Digital Markets, Competition and Consumers Bill

Committee stage
Monday 29th January 2024 Grand Committee

Committee (3rd Day)

Relevant document: 3rd Report from the Delegated Powers and Regulatory Reform Committee. Northern Ireland Legislative Consent sought.

15:45

Clause 89: Procedure and appeals etc

Amendment 64

Moved by

[Baroness Jones of Whitchurch]

64: Clause 89, page 55, line 18, leave out “, 114 (appeals)”
Member's explanatory statement
This amendment, alongside others in my name to Clauses 89 and 103, would revert the relevant Clauses back to the ones first introduced in the House of Commons. This would reinstate judicial review principles as the means by which appeals against penalty decisions are heard, rather than such decisions being determined on the merits.

[Baroness Jones of Whitchurch (Lab)]

My Lords, in rising to move Amendment 64, I will also speak to Amendments 65, 67, 71 and 72. I thank the noble Lord, Lord Clement-Jones, and the noble Baronesses, Lady Harding and Lady Kidron, for their support. The noble Baroness, Lady Kidron, cannot be here and sends her apologies, but she asked me to stress her absolute support for this amendment. I have added my name to Amendment 66, in the name of the noble Baroness, Lady Stowell, and I look forward to hearing from the noble Lords, Lord Holmes and Lord Tyrie, who, I am sure, will make important contributions shortly in support of their amendments. All our amendments would revert the appeals process back to judicial review principles for resolving appeals against penalty decisions, unlike the late government amendments, which substituted merit reviews.

This debate follows on from last week’s excellent debate on the impact of making CMA decisions proportionate and strengthening the right of SMS firms to argue for countervailing benefits to be taken into account. The issue of judicial review versus merit appeals goes to the heart of the argument about achieving the right balance between the rights of SMS and challenger firms. Of all the many submissions we have received on the Bill, this has received the most attention—from those on both sides of the argument—and we have taken note of all those views.

The Government’s amendments matter, because penalties such as fines are the most significant deterrent in preventing strategic market status companies breaking the conduct requirements established by the CMA. There is real concern that, under the new wording, SMS firms will use the appeals process to delay implementation of the fines and thereby reduce their incentives to comply with the order. Also, as the fines do not have to be paid until any legal challenges are finally resolved, there is an incentive to drag out the final decision through the courts. The fact that they have lobbied for these changes raises real questions about their motivation in pursuing this.

When we met with one of the potential SMS firms recently, it argued that the new regime gave the CMA too much power and that a merit appeal process was the only way to provide a check against misguided or ill-informed decisions. It has also been argued that the Furman review recommended that any loss of the right to merit reviews should be coupled with an enhanced role for independent decision-making to protect against executive overreach. We accept that this new regime does give the CMA significant new powers, and this has already been a theme of our debates, but we would argue that the scrutiny of whether it is carrying out its duties effectively should be through Parliament, not through individual costly legal cases going to merit review.

We are supporting several amendments to the Bill that would enhance Parliament’s oversight of the CMA’s activities. In addition, it is important that the CMA explain its decisions in detailed written reports and disclose its underlying data to interested parties in order to allow them to identify errors. All this would help to shore up scrutiny of its decisions.

As the CMA itself argued in giving evidence to the Commons committee, judicial review is the established system for much of its work, including merger control and market investigations. It also applies to a number of other regulators. The advantage is that it avoids protracted litigation and encourages engagement early on, with constructive and collaborative outcomes. We agree with this approach, which is why we believe that appeals through judicial review will deliver swifter and more effective outcomes. 

In his response at Second Reading, the Minister made the point that appeals on full merit bring the regime into line with the Enterprise Act 2002. So far, this seems to be the only justification the Government have made but, as we have made clear, it is not the only comparator. Many other regulators, including Ofcom’s role under the Online Safety Act, do not use merits reviews on appeal. We do not believe that the case has been made for this change; we believe that both sides benefit from a prompt resolution of the issues which a JR process will deliver.

In the meantime, noble Lords have submitted other amendments in this group that seek to limit the application for any merits review. We would argue that the cleanest way to achieve our objective is to revert to the original wording, but I very much look forward to hearing their views and having this debate. I therefore beg to move Amendment 64.

[Baroness Stowell of Beeston (Con)]

My Lords, I will speak in particular to my amendment in this group, Amendment 66, which does what it says quite clearly in its explanatory statement. This amendment would make it clear on the face of the Bill that

“the only CMA decisions subject to full merits review in Part 1 of the Bill are the decision to impose a penalty, the level of the penalty, and the timing of the penalty”.

Before I go on, may I please also thank all noble Lords who have added their names to my amendment? They are the noble Baroness, Lady Jones, the noble Lord, Lord Clement-Jones, and my noble friend Lord Black of Brentford—no, Brentwood; sorry, they are quite different, I think. I will say something shortly about the other amendments in this group.

Noble Lords will know that I was very public and vocal in airing not just my own concerns but those of the Communications and Digital Committee that the essential judicial review process for appeals against CMA rulings that is in the Bill might be overturned by the Government in the face of lobbying by big tech. As I said at Second Reading, there was much relief that the Government did not go as far as we feared they might, but the introduction of a merits appeal on penalty still causes alarm, because it is hard to see how such an appeal will not reopen the substantive finding.

My amendment seeks to prevent that happening, but we need to look at the practicalities of this, which is where I would also include the other amendments in this group that seek effectively to reverse the Bill back to its original wording. If a firm appeals the penalty, how will a complete rerun of the basis for the CMA intervention be avoided? I have had a conversation with my friend, the noble Lord, Lord Faulks, because he is the legal expert—I am not at all. He made a couple of points to me that are relevant for me to air in my remarks.

I would like my noble friend the Minister to tell us what would be relevant for a firm to appeal on its merits, because once we start to look at the practical differences between an appeal on the penalty and one via the merits process, as opposed to a JR test, what worries me is that it will not simply be an argument that the penalty was excessive, as in when people say, “The prisoner should have got five years when he got seven”. How will the Government, by virtue of the changes they have made to the Bill, avoid a complete rerun of the basis for the CMA’s original intervention? I fear it will be argued, when it brings an appeal on the merits of the penalty, that this is also all relevant to an appeal on the merits of the substantive finding. Basically, we will find that the whole decision starts to get reopened.

As I said to my noble friend the Minister last week, with the amendments I have tabled in Committee, I have tried to avoid repeatedly unpicking what the Government brought forward at Third Reading in the Commons. At the very least, there must be further clarification in the Bill if the merits appeal on fines is to stay. However, to satisfy this Committee—and, ultimately, your Lordships’ House—against reverting the Bill to its original wording, my noble friend the Minister must convince us of the practicalities of how the merits appeal on fines system will work in practice, and that it will not undermine the JR process for substantive CMA rulings.

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend Lady Stowell in speaking to my Amendment 69. As has already been mentioned, a common theme runs through all the amendments in this group: limiting full merits appeals and ensuring that in practice they apply only to the imposition of financial penalties and the quantum of those penalties, as set out in Clauses 85 to 92.

As has already been stated, when he sums up, my noble friend the Minister needs to explain how this will operate in practice and why this situation is so special that a different approach is needed from that of any other regulatory environment, such as Ofcom.

There is nothing more to be said. Following on from the noble Baroness, Lady Jones, I am tempted to ask whether the amendments were government late amendments or late government amendments, but I will leave that hanging with the Committee. Ultimately, we need to ensure that we have clarity on how this approach will work when the Bill becomes law and that there is a watertight limit on the deployment, and potential misuse, of full merits appeals.

[Lord Tyrie (Non-Afl)]

I have put a couple of amendments down which I suspect will not fully accord with the mood of the majority of the Committee on JR. I also support the removal of full merits appeals on fines, and I would like to explain why I have taken that position.

The Government took a number of important decisions on appeals in the other place. One was an amendment conceding that the scale of fines will be subject to a full merits review. Another stuck with the narrow definition of JR, or pure JR. Those two decisions are directly linked—politically, economically and legally—and there is a trade-off between them. They are best considered together.

My view on the fines issue is straightforward. There are two main reasons why the Government have got this decision wrong. First, a key point that we must bear in mind is that fines in the UK for all forms of breach of competition, anti-trust and consumer protection law are, on average, far lower than those in any comparable jurisdiction. As a result, both in the competition field and with many financial regulatory issues, fines are treated as a business cost by large firms. This has been a major weakness of our regulatory framework for decades and is still there now. If fines are to serve as a deterrent to platforms, they need to be large—perhaps very large, even unprecedentedly so for the UK. I fear that a full merits review will drag fines in only one direction, and we have the history of fines review by the CAT in other areas in support of that view.

Incidentally, I am amazed that the Treasury has not taken a closer interest in all this, because fines score against the consolidated fund, but it seems quite sleepy on this issue. It should be very wary of a full merits review of fines.

16:00

The Government’s mistake on fines is a mistake for a second reason. As has been pointed out, a full merits review of fines could all too easily become a full merits review of the case itself. I can see review drift easily taking place. There, too, we should look at the history of the CAT’s treatment of these issues. A seemingly minor concession may well drive a Trojan horse through the Government’s stated intentions when they first sought to justify the creation of a DMU, with its unprecedently huge powers. In a nutshell, those intentions were quick administrative scrutiny, supported by a powerful deterrent, and strongly limited but not negligible scope for appeal on merits. That is the second point I want to make, on which I think I am at odds with the mood of many in the Committee.

On JR, the Government have not put in the Bill what they have consistently said they would do, for over four years. When they first put the idea of JR forward as a review standard, they repeatedly said—orally and in all their documentation—that they were bringing the CMA into line with the review standard of other regulators. They cited Ofcom particularly. I quote in full from the task force document from 2020:

“Adopting a judicial review standard for a regulator’s decision is consistent with the government’s recent approach to other similar regimes. In 2017, the standard of review for appeal to the Competition Appeal Tribunal (CAT) from Ofcom’s communications appeals was changed from being an appeal ‘on the merits’ to one applying the principles of judicial review”.

Here is the DMU on the JR approach:

“This approach would be consistent with approaches taken in other ex ante regimes”,

and then a footnote makes it clear that

“merits may also be taken into account”.

It is clear from the White Paper that the JR approach embodies a limited form of merits review. Here is the DMU consultation response in May 2022:

“This reflects the approach taken in respect of decisions by other ex ante regulators such as Ofcom”.

But the Government have not done that. They have not followed the Ofcom model, nor the approach taken by other regulators. I will deal with each of those in turn—first, Ofcom.

The change made in 2017 is supplemented by retained EU law, which is the move to a JR standard. This imports a limited form of review of merits, sometimes known as JR-plus, which works quite straightforwardly. The EU directives on electronic communications require that

“the merits of the case are duly taken into account”

on appeal. These have been retained in UK law with the operation of the withdrawal Act in 2018—at Section 6, if the lawyers among us are interested in looking it up.

It is worth noting that, when the change to the Ofcom appeal standard was made in 2017, the Government justified the decision in their own impact assessment by saying that this would

“remove the requirement for appeals cases to be decided ‘on the merits’, instead requiring the CAT to apply the same principles as would be applied by a court on an application for judicial review. This would effectively ensure that the merits of the case are ‘duly taken into account’”

and, leaving out a little bit,

“that industry’s rights … are fully protected”.

