targets. The fact is that we are being asked to take the Minister’s word that the Government will deliver on the targets, so there must already be a plan to do so. There must already be the funding to deliver, so what is the problem with enshrining this in law? That is the point we are advancing. Either the Government are putting the targets forward in a performative way, with no hope, plan or funding to deliver on them, or they are so assured that the targets will be achieved that there is no need for them to be placed in legislation—it is one or the other. Either way, I am sure that Conservative Members would want to satisfy themselves that the funding is in place; otherwise, the targets are a total waste of time anyway.

When we hear from the Minister, I would be grateful to know where the funding will come from to achieve the targets. Indeed, can we stand by the targets in any way, shape or form? That is the central point that I do not understand, because if the Government are going to deliver on this, what is the problem? If they are not going to deliver, all Committee members should be seeking to hold the Government’s feet to the fire.

[Alan Brown]

It is a pleasure to serve under your chairmanship, Ms Nokes. I was not going to speak, but the more this debate has gone on, the more confused I have got, so I thought I may as well throw some words out there anyway. Obviously, it is the job of the Opposition to hold the Government to account, but I find it bizarre that it now seems to be the job of the Opposition to make the Government stand by their own targets.

I understand that the clause was inserted in the other place. The Government keep telling us that the other place is very important and that we should rely on the expertise in the Lords, which is supposed to be a revising Chamber. That is ironic, because it was the Lords who brought forward the Bill in the first place. If we have to trust their ability and that it is a revising Chamber, it would seem logical to agree with the revisions that the Lords make. Otherwise, it undermines the point of having the Lords in the first place—which takes us to the position of the SNP: we would abolish it—but the Government tell us that it is an important place. We have heard only this week about how many people are scrambling to get into the Lords and are disappointed not to get in. Then we talk about trust and not being about to legislate for trust. Ironically, Nadine Dorries seemed to be saying yesterday that there is a real lack of trust in this Government.

[The Chair]

Order. I gently suggest that we need to be debating this clause, not the aspirations of some former Members.

[Alan Brown]

I know; I was just linking to where the clause came from and wanted to put these matters out there.

I do support the clause, although the future homes standard is effectively only for England. I have already raised my concerns that the Government are not moving fast enough, because they are still at the consultation stage. Subsection 1(d) is really important. The Government should publish an action plan showing how they are going to bring forward the future homes standard. That will give certainty to developers. They need to plan ahead for the technical requirements that they need to apply to new housing developments. It is important that a look-ahead is given to developers as soon as possible.

In terms of all the other targets, given that some of them go beyond the life of this Government anyway, I find it hard to understand why the Government are so reticent to accept the targets for energy efficiency installs. We can argue about whether Labour did more installs than are currently happening in terms of the number of energy efficiency measures, but the most important thing is the upgrading to EPC band C, to which the clause refers.

The Government can talk about the progress they have made in getting properties to EPC band C, but it is still only hovering around the 50% bracket, and that is after 12 years in government. If they are going to hit the target by 2035, there is no doubt that much more structured delivery plans will have to be put in place. Clearly, the properties that we can tackle today are the ones that are most easy to upgrade. It is going to get harder and harder the further into the programme we go. It is important that the Government are held to account on their targets and that they come forward and say how they are going to meet those targets.

Finally, on ironies, I agree with what the Labour party has been saying on energy efficiency, but this has come just after it has done a U-turn on the green new deal and the green investment it promised us all. I will leave it there, but there are a lot of contradictions on both sides, I would say.

[Andrew Bowie]

It is a pleasure to respond to the debate. There is some confusion at the minute. Indeed, I was slightly confused at the beginning of the debate, given that the hon. Member for Southampton, Test seemed at one stage to be whipping on behalf of the Government and giving advice to Conservative Members— I urge all colleagues on this side not to listen to his words. If I am not mistaken, he was suggesting that the clause we are against was tabled by the Government in the other place; Baroness Hayman is a Labour peer and Lord Foster of Bath is a Liberal Democrat peer.

[Dr Whitehead]

For clarity, I did not say that it was introduced by the Government, nor would I say that, because it certainly was not. The point I was trying to make was that it is now a part of the Bill, not that it was introduced by the Government in the other place.

[Andrew Bowie]

I am glad that is clarified for the Committee. For further clarification, we are seeking to revise the Bill back to its original state as drafted and remove an amendment that was made by Labour and Liberal Democrat Members of the House of Lords. I believe that is a relatively regular occurrence for the House of Commons. There should be no confusion on that.

Again, as they were when we were talking about smart meters, the Opposition are such a glass half-empty kind of party. We have made huge progress in the energy efficiency of UK homes. I understand why the Opposition do not want to speak about this: when they left office only 14% of homes had an EPC grading of course; now, after 13 years of Conservative Government, the proportion stands at 47%, and we are driving forward to get it over 50% soon. As for the suggestion that we do not have a plan to move forward, the Government do have a plan. We have set out a heat and buildings strategy and we have announced further measures in the net zero growth plan, which was announced just recently.

14:59

[Alan Brown]

I thank the Minister for giving way again. In this clause that the Government are trying to take out, there is reference to upgrading homes—it is a condition that the Government must abide by—

“where practical, cost effective and affordable”.

Can he provide a definition of what is practical, cost-effective and affordable? I could not get that out of the previous Secretary of State for Business, Energy and Industrial Strategy.

[Andrew Bowie]

What is practical and affordable will obviously be determined by individual circumstances and the market conditions at the time. Let me also say that I would have welcomed any acknowledgement from the Scottish National party, who are in government in Scotland, that we are working together across these islands to improve insulation and that we have made great progress as an island nation in getting towards 50% of all homes being rated EPC level C or above.

As I was just going on to conclude, we will take no lectures from the Labour party on the costings of projects, given that just last week it had to announce a staggering U-turn on its £28 billion investment in green technology and jobs, and it is yet to come up with any answer about how it will fund the £100 billion of pledges that it has announced thus far.

In terms of costings, a plan, moving this country forward, delivering on insulation and delivering on this entire green strategy, I have much faith in the Government’s position and in what we are seeking to do here today. That is why I advise all my colleagues to vote with the Government this afternoon.

Question put, That the clause stand part of the Bill.

Division 5

Ayes: 6

---

Labour: 5
Scottish National Party: 1

Noes: 9

---

Conservative: 9

Clause 204 disagreed to.

Clause 205

Power to make energy performance regulations

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Clauses 206 to 208 stand part.

New clause 41—Energy performance regulations relating to existing premises—

“(1) Within six months of the date on which this Act is passed the Secretary of State must make regulations—

(a) amending the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (S.I. 2015/962) to require that, subject to subsection (2), all tenancies have an energy performance certificate (EPC) of at least Band C by 31 December 2028; and

(b) amending the Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2019 (S.I. 2019/595) to raise “the cost cap” to £10,000.

(2) Exemptions to subsection (1) apply where—

(a) the occupier of any premises whose permission is needed to carry out works refuses to give such permission;

(b) it is not technically feasible to improve the energy performance of the premises to the level of EPC Band C; and

(c) another exemption specified in the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 has been registered in the PRS Exemptions Register.

(3) Within six months of the date on which this Act is passed the Secretary of State must make regulations—

(a) amending the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (S.I. 2015/962) to enable Local Authorities to give notice to landlords that they wish to inspect a property, requesting permissions from landlords and any tenants in situ at the time to carry out an inspection at an agreed time;

(b) to expand the scope of the current PRS Exemptions Register and redesign it as a property compliance and exemptions database;

(c) to require a post-improvement EPC to be undertaken to demonstrate compliance;

(d) to require a valid EPC be in place at all times while a property is let; and

(e) to raise the maximum total of financial penalties to be imposed by a Local Authority on a landlord of a domestic PRS property in relation to the same breach and for the same property to £30,000 per property and per breach of the PRS Regulations.

(4) The Secretary of State may make regulations to—

(a) enable tenants in the private rented sector to request that energy performance improvements are carried out where a property is in breach of the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015; and

(b) make provision for a compensation mechanism where a tenant is paying higher energy bills as a result of a property not meeting the required standard.”

This new clause requires the Secretary of State to strengthen minimum energy efficiency standards in the private rented sector, expands the compliance regime available to local authorities, and gives the Secretary of State the power to create a compensation mechanism for tenants adversely affected by non-compliance. These measures are derived from the government’s preferred policy option in the 2020 “Improving the energy performance of privately rented homes” consultation.

New clause 42—Review of the “Improving Energy Performance Certificates: action plan”—

“(1) Within 12 months of the date on which this Act is passed, the Secretary of State must conduct a review of the “Improving Energy Performance Certificates: action plan” that sets out how new technologies can improve the energy usage and efficiency of premises.

(2) Such a review must include analysis of the energy efficiency benefits of energy optimisation technologies and bi-directional charging from vehicles to premises.

(3) Where any energy efficiency benefits are identified by this review, the Secretary of State must make provision under section 207(1)(b) for recommendations to be made about the improvement of the energy efficiency and usage of new and existing premises.”

This new clause would oblige the Secretary of State to update its review of the EPC rating system; for this review to consider bi-directional charging; and for the Secretary of State to then use the existing power under section 207 to promote these improvements.

[Andrew Bowie]

Clause 205 will provide the Secretary of State with the power to make changes to the existing Energy Performance of Buildings (England and Wales) Regulations 2012 to ensure that they are fit for purpose and contribute effectively to improving the energy efficiency of premises. Following the UK’s withdrawal from the European Union, it is necessary to create new primary powers to permit changes to be made to the 2012 regulations, as that power was lost with the repeal of the European Communities Act 1972.

Clause 206 will enable the Secretary of State to make changes to the Energy Performance of Buildings (England and Wales) Regulations in relation to new premises. That includes new premises in the process of being constructed or changed, as well as new premises whose construction or adaption is planned but has yet to be started. The changes will ensure that the anticipated energy usage and energy efficiency of new premises are taken account of.

Clause 207 enables us to ensure that we have an effective enforcement regime underpinning the energy performance of premises policy by amending existing requirements. We will review the current enforcement regime to ensure that there are sufficient enforcement options in place, with a view to improving compliance with the energy performance of premises framework. The existing regime includes civil penalties, and the clause enables us to amend those penalties or provide for new civil penalties by enforcement authorities up to a maximum of £15,000.

Finally, clause 208 provides that the regulations made under part 9 may amend, repeal or revoke provisions made in primary legislation and that this must be done through the affirmative resolution procedure. It also provides that the affirmative resolution procedure will be used if new criminal offences or civil penalties are created. This will ensure that there is parliamentary oversight of the uses of the power. I commend the clauses to the Committee.

[Dr Whitehead]

Clause 205 is the beginning of the part of the Bill on the energy performance of properties. I must admit that I thought for a moment there was going to be a spectacular U-turn on the previous clause, but I was sadly disappointed when the Minister decided which way he was really going to vote. I fear the same result in respect of this part of the Bill.

Let me speak briefly to our new clauses 41 and 42, which would considerably strengthen the Bill’s provisions on the energy performance of premises. They relate specifically to energy performance regulations for existing premises. Rather like clause 204, which is now not in the Bill but contained previous Government aspirations and claims in respect of outcomes, new clause 41 relates to things the Government have already said about energy performance certificates for properties in the private rented sector, about what should happen in respect of the improvement of properties in that sector to bring them up to an appropriate band, and about the amount specified in legislation that private landlords should spend on getting their properties up to that level before they are exempted from having to make further improvements.

The really important bit in new clause 41 would require the Secretary of State to make regulations

“amending the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 (S.I. 2015/962) to require that, subject to subsection (2)”—

which contains exemptions—

“all tenancies have an energy performance certificate (EPC) of at least Band C by 31 December 2028”.

The new clause would also require the Secretary of State to make regulations

“amending the Energy Efficiency (Private Rented Property) (England and Wales) (Amendment) Regulations 2019”—

which Members will recall introduced a £3,500 cap on the cost to landlords of achieving band E—to raise to £10,000 the amount that should be invested before landlords are exempt.

Those are reasonably ambitious outcomes for the private rented sector, but they were completely presaged by the Government’s previous proposals, which we supported at the time. Specifically, in September 2020 they consulted on improving the energy performance of privately rented homes in England and Wales. The consultation had proposed outcomes at its heart, but—well I never—there has not yet been a Government response. Only three years have gone by. We hope that there may be a response one day fairly soon, so that progress can be made.

The proposed outcome of the consultation—the favoured option at the time—was exactly as set out in subsection (1) of new clause 41: raising the energy performance standard of private rented properties to band C, a phased trajectory to get there by 2028, and a £10,000 average per-property spend under a £10,000 cap. Everything in the new clause is already there in what the Government said they would do in respect of private rented sector energy efficiency. The only difference is that the Government have not actually done anything about it.

I recently looked up the reaction to the proposals, and a number of commentators and advisers are saying, “Well, landlords, you perhaps ought to get yourselves steeled up to the idea that your properties, to be lettable in future years, will have to be band C, and that you may have to spend up to £10,000 to make your properties lettable at that point.” By the way, that seems a relatively small amount to have to spend, bearing in mind that this is essentially a question whether a property is of merchantable quality. In any other area of commerce, if it were not of merchantable quality, it would not be sold. These measures, if implemented, would ensure that properties were merchantable for letting purposes as far as efficiency standards are concerned, and landlords would be required to spend that relatively small amount before they were exempted and to use every endeavour to get their properties up to that point.

[Mark Jenkinson]

In my constituency of Workington, I have some wonderful conservation areas with lovely old stone-built houses. A Labour council will not allow the replacement of single-glazed windows with uPVC double glazing, for example, which we know works well for energy efficiency. Why does the hon. Gentleman think that they would not be of merchantable quality?

[Dr Whitehead]

If the hon. Member cares to go back to the consultation in 2020, he will see that there are certain exemptions, depending on things such as conservation areas, from getting properties up to the standard that we are discussing provided that other things are in place. I have no particular insight into the workings of the hon. Member’s local authority, but it may be that something like that is at the heart of those concerns.

The point is that in general, we would certainly support—and we did at the time—what is set out in the consultation and the Government’s declaration of policy intent. One area where energy efficiency needs to move forward quite rapidly is the private rented sector; after all, that is the housing sector with the worst energy efficiency record. It is just not good enough to stand by the idea that properties in band E, which is a very low energy efficiency band, should be at that level any longer—certainly not in the 2020s, when we are trying to get all the properties that we can up to a standard fit for 2050.

15:16

We are trying to ensure a national roll-out of energy efficiency measures so that properties are as efficient as they can be. That way, we will not need to go round and retrofit them again coming up to 2050. We will already have in place the future homes standard and so on, which will ensure that new builds all go that way, so why should private rented properties be such an apparent exception?

Surely, the people running private rented properties have the same duty as the rest of us to ensure that their properties are as energy efficient as possible. I am sure all Members have had people coming to their constituency surgeries to complain about the dreadful conditions in their private rented property and ask how someone can have let that property out to them and apparently got away with the extremely low energy efficiency rating. Constituents have been told, just as I have, that not much can be done about it right now. Properties can be let out by private landlords in that condition, and with present arrangements, only a very small increase in energy efficiency is required to allow landlords to continue to let out properties, while everybody else—we hope—will have sped ahead to get properties really high up the EPC scale. It would be an enormous anomaly, and indeed quite a scandal, if landlords continued to rent out properties with a very low EPC level.

The aim of new clause 41 is to implement measures to ensure that the consultation proposals are put into law. I do not know why the Government have spent so long responding to the consultation. As I said, the market generally thinks that what was consulted on is what will happen, and it is telling landlords to steel up for that. However, as yet, there is no evidence that they will actually have to do that, because no one is doing anything about turning the ambitions into fact.

We are well beyond the second anniversary of the consultation’s closing, with no sign of the Government coming up with a plan to do what they said they wanted to do in the first place. New clause 41 would do the Government a great favour, frankly, by putting the ambition into legislation forthwith and ensuring that everyone gets on with it. In our hearts, that is what we all want to happen, notwithstanding how we might vote today.

New clause 42 would have a slightly more limited but nevertheless important effect. It would ensure that a property’s energy performance certificate—circumstances are changing substantially in this respect—reflects the extent to which it can operate on a two-way basis, exporting electricity as well as importing it.

In the not too distant future, many or most houses will have within their curtilage, or close to it, methods to charge electric vehicles located near their property. That should be the signal for the property to have an EPC rating that reflects the fact that it can be part of an energy generating arrangement. Under proposed schemes, when the homeowner is not using their electric vehicle, the property could use it as a mini power station, exporting electricity for the good of the grid, and for the balancing purposes of the grid, but without detriment to the overall charging arrangements of the vehicle.