The effect of all this for Ofcom appeals has been looked at by both the Court of Appeal and the Supreme Court. Lord Sumption’s conclusion on the effect of retaining EU law in this field—and there is a heap of case law here—was:

“This is not just a right of judicial review. The appeal must ‘ensure that the merits of the case are duly taken into account’”.

As I say, since 2017, a heap of further case law has made this clear.

As I said, the Government have claimed not only that they are following the Ofcom precedent while not doing so but that they are following a precedent from other regulators, not just Ofcom—but that is not so either. All the other regulators, of any size, have some form of appeal backstop to deal with—to address and catch—serious mistakes and, in my view, it is right that they should. For Ofgem, Ofwat and the Civil Aviation Authority, for example, the appeals body is the CMA. The treatment with respect to all these regulators varies slightly, but the principle is the same, which is that—I have seen this at close hand from within—the CMA acts as a second pair of eyes on the decisions of its sister regulator. The CMA’s own decisions under the Enterprise Act are of course supplemented by a second pair of eyes in phase 2 panels.

In some ways, however, the best comparator for the DMU is the FCA, which deals all the time with heavily armed and lawyered-up financial institutions, particularly banks. Financial firms have a right of appeal to the equivalent of the High Court in the Upper Tribunal. There is also an internal autonomous Regulatory Decisions Committee—although I am not entirely happy with it—which provides an initial layer of appeals protection.

It is worth noting that, from time to time, the Government have sought to justify the narrow version of JR—this has been mentioned—by suggesting that this is what Jason Furman intended in his review, but it is not. He made it clear in his report that, if standards were changed to JR, the Government should

“introduce more independent CMA decision-making structures”.

A similar quotation has just been referenced. It is clear to any reasonable person looking at the context of that part of the report that he was referring to the CMA’s panel structure. This, of course, looks at substance, not just process. He clarified that, if the review standard were raised to JR as a counterpart, an independent panel of some type would definitely be needed

“to safeguard decisions against the potential for executive overreach”.

I could not have put it better myself. I am concerned about executive overreach and I think that all parliamentarians should be concerned about it before they empower big regulators such as the CMA. Incidentally, Jason Furman also cited the Regulatory Decisions Committee at the FCA, the Bank of England’s Enforcement Decision Making Committee and the enforcement decision panel at Ofgem as useful reference points.

How did the Government come to reverse what seemed to be a reasonably well-balanced position: a modicum of highly circumscribed merits appeal derived directly from the approach taken for Ofcom in 2017, which they now do not want, and a very limited form of narrow JR for fines where they are too low? We have a case history of the CAT moving fines in one direction. How on earth did the Government come to this pretty pass? That is fairly clear. They have been lobbied heavily and they are trying to put in safeguards by the backdoor—things that they should have explained, and indeed did explain, that they thought were appropriate by the front—for the preceding four years. What they have provided us with is a step in the wrong direction on fines and a step into the unknown with proportionality. We do not know how proportionality will be achieved. I know that we have had an extensive debate about it, but until there has been some examination of it in the courts, we will not know.

A fair summary is that the Government took some very back-to-front decisions on a major part of the Bill in the other place. They should have followed the Ofcom review standard that they created in 2017, but they have not, and they should have left the appeals standards for fines unchanged, but they have not. In sum, we must have fines large enough to deter big platforms and we must have at least some substantive form of appeal to reduce the risk of serious mistakes. These mistakes will be inevitable. When they happen, they will damage the credibility of the CMA’s regime and they will deter inward investment and innovation. The UK will be the loser.

I end with one general point that may not be welcome to some colleagues, but I feel that it needs to be said. One thing that we are all agreed on is that the platforms have abused market power. Many of us feel that they deserve a thorough legislative kicking after fake news, online harms, misuse of asymmetric power and all the rest, and we are right in response to implement tough legislation, but no institution and no platform should be beyond the reach of Parliament acting on behalf of the public as consumers. Our parliamentary discontent mut not spill over into the digital equivalent of “challenge a digital good, platform bad”. It is our job to provide a balance between them and to recognise the huge benefits that have come from platforms, as well as the damage that platforms have wrought in some markets. It is our job to devise legislation which contains balance and which can hold that balance between the big and small players in the market and between the regulator and the regulated. Parliament should be concerned about any regulator that is beyond all effective challenge for the substance of its operational decisions. I think that is true of all institutions and it should apply not just to the regulator but to the regulated community—hence my clarity and firmness that we need a strong Bill in this field.

I think that this Bill is fundamentally unbalanced in this area and it is bound one way or another to create a higher risk of failure. I do not get into the predictions game often—in fact, scarcely at all—but I predict that if we leave this Bill as it is, which is what is most likely to happen, it will not be long before there are calls in this place for amendments when the mistakes, which will inevitably happen, are explained to us.

[Lord Black of Brentwood (Con)]

My Lords, it is a great pleasure to follow the noble Lord, Lord Tyrie, who has made an important speech. I shall speak to Amendment 66 in the name of my noble friend Lady Stowell, to which I have added my name. I also support the amendments tabled by the noble Baroness, Lady Jones, which cover similar ground. I remind noble Lords of my registered interests set out on the first day in Committee.

Two key themes seem to have emerged consistently during the scrutiny of this Bill in Committee: first, the need for there to be as much clarity as possible with no room for protracted legal wrangling as a result of legal loopholes; and, secondly, the emphasis on the speedy resolution of disputes. My noble friend’s amendment goes to the heart of both those themes and seeks to enshrine in the Bill the Government’s stated commitment, which is strongly shared by the Grand Committee, as I have seen to date, to clarity and speed.

As the Minister made clear at Second Reading, the Government intend that merits-based appeals are available once a breach has been found only if

“the imposition of a penalty was not appropriate, the level of it was not suitable, or the date by which it should be paid needs to be changed”.—[Official Report, 5/12/23; col. 1450.]

Merits appeals are not intended to apply to the decision that a breach has occurred or to the decision to set a conduct requirement in the first place or to introduce a remedy such as an enforcement order following a breach.

16:15

However, like my noble friend, I am concerned that this intention is not absolutely clear in the Bill. This may allow merits appeals to bleed back into regulatory decisions, something the noble Lord, Lord Tyrie, elegantly described as review drift. For example, SMS firms may be able to conflate a merits appeal on a decision to impose a penalty after finding a breach with a finding that a breach has taken place. The giant tech platforms may seek to argue that the finding of a breach of a conduct requirement, made under Clause 30, and its consideration that an undertaking has failed to comply with a conduct requirement when issuing a penalty, made under Clause 85, are both fundamentally concerned with the same decision: the imposition of a penalty, with the common factor being a finding that a conduct requirement has been breached. Therefore, if a decision to impose a penalty issued for failing to comply with a conduct requirement is successfully appealed, the question will arise: does the decision to find a breach under Clause 30 remain valid?

The Government have sought to argue that it was necessary to change the indispensability condition in the countervailing benefits exemption, as discussed last week, not to change the meaning in any way but to provide clarity to stakeholders. Given that merits on regulatory decisions would give SMS firms immense scope to leverage their legal resources to delay and frustrate CMA decision-making, it would seem sensible to provide clarity here too, particularly given the huge salience placed on the appeals standards by so many stakeholders. Otherwise, there will inevitably be lengthy periods of satellite litigation slowing down the work of the DMU.

Ultimately, the slow and ineffective enforcement that could stem from the hybrid approach of this Bill and which does not exist in the very similar regime in the Online Safety Act will place innovative UK firms at a competitive disadvantage internationally, as the CMA will be prevented from moving quickly enough to tackle the lack of competition in key digital markets. It would also undermine the collaborative approach—something else that we have discussed at length—which the DMU hopes to build with regulated firms.

The amendment would clearly put into the Bill what the Government have expressed as their intention, something which I sense this Committee strongly supports.

[Lord Faulks (Non-Afl)]

My Lords, may I crave the indulgence of the Committee? Unfortunately, I missed the first minute of the speech made by the noble Baroness, Lady Jones, as I was trying to comply with etiquette and remain in the Chamber until the conclusion of the opening speeches on the Rwanda Bill. If the Committee permits, the points I was going to make have largely been made by others, so I can be particularly brief.

At the heart of this legislation is the decision: do we want the regulation to be done by the DMU or, de facto, by the courts? This is, effectively, a twin attack. First, there is the proportionality provision inserted into the statute, and now we have the change in the test of appeals on sentences. The combination of those two seems inevitably to lead to further court involvement, and it is not the intention that courts should be the regulator. The courts are there, as the noble Lord said, to stop executive overreach or some illegality in the approach based on usual JR principles. They are not there to second-guess what the DMU has done.

If the amendments, or something like them, are not accepted, I fear that an appeal of the merits will involve going into everything, as other noble Lords have said. We would have the war of the lever arch files, so eloquently described by the noble Lord, Lord Vaizey, at Second Reading. Lawyers will act, and continue to act, and it will frustrate what we are trying to achieve.

[Lord Vaizey of Didcot (Con)]

My Lords, as I have been cited by the noble Lord, Lord Faulks, it is incumbent on me to speak on the same principles as him. Everything that I want to say has already been said, but that will not stop me putting in my two pennies’ worth. This is the stuck-record part of the debate, where I repeat what I said at Second Reading and simply put on record my support for all these amendments.

I will pick up on what some noble Lords said in their comments. I wholeheartedly endorse what my noble friend Lady Stowell said. In the real world, if you have an appeal on the merits of a fine, it seems almost impossible to see how you stop leakage into an appeal on the merits of the case. So you are, in effect, back to square one and, as the noble Lord, Lord Faulks, put it, the war of the lever arch file.

The speech by the noble Lord, Lord Tyrie, was fascinating and a master class on the different aspects of judicial review: an appeal on the merits, an appeal on JR-plus, or an appeal on JR. When I was a Minister, I dealt with this debate with Ofcom, when it started the process of wanting to move from appeals on the merits to appeals on JR. To the layman, an appeal on the merits is in effect a full rehearing of the case: you go back to square one and simply have the trial all over again. An appeal on JR means that you at least have to identify a flaw in the reasoning of the regulator when it comes to a judgment. If, in effect—here, I bow to the expertise of the noble Lord, Lord Tyrie—settled law informed by European directives means that some element of the merits of the case are taken into account in a JR appeal of a regulator, so be it. It may be the difference between a passive and an active decision, as it were.

In this Committee, we understand how you can judicially review a decision by a government department. When a regulator is making an active decision to bring a prosecution, and it then finds guilty the company that it is prosecuting, some element of the merits may well be taken into account. It seems to me that how it is drafted may well be important, but the clear intent should be that any appeal, whether on the actual decision or the level of the fine, should be an appeal based on JR, when it comes to how a judicial review is understood when appealing a decision by a regulator.

I finish with the simple point—this is the stuck-record part—that it clearly is the settled will of this Committee, and I suspect it will be the will of the House when this comes to Report, to constantly guard against giving the SMS companies too much opportunity to wriggle out of decisions made by the regulator.