At present, such arrangements effectively depresses the potential energy performance certificate outcome of a property. New clause 42 suggests an action plan to improve energy performance certificates, stating:

“Within 12 months of the date on which this is Act is passed, the Secretary of State”—

this new clause gives them a nice long time compared with other new clauses—

“must conduct a review…that sets out how new technologies can improve the energy usage and efficiency of premises…Such a review must include analysis of the energy efficiency benefits of energy optimisation technologies and bi-directional charging from vehicles to premises…Where any energy efficiency benefits are identified by this review, the Secretary of State must make provision…for recommendations to be made about the improvement of the energy efficiency and usage of new and existing premises.”

In other words, the Secretary of State must bring into the mainstream new technologies relating to energy performance certificate measures, and bring those EPCs up to date with what we know is now happening with energy efficiency in the housing market. The two-way process is increasingly becoming part of the household energy landscape.

I hope that new clauses 41 and 42 are helpful. Unfortunately, after the previous debate, I do not have any great faith that the Government are about to leap on them and put them into law. At the very least, I hope they highlight the fact that there is a great deal of huff and puff and not much blowing the house down. That was a badly strained metaphor, I know, but it would be a rather good idea if we went a bit further than that and did something about the legislative arrangements that will have to follow when the new ideas for better energy efficiency in homes are put forward.

These are two particular instances—in the private rented sector and two-way energy production at properties—but as we have seen the Government have effectively set out targets, ideas and aspirations in a number of other areas, and while they have not necessarily done nothing, they have not done things commensurate with the ambition. This is one case where that certainly happened in the not-too-distant past. I hope that the Committee will accept the new clauses. I appreciate that they will not be voted on until the end of our proceedings, but I hope that when we do so Members, and possibly even the Government, will decide that this is something that they would like to put in the Bill after all, and vote accordingly.

[Alec Shelbrooke]

Further to my point of order this morning about declarations of interest, I have spoken to the Commons Registrar who has informed that because I personally make no financial gain from property that my wife owns it does not have to be in the register; however, I have to declare an interest at this moment that my family has a substantial property portfolio. The comments that I am about to make, however, are based on the concerns of landlords, estate agents and letting agents in my constituency.

One of the problems is if we start to over-legislate at this time. The hon. Member for Southampton, Test pointed out that, importantly, the Government are still consulting on the report. We are in danger of focusing purely on the one area of energy efficiency in the private rented sector, and in effect making landlords do things that the owner of a private property does not have to do, with the cost being passed on to tenants. Subsection (3)(a) of new clause 41 would

“enable Local Authorities to give notice to landlords that they wish to inspect a property, requesting permissions from landlords and any tenants in situ at the time to carry out an inspection at an agreed time”.

In other words, that would enable constant inspections and attempts to move forward with insulation.

We have said throughout that we have to take the public with us on this agenda. In some areas, we move too quickly to legislate on something that the Government are consulting on and that has not been properly thought through. Several times, my hon. Friends have intervened to ask where the money is coming from to do such works. At the moment, as I look at the Bill and the £10,000 cap, it is coming from the tenant. At a time when there is a political argument on both sides of the House about how people can get on the housing ladder, increasing their rents even further because the landlord has to do something that people in the private sector do not have to do will not help that cause.

There is no doubt that energy efficiency will reduce the amount of fuel that has to be used to heat a home. That is a scientific fact. We hear that it could save £1,000 a year, but that assumes that everything stays level and that we do not have to put another levy on electricity bills. I remind colleagues that when nuclear power came along, it was said that it would be so cheap to produce that we would not be able to meter it. That turned out to be far from the truth.

[Alan Brown]

Hear, hear.

[Alec Shelbrooke]

There you go, praise from the other side.

One of the points made by the hon. Member for Southampton, Test was about getting in and retrofitting now, and not having to do it again in 2050. New clause 42(1) states:

“Within 12 months of the date on which this Act is passed, the Secretary of State must conduct a review of the “Improving Energy Performance Certificates: action plan” that sets out how new technologies can improve the energy usage and efficiency of premises.”

I have no doubt of the intent with which that was written, but it can be interpreted very differently. It could mean that as time goes forward, the regulations will change and those with band C EPCs might now be told to come to a level that was not required at this stage of retrofitting.

15:30

One thing that I am hearing from estate agents in my constituency—of course, there is another side to what is going on with rising interest rates—is that landlords are dumping private property and getting out of the market. The hon. Member for Southampton, Test said—I have the exact words—that there was a steel within the industry of people moving towards this because they thought the regulations were coming. What it has actually done is make a lot of people think, “I am not spending £10,000 on this property. I am never going to get an £800 a month increase in rent over a year to pay for it, so I will dump the property.”

The whole point of waiting on a consultation is that we know that Governments can take a long time. The hon. Gentleman, as a reasonable man, will recognise that there have been many buffeting winds since 2020, when the report was produced, and I hope that attention will go back to those issues. I am sure that my hon. Friend the Minister will make the point that the Government have every intention of moving forward on these bills, but to take the report at this stage and bind it into law in the Bill would be, I think, a great problem.

The hon. Gentleman also commented about constituents who come to us and talk about the energy problems in their homes. I do not know how many colleagues have had constituents come to them with the problems they have had since heat pumps were fitted. A lot of grants are available for heat pumps, so they are out there. If they are not fitted alongside the system being upgraded, they do not work, and I have constituents come to me to say that. The pipe network is not big enough for the pressure; it is simple fluid mechanics. That is another example of a rush into a particular area without the technical back-up. People end up stuck—in this case, it is a council property, and people are stuck on the question of who will repair the system, because the gas-fired boiler cannot be put back in. It is another example of running too fast in a particular direction.

My hon. Friend the Minister has my support in not backing new clauses 41 and 42, because they are acting in haste. That haste could have serious unforeseen circumstances for those using the private rented sector for their accommodation. If we drive more and more landlords out of the business, that sector will decrease and there will be competition for rent because more people will be looking for it. That will come on top of the rent increases caused by doing this retrofitting. The report still needs a lot of careful consideration by the Government before it comes into force.

I am sure that my hon. Friend the Minister will react to some of those comments, but he has my support.

[Jo Gideon (Stoke-on-Trent Central) (Con)]

On a point of order, Ms Nokes. I want to seek a little clarification after my right hon. Friend the Member for Elmet and Rothwell declared his interest. I am not planning to speak on the new clause, but before we vote should I make members of the Committee aware of my entry in the Register of Members’ Financial Interests as an owner of a rental property?

[The Chair]

I think that via that point of order you have made Members aware of your interests. As Mr Shelbrooke indicated, he sought advice from the registrar of interests and I always find it best to be cautious and over-declare rather than under-declare.

[Andrew Bowie]

I thank the hon. Member for Southampton, Test and my right hon. Friend the Member for Elmet and Rothwell for their comments on the new clauses. In answer to the question of why we have not produced a full response to the consultation, we are committed to raising standards in the sector in line with our ambition, set out in the clean growth strategy, and we will publish a summary of responses to the consultation on improving standards in the private rental sector this year.

[Dr Whitehead]

This year?

[Andrew Bowie]

Yes, this year.

We are continuing to refine the policy design to ensure that the costs and circumstances relating to energy efficiency improvements are fair and proportionate for landlords and tenants, as my right hon. Friend the Member for Elmet and Rothwell pointed out. The economic headwinds that have been buffeting us, and the changing circumstances in the private rented sector in particular, have made it difficult at the minute, but as I said, we will be publishing our response—a summary of responses, anyway—this year.

New clause 41 seeks to require the Secretary of State to make regulations in relation to energy performance in existing rented premises. His Majesty’s Government agree on the need to improve the energy efficiency of buildings to lower energy bills and deliver carbon savings to meet our net zero and fuel poverty targets. Indeed, this is reflected in the Government consultation on proposals to raise the minimum energy efficiency standard for privately rented homes. Under the Energy Act 2011, the Secretary of State already has powers to amend the private rented sector regulations in order to raise the minimum energy efficiency standards and set the dates by which landlords must comply with the new regulations. The new clause would not allow us to reflect the valuable feedback that the Government received from the consultations in the final policy design, which is essential to ensure that the final policy design is fair and proportionate for landlords and tenants. As I have said, the Government have committed to publishing the summary of responses by the end of this year.

Let me turn to new clause 42. In September 2020, we published the energy performance certificate action plan, in order to ensure that consumers can trust energy performance certificates and to make sure that certificates are accurate and reliable. Certain actions are expected to require regulatory change under the new powers to be implemented. The energy performance certificate is designed to rate the energy performance of a building, as considered as an asset that passes from one occupant to another during sale or rental.

As those occupants may or may not possess energy optimisation technologies or an electric vehicle with bi-directional charging capability, it is not currently considered appropriate to assume a benefit from this in the calculated energy performance rating. Including this nascent technology, which relies on consumer behaviours and equipment not integral to the premises, would increase the complexity of the EPC scheme. Bi-directional charging is a promising technology, but it is not yet viable for use in the mass market.

Question put and agreed to.

Clause 205 accordingly ordered to stand part of the Bill.

Clauses 206 to 208 ordered to stand part of the Bill.

Clause 209

Energy savings opportunity schemes

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clause 210.

[Andrew Bowie]

We now turn to part 10 of the Bill, which deals with the energy savings opportunity scheme, which I will refer to as ESOS.

Clause 209 provides a power relating to ESOS. ESOS mandates energy audits of large undertakings at least once every four years, which cover their buildings, transport and industrial processes. The audits result in cost-effective recommendations for improving energy efficiency. The power would replace the repealed power in the European Communities Act 1972, under which the UK established ESOS in 2014, and without which ESOS is a frozen scheme and cannot be updated.

ESOS is important to the UK’s plans to meet net zero targets and reduce energy costs for businesses. The existing scheme’s net benefit is estimated at £1.6 billion. The power covers four core options, as set out in the July 2022 ESOS consultation response: to standardise ESOS reports, improve the quality of audits, add a net zero element to audits, and require public disclosure of information from ESOS reports. It also covers two potential longer-term options to mandate action and extend ESOS to medium-sized enterprises, which are for future consultation. The power will enable the amendment of ESOS, or the establishment of such a scheme, and sets out the general provisions to make regulations.

Clause 210 sets out the application of ESOS, including in relation to geographical application and determining responsibility for energy consumption for the purposes of ESOS. It allows regulations to set the description of undertakings that fall within scope of ESOS, and to provide for two or more participants to be treated as a single participant. It would allow ESOS to extend to a far wider range of undertakings, subject, of course, to future consultation. I therefore commend clause 209 to the Committee.

[Dr Whitehead]

I do not have anything to say on these clauses, other than to note that we are now into the energy savings opportunity scheme, and that the Minister is indeed right that schemes would have been frozen under EU regulations. However, I am not yet sure whether what would have been the case under the EU regulations is reflected accurately in the things coming forward. I hope that it is. The scheme looks okay to me, but I would like an indication from the Minister that, in effectively updating the scheme for the purposes of this legislation, nothing has been lost from what previously was there.

[Andrew Bowie]

I am happy to give that guarantee. Indeed, one of the benefits of our now not being in the European Union is that we can devise and implement schemes that are fit for businesses and, indeed, homeowners—people within the United Kingdom—depending on the circumstances that we are facing at the time.

Question put and agreed to.

Clause 209 accordingly ordered to stand part of the Bill.

Clause 210 ordered to stand part of the Bill.

Clause 211

Requirement for assessment of energy consumption

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clauses 212 to 214 stand part.

[Andrew Bowie]

Clause 211 makes provision for regulations to set out when, how and by whom an ESOS assessment should be carried out, and other requirements. It introduces a new power for future details from ESOS reports to be published to increase the transparency of the scheme and promote the uptake of energy efficiency measures.

Clause 212 enables regulations to set out functions and requirements relating to ESOS assessors, including who may be an assessor, the maintenance of assessor registers, and requirements on designated bodies that maintain assessor registers. New powers are provided to the Secretary of State or the scheme administrator to ensure the standards of assessors. The powers will allow intervention where there is evidence that an assessor or designated body is not carrying out its responsibilities under ESOS regulations appropriately, to improve the overall quality of ESOS reports.

Clause 213 includes a power to introduce new requirements for ESOS participants relating to the production and publication of an ESOS action plan covering intended actions to reduce energy use or greenhouse gas emissions. The requirements aim to increase participants’ engagement with ESOS and stimulate greater uptake of energy efficiency measures.

Clause 214 introduces a power to impose new requirements on ESOS participants to achieve energy savings or greenhouse gas emissions reductions. It sets out two approaches: ESOS regulations may either require participants to take specific actions, or may set out other requirements, such as the public reporting of actions, that aim to encourage participants to take those actions. Regulations would be able to specify that the requirements should refer to a cost-benefit analysis. As stated in the Government response to the ESOS consultation, the former approach would be subject to further consultation before any decision was taken regarding its introduction. Regulations making such provision would, under clause 218, also be subject to the affirmative parliamentary procedure.

[Dr Whitehead]

I have nothing to add to what the Minister said. I am happy for the clauses to stand part of the Bill.

Question put and agreed to.

Clause 211 accordingly ordered to stand part of the Bill.

Clauses 212 to 214 ordered to stand part of the Bill.

Clause 215

Scheme administration

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss clauses 216 and 217 stand part.

[Andrew Bowie]

Clause 215 provides powers for the effective administration of ESOS. It enables regulations to make provision about the appointment of scheme administrators in any of the four nations of the UK, whose functions may relate to administration and compliance monitoring and/or the enforcement of scheme requirements. It also enables regulations to require businesses to have regard to the scheme administrator’s guidance or pay fees to cover the costs of the scheme’s administration.

15:45

Clause 216 enables regulations to make provision for scheme administrators to enforce ESOS requirements, including in relation to penalties. It also enables the creation of offences so that breaches could become criminal rather than civil matters in future, should that be desirable. Clause 217 enables regulations to allow the right of appeal for anyone subject to any decisions, penalties or enforcement under ESOS. In the case of financial penalties, it requires a right of appeal to a court or tribunal.

[Dr Whitehead]

Clause 215 is about administrators and the administration of schemes, and those administrators will have at their elbow action plans determined by previous clauses. It is good to see in the context of this afternoon’s discussions that a part of the Bill has action plans as a requirement and that those action plans will be positively administered. Having a plan seems to be a bit of a sine qua non for administrators; we do not seem to have that in other parts of the legislation. The Opposition have been assiduous in trying to put that idea forward, but it is nice to see that that line has been breached at least as far as these clauses are concerned.

[Andrew Bowie]

I am very happy that the hon. Gentleman is very happy.

Question put and agreed to.

Clause 215 accordingly ordered to stand part of the Bill.

Clauses 216 and 217 ordered to stand part of the Bill.

Clause 218

ESOS regulations: procedure etc

Question proposed, That the clause stand part of the Bill.

[Andrew Bowie]

This speech is very short. Clause 218 requires the Secretary of State, before making regulations, to consult those likely to be affected, including the respective devolved Administrations where provisions relate to devolved matters. It also describes where the affirmative procedure would be required—for example, if extending ESOS to smaller businesses, mandating action by ESOS participants or creating offences.

Question put and agreed to.

Clause 218 accordingly ordered to stand part of the Bill.

Clause 219

Directions to scheme administrators

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this, it will be convenient to discuss clause 220.

[Andrew Bowie]

This is another short one. Clause 219 provides the Secretary of State with a power to give directions to a scheme administrator, with which it must comply—for example, when views differ over the interpretation of legislation or when the Secretary of State wishes to order a scheme administrator to remove an individual from its designated register of persons who may be appointed as a lead assessor. Clause 220 enables the Secretary of State to provide or arrange for financial assistance to scheme administrators and ESOS participants.

[Dr Whitehead]

I will just mention in passing that there is an interesting progression in clause 219, relating to directions. Subsection (1) says:

“The Secretary of State may give directions to a scheme administrator.”

So far, so good. Subsection (2) says:

“The power to give directions under this section includes a power to vary or revoke the directions.”

From that, it appears that the Secretary of State has the power to revoke their own directions—

[Andrew Bowie]

He has the power to change his mind.

[Dr Whitehead]

Indeed, but presumably if the Secretary of State changed his mind, he would not start with subsection (1) in the first place, so it is a bit of a strange formulation. I think that had the Opposition moved that as an amendment, the Minister would have said it was superfluous and unnecessary. I do not know why that particular formulation has been put in but we know that subsection (3) says:

“A scheme administrator must comply with any direction given to it under this section”—

however confusing—so it is probably all right then. But I must admit that subsection (2) looks a bit odd.