I should add that a lot of the tone of my remarks at Second Reading and in Committee might make it seem that I am in the pocket of the regulator. I am certainly not. I have lots of concerns that, at other times, would make me say that I think the regulator often strays too far and interferes in far too many cases. I am not resiling from the fact that there clearly should be an opportunity to appeal its decisions. Often, it backs away before it gets to a decision, but its interference in mergers and takeovers sometimes leaves me slightly baffled, particularly when it involves companies that have very little presence in the UK market. I am not saying, by any stretch of the imagination, that the regulator is perfect, but I know that any procedure it undertakes, as it will do when this law is passed, will be long and expensive, so we must guard against making it even longer and even more expensive.

[Baroness Harding of Winscombe (Con)]

My Lords, I seem to have found my space in this Committee following my noble friend Lord Vaizey again. I have put my name to Amendments 65, 67, 71 and 72 in the name of the noble Baroness, Lady Jones.

I would like to add a possible new element to the discussion, as I am conscious that otherwise we are all just literally repeating each other’s words. My noble friend Lady Stowell talked about the practicalities of a full merits appeal for fines and her concerns. We should also think about the incentives on the designated firms and on the CMA.

Much of what we are debating in this Committee is about how we balance the inequality of arms between companies with enormous resources, and the concern that independent regulators, given a large amount of power, can occasionally make mistakes. That is the essence of this debate. The noble Lord, Lord Tyrie, spoke eloquently about the risk of regulators making mistakes. I wish to add to the discussion some facts about the sheer scale of the inequality of arms.

According to a number of different sources, the best public assessment we can get of Apple’s legal budget is that it is north of $100 billion a year. Bruce Sewell, who stepped down in 2017 after eight years as Apple’s general counsel, gave an interview to a student at Columbia Law School in 2019 in which he set out how he thinks about the legal department and the legal budget in a technology company. He said that, rather than take clearly safe actions, the job of the general counsel is to

“steer the ship as close to that line as you can, because that’s where the competitive advantage lies … you want to get to the point where you can use risk as a competitive advantage”.

So, when you have a $1 billion legal budget, you can afford to play the risk card on every review. You can afford to fully resource every full merits review, whereas when you are the regulator, with a substantially smaller legal budget, you cannot risk every single one of your decisions going to a full merits review.

The incentives are equally divergent. The incentive on the regulator is to be really risk-averse; to not risk being challenged. That means that you will not bring the case in the first place. As the noble Lord, Lord Tyrie, said last week, we know that we need to embolden our competition regulator. One of the big opportunities on leaving the EU is to have a much stronger competition regime because we know that that will drive stronger economic growth. But a full merits regime, in any part of the process, will make the regulator more risk-averse and will drive the incentive to sail closer to the wind, as Bruce Sewell said. Sailing closer to the wind means less collaboration with the regulator, because you are much better off playing your legal cards in the courts. In both those cases, that is not the regime that we are trying to design. We need to recognise that it is not just about practicalities; incentives are really hard to avoid if you have a full merits appeal process at any stage.

I am therefore left asking why the Government are proposing to do this for fines. The argument we have heard up to now is that the reason for doing so is to align with the Enterprise Act. However, as the noble Lord, Lord Tyrie, beautifully set out, they are not really aligning with anything in this regime, so that argument does not wash. It is not the same as the regulatory regime for appeals in the sector I come from, telecoms. As I said at Second Reading—I apologise for repeating it—I do not really understand why small telecoms companies, tiny in comparison with these tech giants, are fine to cope with a JR on fines decisions, but the large tech giants need the extra protection of a full merits review, in case they are fined too much money. It sounds like the worst form of tech exceptionalism. Looking at digital regulation in this House in the last couple of years, we have learned that the era of tech exceptionalism should be over and that technology companies are just the same as other companies. They are not wicked and evil but driven by incentives to do a good job for their stakeholders, and if we define the rules of the game to encourage them to use their legal budgets to challenge the regulator, that is what they will do.

Therefore, I am left to believe, as the noble Lord, Lord Tyrie, said, that the only reason for the change made on Report in the House of Commons was that it was part of some form of explicit or implicit deal to open a back door that will weaken the Bill, which will therefore not achieve what we want. I strongly support the amendments in the name of the noble Baroness, Lady Jones. Later we will come to how, if we accept them, we will ensure strong parliamentary scrutiny. I hope very much that we do not think we trade one for the other.

16:30

[Lord Kamall (Con)]

My Lords, I wish to speak to this group of amendments. Other noble Lords have clearly made the case for the amendments in their names so I will try not to repeat what they have said.

Given that, I have three simple questions for my noble friend the Minister. First, having decided that appeals by firms should be decided not on merits in a court but by JR appeal, why have the Government now decided to allow this merits-based appeal on the size of the fine? I know that noble Lords have their own views on this, but I would like an answer and some clarity from the Government. Secondly, what evidence has come to light to persuade the Government to lay their amendments on this matter in the other place? Thirdly, how confident are the Government that, if a firm wins its merits-based appeal on the size of a financial penalty, this definitely will not give the firm a legal basis for challenging the reasons for the penalty and the conduct required by the CMA in the first place? I look forward to my noble friend the Minister’s responses to these three questions.

[Lord Clement-Jones (LD)]

My Lords, following this superb debate, I am worried about being able to add much to what has been said.

First, I want to pick up what the noble Lord, Lord Tyrie, said. As ever, I agree entirely with half of what he said, but the other half is rather more controversial. This seems to be a growing habit. Exactly as the noble Baroness, Lady Harding, said, if there is a solution to overreach, it must be through greater parliamentary scrutiny. The noble Baroness, Lady Stowell, also referred to this and we have amendments coming down the track on it. Going back to JR-plus for the majority of decisions to be made under the Bill would be a retrograde step.

[Lord Tyrie (Non-Afl)]

The noble Lord said that we should not go back to JR-plus, which would bring in a limited form of merits review. However, many decisions in merits appeals have been found to be clearly wrong, once in the appeal, and would have harmed consumers’ interests had they been allowed to stand, under full judicial review. Does the noble Lord agree with that remark? Before he decides whether or not he does, I remind him that I am quoting him in his opposition to the move made in 2017.

[Lord Clement-Jones (LD)]

My Lords, it is lovely to be reminded of previous remarks but, of course, that was then and this is now. We were talking about the standard for Ofcom then; today, we are talking about the CMA standard. The noble Lord would need to produce evidence that that standard did not in fact have a really poor outcome as a result of the power of big tech not being as limited as it could have been. He talked about us needing to recognise the power of big tech, but that is exactly what adopting the JR standard—the Wednesbury “unreasonable” standard that the noble Lord, Lord Faulks, talked about last week, and which all of us are content to stick with—would do.

Of course, what we are trying to do, if possible—if the amendments in the name of the noble Baroness, Lady Jones, are accepted—is to revert back to a JR standard for penalties. I believe that consistency across the board is rather more important than trying to revert to a form of appeals standard that obtains in a different part of the regulatory forest. However, as the noble Lord said, the danger of executive overreach is much more easily cured by increased parliamentary scrutiny than by trying to, in a sense, muddy the waters of the test for appeals.

What the noble Baroness, Lady Harding, said about incentives was entirely right. Litigation has clearly been used and is being used by big tech for strategic business purposes. We are trying to make sure that this does not drag on for ever and that appealing against the penalties does not open up the whole caboodle as a result. The noble Lord, Lord Black, and others who talked about the change of standard for penalties infecting other aspects of a CMA decision, made very strong points.

Ultimately, the Minister has a large number of questions from noble Lords. The noble Baroness, Lady Stowell, asked what would be relevant for an appeal on penalties. What is the motivation for the Government in putting forward this new standard for penalties? What is so special about it and what evidence did they use to come to that view? Is not the danger of using a merits appeal basis that the decisions on which the penalty was based will be unpicked? The practicalities were also raised by a number of noble Lords.

[Lord Vaizey of Didcot (Con)]

I intervene on the point that the noble Lord, Lord Tyrie, made to the noble Lord, Lord Clement-Jones. There is a difference. The noble Lord was absolutely right to raise his concerns about Ofcom moving from a merits-based to JR-based appeal, in 2017. As the noble Baroness, Lady Harding, knows very well, Ofcom often makes decisions on extremely complicated pricing mechanisms. The telecoms companies had a point in saying that a merits-based appeal for Ofcom decisions is worth while, because going through the calculations again could sometimes be worth £50 million, £100 million or £200 million.

Ofcom was right in finally moving to JR for those cases when it took quite important strategic decisions about the marketplace—for example, forcing Sky Sports to offer its content wholesale to competitors. The noble Lord, Lord Clement-Jones, had a point then and he has one today.

[Lord Clement-Jones (LD)]

It is very nice and helpful to be reminded of things that I had forgotten entirely. We need to make sure that we are consistent across the board. A full merits-based standard is not, for example, used to appeal against fines issued by Ofcom under the Online Safety Act. These Benches have serious concerns regarding the insertion of two different appeal standards in the Bill, as it may decrease the deterrent effect and risk lengthier appeals, as we have heard.

If we are not successful in persuading the Government to change back to JR for penalty appeals, and a merits appeal is to be included, a number of amendments—the amendment in the name of the noble Baroness, Lady Stowell, that in the name of the noble Lord, Lord Holmes, and my amendment—are of great relevance to make sure that we do not see that drift that the noble Lord, Lord Black, talked about. A failure to do so could run the same risks as an entirely novel appeals standard. On that basis, we very much support the amendments in the names of the noble Lord, Lord Holmes, and the noble Baroness, Lady Stowell, and my own Amendment 68, which would ensure that there is no further extension of the merits appeal standards into any other part of the Bill. It is intended to have the same impact and draw a clear line in the sand beyond which no court can go.

I am sorry that we do not have the noble Lord, Lord Lansley, here to reveal perhaps another letter from a Minister. We had an interesting discussion last Wednesday, when the noble Lord, Lord Lansley, quoted the letter, sent to Damian Collins and Sir Robert Buckland, about the nature of the intention behind including “proportionate”. It said:

“In practice this means that firms will be able to challenge whether the DMU could have achieved its purpose for intervention through less onerous requirements”.


In a sense, that is a massive invitation to litigation, compared to ordinary JR. If that move is an invitation to litigation, think how much further along the road we are travelling if we go for a merits test for the fine and the penalties. I hope the Minister will therefore reverse course back to the pre-Report situation in the Commons; that would give a great deal of satisfaction around this Committee.

[The Parliamentary Under-Secretary of State, Department for Science, Innovation and Technology (Viscount Camrose) (Con)]

I thank the noble Baroness, Lady Jones, for raising the important subject of digital markets appeals through Amendments 64, 65, 67, 71 and 72. I thank noble Lords for their powerful and compelling contributions. I am glad of the opportunity to set out the Government’s position.

These amendments seek to revert the changes made in the other place to the appeal standard of digital markets penalties. This would mean that penalties would be subject to judicial review principles, instead of being heard on their merits. It is important that decisions made by the CMA can be properly reviewed to ensure they are fair, rigorous and based on evidence. As the Bill stands, the key decisions—particularly the regulatory decisions that will drive the benefits from this regime—will be appealable on judicial review principles. Only penalty decisions will be appealable on the merits. This will provide SMS firms subject to penalties with additional reassurance, without compromising the regime’s effectiveness.