[Andrew Bowie]

I understand the hon. Member’s question and the direct answer is yes, the Secretary of State can revoke his own direction. I think it is important to set that out in the Bill and, indeed, there is precedent for it in comparable provisions in section 51 of the Climate Change Act 2008, passed by the then Labour Government.

Question put and agreed to.

Clause 219 accordingly ordered to stand part of the Bill.

Clause 220 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Joy Morrissey.)

15:52

Adjourned till Thursday 15 June at half-past Eleven o’clock.

Written evidence reported to the House

EB21 National Grid

EB22 UK Petroleum Industry Association

EB23 Energy UK

Digital Markets, Competition and Consumers Bill (Second sitting)

Committee stage
Tuesday 13th June 2023 Public Bill Committees

The Committee consisted of the following Members:

Chairs: † Rushanara Ali, Mr Philip Hollobone, Dame Maria Miller

† Carter, Andy (Warrington South) (Con)

† Coyle, Neil (Bermondsey and Old Southwark) (Lab)

† Davies-Jones, Alex (Pontypridd) (Lab)

Dowd, Peter (Bootle) (Lab)

† Firth, Anna (Southend West) (Con)

† Ford, Vicky (Chelmsford) (Con)

† Foy, Mary Kelly (City of Durham) (Lab)

† Hollinrake, Kevin (Parliamentary Under-Secretary of State for Business and Trade)

† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)

† Mayhew, Jerome (Broadland) (Con)

Mishra, Navendu (Stockport) (Lab)

† Russell, Dean (Watford) (Con)

† Scully, Paul (Parliamentary Under-Secretary of State for Science, Innovation and Technology)

† Stevenson, Jane (Wolverhampton North East) (Con)

† Thomson, Richard (Gordon) (SNP)

† Watling, Giles (Clacton) (Con)

† Wood, Mike (Dudley South) (Con)

Kevin Maddison, John-Paul Flaherty, Bradley Albrow, Committee Clerks

† attended the Committee

Witnesses

Professor Jason Furman, Aetna Professor of the Practice of Economic Policy, Harvard University

Professor Amelia Fletcher CBE, Professor of Competition Policy, University of East Anglia

Professor Philip Marsden, Visiting Professor, College of Europe

Noyona Chundur, Chief Executive, The Consumer Council

Peter Eisenegger, NCF Board Member, National Consumers Federation

Tracey Reilly, Head of Policy and Markets, Consumer Scotland

Professor Geoffrey Myers, Visiting Professor in Practice, London School of Economics and Political Science

Graham Wynn, Assistant Director for Consumer, Competition and Regulatory Affairs, British Retail Consortium

Max von Thun, Europe Director, Open Markets Institute

John Herriman, Chief Executive, Chartered Trading Standards Institute

David MacKenzie, CTSI Lead Officer, Chartered Trading Standards Institute

Owen Meredith, CEO, News Media Association

Peter Wright, Editor Emeritus, DMG Media

Dan Conway, CEO, Publishers Association

Public Bill Committee

Tuesday 13 June 2023

(Afternoon)

[Rushanara Ali in the Chair]

Digital Markets, Competition and Consumers Bill

14:00

[The Chair]

Good afternoon, everyone. I need to call the Government Whip to move a motion to amend the Programme Order agreed this morning. The purpose of the motion is to enable us to hear from the witnesses who were unable to give evidence earlier today.

Ordered,

That the Order of the Committee of 13 June 2023 be varied by the insertion of the following words at the end of the Table in paragraph 2—

14:04

[The Chair]

Good afternoon, everyone. Could each of the witnesses introduce themselves, please? One witness is in the room and two are joining us virtually.

Professor Fletcher: I am Amelia Fletcher, Professor of Competition Policy at the University of East Anglia. I should mention that I am also a non-executive director of the Competition and Markets Authority; I know you heard from our chief executive officer this morning. I am very much here, I believe, with my academic hat on and because of my role on what has become known as the Furman review, which kicked all this off.

Professor Furman: I am Jason Furman, Professor of Economic Policy at Harvard University; I am jointly at the Harvard Kennedy School and in the economics department. I was chair of the expert panel on digital competition, and I am thrilled to be with you—this morning for me, and this afternoon for you.

Professor Marsden: I am Philip Marsden, Professor of Law and Economics at the College of Europe in Bruges. I am deputy chair for enforcement at the Bank of England. I was a member of the panel here and was formerly inquiry chair at the Competition and Markets Authority.

[The Chair]

Thank you all very much for joining us. I call shadow Minister Alex Davies-Jones to kick off with questions.

[Alex Davies-Jones (Pontypridd) (Lab)]

Q30 Good afternoon professors and thank you for joining us today. We have had a lot of chatter about whether the Bill will help or hinder the growth of innovation in the UK’s digital market. What are your opinions about that and do you feel that the Bill goes far enough?

Professor Marsden: In the branch of legislation being considered internationally in this area, this is the only Bill with a pro-innovation approach written into it. That was our original intention in the Furman review—not to sacrifice any innovation by large tech platforms, but simply to unlock the opportunities for innovation from smaller, more diverse firms so that there were more ideas and more flow. I do not see any correct arguments at all that this will hinder innovation; if anything, it will do the opposite.

[Alex Davies-Jones]

Q Professor Fletcher?

Professor Fletcher: I fully endorse that. When we did the review, we spoke to a lot of firms that were seeking to innovate in the digital space but were struggling. We heard that they really needed access to a whole number of things such as data. They needed access to customers and to be interoperable with systems out there. They needed access to finance. They found, essentially—some of them, at least—that the way in which the biggest platforms were working was making all that very difficult. They were concerned that although there had been a huge amount of innovation, at that point—and still, I think—firms’ ability to innovate was being gradually increasingly stymied by the conduct of the biggest tech platforms. We very much saw the Bill as a pro-innovation piece of regulation.

Professor Furman: This question is so fundamental. This legislation would have benefits for consumers in terms of price and choice, but far and away the most important benefit would be innovation. It was designed with that in mind; our recommendations, which the legislation took on, established firms with strategic market status. They would fall under these rules, which would give a lot of leeway to small and medium-sized UK businesses to really innovate and come up with their own models rather than being constrained. More competition would help innovation by the large platforms as well.

The other thing that is so important is that the speed in the digital sector is just so much faster than in other parts of the economy, so traditional anti-trust rules just take too long: by the time a case is settled or decided, everyone has moved on. Getting there at the front end and having something that is much more flexible and faster is critical in this sector.

[The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)]

Q Thank you very much for your answers. Amazon has recently said the complete opposite of what you are saying. It has said that the Bill will stop it from innovating. It has started these new stores where you can go and shop and there are no staff—people just go in, take the stuff off the shelf and walk out. Amazon says that this Bill would have stopped it from taking forward that kind of innovation. What particular areas in the Bill is Amazon referring to? Do you recognise those as valid concerns?

Professor Fletcher: Amazon would have to be more precise about what it thought in the Bill would stop that. I think the Bill has trod a very careful, innovation- focused line between stopping the biggest tech platforms from inhibiting innovation by third parties and facilitating them to innovate themselves. The Bill is designed to only address the very biggest platforms in the first place, but also only to address the elements of their business where they have very strong market positions and entrenched market power. I think that way is the right way. As far as I know, Amazon would not be inhibited by the Bill from setting up those stores.

[Kevin Hollinrake]

Q There is a forward-looking provision, is there not, for the CMA to look five years into the future and decide whether a company will have entrenched market power then? Is that what Amazon is referring to? Is that their concern, and would that be valid?

Professor Fletcher: I think the concern is to ensure that it is entrenched market power that we are addressing. The CMA recognises, as do we, that these are intrusive measures and you do not want to do them unless you are trying to address entrenched market power.

Professor Marsden: Personally, I agree that there is an aspect where the five-year period, which I find a bit too long, can be gamed by some of the potentially SMS—strategic market status—firms, but I understand why it is in there. I probably would have been more comfortable with a two or three-year period, because that is traditional for competition authorities and as far as they can look ahead in terms of crystal ball gazing. But I understand why it is there.

[Kevin Hollinrake]

Q How would they game the system, Professor Marsden? What do you mean by that?

Professor Marsden: They could game the system in the sense of one thing being done by just slowly walking backwards, for example—“We are introducing so many innovations and having so many thoughts and thanks from various small businesses.” They could drown the CMA with a range of evidence that actually does not go to the point, which is: who is being excluded, who is being locked out and what are we as consumers and citizens missing by relying only on three or four types of seed in the environment, as opposed to a whole globe of seeds? That is the metaphor I would like to use.

Professor Fletcher: It is worth highlighting that if you compare the UK regulation with the equivalent in the EU, the EU has taken a less bespoke, less evidence-based approach. It basically gets a quantitative presumption, and that presumption is going to be relatively hard to shake. What we have done is much more evidence-based, bespoke and proportionate. Whenever you do that, it makes it slightly less administrable and slightly harder to actually make stick.

Again, I think a very delicate balance has been trodden, and it is the right balance. I think all of us would agree on that, and on the fact that Brussels has made it easier for itself, but it is arguably then not proportionate nor sufficiently bespoke. It is a very delicate thing, but I think it is in the right place.

[Kevin Hollinrake]

Q Professor Furman, I saw your hand up. Do you have any comments?

Professor Furman: Look at the tools that the Digital Markets Unit would have under these provisions; the conduct requirements, such as fair dealing and open choices, are not brand new inventions. They largely draw on existing roles under anti-trust measures. It is just that they would be more explicit and clearer up front, and enforced more quickly. To some degree, at least in terms of the conduct requirements, this is not about imposing some brand new set of rules; a lot of it is about taking existing things and ensuring that they can be enforced in a clear and transparent manner.

[The Chair]

I call shadow Minister Seema Malhotra.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Q Thank you very much for coming today. I want to pick up on the argument that the legislation will enhance innovation. In your excellent report, which underpins much of our work, you mention hearing from businesses that were finding it hard to innovate.

Some conversations that we have had have been more explicit about the increased costs of innovation, and the difficulties when there is no interoperability or access, and increased costs being passed on to customers. Is that consistent with your experience, and what are the likely economic benefits to businesses and consumers of this legislation? I will take Professor Fletcher first, and then we will come back to Professor Furman and Professor Marsden.

Professor Fletcher: That was exactly our experience. We heard about the importance of interoperability with systems, and access to data and consumers, and how all those things were not always effective. Some innovation was fostered by big tech and some was less fostered by it, but the point is that they were in control of what happened in a way that we felt was not right for a proper, innovative environment, and certainly not right if you want to see real, disruptive innovation coming through—and I think that is what we do want to see.

We also thought that interoperability, data portability and data access were all pretty intrusive interventions. Therefore—unlike what has been done in the EU, where they have particular rules that require interoperability and require data portability on a fairly widespread basis—we instead thought that that should not be part of the core code of conduct, and that the aim could be achieved via pro-competitive interventions that were evidenced, bespoke and really well targeted. Again, that has been taken through into the Bill’s design, and shows that it is targeted at the barriers to innovation that we identified.

[Seema Malhotra]

Q Professor Furman, I would be interested to know whether you think the Bill strikes the right balance. Does it give the CMA too much power? Does it put the right amount of power in the new digital markets regime?

Professor Furman: The short answer is yes, I think it gets it right. It strikes what my colleagues have described—and I agree—as a delicate balance. It depends on who is the head of the DMU and who is the head of the CMA.

In general, my experience with the regulators in the UK is that they are very thoughtful in understanding the importance of markets, competition and taking evidence seriously. The legislation gives them a certain amount of discretion. As my colleagues have testified, that is unavoidable; in a market and an environment where things are changing very rapidly, it would be very difficult to try to write into the legislation every single detail. This sets the standard for what the world should do. Frankly, part of the reason I agreed to do this project is that I would love to see the United States following legislation like this. I hope the UK serves as a model for the world in this regard, and I think it is doing so.

On innovation, I agree with Amelia that what we heard from businesses and reviewed in the academic research is that it is not just a question of how much innovation, but what type of innovation. Are you trying to innovate so you can be acquired by Google or are you trying to become the next Google? There is one thing that motivated us. It is very hard to see the future of this space, but four years ago we thought the next big thing would involve artificial intelligence and machine learning. Unlike the past waves of innovation—where IBM was dominant, and then it became about PCs so it was Microsoft, and then it was about the internet so it became Google, and we saw one wave after the next displacing the previous—we were very worried that because artificial intelligence required large amounts of data, it would not necessarily lend itself to a new upstart competitor, but would instead entrench the power of the existing ones. So far, what we are seeing with OpenAI and the role that Microsoft plays in it, and with what Google is doing in this space, is that it is largely playing out along the lines that we were concerned about. That is partly motivating us looking forward.

[Seema Malhotra]

Q Thanks for those responses. Professor Marsden, how much we will need some global leadership to ensure this legislation has the impact it needs to have? Some of these issues and the companies’ operations do not stop at borders. To what extent are there tools in the legislation and more widely for the CMA to operate with sister regulators abroad?

Professor Marsden: Let me take your first point with respect to evidence related to economic benefits. We had a natural experiment before this, called open banking. You will have heard things about this before. No matter what hopes or disappointments people had about open banking, we seemingly had the power at the time to investigate a market that had competitive problems but no anti-trust violations, so there was nothing we could address with anti-trust law. We identified certain competitive structure problems, and there was an expectation on us perhaps to break up the banks, and we hear that with respect to some platforms.

That power is there in the Bill, but with the Furman review and this Bill, which has been kindly carried forward by the excellent civil servants, our emphasis is on the idea of opening up these markets with the same kinds of ex ante obligations on the larger platforms that we imposed on the big banks. Did we break up the banks? No. Did we see massive amounts of switching from one bank to another? No, but we have evidence that British people switch their spouse more frequently than they switch their bank.

What we want is more engagement. We want customers, users and small businesses to be engaged with their platform—with their bank—and that is what we will be seeing. We saw new offers coming in without the extensive capital requirements to bring in a full new entry, but there were new services offers in real intermediation and disintermediation of various products. If anything, open banking allowed consumers and users to—I hate this term—have affairs. It allowed them to check out where they could get the best mortgage, the best loan and those kind of things. That disciplines the incumbents, especially HSBC and Barclays, to provide competitive offers themselves. That is an example, to me at least, about how a pro-competitive, ex ante set of rules on very large platforms with a lot of data can help diversify the economy without harming the platforms. If anything, it puts a little bit of heat under them. I think that was a good achievement, whatever people think politically about it. It was supposed to be a balanced, gradual attempt to try to fix a market that had competitive structure problems, and I believe that is what the Bill does here.

In terms of global leadership, the UK is definitely still leading, despite a bit of a delay. It is the most bespoke, nuanced and balanced bit of legislation that has been proposed so far that I have seen, as we have already discussed this afternoon. At the same time—I completely understand your jurisdictional point—there is a real zeitgeist politically around the world to introduce measures like these of some sort. Of course, they depend on the economic, political and legal backgrounds of the society, but I cannot imagine like-minded authorities and Governments not trying to work hard or co-operate in this space.

We are seeing some examples of that already in the digital space. It is not really an area where there is a competition of competition laws; it is more that this is a regulated solution that we are putting forward in various jurisdictions through a democratic process. It does not depend too much on the discretion of the authority. It depends on the process that the authority undergoes to understand the markets and to then work with the tech platforms to find out which remedies would be available. That participative nature is a very important part of this, rather than an adversarial nature where we just chase after the companies after they have done something that is alleged to be wrong.

[Seema Malhotra]

Professor Fletcher and Professor Furman, do you want to add anything?

Professor Fletcher: A lot of jurisdictions around the world are looking at this space. We talked earlier about how some of what we will achieve through this is stuff that can be achieved through competition law, and almost all jurisdictions have competition law. In a way, the more jurisdictions that have regulation, the easier it becomes for other jurisdictions to achieve some of the same things through competition law, because it changes the costs and benefits for the firms to change their business model.

The firms have quite an interesting decision to make on a global basis anyway about how much they do the same thing globally as they are required to do locally. I think it will vary depending on what thing it is. If it is terms and conditions, they can easily change that on a local basis. If it is interoperability, it is quite hard or rather more hard to design a system so that it has different interoperability standards in different places. We may well see an extraterritorial effect—not a deliberate one—because of the cost considerations and reputational considerations of the firms themselves. That will have a positive benefit in terms of providing a more consistent framework globally for the third parties that we are hoping to innovate. The more consistent global framework they have to compete upon, the better it is for innovation.

Professor Furman: The ideal thing would be if the whole world sat down and agreed how it was going to approach this problem and there was a single global system, or lots of countries co-ordinated and did the same thing. In practice, that is impossible, so what one should aspire towards is having essentially correlated actions in different countries, where different countries have similar rules and are looking at each other and learning from each other.

This puts the UK in a position to be a leader in that global process, and that, frankly, is the way mergers work already. It is not like there is a single global merger authority; there are merger authorities in economies around the world, but they use similar rules, are looking at similar evidence, come up with similar decisions and all, to some degree, talk to each other. That is what this is—an emerging correlation of approach.

We have seen in the United States in both the House of Representatives and the Senate legislation being put forward and in some cases being passed out of Committee that would accomplish some of the different pieces of what this legislation would do, frankly, more comprehensively than anything I have seen in the United States.

[The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)]

Q Thank you for coming before us. You are right: you cannot have a monopoly of monopolies commission. That would be wrong, but if we can have more regulatory certainty across the globe, that is good. There are three areas that I can see the different interests pushing on. There is the appeals system, whether it is judicial review or a full merits review, the final offer mechanism and the countervailing benefits exemption. On appeals, do you think judicial review is sufficient, proportionate and fast enough? That is what we are trying to do here—is it fair and fast to get that remediation? It would be interesting to hear your comments.

Professor Fletcher: I know this is something that Philip cares a great deal about. I will come in first and then let him have a go. We have talked about it being a delicate balance. I discussed the EU regulation, where they have gone very far towards ensuring administrability and enforceability by having the rules set out in the legislation with quantitative thresholds. That is how they have dealt with the need for administrability and enforceability.

We have tried to be more bespoke, as I have said, and more evidence based, but there is a real risk in terms of administrability and enforceability that we end up in the same place as we have been with competition law, whereby the cases get hugely burdensome and hard to bring to a conclusion within a sensible timescale, and there are insufficient agency resources really to do everything that is needed.

I think there is a real risk that if you play around with what might seem like tiny changes to the legislation, that could really threaten the administrability and enforceability of it, and we could lose the benefits of it over competition law and put us in a bad place relative to the EU—whereas at the moment I think we could show ourselves to be better in terms of getting the right balance by being more bespoke and evidence based. The appeals standard goes to that point. I strongly support the JR appeals standard because if we went for a full merit standard, it would be too far and would become inadministrable. I am sure the CMA would find a way to try to administer it, but I do not think it would be the right balance. I feel the same way about the customer benefits exception.

[Paul Scully]

Professor Marsden or Professor Furman, do you have any views on that? Professor Marsden, your screen has frozen. Professor Furman?

Professor Furman: That is unfortunate because everything I know about this topic has come from him. [Laughter.] I do not have anything to add.

[Paul Scully]

Okay. Thank you.

[Dean Russell (Watford) (Con)]

Q Professor Fletcher, imagine I am a growing business: I am successful, I have an online presence, I am doing lots of great stuff and I am a challenger to the global big businesses. What does the Bill mean to me? What difference will it make?

Professor Fletcher: It would make quite a lot of difference, but quite small differences. It would depend on the business that you were in. You might be an app developer. First of all, at the moment we have categories of rules rather than specific rules, so I cannot say exactly what it would do. For example, it could give you fairer access to app stores. If you were a seller through Amazon, which we were talking about earlier, it could give you fairer access to your own data on your own sales. I could probably talk for a long time about all the things that it could do, but I will highlight that you are, in that role, exactly who the law is targeted at helping.

[Dean Russell]

Thank you. I notice that we have lost one of our witnesses, so I will go to Professor Marsden—I mean Professor Furman. My apologies; I forget my own name sometimes!

Professor Furman: Fair dealing, open choices, and trust and transparency are three of the main conduct requirements. They are all designed to make sure you could not have a search engine hiding searches from your business, and that you could not have them preferencing themselves and directing to themselves instead of to you. You might benefit from some of the interoperability and data access by being given access to the data or access to a system that you could operate on, which right now one of your bigger competitors is doing, so I think it is preventing harmful and unfair things being done to you, but also affirmatively opening up some options. By the way, all that is good not just for innovation but for the consumer, because it will make things easier and more streamlined for them.

[Dean Russell]

Q Excellent. If I may follow up and spin that question on its head, Professor Marsden—hopefully I have the right person. I was asking before about what difference the Bill will make to a small business or growing business, but what will it mean for big businesses—the global giants—especially those that work in the online space? What will it make them better at doing? What will it stop them doing that might be harmful to competition at the moment?

Professor Marsden: I will deal with that first, then I can go back to the appeal point, if you would like my views.

The Bill will make those big platforms compete, basically for the first time. You will hear a lot of guff about how they are in some sort of monogopoly competition with each other all the time, and some of that might be true, but they are not really—they really are not. We see that in the competitive structure of the market, in the profits and in the concentration levels and so on. We are not trying to reduce profits or anything like that; we are trying to allow others to have a chance. If anything, like with open banking, that will light a fire underneath some of the big platforms, which are telling you they are innovative, and they are, but they are usually innovative in a way that makes us more dependent on them. We are not that fond of dependence in such markets; we are fond of diversity, choices and allowing competition on the merits—for products to rise and fall based on their merits, rather than on whether they have satisfied the terms and conditions of a particular platform.

On appeal, briefly—I am sorry for cutting out; Zoom might not be a platform of strategic market status—I have heard many advisers to tech platforms that might be subject to the Bill argue that the appeal issue is not just a small thing in the legislation, but absolutely fundamental. I agree with them on two things: first, the Bill itself and the ex ante approach that we have been discussing are absolutely fundamental—that is the big change. Secondly, the change with respect to ex post enforcement—the review of the conduct requirements, the investigations, anything imposed on the platforms and so on—to me involves such an involved, open and participative process between the platform, the digital markets unit and other entities that it gives me a lot of comfort about due process. If anything, if there were a full appeal standard, we might as well move to a prosecutorial approach, where the DMU is a prosecutor and everything is adversarial, and takes 18 years in court.

That is kind of what we have now so, if anything, this is an opportunity really to understand the business models, to put in bespoke requirements, to test ably the remedies—that is an important aspect—and to release remedies if they are not working or if they need to be tightened up. That therefore shows internationally what the UK thinks about such practices, which might help with the global spread that Amelia was mentioning. However, I have to state firmly that I believe that judicial review takes a lot longer than a substantive appeal, and I think that if the Bill were amended to allow a substantive appeal or even a few years of substantive appeal, we might as well have not done the study at all and might as well not pass the Bill in respect of the digital prior arrangements, because it will just return us to what we have seen before, basically.

In contrast, the European Commission is allowing substantive appeal rights. If anything, I think that means that they will code for prohibitions. As Amelia said, the law is not as bespoke, so we are going to see: “Here’s your general obligation. I don’t think you are satisfying it.” Then there will be an appeal to the Court and a wait of 18 years for Luxembourg to make a ruling. Here, those issues we hope will be dealt with at the administrative stage, and whether the authority of the DMU or the process itself was fair and reasonable is something that the courts should obviously review. We welcome that scrutiny. In fact, if I were involved in any of this, I would very much welcome that kind of scrutiny at the judicial review level, which is itself a very intense form of review, so it feels perfect to have this JR standard, but I appreciate that you will have already heard a lot against that and will in future.

[The Chair]

Thank you, professor. I have a follow-up from the Minister.

[Paul Scully]

No, that is fine.

[The Chair]

Okay. In that case, I will bring in Jerome Mayhew.

[Jerome Mayhew (Broadland) (Con)]

Q I understand the evidence that you have given about the need under clause 194 to have a JR approach to the appeal process. What that does, however, is underline the power that the CMA has. Professor Furman, you mentioned earlier in evidence that it really matters who the leader of the CMA is. The area that I want you to comment on is whether you think that, under this process, there is sufficient political accountability for the decisions of the CMA. Such organisations are big, with the potential to have a huge impact on the economy of this country. Inevitably, they are deeply politically sensitive—or it is foreseeable that they will be—so are we not in danger of passing the buck too much to an arm’s length organisation like the CMA? Perhaps we should recognise that the decisions are inevitably political and that we therefore need a greater sense of political accountability. Professor Furman, could you start off on that?

Professor Furman: Political accountability is very much the broad approach. It is important that you have a body that approaches this transparently and predictably. I have a lot of respect for the role that you all play in the political system. You think that you should set the goals for consumer choice, innovation and so on, but it is important that what ultimately gets done is done in a much more judicial, regulatory way so that it is predictable for all the parties involved and does not change dramatically over time. In that, there is obviously the appeals process that was just discussed. That is not a political appeals process; it would be within the legal system.

I confess that I am not familiar with exactly how things would work in the UK. In the United States, Congress would have the head of the Federal Trade Commission, or whatever body was charged with this, up to testify. Generally, Congress would not ask, “Why did you bring that case yesterday?” but “Why aren’t you being more aggressive?” or “Why aren’t you being less aggressive?” They would try to oversee things at a strategic level, while leaving each case, decision and regulation to the regulator. Something like that system—I do not know exactly how you would do it in the UK—would be ideal.

[Jerome Mayhew]

Q Professor Fletcher, you are nodding. Would you like to expand on that?

Professor Fletcher: I fully agree. I can see why there is concern about discretion, but the CMA has shown that it takes its responsibilities seriously. It also understands that it is answerable to the Government of the day on a strategic level, rather than on individual cases.

To follow what Philip said, JR is not a walk in the park. It is a pretty serious test, which the CMA has faced occasionally in the past. It is a very serious expectation on the CMA. I support the view that if you want investment and open and competitive markets, you must have a transparent, consistent framework, which has lots of legal certainty. I worry that too much political intervention risks undermining that.

[The Chair]

Thank you. We have time for one more question, so I call Andy Carter.

[Andy Carter]

Q Professor Fletcher, picking up on something that you mentioned earlier, I want to look at innovation and investment. You said that we are leading the world in the some of the work that we are doing. Can you quantify how that work will benefit UK plc? I am conscious that that is a big question, but has any work been done on our approach and the benefits to our economy that we might see?

Professor Fletcher: I have to confess that I am not aware of work that has specifically been done on that. It is worth seeing this as a global thing, and we are trying to play our part in creating a global environment that will foster global innovation. I think that by doing it here, we will set rules that foster much of that innovation and encourage it to come here. There will be people who have made estimates; my hunch is that most of them will be pretty back-of-the-envelope, but I confess that I have not seen them.

[The Chair]

Thank you very much. That brings the allotted time for this witness panel to an end. On behalf of the Committee, I thank you all very much for giving us your time.

Examination of Witnesses

Noyona Chundur, Peter Eisenegger and Tracey Reilly gave evidence.

14:45

[The Chair]

We will now hear from our next panel of witnesses. We have Noyona Chundur, chief executive of the Consumer Council; Peter Eisenegger, board member, National Consumer Federation; and, via Zoom, Tracey Reilly, head of policy and markets, Consumer Scotland. May I ask you to introduce yourselves for the record?

Noyona Chundur: I am the chief executive of the Consumer Council.

Peter Eisenegger: I am the director of the National Consumer Federation with responsibility for the digital perspective in the consumer world. From the nature of our response, you will see that we have also commented a lot on the standards world, so I think it is appropriate that I indicate my background there: I have participated in digital standardisation in the UK through the British Standards Institution, in Europe through CEN and CENELEC, and internationally through the International Organisation for Standardisation. We do our best to represent the consumer voice in those arenas.

Tracey Reilly: I am head of policy and markets at Consumer Scotland.

[The Chair]

Thank you. I invite shadow Minister Seema Malhotra to start the questions.

[Seema Malhotra]

Q Thank you for coming to give evidence. Perhaps I could start with you, Ms Chundur, and then others may wish to come in. Do you think that this Bill will adequately address consumer detriment in digital markets? Are there areas where the legislation could go further?

Noyona Chundur: Thank you for the great question. Perhaps I can start with a little bit of context. We believe that confident consumers will drive competitive markets. There is a lot that the Bill does really well. It is great progress, and I commend the work of colleagues in the Department, as well as partners in the CMA and Tracey from Consumer Scotland for their input in getting us to this point. There are eight areas that could be strengthened or clarified. There is building consumer confidence. There is the potential risk of only the CMA having direct enforcement powers. It is around the supervision of enforceable standards, practice and conduct of businesses. It is the ability to add and remove—

[Vicky Ford (Chelmsford) (Con)]

Slow down!

Noyona Chundur: Sorry, would you like me to step through each one? Would that be easier?

[Seema Malhotra]

You are going through them quite well, but could you go you through them slightly more slowly, because colleagues will want to write them down?

Noyona Chundur: The first thing for us is building consumer confidence as a priority, because prioritising consumer protection to build the foundations that create confidence in competitive markets will benefit both the consumer and the economy. We are looking at this through the prism of the cost of living crisis and through the heightened prism of vulnerability. In the packs that we provided, you can see that vulnerability has certainly increased in the last 12 months. The Consumer Council has dealt with over 33,000 consumers, and they are showing increasingly more complex and multifaceted needs. Income in Northern Ireland has—

[Seema Malhotra]

Q Sorry: your list of eight things was quite useful, so would you be able to go through those—as you were before, but just a bit slower?

Noyona Chundur: Understood. Did I get to adding to or removing from the list of banned practices in the Consumer Protection from Unfair Trading Regulations 2008?

[Vicky Ford]

I wrote down the first one.

[Seema Malhotra]

Could you start the list again?

Noyona Chundur: Okay. Building consumer confidence is a key priority for us. The second thing is the potential risk of only the CMA having direct enforcement powers. The third is perhaps expanding the Bill in some way to include the supervision of enforceable, standards, practice and conduct. The fourth is adding to or removing from the CPR list of banned practices.

Next is establishing enforceable minimum standards to alternative dispute resolution schemes. We welcome the mandatory accreditation as part of the Bill, but we would like to take it a step further. Then there is a question around better regulation of firms that exploit behavioural bias or nudge techniques for negative effect. Finally, we recommend going further on subscription traps with opt-in clauses after the trial or end-of-contract period.

[Seema Malhotra]

Q Thank you—that was very helpful. On subscription traps, you will have evidence for recommending opt-in rather than opt-out. Could you talk us through the impact of the opt-out?

Noyona Chundur: The key thing for us comes from research that the Government have published. I think the Department for Business and Trade estimated that 81% of UK households signed up to at least one subscription last year, and consumers are spending £1.6 billion per year on subscriptions that they do not want. That is a huge amount of money that a lot of consumers do not have in the current cost of living crisis. Our own research highlights the lived experience. In the online detriment research that we carried out, one consumer told us that they signed up for a 30-day trial but it took them six months to get the subscription cancelled. In the light of that, I think that it is appropriate for us to recommend that legislating for opt-in clauses after the initial trial or end-of-contract period is reasonable. I also believe that that may deliver the most immediate and material benefit to consumers in the short term, given the vast quantities involved.

[Seema Malhotra]

Q Mr Eisenegger, are there any gaps that you would argue for, and what is your view on fake reviews and whether they are being sufficiently addressed in the legislation?

Peter Eisenegger: Our overall approach here, at the more strategic level, is that the Bill contains lots of good stuff. It is a significant step forward. What we do not want is, as has happened with the Online Safety Bill, for it to hang around forever and not enter law. Our view is that we can talk about improvements in some areas. You mentioned one—the way that fake reviews are handled. To delve into that detail, however, would just prolong the process of getting it into law. We recommend that the Bill gets enacted as soon as possible, that we recognise it as a step forward, and that the CMA and this Committee look at areas of improvement beyond it. There is something that would relate to online reviews in terms of whether the information being provided is accurate, but it is good enough. Let us press on and get it done.

That said, I have not heard a discussion about the role of standards and supporting regulation. We are in the digital world, and an awful lot of regulation is supported by standards. You will find that General Data Protection Regulation is leaning very heavily on work in Europe to adapt and put some final European tweaks on the work that has gone on at the ISO level, and similarly with AI. If you want to be a leading player in this area, particularly an innovative one, from our perspective—we play in international, European and UK standards—you have to be very well aware of, and participating in, all those arenas.

To make an innovation comment—having spent two thirds of my career in product management and innovation, I am now doffing the consumer cap and putting the real-life innovation one on—good innovation practice is to look at what other people are doing and pinch as many legitimate ideas as you can from them. Quite honestly, the fact that the EU has the same sort of intent but a slightly different approach is great. Just keep an eye on its members to see whether there is good stuff. To be fair, I will say the same to them, because I am participating in the AI standardisation at the moment.

[Seema Malhotra]

Q In the interests of time, I will move on to Ms Reilly. What is your view of how this will affect/benefit consumers in Scotland? Are there any other specific issues that we should consider in relation to Scotland?