Penalty decisions will come at the very end of the regulatory process, if at all. They do not have the same impact on third parties as other decisions in the regime. Conduct requirements and pro-competition interventions will already have been in place to address their intended harm before penalty decisions are considered. Decisions on penalties are different from those about imposing requirements: they are more about making assessments of facts. They will assess what the SMS firm has or has not done. Other decisions that the CMA will take in the regime are forward-looking expert judgment calls. It is appropriate that the latter be given a wider margin of appreciation through a judicial review standard than decisions to impose penalties.

To address the point made by many noble Lords, I make it clear that challenging penalties does not open up the question of whether a breach occurred, or whether a conduct requirement or PCI was right in the first place. I will set this out in more detail in response to the next set of amendments—but perhaps I should say, as I did on the first day of this Committee, that I am happy to listen to and take forward any form of words that strengthens the clarity or intent of the Bill. As I said, the intent of the Bill is that the decision about whether a breach has occurred is made on JR principles.

The digital markets measures, as with other CMA regimes, have always treated penalties differently in the regime. For example, they are automatically suspended upon appeal, unlike other decisions. This would also have been the case under JR. We have aligned penalty appeals with those under the Enterprise Act 2002, as was said, so that parties can challenge these decisions on the merits to ensure that the value of penalties is suitable. The regimes in the Enterprise Act apply to firms from all sectors, rather than just tech firms. In addition, to give two examples, penalties are appealed on the merits in the financial services and markets regime, administered by the Financial Conduct Authority, and, under the Water Industry Act, overseen by Ofwat. In the EU’s Digital Markets Act, penalty appeals are similar to merits reviews in the UK.

16:45

The Bill will empower the CMA to impose very significant penalties up to 10% of a firm’s global turnover. I take the point made by the noble Lord, Lord Tyrie, that very often they are brought down over the course of an appeal, but the Bill has the potential to impose up to 10% of a firm’s global turnover as a fine, which I agree is a major deterrent in this regime. The size of these fines is why the Government believe it is important that the Competition Appeal Tribunal can consider the value of a fine and, if necessary, change it.

Amendment 66 from my noble friend Lady Stowell, Amendment 68 from the noble Lord, Lord Clement-Jones, and Amendment 69 from my noble friend Lord Holmes seek to provide further detail on what decisions are covered by the on-the-merits appeal process, so I will address them together. Amendment 68 poses that the merits appeal process would not extend beyond the decisions to impose penalties on a firm. Amendment 66 instead specifies that judicial review principles would still apply to appeals about whether a requirement was breached or whether that requirement should have been imposed in the first place. Only the penalty decision itself would be appealable on the merits. Amendment 69 inserts a new clause specifying that full merits appeals could be made only against decisions to issue financial penalties and to dispute the amount of a financial penalty.

I agree with the intent behind these amendments, which seek to clarify a position that the Government feel is already provided for in the Bill. I understand noble Lords’ desire for clarity on this and will try to provide that now, but I look forward to continuing to engage to make sure that it is as clear as we can make it. Clause 103(2) specifies that the judicial review principles process under Clause 103 applies to all decisions other than those about penalties and mergers. Merger decisions continue to be taken under the existing provisions in the Enterprise Act 2002, so it is right that such appeals use that Act’s provisions. As with the digital markets regime, appeals of merger penalties are heard on the merits, with any other merger decisions appealable under the existing judicial review provisions in Part 3 of the Enterprise Act.

To address the points made by my noble friends Lady Stowell, Lord Vaizey and Lord Kamall, and the noble Lord, Lord Tyrie, which were echoed by other noble Lords, firms will be able to appeal penalties only on their merits. The CAT will be able to quash the penalty and change its value or the date by which it is required to be paid. Appeals against all other digital markets decisions will be under judicial review principles. Where a penalty is quashed, the underlying breach decision still stands, unless it is separately reviewed under judicial review principles. If an SMS firm breached a conduct requirement enforcement order and was fined for it, it could appeal the breach decision on JR.

[Lord Vaizey of Didcot (Con)]

I found my noble friend’s remarks very helpful, because they shone a brief light on the Government’s position. Is he saying that, by introducing an on-the-merits appeal for fines, the Government are effectively allowing the CAT to substitute its decision for that of the regulators, whereas if it were a judicial review it would simply have to send back the decision on the quantum or the timing of the fine back to regulator; in which case, he may have a point?

[Viscount Camrose (Con)]

I hope very much that I have a point. I think it would be best for me to write to my noble friend and the members of the Committee to clarify that.

[Lord Faulks (Non-Afl)]

I am listening very carefully to what the Minister says. It would be helpful if he would give an idea of the sort of arguments that would be open to somebody who is challenging a decision as to the fine and the merits. Will they be circumscribed simply by saying, “Well, it was too much”, or will they be able to look in some detail at the whole process and the interventions that ultimately resulted in the fine? How will those two things be kept separate from each other?

[Viscount Camrose (Con)]

As the noble Lord says, the intent is to keep those two separate. During and on the merits appeal for the penalty, the penalised firm could argue that the value of the penalty exceeded the crime, or that the breach took place inadvertently or by accident. It could not argue, however, that no breach took place; the fact that a breach took place is the premise against which the rest of the penalty appeal takes place. If the firm then wants to appeal that no breach took place, that would be done under JR, not on the merits.

The boundaries of the merits appeal process are explained in the Explanatory Notes for Clause 89. If those can be made any clearer, I am happy to engage on that. We will continue to listen to any concerns that noble Lords have on this important point.

I turn now to Amendments 72A and 72B from the noble Lord, Lord Tyrie. I thank him for his amendments, which raise an important question about the appeal standard across the wider digital markets regime. These amendments would align the appeal standard of all regulatory decisions in the regime with appeals carried out against Ofcom’s decisions taken under the Communications Act 2003. I am sure that many noble Lords are aware that the appeal standard in the Communications Act regime is often referred to as judicial review-plus. Although Parliament amended the Act in 2017 so that these appeals are to be decided on judicial review principles, the CAT has ruled that, due to retained EU law, it must also

“ensure that the merits of the case are duly taken into account”.

To turn back to this Bill, the Government heard the strong views expressed by your Lordships on the Select Committee, among others, on the importance of retaining judicial review. The changes made by the Government in the other place sought to uphold the use of the well-known judicial review principles for appeals in the new regime, except for those about penalties, as I have already discussed. Judicial review principles balance robust scrutiny of the CMA’s decisions with the need for the CMA to use its expertise to act quickly and iteratively to resolve issues.

As we discussed on the second day in Committee, the Government have made an explicit requirement for the CMA to consider proportionality when imposing conduct requirements and PCIs. As I set out during that discussion, it is right that interventions should be proportionate, but we are clear that any appeals of these matters should be heard under standard judicial review principles.

[Lord Tyrie (Non-Afl)]

In which case, it is clearly not the Ofcom standard, is it? The Ofcom standard imports a measure of appeal on the merits. Why are the Government continuing to assert that this is the Ofcom standard? It is nothing of the sort.

[Viscount Camrose (Con)]

I suggest that I set out a comparison in writing and perform the analysis as to the differences, should there be any, between the two.

Noble Lords expressed a concern on the second day in Committee that there should not be ambiguity in how appeals will be conducted. Introducing a requirement in a new domestic regime that requires an analysis of unrelated retained EU law to be able to understand how an appeal should be decided risks creating that kind of ambiguity. Complicating the appeals standard with EU case law would slow down appeals while the boundaries of what is captured by JR-plus are agreed.

Regarding decision-making, the noble Lord, Lord Tyrie, mentioned the CMA independent panel. Our approach to internal decision-making balances accountability and independence. Launching major market-shaping investigations under the regime will be reserved for the board. A board committee will oversee the regime’s regulatory interventions. At least half the members of the committee will be non-executive directors and members of the CMA’s independent panel. This make-up will ensure an independent perspective and the ability to develop deep expertise over time.

I hope that the reasoning I have put forward provides the necessary reassurances to noble Lords and that they will feel able not to press their amendments.

[Baroness Jones of Whitchurch (Lab)]

My Lords, I thank all noble Lords who have spoken. Again, in the vast majority of the contributions, we seem to have reached a wide degree of consensus, although not totally, in the light of that from the noble Lord, Lord Tyrie.

Noble Lords have made a number of important points. The noble Baroness, Lady Stowell, was quite right to take us back to the practicality of appeals on a merits basis; I will come back to the Minister’s response on all that because things are still not clear. How can we be sure that such an appeal will not open the whole case up again? That is at the heart of what we are debating here.

The noble Lord, Lord Holmes, said that we do not really understand why this must be different. Why is it such a special case? It has not been explained to us why this exception has been made.

I very much appreciate the point made by noble Lord, Lord Faulks: at the heart of this issue is whether we want regulation by the DMU or by the courts. There is a real danger of us drifting towards the latter with the Government’s amendments.

The noble Baroness, Lady Harding, rightly reminded us that regulators cannot afford to take too many risks. There is a fundamental imbalance, with regulators perhaps being forced to be risk-averse because they do not have the budgets of the big tech companies. We understand the danger of the David and Goliath situation that we are in here. It is all too easy to create a system where big tech companies’ lawyers can rule the roost.

The Minister said that decisions on penalties will address what an SMS firm has or has not done. He said that a decision will address not whether a breach has occurred but what led to the breach. Our concern is that we are going to go back over all the evidence of what led to a breach, whereas the fine at the end of it represents the end of the decision-making and is meant to be the deterrent. Again, I will look at Hansard and the Minister’s subsequent letter, but it seems to me from his explanation that he risks opening the whole case up again.

I listened carefully to the noble Lord, Lord Tyrie. I understand his experience in all this. Importantly, he said that there is not just one model here—that is, we have a number of regulators that do things differently. As he pointed out, the Government have previously supported the JR model; we must be reminded of that. The noble Lord also raised his concern about what happens if mistakes are made. If mistakes are made, they would be made in the process leading up to the decision, not the subsequent fines. A merits appeal on the fine would not really help if the decisions had happened further up the decision-making process.

I agree with the noble Lord, Lord Vaizey, that the regulators are not perfect. However, as we have discussed and will discuss again, we need stronger regulatory oversight. That will come—indeed, it needs to come—from stronger parliamentary oversight, which we will continue to debate in our discussions on this Bill.

I come back to the fundamental point made by the Minister. I listened to him carefully but I am still not clear how he will keep the stages separate. How will he keep the decision-making separate from the decision on the penalty? If SMS firms argue that the penalty is too high, they will have to revisit the evidence leading to the decision.

[Lord Faulks (Non-Afl)]

Can the noble Baroness confirm that, in her understanding, there is nothing in the Bill itself that makes that separation clear?

[Baroness Jones of Whitchurch (Lab)]

I thank the noble Lord, Lord Faulks; he is absolutely right. Again, we look forward to the Minister’s letter that will try to explain how these are two separate processes and that there is a clear cut-off point between one and the other, because I am not sure that that was really what he said in his reply. To be honest, I do not see how they can be separate, as that is not how the systems work. The appeal will be, as I think the Minister said, on what the SMS firm did to lead up to that penalty; therefore, the whole case would have to be revisited.

I do not know that the Minister persuaded many people on this matter. I am sure that we will continue to debate this, and we look forward to reading his letter, which I am sure will explain things in a little more detail. In the meantime, I beg leave to withdraw my amendment.

17:00

Amendment 64 withdrawn.

Amendments 65 to 68 not moved.

Clause 89 agreed.