Tracey Reilly: Broadly speaking, we welcome the Bill. As your previous panellists said, it has lots of good stuff in it. It should provide the CMA with more flexible powers, which can be used in a more responsive and timely way to prevent detriment. On how the Bill will affect individual consumers, we hope that it will lead to consumers experiencing lower levels of detriment and being less subject to unfair, misleading or aggressive trade practices so that if and when such practices occur, they can be stamped out more quickly and easily, and it is easier for consumers to seek redress through ADR systems that are appropriately regulated and standardised.

In terms of how the Bill will affect Scottish interests, in many ways the level of detriment experienced by consumers across the UK is similar. The consumer protection survey is UK-wide and the patterns of detriment for Scottish consumers are generally not hugely different from those experienced in the rest of the UK. That said, there are obviously differences between the two nations in the regulatory enforcement and judicial landscapes, and it is important that we understand and pay attention to them. Equally, I understand that the Department has been engaging with Scottish stakeholders. We welcome that and would obviously like that to continue through the implementation process.

Some markets operate differently in Scotland, either because they are entirely devolved because there are fewer providers and therefore lower levels of competition, or because consumers access services differently, for example, due to geography. It is important that, within the overall UK framework, the system can respond to those regional differences or local issues. We hope that the additional levels of flexibility granted to the CMA under the Bill will allow for a more flexible and targeted response, particularly if any local practices cause detriment. We look forward to liaising with the CMA on that. Noyona may wish to make additional comments, given that she is in Northern Ireland.

[Kevin Hollinrake]

Q Noyona, you mentioned that you felt that the CMA should not be the only enforcement body that oversees the legislation. Who else do you think has the experience and expertise to perform some of those significant obligations?

Noyona Chundur: There is a heightened risk, Minister, if the new direct enforcement powers sit only with the CMA. Ultimately, the purpose of those powers is to be much more agile, flexible and responsive to consumer detriment in the market. Is there a heightened risk that enforcement will default to the CMA because perhaps it may deliver a solution that is much more agile and responsive and much more in keeping with the pace of detriment in the marketplace compared with a courts-based system? The sector regulators and trading standards could therefore have the same or similar powers. The question is about agility and responsiveness to detriment, which is exploding in the marketplace. We see it increasingly, particularly in digital markets, which evolve so quickly. That is our perspective.

[Neil Coyle (Bermondsey and Old Southwark) (Lab)]

Q The Bill aims to protect consumers and challenge unfair competition online, but one significant disadvantage for British companies and consumers is counterfeit goods sold on platforms such as Amazon. For example, the British company that holds a licence to make Peppa Pig toys has the trademark and the patent, and meets the standards, including safety standards, but counterfeit goods, particularly those imported from other countries such as China, are dangerous and do not meet safety conditions. Will the Bill help end that situation for consumers and companies here? Is it an opportunity to do so or, if not, is it amendable to achieve that?

Peter Eisenegger: The Bill has clauses that allow us to address that in terms of, “Has the information put before the consumer been complete and accurate?” If something does not comply with safety standards, that has been omitted. It is a question of interpretation that we would have to nail down and make clear.

[Neil Coyle]

Q Would the Bill allow for a company here to say that? Amazon’s excuse is that that is for the producer in China, for example, to do that, rather than for Amazon. Does the Bill address that gap or not?

Peter Eisenegger: This is an area where I have had a lot of conversation with Electrical Safety First, which is very concerned about it. We have started to outline, at a very preliminary stage, what constitutes an online market set of functionality for which people should be held responsible and—what do you know—Amazon fits that. We find that online retailers do not perform all the functions, but they perform enough to be reasonably interpreted as having a retailing responsibility in the traditional physical world. But they have to do the heavy lifting of getting stuck into the detail and mapping it out.

I am afraid I come back to the standards world, which tends to be set up to provide that level of detail for the regulation to lean on. There are standards for complaints handling, for alternative dispute resolution, for dealing with vulnerable consumers and for online reviews—all issues that touch on what we have said. They are there, and mainly my UK consumer colleagues in British Standards either instituted them or were very influential in getting them taken forward.

A personal expert view? Yes, I think it can be interpreted that people like Amazon have a retail responsibility. To provide the evidence and analysis to support that position, however, is work that we have started with Electrical Safety First, but we are a bit busy and neither of us has had the time to finish it off.

[Neil Coyle]

Q Thank you for your work. Perhaps the Government will pick up on some of that. Noyona, I think you were going to come in.

Noyona Chundur: May I add something? Electrical standards are not my area of expertise, unlike consumer expectations around standards generally, so I will make a comment about that. Consumers expect minimum standards, particularly in new markets. It is worth saying that when we are talking about new digital markets, everyone is vulnerable, so there is no “vulnerable consumer” per se.

An interesting point to make is that we did a joint project with the Utility Regulator for Northern Ireland on what consumer expectations might be of future regulation and decarbonisation. Consumers were very clear that, in addition to trusted accessible information and concerns about costs or financial health, they wanted absolute protection from safety fraud, obsolescence or mis-selling, but they also wanted clear and robust standards on certification, registration and standards for installers, and protection against damage and disruption during installation. That is moving away from something that is perhaps more price-led and economic to where we need to have a minimum enforceable standard that works for everyone, so that we bolster the safety net and create confidence in markets. The more that we do that, the more consumer spending we have in the economy, which is good for everyone.

Peter Eisenegger: May I make a comment about enforcement? A backstop is in action at the moment: the class actions that our law now allows for the consumer world. My colleague Arnold Pindar, the chair of the NCF, is part of an advisory group that is taking on Mastercard at the moment. Another colleague, Julie Hunter, is fronting the case against Amazon about the way it presents its own products unfairly in its online marketplace. These names are in the public domain; I would not mention them otherwise. To a certain extent, the powers being provided to the CMA to be a bit more responsive and active make sense where we have class actions, which really is a major “after the horse has bolted” situation. We hope that the CMA will prevent more horses from escaping. Thank you for the opportunity to comment.

[Vicky Ford]

Q Could you give us examples of where the industry has set standards in the digital space that have helped to address particular holes? You have given us a list of standards for online reviews and alternative dispute resolution, but can you give us a way to explain to our constituents why these industry-led standards help to underline good behaviour in this market, and why it is important that they are set in an international sphere for these players?

Peter Eisenegger: Okay. The industry-led—

[Vicky Ford]

Are they industry-led?

Peter Eisenegger: You only get good standards when you have proper stakeholder engagement—that is a comment that we address in our supporting paper. You need standardisation bodies that actually work hard at getting their stakeholders involved. BSI is good at that, and the European system is pretty good. In the digital area, because there are so few of us with the right background and expertise, you find that the consumer voice is not getting through. I have two consumer colleagues who are on the BSI mirror committee for AI; they feel that the international standard is not reflecting what they are trying to input, because we do not really have anyone effective at the international level on the consumer side.

You need very careful insight into where there is decent stakeholder engagement and where there is not. Where there is, you are quite right: I have worked on a number of committees where the good guys and gals from industry have just been saying the right thing, and you end up just tweaking a little of what they already understand in their industry is good practice. There is no problem with working with the good people in industry, but—particularly in the digital space—you do get the big players coming in and influencing things, whereas the small and medium-sized enterprise stakeholders are not as fully represented. When a standard is put forward, careful understanding is needed of who the people are who are really contributing to it.

[Vicky Ford]

Q I think you said that you sometimes see the standardisation process in the digital world being used by larger players to put barriers in the way of smaller players getting involved.

Peter Eisenegger: Exactly.

[Vicky Ford]

Q Can you give an example where you have seen that?

Peter Eisenegger: Yes, I can. It was a consumer-initiated standard on complaints handling. If you want the number, I can blind you with it: it was ISO 10002. It was initiated by the consumer side of ISO. It is clearly written for the big company: it has lots of good practice where you divide all the responsibilities, the analysis of the complaints and things like that. There is an annex for SMEs. I have been through the main part of the document and counted the number of requirements: there are more than 250. For the SMEs, there are eight.

Where you look at the consumer and it is your small local trader, you go, “That’s fine,” because they know you personally—you know where they live, basically, and that changes the whole local relationship. But you do not really see that many standards where the practicalities for the smaller company are reflected. I am quite pleased that the consumer world did a decent job for the SMEs there, because they are very important to us in terms of local service and providing competition to the big guys.

[Seema Malhotra]

Q I want to come back to some areas that we have picked up on in previous evidence sessions. Schedule 18 to the Bill sets out a list of commercial practices that are to be considered unfair, but a number of arguably unfair commercial practices are not included. Examples might be drip pricing or misleading green advertising, which is an increasing consumer concern. Do you consider those omissions to be something that needs more attention during the passage of the Bill so we do not miss this opportunity?

Peter Eisenegger: Do as much as you feel you can make time for, while getting the Bill implemented as quickly as possible. I come back to the key clauses that relate to the appropriateness of the information provided. Is it complete? Is it misleading? As a charity, we have looked at how heat pumps are being advertised at the moment. About 80% of the online information did not provide the right contextual information for your heat pump decision; some did not even mention it at all, and a few hid it away behind several layers of interaction with the website before you found it out. That would fall under the incompleteness clause, but again, you are going to come back. The CMA would be able to apply an interpretation, which would probably go through some sort of intense dialogue with the industry people concerned, but if you do not have time to cover all those other aspects as explicitly as you would wish in the Bill, I think there is a clause that gives the CMA some capability for addressing it.

Noyona Chundur: Maybe I can add to that. This talks to the point in the earlier session on how quickly or whether fake reviews should be automatically added to the list of bad practices, or should we go through full consultation. In all these things, we need to have appropriate consultation and the appropriate due diligence carried out. It needs to be done as quickly and thoroughly as possible so there is no doubt. I am completely supportive of what was said earlier today that there is a lot of detriment as a result of fake reviews, and the sooner that is resolved, the better. None the less, we need to be careful about setting the right precedents. We need to have consistency in procedural application. For all those things—I believe we are all in agreement that drip pricing is of huge concern, as are misleading green claims—we need to follow the right process and get through it as quickly as possible.

[Seema Malhotra]

I think Ms Reilly wants to come in as well.

Tracey Reilly: I simply want to endorse much of what Noyona said. There are issues around fake reviews, drip pricing and greenwashing that we all want to see addressed, and for that to happen as soon as possible. However, there is also a need to ensure that the definitions are right and the provisions are effective. We would hugely support the Secretary of State having the power, which is in the Bill, to amend the schedule by regulation. I realise that is a Henry VIII clause, which is not always popular, but in this case I think it is an acceptable use of that power, and it comes with appropriate safeguards in terms of the affirmative statutory instrument procedure and the requirement to consult first.

Touching briefly on greenwashing in particular, we acknowledge that existing regulators have powers to tackle that and that there are existing programmes of both education and enforcement. However, greenwashing claims are hugely prevalent and there is a lot of work to be done. It is an issue that, for us, has real risks associated with the net zero transition, because we are going to get consumers to make quite different choices around what they eat, what clothes they buy, how they heat their houses and what vehicles they drive. Some of those are quite big-ticket items in terms of cost, so there is a real risk for consumers and a real need for them to be able to trust the information they are given, which links back to the points my colleague Noyona was making about consumer confidence.

[Seema Malhotra]

Q In relation to support for consumer organisations, how do you think the CMA and the Government can better support consumer organisations that are supporting consumers on the frontline?

Tracey Reilly: Just a couple of quick points. There is a need to produce very clear guidance on the new plans and have very clear referral processes to the CMA for the use of those plans, so that advocacy and advice bodies have almost a direct line, if you like, into the points of contact. Essentially, it is about pathways and signposting, and ensuring that the routes from an individual consumer experiencing detriment to those who are able to take action on it are as quick and flexible as possible.

Noyona Chundur: From my perspective, I would ask for two things. The first is greater connectivity across the ecosystem. We all have a lot of data; we all have a lot of intelligence; we all have a lot of on-the-ground insights that should be shared and published in a more connected and co-ordinated way. Ultimately, that is more holistic, but it gives the level of granularity we need on a four nations basis. The other is greater focus on the broader issues of online behavioural bias and the exploitation of behavioural bias—you know, nudge techniques—to negative effect. To my mind, the Bill does not adequately cover that, so I believe this is an area of potential development.

As has been touched on already, vulnerability is not just about personal characteristics or social circumstances; the behaviour of organisations can cause harm and put you in a vulnerable position. That is a key area that we would love to see explored in more detail as the Bill passes through scrutiny.

Peter Eisenegger: In terms of support, having mentioned standards, there is a Government mechanism for providing the consumer arm of BSI with money to support its experts. Keep a careful eye on that, and work with BSI and its consumer arm to ensure that that is suitable for the level of really important issues we need to address.

There is another area of the consumer world, which is about the smaller, really voluntary charities, such as ourselves and the Child Accident Prevention Trust, which have no regular income and live hand to mouth. We have been on the brink of extinction every now and then, and although we have managed to haul ourselves back, it is a very precarious position. When we and others in a similar position contribute to this sort of arena or talk to regulators, our voice is valued and has something to offer, but we are very precarious. If Parliament looks at the people who really represent the grassroots and different perspectives and are without a regular income, and if something can be done, that would be extremely useful. Some of these voices drop out.

[Vicky Ford]

Q I want to come back to schedule 18 and ensure that I absolutely understood what Tracey said. This morning, I think Which? said that they thought fake reviews should now be put in schedule 18. I have had constituents who have suffered from fake reviews for services they have given, and the fake review has been very damaging to their business. We all know about fake reviews on books, which can be very damaging. Are you saying, Tracey, that we need to ensure we get the wording of how it goes into schedule 18 right—have the consultation and get the wording right—but let the Government introduce it through Henry VIII powers later, rather risk delaying the Bill by trying and maybe not getting the exact wording right now?

Tracey Reilly: I think that is a very difficult question. Without remotely passing the buck, I think that ultimately it is a judgment for your Committee to take as to whether it considers there is sufficient clarity in the definitions proposed during the amending stages to allow for those decisions to be made now. If the Committee is confident that there is sufficient clarity, and the soundings you are receiving from stakeholders indicate that they are content, it is a matter for the Committee to decide. Ultimately, our position is that we want to see it as soon as possible, but we also want to see it done correctly, because as we all know it is very difficult to amend primary legislation once that is in place.

[Vicky Ford]

Q So “get it clear” is what you are saying to us.

Tracey Reilly: It is a very complicated area, not just in terms of how you define fake reviews but in terms of the precise powers that regulators need in order to determine where, how and when fake reviews are occurring. AI will make that an even more complicated picture, so it is important to get that right.

[Jerome Mayhew]

Q Ms Chundur, you gave a very interesting stat earlier: £1.6 billion per year is spent on subscriptions that people do not want. One of your eight areas of concern is an opt-in clause for the subscription trap issue. You are in good company, because Citizens Advice came up with the same recommendation in this morning’s evidence session. However, we will hear later today from the News Media Association, which expressed exactly the opposite view in its written evidence: that the current wording of clause 252(1), which is essentially that you should be able to unsubscribe with one click without any unreasonable additional steps to go through,

“may hinder the provision of improved subscription offers that are in the best interest of the consumer”.

Can you comment on that? I will test the NMA if no one else does regarding what exactly it meant by that, and ask for examples of how it might hinder improved consumer engagement, but if the NMA can substantiate that, would you accept that it has a point?

Noyona Chundur: Perhaps, but I agree with what Citizens Advice said this morning: if your product is good enough and consumers want it, they will seek it out. Another point made this morning was that the consumer journey sits across multiple markets and is quite complex. That is where we are coming from. We are looking at the end-to-end consumer journey. In that context, consumers also want minimum standards. If you do not have minimum standards—if the default position is that you are just rolled on to another contract, and there is no opportunity to review whether that contract is the best for you, has the best price, is the best product or suits your particular circumstances—I am afraid that that does not necessarily give the consumer the best deal from a price or quality perspective.

[Jerome Mayhew]

Q Do you also recognise that there are people like me out there who signed up for a contract, and to be asked every single time, “Do you want to renew it?” when it is a core level of services that I benefit from, year in, year out, would be less constructive for my wellbeing? That is poor English, but you know what I am trying to say.

Noyona Chundur: Respectfully, I would say that most people will want the reassurance that the deal that they are getting every year is the best deal possible, is coming at the best price, is being delivered with the best service in mind and meets their needs, rather than the assumption that an algorithm or someone else has made that decision for them. Certainly the consumers we speak to want transparency, accessible communication and more choice. This is one way of giving them exactly what they want. I echo the sentiment of what was said this morning: if the product or service is good enough, people will sign up to it. It is nothing to fear, but it will raise standards and make for better competition and a more sustainable economy. Those are all good things, because they are being viewed through the prism of consumer accessibility and affordability.

[Andy Carter]

Q Tracey, you mentioned in your opening statement that a number of markets operate differently in Scotland. I wonder whether I could ask you to expand on that a little. What particularly were you referring to, and where does the Bill need to be amended to accommodate those markets operating differently?

Tracey Reilly: I probably had two or three examples in mind. One would be legal services, which are entirely devolved, so they are regulated entirely differently. Key parts of that market around complaints are regulated differently. Another would be one that we share in common with Northern Irish colleagues: the prevalence of off-grid heating systems. There may be ones where how you access services is simply different according to where you live; for example, there is the perennial issue of postal delivery in Scotland and Northern Ireland. Those were the types of thing that I had in mind.

We have regular and very constructive dialogue with the CMA about local issues, and about regional and sub-national issues. We hope that the Bill’s provisions will enable the CMA to deal flexibly and responsibly with those concerns. The framework that they operate, as with any body that has limited resources, makes prioritisation decisions on a UK-wide basis. We would like to ensure that regional and national differences, and differences for specific communities within the nations, can be dealt with as part of that. I think Noyona would probably welcome coming in on that point.

[Andy Carter]

Q Do you want to pick up on that from a Northern Ireland perspective?

Noyona Chundur: Absolutely. A key regional difference, both for Tracey and for me, is the microbusiness economy. In Northern Ireland, 89% of our businesses employ 10 people or fewer. We are absolutely a microbusiness economy. We know that the experiences of many consumers and of many small businesses and microbusinesses mirror each other in multiple markets. Tracey’s point is about ensuring that the prioritisation principles, or the applications of how the Bill is operationalised on the ground, need to be mindful of the diverse experiences that can happen among the four nations.

[Andy Carter]

Q I have one further question. You touched on nudge techniques. Can you expand on that and on what action you think needs to be taken?

Noyona Chundur: It is when you are pressurised into purchasing a product or service without even knowing that it is being served up to you because of an algorithm.

[Andy Carter]

Q Can you give me an example of where that is happening?

Noyona Chundur: It can happen in retail; it can happen in any digital market; it can happen in telecoms. It is a technique that is growing, and there needs to be further investigation and exploration of what that means for regulation. That is not just the job of the CMA; it will need sector regulators to play a part. It needs the whole ecosystem to coalesce, but also trading standards and trading standards in Northern Ireland.

[Andy Carter]

Q Sorry to pressure you on this, but I want to understand what you mean by a nudge technique. If I go on to a website and then I get an email afterwards, is that a nudge technique? What do you mean?

Noyona Chundur: That is probably an algorithm. A nudge technique is perhaps a little bit more sinister than that: it is where you are being prompted to purchase products and services that you never thought you might need, based on your previous purchasing patterns and purchasing decisions. That may not come at the best cost or the best specification, and it certainly may not be the best offer to use.

[Andy Carter]

That is really helpful. Thank you.

[The Chair]

I call Dean Russell to ask a brief question.

[Dean Russell]

Q I have two, but they are really quick. First, will the consumer be expected to do anything in order to see benefits from the Bill, in your view? Will they benefit from all the wonderful things we have talked about, or will a communications campaign be needed alongside the Bill to tell them what their new rights are so that they can report back and make complaints, as it were?

Noyona Chundur: A communications campaign is fundamental. The language that is used, how the messaging is framed and how it is targeted to the various consumer groups will be key, as will consistency of messaging across the regions, not just from a UK perspective. It needs to be mindful of how consumers absorb information and who they engage with, as well as being mindful of communities. Consumers want clear, transparent information in plain English, so we need to make it simple for them. We need to be careful not to just push the onus on consumers to make decisions. The job of the Bill, and of Government, is to make lives better, so that is what we want to do.

[Dean Russell]

I will leave my second question, because I am conscious of time.

[The Chair]

Thank you.

That brings us to the end of the time allocated for this witness panel. On behalf of the Committee, thank you all very much for taking the time to give evidence.

Peter Eisenegger: Thank you for listening.

Examination of Witness

Professor Geoffrey Myers gave evidence.

15:30

[The Chair]

We will now hear oral evidence from Professor Geoffrey Myers, visiting professor in practice at the London School of Economics and Political Science. For the record, Professor, could you introduce yourself?

Professor Myers: In addition to my role at the London School of Economics, I had a prior 30-year career working for public authorities, competition authorities and regulators, particularly Ofcom, so I have hands-on experience of being a regulator. For full disclosure, I should say that I am one of the independent digital experts whom the CMA has appointed to assist it in preparing to take on the duties should this Bill become law. But I am representing my own point of view, not the CMA’s.

[Alex Davies-Jones]

Q This is a question that we have been asking a lot of the witnesses today, but it is important to get your views on the record. Could you please outline whether you think the Bill will help or hinder innovation growth in the UK digital sector? Do you think the Bill goes far enough, or are there any omissions from the Bill that you would like to see included?

Professor Myers: I think on balance it will help improve innovation, and I largely agree with the comments made by the witnesses in the first session this afternoon, Professors Fletcher, Marsden and Furman. We need to think about innovation by big tech companies, which are the targets of the regulation here. They are likely to become the firms with strategic market status and to become regulated companies, but there is also innovation by their customers, by their competitors and by new starters.

On the innovation incentives and the ease of innovation, I think the playing field has been tilted a bit too far towards big tech and against the other set of players, so making it easier for that other set of players to innovate is very valuable. One of the tasks in implementing this regime, which I think is about the CMA doing its job well, is taking seriously potential concerns about deterring innovation from the SMS firms and making sure that the potential risks are minimised. I think that goes beyond what is on the face of the Bill and is really a task for implementation by the CMA.

[Alex Davies-Jones]

Q On omissions, do you think the Bill could go further?

Professor Myers: I think it strikes a sensible balance. As you have already heard, there are great advantages in having flexibility and future-proofing because of that flexibility. That implies a structure—a framework—that is laid out in this legislation, which will put quite a bit of onus on regulatory discretion to implement it, and then there are sets of regulatory capabilities and accountability that are needed to make that all work. But I think the Bill is a very good attempt at striking a good balance there.

[Alex Davies-Jones]

Q Comparing this Bill with other legislation that we are seeing—in the EU, for example—do you see it as positioning the UK as a world leader, which is the phrase the Government like to use, in this area?

Professor Myers: I think it does, because it heightens those points about flexibility and future-proofing. There is always a trade-off, so it is not that one system is uniquely better than another in every respect. The Digital Markets Act is more prescriptive and lays down specific dos and don’ts, whereas this approach—the UK approach, which I very much favour—does not. It sets the framework and objectives, and then it is for the CMA to develop specific regulations, both on conduct requirements and on pro-competitor interventions, in a way that is more tailored to the individual circumstances. I think that aspect is highly valuable.

[Alex Davies-Jones]

Q Finally, the other thing we have heard a lot around this Bill is the length of time it has taken us to get to this place. We had the digital competition expert panel set up in 2018, and the Bill’s impact assessment now suggests that the provisions in the Bill will not be fully operational until 2025 at the earliest. Can our digital economy wait that long?

Professor Myers: I do not think I have seen that full timeline to 2025, but I guess what I would say in that respect is that, yes, this legislation has taken a while to come to fruition. At one point the UK looked like it was going to legislate before the European Union, but the CMA has done a lot of preparatory work, and I am sure that it recognises that it needs to hit the ground running as soon as this legislation is passed. It is doing market studies and other work now. It is a well-resourced regulator in this area. The digital markets unit is up and running and doing active work, and obviously my digital expert role is trying to assist them in that work. There will undoubtedly be a time for implementation, but the CMA is well aware of the need to get on with it.

[Kevin Hollinrake]

Q You may have heard my question earlier. Some of the firms that are likely to be designated as SMS might argue that this Bill will prevent them from innovating. Do you see any chance of that? Are there any areas within the Bill that make it likely that innovation will be inhibited?

Professor Myers: I do not think it is that likely. It would be interesting to hear specific examples. As for the one that was commented on earlier, I did not quite see why this Bill would prevent that, as Professor Fletcher outlined. It may be that I have not heard the full set of reasons as to why it might prevent Amazon’s innovation in the very different area of retail outlets. The reason, which again goes back to the targeted and tailored approach in the UK, is that when the CMA designates specific digital activities where there is substantial entrenched market power and indeed a position of strategic significance, that is not going to include peripheral areas. It is going to be focused on what some people call the core areas of market power of the large tech companies, because that is where the market power concerns are largest. There is significant freedom outside that.

There are concerns about leveraging market power in the core markets into other markets, and it is appropriate for there to be an ability to address that through things like conduct requirements. However, you cannot introduce a new regulatory regime without some risk around how the incumbents—the regulated companies—are going to respond. Obviously you are looking for good responses, but it is almost impossible to avoid some undesirable effects. The way this Bill is set up, however, looks to minimise those adverse effects.

[Kevin Hollinrake]

Q I know you are an expert in ex ante regulation. Obviously the way in which people can appeal any intervention by the CMA or the DMU would be only by JR, rather than on the merits method. Is that the right standard?

Professor Myers: Again, I think the Bill strikes quite a good balance with the judicial review approach. To bring in some practical experience from my days at Ofcom, I have had a role as an expert witness in quite a number of appeals of Ofcom decisions, in front of both the Competition Appeal Tribunal and the High Court. At the Competition Appeal Tribunal, those have been under different standards: there used to be a full-merits review, but recently that was changed to a judicial review.

I think what matters, as well as the legal standard of review as laid out in this legislation, is the nature of the appeal body. In this case, it is the Competition Appeal Tribunal. Compared with the High Court, these are specialists—both judges and lay members—with specialist knowledge and experience of dealing with both competition and regulatory cases. They have a greater appetite to get into the detail and merit issues, to the extent that that is compatible with the judicial review standard, than the High Court would. Having appeared in front of the Competition Appeal Tribunal under a judicial review standard, I can say, as I think Professor Fletcher did, that that is not a walk in the park for the regulator. You get a thorough testing, and what the Competition Appeal Tribunal is looking to identify is clear errors of either law or reasoning. I think that that is an appropriate way to strike a balance here.

[Seema Malhotra]

Q I want to pick up on the answers you gave earlier when my hon. Friend the Member for Pontypridd was talking about the delays in reaching this point and the length of time it will take for the Bill to go through. If there are any further delays, particularly if we reach 2025 before this is operational, what do you see some of the risks being in the meantime?

Professor Myers: You heard some evidence earlier this afternoon about the relationship between jurisdictions in different countries. Clearly, the Digital Markets Act in the European Union is being implemented at the moment and the effects of that will come in. The longer the UK legislation takes, the more that will condition the context within which the CMA will have to operate in implementing this regime. That is probably the most likely thing. There are obviously some other countries that are looking into that, but that is probably the main issue I would point to.

[Seema Malhotra]

Q Would you be concerned that by the time it comes in, it will need amending again?

Professor Myers: I do not think that that kind of timeline of 2025 means it is all a waste of time and we should not bother; I think it will still be important. It is not a complete all or nothing. There are some digital services where the platforms will want to standardise globally, but there are others where they will be interested in making national variations. I think the CMA can influence things using its competition powers. An example of that at the moment is the competition case it has had about Google’s Privacy Sandbox and the use of third-party cookies on Chrome. That is a Competition Act case where the commitments that Google has agreed with the CMA are actually influencing how it is operating Chrome globally, so there is still some scope for the UK to have a role even before this Bill comes in. Then when it does, obviously that will increase.

[Seema Malhotra]

Q I am interested, because you have such a depth of experience across these areas, in whether there is anything you feel has not been said in the evidence session that you would like to make as a contribution to the Committee’s deliberations.

Professor Myers: Perhaps one of the few things I did not entirely agree with in the evidence room was when Professor Marsden talked about the participative approach which, again, is obviously not in the legislation, but is envisaged in how the CMA will operate. I do not think what you want out of that is a cosy relationship between the regulator and the SMS firms. You need to have a constructive relationship, but that is going to be adversarial. To expect it not to be adversarial to some extent is probably over-optimistic and, indeed, probably undesirable, but it is also very important for the CMA to build a wider set of relationships with the industry, consumers and smaller stakeholders, who are not so used to dealing with a regulator. It is important for the CMA as a regulator to have a good overview of a cross-section of all the views in the industry and not just be captured by the SMS firms, which they are inevitably talking to an awful lot.

[The Chair]

That brings us to the end of this session. On behalf of the Committee, I thank you, Professor, for taking the time to give evidence.

Professor Myers: Thank you very much.

Examination of Witness

Graham Wynn gave evidence.

15:44

[The Chair]

We will now hear oral evidence via Zoom from Graham Wynn, assistant director for consumer competition and regulatory affairs at the British Retail Consortium. Graham, will you introduce yourself for the record?

Graham Wynn: I am Graham Wynn. I am assistant director at the British Retail Consortium, dealing with consumer affairs mainly and a number of other issues for some years now—about 20, I think. Today, I am representing the views of members.

[Seema Malhotra]

Q Thank you for joining us to give evidence. Will you outline what you see as the main consumer issues in the retail industry that you would want—hope for—the Bill to address? Do you see any gaps?

Graham Wynn: As far as the Bill is concerned, it is about 50:50. We would like the Committee to examine about 50% of the issues particularly carefully. Generally, we support the Bill—we think it does some useful things—but there are one or two matters of detail. On the other hand, we think that some omissions need to be looked at, whether in the Bill or elsewhere; they are necessary for the Bill to succeed.

We have some concerns about the enforcement landscape as a whole, the resources available to trading standards, and whether the Bill and its focus on the CMA will mean that trading standards go even more into the background. Members tell me they find that enforcement activity by trading standards has declined quite dramatically over the years. The other day, someone said to me, “Online, it is the wild west out there.” Although people try to comply with all the regulations, they find that many businesses—many of their rivals—do not do so, and that no one enforces anything. One of the issues retailers hope will be looked at is whether the whole regime, with the CMA’s new powers, will lead to better enforcement to create a level playing field for consumers and for businesses.

We are concerned about fake reviews. We support the banning of them. We wish that what the Government propose for them was on the face of the Bill. It is also important that people understand exactly what a review or a website should and should not include. They should include both negative and positive reviews, but it is very difficult to define what a fake review is and to ensure that whatever we come up with is enforced. The key theme is enforcement. It is no good giving people protections if they are not enforced.

The other thing is the CMA’s new approach to consumer issues and admin powers. We have a good relationship with the CMA. Members are more—let us say—acquiescent with the proposal to move towards an administrative-based regime. They accept that it has been debated over many years now, and that the Government are determined, so the key thing is to make it work. The real thing is to make sure that there is a good appeals system, independent of the CMA at the end of the day.

Another concern about what is missing from the Bill is the requirement for the CMA to accept primary authority advice. The CMA refuses to do that. When a business has been given primary authority advice—assured advice—that governs what other local authorities and trading standards do in the area, but that is not the CMA approach. We think that with its new powers, it is important for the CMA to accept primary authority advice, or indeed, to devise its own system by which it gives advice to businesses that is assured advice. It will do that in the competition area—on sustainability—but we think it would be very important in the consumer area as well.

There are other issues, of course. The review of the blacklist is another that I would pick out as one we are slightly concerned about. One of the dangers in all politics is a knee-jerk reaction to a political issue, and we think that one such danger is in adding to and subtracting from the blacklist in schedule 18 by statutory instrument, rather than right up front in primary legislation. We argued this in the EU when it first came out with the unfair commercial practices directive. We argued that successfully in relation to much retail and commerce across Europe. The point is that we want to make sure that anything that goes into or comes out of the blacklist is properly debated and analysed and so on, rather than going through virtually on the nod, which is likely even with affirmative resolution. Those are some of the things you might want to bring out, such as unit pricing, and you might want to ask about those.

[Seema Malhotra]

Q I just want to follow up on your point about trading standards and enforcement. Trading standards resources have dropped by 50%, and there is a wild west on our high streets and online, with products coming through porous borders at the moment.

Graham Wynn: Yes.

[Seema Malhotra]

Q In your view, should more powers be given to trading standards as well? I was not quite clear on where you saw a role for the CMA and trading standards together.

Graham Wynn: I think it is important that they co-operate and that there is a clear line of responsibility for each and a clear demarcation. The real problem with trading standards is not so much their powers but their lack of resources. One business with over 2,000 stores —not a supermarket—said the other day that the number of inspections and the number of times they see a trading standards officer has come down dramatically in the last few years. It makes it very difficult for those who are responsible for compliance in the business to persuade those who are responsible for, say, marketing and promotions to keep in line. The lack of trading standards activity makes that more difficult and also leads to a playing field that is not totally level. The problem is resources.