Amendment 69 not moved.

Clauses 90 to 100 agreed.

Clause 101: Rights to enforce requirements of this Part

Amendment 70 not moved.

Clause 101 agreed.

Clause 102 agreed.

Clause 103: Applications for review etc

Amendments 71 to 72B not moved.

Clause 103 agreed.

Clauses 104 to 106 agreed.

Clause 107: Coordination with relevant regulators

Amendment 73

Moved by

[Lord Offord of Garvel]

73: Clause 107, page 67, line 4, leave out subsection (7)
Member's explanatory statement
This amendment would omit the definition of “data protection legislation” in Clause 107, as my amendment to Clause 328 would define that term for the purposes of the whole Bill.

[The Parliamentary Under-Secretary of State, Department for Business and Trade and Scotland Office (Lord Offord of Garvel) (Con)]

My Lords, I am delighted to speak on the third day in Committee. I reiterate the sentiment articulated in the first session by my noble friend Lord Camrose that the Bill, importantly, will drive growth, innovation and productivity and ensure that businesses and consumers in the UK reap the benefits of competitive markets. I thank noble Lords for their contributions throughout the passage of the Bill and for their continued scrutiny and debate.

I turn to a number of miscellaneous amendments put forward by the Government that affect different parts of the Bill. Amendments 214 and 219 introduce a new clause and schedule into the Bill that make amendments to other pieces of primary legislation, consequential to provisions in Parts 2, 3, 4 and 5 of the Bill. The consequential amendments fall into three groups. The first amends sectoral legislation that applies, with modifications, the information-gathering power given to the CMA for its merger control functions in Section 109 of the Enterprise Act 2002. Where that power is applied for non-merger related purposes, the changes made by Part 2 of the Bill—which make express provision about the extraterritorial reach of the power and strengthen the civil sanctions regime that supports its enforcement—are not to apply. The schedule makes provision accordingly.

The second group of amendments is in consequence of Part 3, and the repeal of Part 8 of the Enterprise Act 2002 and its replacement with Part 3 of this Bill. The third group is in consequence of provision in Chapter 1 of Part 4 and Chapter 2 of Part 5, to amend legislation which otherwise restricts disclosure by regulators and others of information relating to individuals and businesses. This will permit them to disclose information for the purposes of the enforcement of consumer protection law, unfair trading and the provision of investigative assistance to overseas regulators.

Amendment 223 amends the commencement provision in Clause 334, so that the new clause and schedule can be commenced alongside the substantive provisions to which they relate.

Amendment 213 will ensure that information that comes to a UK public authority in connection with its power to provide investigative assistance to an overseas authority in Chapter 2 of Part 5 of the Bill will be covered by the information disclosure restrictions and gateways in Part 9 of the Enterprise Act 2002. This ensures that a public authority can share the information that it has collected on behalf of an overseas authority with that overseas authority. This will be in line with relevant safeguards, including personal data protection and safeguards for commercially sensitive information. To help ensure that the investigative assistance regime operates efficiently, the amendment will also enable UK authorities that hold information to which Part 9 applies to disclose that information to another UK authority to facilitate the provision of investigative assistance by that UK authority.

I turn to data protection override. Amendments 73, 206, 207, 208, 216 and 217 are minor and technical amendments which will make provision in relation to data protection across the Bill. Amendment 217 adds a new clause that clarifies that no provision in the Bill would require or authorise the processing of data that would contravene data protection legislation. Amendments 73, 206, 207, 208 and 216 remove provisions that previously applied only to some specific powers and insert a definition of data protection legislation that applies across the whole Bill.

On pre-commencement consultation, Amendment 218 adds a new clause to clarify that:

“A duty to consult under or by virtue of this Act may be satisfied by consultation that took place wholly or partly before the passing of this Act”.


The provision clarifies that the CMA has the flexibility to begin consulting before Royal Assent to ensure that the full set of reforms in the Bill can be implemented as soon as possible.

I hope that noble Lords will accept these amendments. I look forward to addressing any questions or points that they may have about them. I beg to move.

[Lord Clement-Jones (LD)]

My Lords, this is quite a set of amendments and the Minister rather rattled through his speech, but I have only one question: why are they now being included in the Bill here in Committee? Why were they not in the original version of the Bill? What is the motivation behind these new amendments? I am always a little suspicious. With the data protection Bill coming down the track, we will have hours of endless excitement. The words “data protection” and “government” are sometimes a bit of a red rag, so one always has to kick the tyres quite hard on any provision that appears to be opening a door to disclosure of data and so on. Obviously, in a competition context, it is most likely to be commercial confidential information, but the Minister needs to explain what kind of information we are talking about and why we need to have these provisions included at this stage.

[Lord Leong (Lab)]

My Lords, I thank the Minister for his overview and explanation of the various government amendments. I look forward to his response to the question from the noble Lord, Lord Clement-Jones: why now? These are mainly technical and tidying-up amendments and we are in broad agreement with most of them in this group.

Amendment 217 makes it clear that any imposed or conferred duties to process information do not contravene data protection legislation. That is welcome. Amendment 213 ensures the disclosure of information under Chapter 2 of Part 5 of the Bill, which allows UK regulators to provide investigative assistance to overseas regulators. This is in line with the restrictions on the disclosure of certain kinds of information found in the Enterprise Act 2002, which is fine. I ask the Minister what assessments are in place to safeguard the sharing of such details with autocratic regimes, which may not have robust governance and accountability systems in place and whose values we do not share? On Amendment 218, I ask the Minister whether the intent is similar to that of Amendment 1, as set out so eloquently by my noble friend Lady Jones of Whitchurch on the first day of Committee?

Finally, I refer to Amendment 216, which replaces the definition of data protection legislation for the whole of the Bill, so the definition in Amendments 73 and 208 are removed. Can the Minister confirm that such a definition is consistent with Article 8 of the European Convention on Human Rights and the Enterprise Act 2002? I look forward to the Minister’s response and comments.

[Lord Offord of Garvel (Con)]

I thank the noble Lords for their questions. I will first address the question from the noble Lord, Lord Clement-Jones. I do not see the shadows that he sees within the amendments. Unlike in the first part of the Bill, which introduces new bodies, units and legislation, we are here looking back consequentially at the Enterprise Act and Consumer Protection Act and building on them. The amendments simply improve the Bill while maintaining the overall policy intent and approach and the procedure, which is technical in nature. For example, we will go through the whole list of consequential Bills to which data protection applies to make sure that we have got a single concept of data protection across all the various Bills that consequentially apply.

The data protection amendment does not change but merely clarifies the application of existing data protection legislation across the Bill, as mentioned by the noble Lord, Lord Leong. Information of relevance will mostly be commercially sensitive information, as the noble Lord suggested. In answer to the second question of the noble Lord, Lord Leong, about international information disclosure, it will be governed by Part 9 of the Enterprise Act, which ensures appropriate safeguards.

I look forward to discussing more of these substantive measures later today and in future sessions. However, having answered the questions, I hope that the amendments can now be accepted. I beg to move.

Amendment 73 agreed.

Clause 107, as amended, agreed.

Clauses 108 and 109 agreed.

Amendment 73A

Moved by

[Lord Knight of Weymouth]

73A: After Clause 109, insert the following new Clause—
“CMA cooperation with work and labour market institutions(1) The CMA must take reasonable steps to consult with—(a) the Office of Labour Market Enforcement,(b) the Health and Safety Executive,(c) the Employment Agency Standards Directorate, and(d) HMRC where the CMA considers that the institution holds or has a right to request information, knowledge or documentation that may be relevant to the exercise of its regulatory functions.(2) The CMA must, following consultation under subsection (1), undertake a regulatory function analysis and make recommendations regarding the following additional questions—(a) whether action should be taken by the institution or others to materially affect competition in line with the CMA’s objectives, and(b) if so, what action should be taken.(3) The institutions named in subsection (1) may make a recommendation or other requests to the CMA where they consider that the CMA may exercise a regulatory function.(4) A recommendation or other request under subsection (3) must be accompanied by a statement of reasons which sets out the rationale and any substantial legal or evidential questions identified by the institution for consideration by the CMA.(5) In this section, a material effect on competition is deemed to include a significant impact on the creation, displacement or alteration in the conditions or quality of work and environment for work in the United Kingdom.”Member’s explanatory statement
This amendment enables cooperation between the CMA and work and labour market regulators.

[Lord Knight of Weymouth (Lab)]

My Lords, this group contains a range of amendments on competition reforms. They are fairly wide-ranging and I will leave it to the proposers of the other amendments to summarise them.

Amendment 73A, in my name and the names of the noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Kidron, returns us to an issue that we debated last Monday and on which the noble Lord, Lord Clement-Jones, moved an amendment. It is the issue of good work and the CMA. I apologise for returning to the issue, but that was stimulated by the Minister, the noble Viscount, Lord Camrose, saying that

“the CMA may identify actions that other regulators or public bodies would be better placed to act upon. This may include the DMU referring issues such as workplace conditions to a relevant regulator”.—[Official Report, 22/1/24; col. GC 132.]

I reflected on it and thought that there may be some merit in seeing whether or not we can empower it in the Bill. Subsequent reading and events have reinforced that view. The purpose of these amendments is to promote cross regulator co-operation and information sharing.

Our current approach to regulation rests on domain or sector-specific action, which demands a high level of co-operation and co-ordination. This means sharing information and knowledge, as well as technical and non-technical skills and resources, exactly as was publicly requested by the director of labour market enforcement, Margaret Beels, in her letter of April 2023, to the BEIS Committee in the other place, on AI and the labour market. I remind the Committee that the director of labour market enforcement is effectively an arm’s-length body of the Minister’s department. Her letter said:

“There is a need for cross-cutting collaboration with regulation in this space … There is no vehicle or champion for doing this”


at present.

17:15

The CMA and the DRCF openly recognise regulatory gaps as part of the reason for the new powers in the Bill, enabling a proactive, agile and investigative approach. The DRCF says that

“there are many gaps in our knowledge of this technology, with myths and misconceptions commonplace”.

Sarah Cardell, the CEO of the CMA, highlighted the importance of information sharing as the CMA was learning about labour markets, and she added it to her list of priorities in a speech she made just last week. She talked about the

“robust body of evidence to support the benefits of well-functioning labour markets, widely recognised as an important driver of economic growth. Where labour markets work well, workers are able to access the right jobs for them, and firms can find the workers they need in the easiest, most efficient way … It is therefore in the shared interests of workers, firms and governments to ensure that the labour market works well for everyone. However, we also know that frictions will always exist in the labour market. David Card, Nobel Prize winner in 2021 for his work on labour markets, has said that ‘the time has come to recognise that many—or even most—firms have some wage-setting power’”.

So the head of the CMA said, just last week, that it is concerned about work and labour market issues in its competition regulatory responsibility. The CMA is currently also focusing on anti-competitive practice and investigating specific potentially exploitative practice in broadcasting, regarding the use of freelance contracts, and in no-poaching agreements in the fragrances industry—clearly labour market issues.