[Kevin Hollinrake]

Q Mr Wynn, you mentioned schedule 18 and not adding to the list without proper evidence. Is it your position then that we should not at this point in time add fake reviews to that list and that we should go through a proper process of consultation before we decide what to do about that?

Graham Wynn: The view is, as I said, that we do not want to see what I call knee-jerk reactions to Daily Mail items that are politically sensitive or are political problems. The obvious answer is to say, “Let’s add it to schedule 18 as a banned practice.” It really is important that the schedule and what is in it is clear, clearly understood and that we do not add or subtract from it just on the basis of needing to get over a political problem, for example.

You can make sure that you do proper consultation and all that sort of thing, but we can understand why the Government would want to be able to add to it more quickly—obviously, primary legislation takes a while. In Europe, we certainly argued against Governments or the Commission being able to add to it willy-nilly. We were keen to keep it as something that had to be put in the directive originally. On balance, we would rather it was debated fully and that it amended legislation. Alternatively, you could decide to make changes once a year, say, rather than as you go along. That might be an alternative answer to the danger of a knee-jerk reaction.

[Neil Coyle]

Q I want to see the wild west tackled. As the Bill is drafted, will the consumer detriment provisions be sufficient to tackle producers or suppliers of products that reach UK consumers via platforms such as Amazon, or do the platforms need tackling for responsibility and enforcement action?

Graham Wynn: I should say that Amazon is a member of the BRC, so I preface my comments with that. Amazon does tell me that it is using AI and other means of ensuring there are not fake reviews, and that it takes as much responsibility as it can for product safety on its sites and for illegal products. Clearly others have a different view and think that it would be possible to go further and Amazon should be legally obliged to take more responsibility.

Again, throughout the Bill, the issue will be resources for enforcement, as it is in general. Be it fake reviews, subscription traps or the responsibilities of marketplaces and platforms, unless there is real, effective enforcement, people get the impression that something has been done without really having the rights that the Government say they have—when I say people, I mean consumers.

[Kevin Hollinrake]

Q On that very point, it is something that we are keen to tackle—and Mr Coyle is right to raise it, as he has done several times today. You have talked about an evidence-based approach to this. You will be aware that we will shortly launch the product safety review, which will tackle some of these issues, including the clarification of online marketplaces’ responsibilities in terms of ensuring the safety of products. Do you think that is the right place to deal with this, rather than the Bill?

Graham Wynn: Yes. I think it needs to be done, but without committing us, we would expect it to be done in the context of a product safety review and how you are going to deal with product safety issues in the future. It needs a thorough examination, including the role of marketplaces, their general obligations and what is practical and proportionate. I would not add that to this Bill now, because it requires more of an assessment and consideration than would be possible.

[Seema Malhotra]

Q An area that we have not covered is much is alternative dispute resolution. Part 4 of the Bill would make accreditation of ADR providers compulsory unless an exception applies. How effective do you think that provision will in protecting consumers, and do you think it is the right approach?

Graham Wynn: ADR is not something that our members are exercised about in the same way as some other people are. Those who are responsible for selling high-value items tend to be members of ADR schemes. Their criticism of the current arrangement has been that they are not convinced that there is a full assessment of the ADR providers, so everything that is necessary to give them the confidence to use the systems. They believe that that perhaps has held back ADR schemes from really taking off in some places.

Those who sell high-value items—kitchens, some white goods and furniture items—generally are members of ADR schemes. Those who sell groceries, as they are generally called these days, including food and non-food, tend to feel that it is not really appropriate for them because of the cost. When dealing with something worth only a few pounds, it is much cheaper and much more sensible to just deal with the consumer and, ideally, give them their money back if there is a problem, rather than take everyone through ADR. It is not necessarily the best approach. However, the accreditation system and making sure that companies abide by what they are supposed to do in ADR is vital to have confidence in general.

[The Chair]

I am afraid that brings us to the end of this witness session. Thank you very much for your evidence.

Examination of Witness

Max von Thun gave evidence.

16:00

[The Chair]

We will hear now from Max von Thun, Europe director of Open Markets. Max, would you introduce yourself for the record?

Max von Thun: Thank you for the opportunity to give evidence on this important piece of legislation. I am Max von Thun, the Europe director at the Open Markets Institute, which is a competition policy think- tank. We focus on the risks that arise from corporate concentration, and advocate for policies to tackle that. Prior to working at the Open Markets Institute, I spent several years in the private sector advising on competition and tech policy, and also here in Parliament advising MPs on economic policy. I have been following the UK digital competition debate for quite some time now.

[Alex Davies-Jones]

Q How important is it that this legislation is not watered down, as the Government’s approach to the Online Safety Bill has been as that passes through the House?

Max von Thun: That is very important. We think the legislation as it currently stands is very strong. It very much represents the approach that has been recommended initially by the Furman review and then by the Digital Markets Taskforce, and will go a long way towards promoting competition in digital markets. There are a couple of areas where we have seen some campaigning—particularly from some of the larger platforms—including on the review standard, which a lot of people have talked about today.

There are a couple of other areas of the legislation that, although not necessarily designed to be loopholes, could have that effect. Other speakers have talked about the countervailing benefits exemption. You might want to see some changes to prevent that from being abused or from stymieing the enforcement of the new system. Similarly, I point to the five-year criteria that the CMA will need to use to establish whether a platform has entrenched market power. Although it makes sense to base market power not just on a platform’s dominance in any one year, at the same time making it forward-looking with such a long timeframe will give platforms opportunities to put forward arguments as to why they should not be designated as SMS. For example, they might point to new technologies like generative AI and say, “We look dominant now, but there’s all this disruption coming down the future, so you shouldn’t designate us.” That is another area you will want to make sure is fit for purpose. Overall, it is a strong Bill and the priority should be getting it through as quickly as possible.

[Alex Davies-Jones]

Q On the matter of getting it through as quickly as possible, we spoke to previous witnesses regarding the time that this will take to implement—2025 was mooted. It would be helpful to the Committee if you could outline some specific cases and instances of competition in digital markets that have been threatened up to this point, and any specific cases of detriment to the smaller market actors or to consumers.

Max von Thun: Sure. I mainly refer to some examples given by previous witnesses. I am thinking, for example, about issues we have seen with data in the digital economy, where dominant platforms such as marketplaces collect data on the sellers using their platforms and use that to compete against them or produce products that compete against them. The flipside of the coin is restricting data—sometimes generated by the users of the platform —by not allowing those users to use it to improve their business operations. Self-preferencing is another problem. That can be everything from a large dominant firm pre-installing its own app on its operating system and making it hard for competing providers to get their app on to the system. You see interoperability restrictions—for example, where it can be hard for a third party or a competing platform to have access to the fundamental software or hardware it needs to produce a good product.

With those sorts of practices, which we have seen over the past decade or so, there have been lots of competition investigations, particularly in Brussels, to try to solve them, but we have not really seen much success or the introduction of much competition in the market. With the conduct requirements and especially the pro-competition interventions, hopefully the Bill will be able to address that and help smaller players to really compete in the market.

[Vicky Ford]

Q I did some market research with my 23-year-old son, who is much more of a digital consumer than I am, especially when it comes to online games. I want to ask you about where the dividing line is with in-game purchases. I, being very pro-market, would say that anybody should be able to sell these products once you are in the game, but my son was saying, “But wouldn’t that put off the person who invested all the money in inventing that game in the first place and is getting some of his money back because of my in-game purchase? It’s up to me whether or not I make that purchase.” Where is the line, Max?

Max von Thun: Obviously if someone has produced a particular product or service that you can buy in a game, they should be entitled to profit from it. The main issue that we have seen with purchases from app stores, which are increasingly what people use to access these games through their phone, is that a small number of companies—basically Apple and Google—are using their control of the app stores to take a very big cut. They take up to 30%, which is not what you would be seeing in a competitive market. Sure, it is fair that they get a share of the proceeds, because they are putting in the time to maintain these app stores, but 30% seems quite steep.

Another issue is that it is hard for alternative payment providers to offer their services on these systems, because you will be forced to use Apple or Google’s payment solution, for example. That also makes it easier to charge high commission rates. I think it is about allowing the large platforms to play their role, but making sure that they are not using that power to exclude people.

[Vicky Ford]

Q I get that, but let’s say that an online game is like a shop. If I own the shop, I am not going to let anybody else walk in, put their products on my shelves and sell them, because I am paying the set-up costs and running the shop. If I have invented a game, should I let other people sell their products inside it?

Max von Thun: I would say yes.

[Vicky Ford]

Interesting.

Max von Thun: But you do have games where one company will provide the fundamental game—the world that you play in—but allow third parties to interact with it and sell you an outfit to wear in the game, a weapon or something like that. That kind of interoperability is very feasible, and you can have different companies co-existing.

[Vicky Ford]

Thank you—and sorry, colleagues, for the family discussions.

Max von Thun: I am not a huge gamer, but that is my take.

[Andy Carter]

Q Can I ask about the whole area of innovation, particularly for smaller start-up tech firms? What is your feeling towards the Bill with regard to the attitude that they might take to operating in the UK?

Max von Thun: Overall, I think it would be very positive for those types of firm. As others have said, this Bill is very targeted: the actual regulatory obligations apply to only a very small handful of dominant firms. It is not legislation like the Online Safety Bill or privacy regulation, where you are creating a compliance burden for the whole tech sector; it is very targeted at dominant firms.

As I mentioned earlier, if you look at what the Bill is trying to do, it is very pro-innovation. It is really about introducing contestability into the market. The combination of the conduct requirements, which are more about stamping out some of the problematic anti-competitive practices that we have seen over a long period, and the PCIs, which we think are a more significant tool because they allow you to inject competition into the market through interoperability and opening up data, will be very good for start-ups. I think it will give them more confidence to launch businesses that directly take on the dominant tech platforms.

At the moment, if you are a smaller firm, your strategy will often be to grow to a certain point and then get bought up. That is how firms design their business model, and investors will often look at it that way, but if through legislation you change the picture, you will change the incentives and create more opportunities for companies in the UK to scale up to a global level.

[Andy Carter]

Q You wrote an article in The Times recently about fast-growing British tech firms seeing acquisition by the US giants as a viable exit route. Do you think the Bill might change any of that?

Max von Thun: Yes, to an extent. The merger requirements for SMS firms are really just about reporting. They require SMS firms to let the CMA know if they are acquiring companies that meet certain thresholds. That will allow the CMA to avoid things slipping under its radar. Another part of the Bill is about what is called an acquirer-focused threshold, which is basically designed to prevent what have often been called killer acquisitions from taking place. Those are acquisitions that do not meet the UK’s merger control thresholds when it comes to turnover or market share, because they are very small start-ups that do not generate much revenue but that often produce very innovative technology.

The tech giants buy them up either to prevent eventual rivals from emerging or to use that technology to extend their dominance into new markets. The Bill will prevent some of that. That means, to an extent, that in some cases involving very large platforms it will be harder to be bought up if you are a start-up. It is important to acknowledge that to an individual founder being bought up by a big tech firm can often be attractive. Big tech firms can pay a lot of money to acquire you. They can offer all sorts of technical and logistical expertise to help you to grow, but if we look at the wider ecosystem, those deals can be very harmful, essentially by eliminating competition.

Think of what Instagram might have become had it not been bought up by Facebook. Rather than just being part of Meta’s business model, it could be challenging Facebook. To take a more local example, DeepMind, a leading AI company, was bought by Google in 2014. Had it not been, it would be an independent AI company. That would have put the UK at the forefront of a lot of the development in general AI. Obviously, the UK is already doing well in AI, but now DeepMind is part of Google’s empire and subordinate to Google’s business objectives. Those are some of the reasons we should care about this.

Also, if you make it a little harder for these companies to buy up start-ups, the market will respond. The UK already has a lot of alternatives. It has a very healthy venture capital scene—I think the best in Europe. If it is harder for big tech purchases to take place, investors will partly fill that space. I am sure that there are things that the Government can do as well to incentivise private investment—maybe investing themselves in some cases, as they did with the Future Fund, and so on. There are a lot of other routes that, in the long run, are better for the tech sector than these types of deals.

[Kevin Hollinrake]

Q Thank you for your evidence. You probably heard my questions from earlier. We are very keen to ensure that innovation continues, not just in terms of the start-ups and scale-ups but with our big tech firms. Do you see anything in the Bill that will inhibit that?

Max von Thun: Honestly, not really. If I look at what is in the legislation, focusing on the conduct requirements and the PCIs that the large firms will have to comply with, what I see is something that says, “You’re allowed to operate in the UK. You’re allowed to grow in the UK. You’re allowed to invest. You just have to play by the rules. You can’t use your dominance to unfairly exploit small businesses or prevent rivals from emerging.” It does not stop them investing lots of money in R&D or hiring top talent. We are seeing all the innovation that they are doing now, and I do not see anything in the Bill that will stop that.

More broadly, there is quite a lot of evidence, not just in tech but in other sectors, that more competitive and less concentrated markets are better for innovation because challengers invest a lot of money in trying to take on the incumbents because they believe that they can replace them. The dominant firms have to defend themselves, and they invest more to protect themselves. The Bill will have that effect.

Lastly, particularly since the whole debate around Microsoft and Activision, we have seen to an extent an attempt to conflate the interests of a small subset of dominant firms with the wider tech sector. That is often a mistake. What is good for a large majority of tech start-ups may not necessarily be good for big tech firms. It may be, but it is important to separate out the two.

[The Chair]

Are there any further questions? In that case, on behalf of the Committee, thank you very much for coming to give evidence.

Examination of Witnesses

John Herriman and David MacKenzie gave evidence.

16:15

[The Chair]

Thank you all very much. We will move on to our next session to hear from John Herriman, chief executive, and David MacKenzie, lead officer, from the Chartered Trading Standards Institute. Could you introduce yourselves for the record?

John Herriman: I am John Herriman, chief executive of the Chartered Trading Standards Institute.

David MacKenzie: I am David MacKenzie. My day job is with the Highland Council on trading standards, in the sunny north of Scotland. I also have a role with the CTSI across the UK for free commerce and related issues.

[Seema Malhotra]

Q Thank you very much for coming to give evidence to the Committee. I know from your briefings that you have welcomed the Bill, but I wonder if you might be able to talk us through where you see gaps. Specifically, where do you think there should be, for the successful implementation and enforcement of the new regimes, a greater role for trading standards officers, and why?

John Herriman: Obviously, as you have heard, we have been very publicly supportive of the Bill. The key point, which I know others have made, is that in the online marketplace and the landscape, it feels like a bit of a wild west out there—I know that term was used this morning—and there has been a lack of protection for consumers and clarity for businesses. We have also seen that dramatic change in business and consumer behaviours, particularly during the pandemic, which is good for consumers, businesses and the economy. Trading standards absolutely sees that first hand. Trading standards plays a very unique role in this discussion; we are at that interface between the business and the consumer, so the lens through which we look at this is consumer confidence. Essentially, that is what we are really taking a perspective on.

We very much welcome the Bill and the new powers, particularly for the scope of the CMA, which we work with closely. We think it provides clearer legislation and changes to CPRs. We think it will enable quicker and stronger action, and we think it is very supportive of competition and innovation but, as you have alluded to, we do think there are some opportunities in the Bill where it could go further and where it would not impact on competition and innovation, and also where it would be more supportive of consumer confidence. We are happy to talk in more detail about those.

It is probably best to explain that we are both here because I can take that very strategic view and answer questions about that. David is our lead officer for the online marketplaces, so when we get into more of the technical detail he will be able to answer some of those questions. Essentially, in those areas around drip pricing, fake reviews, subscription traps and greenwashing, we think there are opportunities to go further or for some further discussion.

We also think the Bill addresses the national issues around the CMA’s powers, but we do not think it is sufficiently robust in some areas to enable trading standards which, in the context of this conversation, does the place-based and local regulatory enforcement and support for local businesses and enterprise. That national system does not work effectively if you do not have the local system working effectively alongside it, because they are mutually supportive of each other as part of that same system.

[Seema Malhotra]

Q Is that a point about greater powers that trading standards officers should also have alongside the CMA’s role, or is it a question of resources?

John Herriman: It is a combination of both. David will be best placed to comment on the powers. Essentially, there are some issues there that we would like to consider, but it is also a factor of capacity. If I just focus on that, David can answer the second part of the question. From a capacity point of view, trading standards over the last 10 years or so—I think the National Audit Office reported back in 2021; it has also just done a very recent report—has been hit by about 50%. Relative to other regulatory services and local governments, regulatory services—according to the latest National Audit Office report—have been hit by about 25% cuts.