Recent DRCF reports on algorithmic systems cite the example of a recruitment aptitude test automatically rejecting job applicants. This is AI impacting on the labour market. Now, new digital markets, functions, practices and mechanisms for impact and combinations are emerging. They require a multisectoral, multiregulatory and multidisciplinary approach to integrate them. So the CMA will need to go beyond the narrow focus on anti-competitive clauses as soon as possible if it is to do the very job that it wants to do. We need to set things up so that the CMA can respond, with the co-operation of other regulators, to new ways in which the markets are shaped and competition is affected, especially when we know that these models are increasing huge information asymmetries between the giant and the regulator, the consumer and the Government.

This amendment seeks to enable co-operation regarding information sharing and investigations with labour market regulators. It encourages new levels of integration by inviting everyone to think harder about new impacts and mechanisms to obtain and pull together evidence from different sources. It invites attention to regulatory gaps that we know exist in the workplace arena. It draws from Section 134 of the Enterprise Act, which allows the CMA to give recommendations, and it allows smaller regulators, such as Margaret Beels, whom I mentioned earlier, to ask things of the CMA. In addition, the Government and the CMA are invited to enhance mechanisms for academics and civil society to contribute, as we all learn about the nature and extent of fast-changing digital markets.

These are modest amendments, and I ask that the CMA and the DRCF can engage with other regulators, as they now say they want to. If the Minister or his ministerial colleagues do not think that we have got the wording right but want to work with me to find a different way of achieving the same effect, I am of course happy to meet with him to discuss the best way forward. But, for now, I beg to move.

[Baroness Kidron (CB)]

The noble Lord, Lord Knight, has said so much of my speech that I will be very rapid. There are two points to make here. One is that regulatory co-operation is a theme in every digital Bill. We spent a long time on it during the passage of the Online Safety Act, we will do it again in the Data Protection and Digital Information Bill, and here it is again. As the noble Lord, Lord Knight, said, if the wording or the approach is not right, that does not matter, but any move to bring regulators together is a good thing.

The second point, which may come up again in amendments in a later group that looks at citizens, is that it is increasingly hard to understand what a user, a worker or a citizen is in this complicated digital system. As digital companies have both responsibilities and powers across these different themes, it is important, as I argued last week, to ensure that workers are not forgotten in this picture.

[Baroness Harding of Winscombe (Con)]

My Lords, it is with great trepidation that I rise to speak to these amendments because, I think for the first time in my brief parliamentary career, I am not complete ad idem with the noble Lord, Lord Knight, and the noble Baroness, Lady Kidron, on digital issues where normally we work together. I hope they will forgive me for not having shared some of my concerns with them in advance.

I kicked myself for not saying this last week, so I am extremely grateful that they have brought the issue back this week for a second run round. My slight concern is that history is littered with countries trying to stop innovation, whether we go back to the Elizabethans trying to stop looms for hand knitters or to German boatmen sinking the first steamboat as it went down the Rhine. We must be very careful that in the Bill we do not encourage the CMA to act in such a way that it stops the rude competition that will drive the innovation that will lead to growth and technology. I do not for a moment think that the noble Lord or the noble Baroness think that, but we have to be very cautious about it.

We also learn from history that innovation does not affect or benefit everybody equally. As we go through this enormous technology transformation, it is important that as a society we support people who do not necessarily immediately benefit or who might be considerably worse off, but I do not think that responsibility should lie with the CMA. Last week, the noble Lord, Lord Knight, challenged with, “If not in this Bill, where?” and I feel similarly about this amendment. It is right that we want regulators to co-operate more, but it is important that our regulators have very clear accountabilities. Having been a member of the Court of the Bank of England for eight years in my past life, I hate the fact that there are so many that the Bank of England must take note of in its responsibilities. We have to be very careful that we do not create a regime for the CMA whereby it has to take note of a whole set of issues that are really the broad responsibility of government. Where I come back into alignment with the noble Lord, Lord Knight, is that I think it is important that the Government address those issues, just probably not in this Bill.

[Lord Ranger of Northwood (Con)]

My Lords, I rise with an equal amount of trepidation to the noble Baroness, Lady Harding. I am a new Peer in the House with a background in the technology industry and the delivery of digital services. Although we are talking about market competition, we are straying into a complex conversation around labour markets and digital skills—the fundamental, No. 1 topic that drives a lot of thinking in digital organisations. I refer noble Lords to my register of interests.

The complex nature of a global digital skills market is the one thing that is challenging all digital businesses at this point in their ability to deliver and drive innovation. It is so competitive; in fact, the hyper-competitiveness is driving the inability to deliver. People are cannibalising other organisations. The agility and speed at which the market is moving, the hyperinflation in pricing, the investments that people are trying to make—indeed, that international businesses are trying to make globally—and the length and longevity of those investments’ value are becoming increasingly challenging. Therefore, the CMA intervening and having some influence will be challenging. We will have to think hard about how to enable understanding; about the speed at which the market is moving; about where this kind of activity would take place; and about how it would operate, understanding the global size and scale of this challenge.

I view this market with some concern but also with some excitement because of its ongoing development. One thing that I have seen is the move from triage, where outsourcing and moving to international markets for labour skills in digital was a trend, to the emerging nearshore and onshore trend of looking at bringing more skills into local geographies. Why do I say that? I say it because of the speed of the change in the market. If we try to regulate and legislate for that speed, it will be extremely challenging.

Humbly, that is the point I wanted to make at this stage of the debate.

[Lord Tyrie (Non-Afl)]

I have tabled a couple of amendments in this group. One concerns cost recovery for mergers while the other is about the need to review whistleblowing. This group is a proper mixed bag; it has all sorts of things in it.

Let me just say that I agree with what the noble Baroness, Lady Harding, said. We are at risk of “take note” and “have regard” confetti with respect to a number of our regulators. The problem is that they deflect attention away from their central function and make it much more difficult to hold regulators to account adequately; in fact, they make it virtually impossible for Select Committees to do their already difficult job. We will come on to discuss this later, but those two issues are more closely related than they might initially appear.

On cost recovery for mergers, it is important that we all know what is going on at the moment. When the CMA examines a merger, for example the Microsoft-Activision deal or the Sainsbury’s-Asda merger, the taxpayer subsidises a considerable part of the costs incurred by the regulator for that investigation. I cannot think of a good reason why the scrutiny and approval of big-ticket mergers should be subsidised. However, there is—it is important for me to say this—a wide divergence of view and practice on this, both domestically and internationally. I discussed this issue over many years with a number of my counterparts when I was the chairman of the CMA, as well as internally within the CMA and with what I suppose one might call the competition community of lawyers, which is pretty large.

Some jurisdictions argue that merger control is an imposition on firms by government and that, therefore, the public sector should pay for all of it—at least, that is their starting position. Germany takes this position; it has something to do with its long history in the treatment of cartels and the creation of the Bundeskartellamt, but we do not need to go into that. The fact is that it is in its bloodstream to pay for this from general taxation. Others argue, like me—it varies from regime to regime—that this public service is a perfectly reasonable, chargeable event. After all, anti-competitive practices, which many mergers might facilitate, are a cost to the economy and welfare.

In 2011, the Government looked at all this in the White Paper that led to the creation of the CMA, when they put together the Competition Commission and OFT. As a result of that White Paper, the Government compromised between the wide variety of views and increased cost recovery for mergers as a whole—that is, the whole task of scrutinising mergers—from 50% to 60%. It is important to bear in mind that, in deciding what to do on merger fees, firms seeking approval for their mergers pay consultants huge sums and that the cost of the CMA scrutinising it is a residual in their calculations. Indeed, it would be a residual of a residual, because these numbers are so very large.

17:30

I am firmly in the camp that the merger regime as a whole should be subject to full cost recovery, and I am even more of that view now that we are facing a decade or so of deep financial stringency. Nor do I see any objection, in principle, to big-ticket mergers cross-subsidising the small ones. The Government already accept that in principle, although it is not fully explained. There is a significant cross-subsidy built into the banding structure for partial cost recovery—that is the 50% or 60% that is already in place.

It is absolutely crucial that we also bear in mind that the CMA is in new territory with respect to merger scrutiny as a result of Brexit. It is now handling directly these really big mergers that used to be hived off to Brussels. At the very least, there is a strong case for introducing another band at the top end or making some further adjustment to the rates—there have been some recent adjustments. It would be relatively straightforward, in my view, to devise quite a number of full cost recovery schemes—I am sure that we could all do so on the back of an envelope here. They might be less complex than the one we have in place and, at the same time, retain an element of cross-subsidy. In other words, this is not such a complex and difficult task.

There are a few other points in favour of what I am proposing. Doing so would bring mergers more closely in line with recent practice in other areas of regulation. For example, the independent review that led to the recent Building Safety Act 2022 recommended that the regulator be funded on the basis of full cost recovery for its work; that is now being implemented in regulations. Consents for nationally significant infrastructure projects are likely to be similarly treated. The Government have already announced that the Planning Inspectorate will be expected to move towards full cost recovery. In last year’s Autumn Statement, the Chancellor clarified that he intends to allow local authorities to recover the full cost of major business applications for planning. Of course, each case is different and the last case that I have cited enables local authorities to retain their fees, creating some moral hazard in my view. It is worth pointing out that, in the merger control fee area in the UK, the fees go back to the Treasury—back to the Consolidated Fund—not to the CMA.

Of course, my proposed new clause is only for debate. Incidentally, “him” should read “him or her”. I can already think of a number of ways in which it could benefit from quite a bit of improvement. The point I want to get across, however, is that the Government should think carefully about doing this. In any case, they will want to consult and, while they are consulting, they might want to look at whether more cost recovery could be obtained from those who are found to have infringed competition law after anti-trust investigations; likewise, the cost of services provided by the CAT, which we have just discussed in another context. Whatever we do on the last two—it may be nothing at all—given the scale of the mergers that the CMA will now be dealing with, and given the financial stringency we are likely to see over the next decade, there is a very strong case for moving from the current 60% to 100% recovery for merger costs. Perhaps that can be achieved in stages. I hope that, at the very least, the Government will agree to consider consultation on that proposal.

While I am on my feet, I shall say a few words about a proposal I have for a review of whistleblowing. When it comes to anti-trust, the case for doing everything reasonably possible to help whistleblowers is overwhelming. In the UK, we are not doing remotely enough to help them. In the vast majority of anti-trust cases, it is partly or wholly from whistleblowers that the CMA is likely to find out enough to bring a case. Often the only people who are likely to know what is going on in such cases are at the top or very close to the top of the business, but the problem is that they are the very people who have most to lose by blowing the whistle. They stand to lose everything. They are likely to lose their job and the likelihood of finding work elsewhere. Their standing in the business community in which they have built a career over a lifetime will be shredded. Even their friendships will be destroyed by taking such action. So I think the case is overwhelming that successful whistleblowers should be fully compensated for the huge stress and dislocation to their lives that is likely to be caused.

However, in the UK, the mechanism for compensating them is deficient. It is a major reason why successful cartel and anti-trust cases are relatively few and far between in the UK. I have read that over the past five years only 60 whistleblowing cases have even been investigated. To put it another way, there is a heap of malpractice out there that is not being picked up. When you talk to people in almost any market, if you get into what is going on in depth, you will often find a number of malpractices that might merit investigation. It is worth bearing in mind that successful cases, particularly if they are given public prominence, also have a huge beneficial deterrent effect. I think whistleblowers need strong incentives and better protection. At the moment, they have neither.

I think the Minister will reply in a moment that the cap on compensation has recently been raised from £100,000 to £250,000. However, consider for a moment somebody at the top of a business where millions are moving around. Is £250,000 for the loss of one’s career and one’s whole life prospects really an adequate sum of money? I do not think so. I think that number should be at least £1 million. In financial cases in the United States, successful whistleblowers get up to 10% of the huge fines imposed. The banking commission that I chaired about a decade ago looked carefully at whether to move to a similar system in the UK: that is, one based on a percentage of the fine. We thought very carefully about it and had very long discussions about it, and there were some initial differences of view among commission members. For reasons I will not go into now, we concluded that a direct percentage of the fine method, which should, in principle, be applicable also to cartels, was not suitable for the UK and UK financial services.

At that time, I was confident that that decision was right. Now, I am not so sure. My instinct is that we should go for substantial increases. It is worth bearing in mind that, almost at the same time that the Government increased compensation from £100,000 to £250,000, the Securities and Exchange Commission of the United States paid out $279 million to a single whistleblower. That brought some deterrence and some incentive to report serious malpractice.

One technical problem—I am sorry to delay the Committee by making these points, but this is the only opportunity to make them—is that the CMA pays the compensation to whistleblowers out of its budget, so it does not have much of an incentive to go hunting for whistleblowers. That is not a logical arrangement—unless it has recently been changed. If it has, I would be glad to hear of that. A much more logical position would be for the CMA to be empowered to pay a much larger compensation and for the Treasury subsequently to reimburse the CMA fully.

As I said in 2019, if higher compensation is made available, it is likely that much larger amounts and fines will be returned to the Treasury and its Consolidated Fund. The Treasury should have an incentive here to press for this, but, as with a number of other issues in recent years, it does not seem to be on the case here, despite its desperation to find sources of money and revenue.

I very much hope that we will hear from the Minister that we will reopen the whistleblowing case and not rest on what was done last June, and that he will reflect a good deal on the scope for improving anti-trust and cartel scrutiny in the UK by making whistleblowing more straightforward.

[Lord Clement-Jones (LD)]

My Lords, I support Amendment 73A in the name of the noble Lord, Lord Knight, and will speak to a number of the other amendments in the group.

The noble Lord, Lord Tyrie, made a very interesting and attractive case for both his amendments. On Amendment 93A, the whistleblower review amendment, I was particularly struck by him saying that the budget for compensation for whistleblowers comes from within the CMA’s budget. That seems to be an extraordinary set of circumstances. In the case of both amendments, he clearly spoke from a huge amount of experience, and he has obviously been thinking about these areas for improvement for some considerable time. I very much look forward to hearing what the Minister has to say in response, because the noble Lord, Lord Tyrie, made an extremely good case from the point of view of someone who has been inside the system and is well informed about the issues.

On the full cost recovery for mergers, one of the perennial issues that we come across when talking about regulators is the question of resources. Anything that assists them in not having to cheese-pare in the way they regulate is extremely welcome, particularly when this kind of solution can be so easily put into effect.

On the amendment tabled by the noble Lord, Lord Knight—and on what the noble Baroness, Lady Harding, and the noble Lord, Lord Ranger, said—I do not think we are very far part. A lot of this is making sure that, where something does not fall within the remit of a particular regular, that regulator can co-operate with other regulators and exchange information to make sure that the other regulators, in whose province a particular issue is located, can then take appropriate account.

What the noble Lord, Lord Ranger, said amounted to almost a generic speech about how you regulate the digital sector or digital services. I do not disagree with him, but I would perhaps be slightly more robust in thinking that regulation is not the enemy of innovation. Sometimes, regulation can be the friend of innovation, because it creates a certainty in the context in which people are developing new technology.

17:45

I do not think we are far off in terms of the way we see the role of the CMA. When we last talked about this in Grand Committee, the noble Viscount, Lord Camrose, seemed to imply that work and workers were not really the CMA’s concern. But as the noble Lord, Lord Knight, said, if you look at what the CMA is doing, it recognises the importance of workers’ rights relative to competition. He quoted the speech last week from the CMA’s CEO Sarah Cardell, announcing the research from its new microeconomics unit, Competition and Market Power in UK Labour Markets. We are not talking about something completely outwith the CMA’s concerns; this is mainstream for the CMA.

Of course, there have been cases to show that the market power of the five digital multinationals—GAMMA—enables them to suppress input costs in supply chains as well as suppressing wages. As far back as 2015, Apple and Google settled a Silicon Valley poaching lawsuit for $415 million. Four of Silicon Valley’s largest tech firms agreed to pay that amount to a number of former employees who, in an anti-trust class action lawsuit, claimed that the companies restricted them from changing jobs. This is directly related to competition.

I very much support the purpose of these amendments, which is to promote cross-regulator co-operation and information sharing and highlight the growing importance of the future of work to competition—both for its own sake and because consumer interactions and interests can extend to the creation and protection of local good jobs, as well as access to them. The CMA should be empowered and encouraged to extend its narrow focus on cartels and non-compete clauses.

Indeed, we are pushing at an open door in that respect, particularly in digital markets. The co-operation aspect is also the purpose of the DRCF. The statement of ambition in its terms of reference states:

“The DRCF aims to support cooperation and coordination between member regulators on digital regulatory matters”.

That is made explicit in Amendment 73A, in the name of the noble Lord, Lord Knight.

New digital markets are emerging, and they require a multisectoral, multiregulator and multidisciplinary approach by the regulator. We need to set things up so that the CMA can respond, with the co-operation of other regulators, to new ways in which markets are shaped and competition is affected, especially when we know and have talked about information asymmetries. We know that these models are increasing the huge information asymmetries between the big tech companies and the regulator, the consumer and governments. We strongly support this amendment.

Regarding my Amendment 93, the Bill recognises that profound changes in digital technologies require increased powers for the CMA to intervene in markets in

“the collective interests of consumers”,

as it says in Clause 147. The Enterprise Act 2002 recognises that media mergers involving newspapers and broadcasting give rise to additional public interest issues: the accuracy of news, freedom of expression and plurality of news. These are set out in Section 58. Under Section 52, the Secretary of State can issue an intervention notice. Such a process is under way as we speak in respect of the ownership of the Daily Telegraph.

In our recent debates on the Online Safety Bill, now an Act, we set great store in the importance of freedom of expression in digital media. In the context of competition in the media, we believe that the protection of the public interest needs bringing up to date, alongside the collective consumer interest. Digital media now plays a significant role in the national discourse, for good or ill, and public interest considerations could emerge from permutations of takeovers or mergers. As I said, under Section 58 the Secretary of State can already assess takeovers of newspapers and broadcasters by parties that might include social media platforms and search engines. We know that social media and search engines in many market segments are critical for customers in finding news media and, indeed, for journalists as they write.

This amendment therefore adds

“The need for free expression of opinion and plurality of ownership of media enterprises in user to user and search services”

to the existing public interest considerations that the Secretary of State can take into account. Media enterprises are defined as

“newspapers … broadcasters, and … providers of video on demand and audio on demand”.

The Secretary of State will be able to assess public interest issues when newspapers, broadcasters and video or audio platforms might buy social media platforms and search engines. This is a new provision, which would amend the Enterprise Act and increase symmetry in these media mergers. I very much hope that the Minister will give it careful consideration as we go forward through the House with the Bill.

[Lord Leong (Lab)]

My Lords, I thank all noble Lords who have contributed to this debate. I will refer first to Amendment 73A, which my noble friend Lord Knight of Weymouth set out so succinctly. Let us remind ourselves that the digital regulation co-operation forum, the DRCF, was founded by the CMA, the Information Commissioner’s Office and the Office of Communications—Ofcom. The FCA subsequently joined as a full member the following year. As mentioned by the noble Lord, Lord Clement-Jones, the purpose of the DRCF is to ensure coherent, informed and responsive regulation of the UK digital economy. When this is achieved, we can serve citizens and consumers better, reduce regulatory burdens for industry where appropriate and enhance the global impact and position of the UK.

The noble Baroness, Lady Kidron, and my noble friend Lord Knight have said that workers are really important in the competition space. The noble Baroness reminded us that workers are also users and citizens; they should be involved in any regulation. Having conversations with them would make a better competitive environment.

The noble Baroness, Lady Harding, and the noble Lord, Lord Ranger of Northwood, cautioned us that we should not allow regulators to stifle innovation. We really need to let innovators do their thing and the old saying “Do not kill the goose that laid the golden egg” is so true in this respect. We need to ensure that the right framework is in place so that the regulators are not overburdened with too much regulation that would stifle innovation, so we really support Amendment 73A. It would empower the CMA to co-operate with other government bodies which may have the power to obtain information relevant to its regulatory functions.

I refer now to Amendment 93A, tabled by the former chair of the CMA, the noble Lord, Lord Tyrie, who has a deep understanding of the relevant issues in this area. Whistleblowers with insider knowledge who provide assistance to the CMA can be a powerful tool in helping to uncover cartels and other anticompetitive practices more swiftly than might otherwise be possible. Since cartels often operate in secrecy, individuals or companies with insider or market knowledge can play a crucial role. They can bring issues to the CMA’s attention or gather information that will allow it to start an investigation.

The primary legal protection for whistleblowers in such situations comes from the Public Interest Disclosure Act—PIDA—which won praise when it was first introduced in 1999. More recently, it has been criticised for not protecting the majority of whistleblowers from suffering retaliation with little or no legal recourse. In January 2023, the Minister for Security said that

“what the country needs is an office for whistleblowers, and what we need to do is ensure that we have the updates to the legislation”.—[Official Report, Commons, 25/1/23; col. 1094.]

Can the Minister update your Lordships’ House on whether any primary legislation to that effect is forthcoming?

[Lord Offord of Garvel (Con)]

Amendment 73A, tabled by the noble Lord, Lord Knight of Weymouth, would require the CMA to co-operate with regulators and bodies with responsibility for matters relating to employment and working conditions. I thank the noble Lord for his amendment, for raising the importance of regulatory co-ordination, and for once again highlighting the direct and indirect impacts of digital activities and competition policy on workers.

On the first day of Committee, a number of noble Lords argued that the CMA should take a wider view in considering impacts on work and work environments in its regulatory functions. The CMA can already consider these issues where they relate to competition. Indeed, although competition authorities in the past focused primarily on competition in product markets, we are seeing them take an increased and welcome interest in labour markets. The CMA’s annual plan sets out how it will prioritise investigating businesses engaging in anti-competitive labour market practices. It is already using its powers to take enforcement action against firms that break the law by fixing wages.

However, the amendment would go beyond the scope of the competition remit of the CMA, potentially creating new burdens and additional complexities. It would therefore detract from the aims of the UK competition regime, and it would be inappropriate for the CMA to assess impacts unrelated to competition, which is its area of expertise and jurisdiction.

The noble Lord, Lord Knight, mentioned the director of labour market enforcement, who is an independent public appointee with a statutory responsibility to prepare an annual strategy for Home Office and DBT Ministers, setting out their assessment of the scale and nature of non-compliance in the labour market. In this way, there is already an independent assessment of the labour market and enforcement, so this amendment could infringe or duplicate the director of labour market enforcement’s remit.

The noble Lord, Lord Clement-Jones, mentioned the report by the Competition and Market Authority’s microeconomics unit. This takes a deep dive into the trends in the UK labour market, focusing on the impact of competition and employer market power. Where labour market issues are relevant to competition, the CMA already looks at this.