Trading standards has been hit exponentially harder than some of those other services. If we do not have enough capacity, we cannot do the enforcement activity. If we cannot do the enforcement activity, we cannot ensure that there is a level playing field for businesses. There is a definite capacity issue there. This Bill will make the legislation more robust, but we also need the capacity alongside that to make that system work effectively, because regulatory systems do not work effectively unless you have the right levels of enforcement capacity. David, do you want to answer the other part of that question?

David MacKenzie: We really welcome the strengthening of civil enforcement in the Bill. It introduces a range of potential punitive sanctions that can be imposed on businesses. That potentially strengthens our position, and we really welcome that.

At the same time, as John says, that is really dependent on our guys up and down the country being able to utilise that through civil enforcement, which is still a relatively newish thing for us. Our officers are very well versed, over many decades, in criminal law investigations and going for prosecutions. The civil law is relatively newer. Along with these new powers, there needs to be a bit of a campaign across the whole UK to ensure that local authorities have the skills and necessary legal backing to take these cases. I have certainly discussed that with the Department and will continue to do so.

Those are the good things in the Bill—giving us more powers and more sanctions. Our disappointment is what is not included: officers’ powers. The way that I like to characterise it is that the existing powers are very good, but are they very good for a world that is changing all the time? They are essentially based on one of our officers being on physical premises, doing the work.

The powers are all really good: powers of entry, of inspection, to test, to get documents, and all that kind of stuff. But we increasingly find that, when it comes to the documents side of things, if somebody still has a filing cabinet with bits of paper in it, that is fine—we can get that and use it as part of our investigation—but, as we would all expect nowadays, even small business do not operate in that way anymore. The information will be in the cloud; it will be somewhere else that is not necessarily accessible from those premises.

[Seema Malhotra]

Q What happens in that situation? Do you just not get access to the data and the files?

David MacKenzie: The current powers do not give us direct access to that—they just don’t. The Bill addresses that to a degree in that, in terms of entry under a warrant, as long as the files are accessible—again, from that physical premises—there is an extra power there. We welcome that. That is good progress. But it is important to realise that the vast majority of our investigations are done not under warrant, but using normal powers of entry, so the vast majority of situations are not covered by the change.

Even when the power is exercised through warrant, and we are able to use the new provision, that is only when the files are accessible from that premises, but we are increasingly finding that the local branch manager just does not have access to that information. I suppose that we are calling for a general power to access that information, in the same way as if it happened to physically be on those premises, and to be able to use it in all cases, including criminal prosecutions.

The other point that goes along with that is about online enforcement and takedown powers. I think it would really surprise the public if we told them that we do not have any formal powers of takedown at all for any online content. The only way we can do that is through ways and means—trying to get platforms to do the right thing and all that kind of stuff. It is long past time that we got a formal takedown power.

[Seema Malhotra]

Q Would that be specifically for websites where that may be misleading or scamming consumers?

David MacKenzie: Absolutely, yes. It could be a whole website, an account on a website or just a narrow bit of content. The Bill contains the concept of online interface orders that the CMA can apply to the court for, and we think that that should be applied to other regulators—particularly trading standards, from my point of view, but to other regulators as well. I think that if we are to be taken seriously in—

[Seema Malhotra]

Q Sorry, in the interests of time—we may have to go to a vote shortly—I have just one small question, and then I will hand over to colleagues. You said in your evidence that it is important that more is done, because there is nothing requiring online marketplaces and other collaborative platforms to make buyers aware of who the seller is—whether it is a business or a private seller—and that that has implications for consumer rights. Could you explain a bit more about what you think needs to happen that is not in the Bill?

David MacKenzie: Absolutely. A lot of the stuff in the Bill that replaces the consumer protection regulations is really good, and we really welcome it. There is still some stuff around the definition of “trader” that we think is a little bit of a missed opportunity.

There are two angles. When does a consumer become a trader? How many things do you have to sell in an online marketplace before you become a trader? That is a difficult judgment for us to make and we feel that some work should be done on that. The point you have made is equally important: the status of the seller in an online marketplace. We think there should be a requirement for the online marketplace to declare whether the seller is a consumer or a business because that makes a massive difference to the consumer rights of the buyer and it also makes a difference to what we do.

If someone is a business seller, they have to comply with all consumer law; if they are a private seller, they do not really have to comply with anything, so this is for both consumers and for us. To be fair to other businesses that operate on the site, we think this is a necessary change that is not in the Bill.

[Kevin Hollinrake]

Q You make some important points that we seek to deal with in creating a fair and level playing field and protecting consumers at the same time. There is the whole point about whether an online marketplace is a distributor, retailer or whatever else. Do you think those questions are best resolved in this legislation or in the product safety review, which we have committed to do and brings in many other things that you have referenced already?

John Herriman: That was another point that we wanted to make. This is not the only legislation that impacts on the landscape: the product safety review is fundamentally important in this space. The key point there is being clear on where those boundaries are.

We will be contributing to the product safety review. It is fundamentally important that it should come out quickly, so that we can address it and respond to the consultation. We can then look at that in the context of this Bill and others that it might impact on as well. We think that some things would be best placed in the product safety review—anything to do with legislation there—and would not appear here. But it is important that those provisions work hand in hand over a similar period, so that we can make sure that there are not any gaps. Consumers will then be better protected and businesses will have the clarity that they need, which is really important for them.

David MacKenzie: I agree with everything John said, but if we leave all these issues to the product safety review, presumably that would apply only to unsafe products. There is a wider range of situations for which we need these take-down powers when it comes to fair trading—scams and so on.

[Kevin Hollinrake]

Q And the Online Safety Bill does not deal with that?

David MacKenzie: No.

[The Chair]

If there are no other brief questions, I bring this session to a close. I thank the panel on behalf of the Committee. This is perfectly timed as there will be votes shortly and we will be away for quite a long time. Thank you very much. We have spared you having to wait an hour or so.

Examination of Witnesses

Owen Meredith, Peter Wright and Dan Conway gave evidence.

16:29

[The Chair]

Q Thank you all. Before we suspend the sitting for a vote, it is important to get you to introduce yourselves. We will start and see how much progress we make. Next we have Owen Meredith, the CEO of the News Media Association; Peter Wright, the editor emeritus of DMG Media; and Dan Conway, CEO of the Publishers Association. Will you introduce yourselves for the record?

Owen Meredith: Hi. I am Owen Meredith, chief executive of the News Media Association. We represent companies across local, regional and national news media in about 900 brands across the UK.

Peter Wright: I am Peter Wright. I am editor emeritus of DMG Media. We are a major British and international news publisher.

Dan Conway: Hello, everyone. I am Dan Conway. I am chief executive of the Publishers Association. We represent publishers of books, journals and educational materials of all shapes and sizes in the UK.

[Alex Davies-Jones]

Q Thank you all for being here this afternoon. My question is probably aimed at Owen and Peter. In your view, does the Bill go far enough in enabling journalists and media outlets to be empowered to negotiate fair deals with the tech platforms? Can you spell out why that is not the case at the moment?

Owen Meredith: First, it is important to welcome the Bill. As many people around the room know, alongside many other organisations across the economy we have been pushing for this Bill for some time, so it is pleasing to see it. It is in very good shape, albeit we will want some parliamentary scrutiny no doubt and the opportunity to tighten up some of the policy intent to ensure that it is fully reflected in the language on the face of the Bill.

Clearly, the imbalance of power that exists between news publishers and platforms is self-evident. It has been documented extensively from the Cairncross and Furman reviews through to various CMA reviews. At the moment, a handful of tech platforms are an essential gateway and a key discovery route for consumers to find news online. As consumers increasingly shift their consumption of news online, rather than from print—in the local market, north of 70%, and in the national market, north of 80% of consumers read news online—that is not fairly renumerated and rewarded back to the original investors and content creators of that journalism.

For society, we all understand the importance of that journalism, particularly in the online world combating mis and disinformation, but we just do not have a balance of power between those two players. On the one side, we have in particular smaller, local, independent news publishers, even up to large multinationals, but on the other, we do not have access to the right information or data about how our news is being surfaced and used on the platforms, including search and across social. We do not have an asymmetry of information to be able to negotiate fairly, so it is a take-it-or-leave-it approach by the tech platforms to how our content is used by them.

Peter Wright: You asked where the Bill possibly does not do the job. I would agree with Owen: it is a very good Bill and long overdue. I was on the Cairncross review five years ago, and it is great to see some of the things we were talking about bearing fruit.

One area you might want to look at is the final offer mechanism; there is a helpful table on page 38 of the explanatory notes. You can see it is a 13-stage process, and I think what to us might be the most important bit is information sharing, which comes at stage 8. If that process can be speeded up in any way, that would be immensely helpful.

The other thing that I would like to flag up and the thing that concerns most of us in the industry most of all is that you are likely to face concerted lobbying from the online platforms over the review process. From our point of view, that will not truthfully be about the justice of decisions made by the CMA; it is a delaying tactic. We hear that the platforms and the big City law firms will get together and to ask for a merits-based process, which would mean that every decision by the DMU is subject to appeals that are likely to involve weeks in court, with months or even years before decisions are taken.

If that happens, the whole purpose of the Bill—this whole structure, which we believe to be very good, and a great deal of work has gone into it; it is legislation that is likely to be copied around the world—will simply be nullified. It is vital that we stick with the judicial review process that is in the Bill.

[Alex Davies-Jones]

Q You answered my question, but are you concerned that by that point the tech companies will use this as a delaying mechanism, which will help proliferate disinformation and misinformation online by people who claim to be journalists? Provisions in the Online Safety Bill enable anybody to be a journalist, and will prevent that information or fake news—for want of a better phrase—from being taken down.

Peter Wright: The crossover between the two Bills is not that great. The real risk regarding fake news is that the most expensive news to produce is the high-quality public interest journalism that I am sure everybody in this room wants to encourage. If you cannot fund it, and at the moment it is a great struggle to fund it, the space will be taken by people who are not proper journalists and are not working for responsible news organisations with complaints procedures and people you can sue if you get it wrong.

The really serious danger is that because the online platforms have over the last 20 years sucked billions of pounds out of the news production in this country, the internet will be filled with conspiracy theorists and people producing cheap, easy-to-manufacture news, largely copied from other outlets.

[Kevin Hollinrake]

Q In your organisation’s written evidence, you took a different view from some of our earlier witnesses, who think we are not going far enough in terms of making it easy for people to exit a subscription only to opt back in. Yours said that actually we should make it slightly more difficult, for example, by taking away the cooling off periods and making the exit subscription slightly different in terms of allowing people to take advantage of other offers, which might confuse the process of unsubscribing. I am interested to hear your views on that.

Owen Meredith: We broadly support the Government’s policy and intent as I understand it in terms of helping consumers to manage subscriptions, particularly subscriptions that they are not aware they are in or for services they are not using. My concern and our organisational concern is that currently it is set out in the Bill too prescriptively, and there is a real danger that you end up in a situation where consumers are being bombarded by subscription notices and they become blind to them.

I would put the analogy out there of the cookie banner, which I think they are hoping to get rid of through different legislation before the House at the moment. There is a danger that consumers are just blinded by the amount of information they are being presented with as stand-alone notices, with the frequency and nature in which they have been spelt out in legislation. While I do not fundamentally disagree with the Government’s policy intent, I do not think how it has been crafted in the Bill at the moment necessarily achieves that in the way we would need it to.

[Kevin Hollinrake]

Q I get that, but if you are in a situation where you are subscribed to just one service and there is not a forest of different emails coming in saying your subscription is ending, the effects of your suggestions would make it more difficult for people to exit contracts.

Owen Meredith: It would not make it more difficult for people to exit contracts; it would ensure that consumers still have access—

[Kevin Hollinrake]

The cooling off period was—

Owen Meredith: It would ensure that consumers still have access to the offers that would be available to them in the current system of processing. If you subscribe to a service that you are using and you wish to terminate it, there are multiple ways you can do that, either via online touchpoints for most of our subscribed services at the moment or via a call centre. If a call centre phoned you and said, “You’ve been using this service for 12 months. We can identify through data that you have been reading the content. Can we ask you what the reason for cancelling is and if we can retain you as a customer with the right promotion?”, I think that would be in the consumer’s interest.

[Kevin Hollinrake]

Q But the removal of the cooling off period would make it more difficult for some people to exit a contract, wouldn’t it?

Owen Meredith: The removal of the cooling off period for us is a concern around how that technically applies and whether consumers have had benefit that they are then seeking to be refunded for, despite having engaged with and received the benefit.

[Dean Russell]

Q We live in an era where we talk about consumers, who might be consuming services or products—but they also might be consuming news. How will the consumers of journalism benefit from or be impacted by the Bill?

Peter Wright: They will benefit through the quality of the journalism they are offered. Every news organisation —we are no exception; we went through a period of redundancies earlier this year—is having to trim their editorial budgets, because you cannot make sufficient revenue in the present digital advertising market to support the scale of editorial resource that you would really like.

Commercial news publishers have seen revenues falling, despite inflation, over the last two decades. At some point, we need to have a mechanism that gives us—this particularly applies to smaller and regional publishers—a level playing field and levers we can pull to bargain with these vast companies. I have colleagues who work at not inconsiderable regional publishing companies, who do not even have a telephone number they can ring at Google, so they just have to accept whatever terms Google offers. We are slightly more fortunate in that we can ring Google, but we do not necessarily get an answer.

[Dean Russell]

Q I am the MP for Watford. We have the Watford Observer and My Local News—those smaller regional organisations. Do you see this legislation benefiting them?

Peter Wright: Absolutely. I once worked as a local paper journalist in Watford. Tristan Garel-Jones was the MP then; he used to pop into our office once a week. He was very assiduous—I would recommend it! I do see this legislation benefiting them. It is more important to them than to anybody else.

[The Chair]

I will bring in Andy Carter to ask a brief question. I would like us to be able to wrap up soon to avoid detaining our witnesses for up to an hour. If everybody is agreed and there are no further questions other than Andy Carter’s, I will call him to ask his question.

[Andy Carter]

It is a question to Dan. I am very conscious that you have sat here and not had an opportunity to say anything. Could you give us a broad overview of how the Bill might affect the publishing sector?

Dan Conway: Thank you for the question. I will keep it brief, as I am conscious of everybody’s time. I am primarily here to talk about the role of Amazon in our area of publishing. Amazon has done great things to expand digital markets in books, has great partnerships with UK publishers and has got books into the hands of readers all over the world—and that is a great thing. But we firmly believe that we are now at a tipping point in terms of regulation with Amazon, as they have such entrenched market power in the book market that we need modern proportionate regulation to make sure that that entrenched market power does not lead to anti-competitive outcomes.

By our best estimates, Amazons sell over 50% of the print books in the UK market and about 90% of the e-books and audiobooks. That is monopoly power in selling print books and monopsony power as the sole buyer in retail books. It makes them a gateway company for my members; they are an unavoidable trading partner for any UK publishing company in the UK market, and we strongly support the Bill because we think it will help.

We think Amazon should be assigned strategic market status with the code of conduct that goes alongside it. We particularly support clause 20(2)(a) on trading on “fair and reasonable terms”. It is our view that currently, because of Amazon’s role in the market, publishers are not often able to trade on fair and reasonable terms. We heard from other witnesses about “take it or leave it” terms; effectively, if you are a small publishing business in the UK market, if you enter into a negotiation with Amazon, you are offered “take it or leave it” terms and you cannot negotiate with a retailer of that size.

[Andy Carter]

Q Can you write to us at some point and share those terms with us, so we can see the experience some of your members face?

Dan Conway: Yes, absolutely. As a trade association, we have to be one stage removed from that for obvious legal reasons, but our members have fed back to us on areas of concern, and we hear that Amazon is removing buy buttons, labelling products as out of stock, delisting products and refusing to stock products without reasonable cause—and all that is in the middle of a commercial negotiation. You have a major retailer that is able to use its size effectively to distort upstream competition through those kinds of tactics. I can absolutely look and see what we can write to you about that.

[The Chair]

Unless there is anything else, I will bring this session to a close. On behalf of the Committee, I am grateful to you all for the rapid responses you have provided. Thank you very much.

Ordered, That further consideration be now adjourned. —(Mike Wood.)

16:45

Adjourned till Thursday 15 June at half-past Eleven o’clock.

Written evidence reported to the House

DMCCB01 NatWest

DMCCB02 NatWest

DMCCB03 Consumer Scotland

DMCCB04 GlobalCharge Limited

DMCCB05 Consumer Council

DMCCB06 Gener8

DMCCB07 Oles Andriychuk

DMCCB08 National Consumer Federation

DMCCB09 Trustpilot

DMCCB10 Radiocentre

DMCCB11 News Media Association