On co-operation between regulators, I agree with the noble Lords, Lord Knight and Lord Leong, and the noble Baroness, Lady Kidron, that this is essential. Part 9 of the Enterprise Act facilitates exactly that. The CMA works closely with bodies, regulatory and otherwise, both when delivering its own regulatory functions and when supporting others in theirs.

I agree with my noble friend Lady Harding that we should not provide the CMA with additional roles and duties that risk undermining the careful balance between effective enforcement and preventing overenforcement and overregulation, which risk stifling innovation. It would further confuse the regulatory landscape to require the CMA to consider labour market issues in this way, beyond its remit and expertise. Nothing in legislation prevents the CMA and other regulators from co-operating on these important issues, subject to necessary information-sharing safeguards. We do not need to legislate to achieve this.

The DMU specifically will be required to consult the regulators whose remits have the most interaction with the digital markets regime. It can, and will, engage with other authorities, including labour market regulators, where appropriate.

I will touch briefly on regulatory functions analysis. While the CMA works closely with other regulators and authorities, it would not be appropriate for it to conduct an analysis of other regulators’ functions as a regulator itself. For these reasons, I hope the noble Lord will withdraw his amendment.

18:00

I turn now to full cost recovery for mergers. Amendment 92A in the name of the noble Lord, Lord Tyrie, would introduce a requirement for the Secretary of State to ensure full cost recovery for merger investigations. I thank the noble Lord for proposing this amendment, as well as for his considered and influential contributions to improving the UK’s competition regime more generally over a number of years.

The Government recognise that the rising number of cases and value of mergers reviewed by the CMA after the UK’s exit from the European Union mean that there may be merit in considering potential reforms to the current approach to merger fees, which could include cost recovery, as the noble Lord recommended in his letter to the Secretary of State for BEIS in 2019. As the noble Lord will be aware, the Enterprise Act provides a delegated power enabling the Secretary of State to amend merger fees, which would allow for full cost recovery if it were considered appropriate.

However, I also recognise that mergers are an important feature of dynamic markets. We need to be careful to ensure that any additional cost burdens do not unduly hinder businesses engaging in merger and acquisition activity that could ultimately boost productivity, growth, investment and jobs across the UK. Furthermore, as annual merger costs vary depending on the number and size of the mergers reviewed each year, it is not clear how to design a fee structure that is fair to smaller businesses but can guarantee the full cost recovery required by the amendment.

I understand the noble Lord’s aims with this amendment, so I assure him that the Government stand ready to use the flexibility to bring forward changes to merger fees in secondary legislation, should it be needed.

[Lord Tyrie (Non-Afl)]

On this point, can the Minister say whether he supports the cross-subsidy that currently exists? Given the fact that a lot of mergers of a very large size will be coming through, as he has pointed out, does he think that a logical way of dealing with the problem to which he has alluded—that of the small dynamic mergers that do not want to be discouraged by excusive scrutiny costs—would be to extend that cross-subsidy?

[Lord Offord of Garvel (Con)]

The noble Lord will know that, on the current pie chart of activity undertaken by the CMA, 80% is for mergers with companies with a turnover north of £100 million, while 20% of it is for companies with turnovers below that. The 80:20 rule always works in life, so there is obviously scope to charge the larger companies more if that is the decision taken. I refer to the reassurance given that this can be amended in secondary legislation if that is deemed appropriate.

Let me move on to media merger public interest interventions. Amendment 93 in the name of the noble Lord, Lord Clement-Jones, would expand the list of public interest grounds for the Secretary of State to intervene in a merger case to include the need for free expression of opinion and plurality of ownership of media enterprises in user-to-user and search services. I am grateful to the noble Lord for raising this issue. Media mergers are particularly sensitive, as they could have an impact on how the UK public access and consume information.

The Government are currently reviewing the recommendations on changes to the media public interest test in Ofcom’s 2021 statement on media plurality. Ofcom did not recommend that online intermediaries or video and audio on-demand services should fall within the scope of the media mergers regime, which this amendment would provide for. We are considering Ofcom’s recommendations carefully and, as we do that, we will look closely at the wider implications on the industry. The Government have not proposed pursuing substantive changes to the grounds for public interest interventions in mergers in this Bill. The changes recommended in Ofcom’s review can be addressed directly via secondary legislation under the made affirmative procedure, if appropriate.

For these reasons, I hope that the noble Lord opposite will not press this amendment.

[Lord Clement-Jones (LD)]

What is the timescale within which all this will be decided?

[Lord Offord of Garvel (Con)]

I do not have a detailed timetable. I understand this is being looked at currently. I am happy to confirm in writing when we have a detailed timetable.

I move now to Amendment 93A and protection for whistleblowers. I again thank the noble Lord, Lord Tyrie, for his informed contribution to the scrutiny of this Bill. I also thank the noble Lords, Lord Clement-Jones and Lord Leong, for their contributions on this topic. Amendment 93A would introduce a new requirement for the CMA to carry out a review of protections and support available for whistleblowers under the UK’s competition and consumer law.

The noble Lord will know that the Government consulted on the important issue of incentives and protections for whistleblowers in the competition regime. However, no clear evidence or support was put forward by respondents that would support making changes to the existing framework. Therefore, the Government do not propose to introduce reforms to whistleblowing protections. In taking this decision, we also considered that the courts can already give due weight to the importance of anonymous whistleblowing in competition law enforcement. This could, for example, justify a court restricting how the identity of a whistleblower is disclosed depending on the circumstances of the case.

As the noble Lord mentioned, in 2023 the CMA increased the compensation cap for informants in cartel cases from £100,000 to £250,000. This will support the CMA to investigate effectively and, where appropriate, enforce against criminal cartels, which can cause serious harm to consumers and businesses within the UK.

Any whistleblower worker who faces victimisation in the UK can also seek additional compensation from their employer in an employment rights tribunal. This compensation can be awarded uncapped and can reflect the costs of some whistleblowers being unable to work in their chosen profession again.

The Government, therefore, have not proposed reforms to the compensation for whistleblowers in the Bill. However, I stress that we recognise the importance of whistleblowing in uncovering wrongdoing and will continue to ensure whistleblowers are not discouraged from coming forward under the current framework.

At this time, we do not think that a review in the form that the noble Lord’s amendment calls for would be merited, nor that it would be appropriate to place a new and binding obligation on the CMA requiring it to conduct such a review within a specific timeframe. For these reasons, I hope that the noble Lord does not push this amendment.

[Lord Leong (Lab)]

Can the Minister share whether there is any update on the office for whistleblowers, as mentioned by the Secretary of State?

[Lord Offord of Garvel (Con)]

I need to write to the noble Lord on that.

I now speak briefly to the government amendments in this group, all of which are minor and technical in nature. First, Amendments 90, 91 and 92 ensure that extensions to the statutory deadlines for phase 2 merger investigations under the new fast track procedure for mergers operate correctly within the existing legal framework for deadline extensions under the Enterprise Act 2002.

Secondly, government Amendments 94, 95, 97, 98, 99, 100 and 102, will clarify that, in the civil penalty provisions introduced and amended by Schedules 9 and 10 to the Bill, references to maximum amounts of daily penalties are maximums per day and not in total.

Thirdly, Amendments 96 and 101 update cross-references in Section 120 of the Enterprise Act 2002, so that decisions made under the civil penalty provisions in Part 3 of that Act, as amended by the Bill, are carved out from that provision. Section 120 allows persons to seek a review of a CMA decision in the CAT on judicial review principles. Such a review is not required because penalty decisions are appealable on a merits basis.

Fourthly, Amendment 103 makes the equivalent amendment to Section 179 in relation to civil penalty decisions made under Part 4 of the Enterprise Act.

Finally, Amendments 104 and 105 have been introduced to take account of an amendment made by the Energy Act 2023 to Section 124(5) of the Enterprise Act 2002, which is also amended by the Bill.

I hope noble Lords will support these government amendments.

[Lord Knight of Weymouth (Lab)]

My Lords, we have had a useful debate. I was very much persuaded by the noble Lord, Lord Tyrie—far more so than the Minister was—and I thought that the noble Lord, Lord Clement-Jones, made some useful points around asymmetry in respect of search and media.

I am very grateful to all noble Lords who responded to my amendments. I kind of feel that my friend, the noble Baroness, Lady Harding, and the noble Lord, Lord Ranger, were in many ways responding to last week’s debate—I think as the noble Baroness admitted. It is perfectly possible to argue that it is an encumbrance to extend the remit as we were arguing last week; that is a perfectly reasonable position. Indeed, just yesterday in the Observer, I read Torsten Bell from the Resolution Foundation responding to the CMA chief executive’s speech around the labour market and competition, saying that this is not a case for minimum labour standards nor a case for extending regulatory reach. They have friends in all sorts of places.

The EU announced a fine of £27 million against Amazon for oversurveillance of workers. These are real problems, and there is a regulatory gap that would be best addressed, I am sure, by having a single powerful labour market regulator. At the moment, we have a multiplicity of relatively weak regulators. That might solve some of the regulatory gap problem.

The debate this week was much more about collaboration between regulators. I feel that the Minister failed to really address and respond to the point. He might want to follow up by having a meeting just to sort out whether, in essence, Margaret Beels, the director of labour market enforcement, is wrong. In her letter to the BEIS Select Committee on 6 April 2023, under the bullet point on regulation, she said that:

“There is a need for cross-cutting collaboration with regulation in this space to bring different aspects together both within the UK and across the international playing field. There is also a need to learn from each other. There is no vehicle or champion for doing this”.


If the Minister had been listening, I said that earlier. He performs his notes brilliantly, but one of these regulators is saying that there is “no vehicle or champion” for regulatory co-operation in respect of AI. We need to fill that regulatory gap, and this Bill is an opportunity for us to do so. It is urgent because of the exploitation of some workers. We need to get on with it and I hope that, as this Bill proceeds, we find an opportunity to do so. I would be delighted to do so in collaboration and co-operation with the Government Front Bench.

On that basis, I beg leave to withdraw my amendment.

Amendment 73A withdrawn.

Clause 110: Power to charge levy

Amendments 74 and 75

Moved by

[Lord Offord of Garvel]

74: Clause 110, page 69, line 10, after “administration” insert “and payment”
Member's explanatory statement
This amendment clarifies that the levy rules must include provision about how the levy is to be paid.

75: Clause 110, page 69, line 10, at end insert—
“(4A) The levy rules may make provision for interest to be charged, at the rate specified for the time being in section 17 of the Judgments Act 1838, on any amount of levy not paid by the date on which it is due.(4B) References in subsection (4) to an amount payable by an undertaking do not include interest charged in accordance with provision made under subsection (4A).(4C) The CMA must pay any amount that it receives in accordance with provision made under subsection (4A) into the Consolidated Fund.”Member's explanatory statement
This amendment makes provision about the charging of interest on amounts of levy that are not paid by the due date.

Amendments 74 and 75 agreed.

Clause 110, as amended, agreed.

Clauses 111 to 113 agreed.

Clause 114: Guidance

Amendment 76

Moved by

[Viscount Colville of Culross]

76: Clause 114, page 70, line 37, leave out paragraph (b)
Member's explanatory statement
This amendment removes the requirement for the CMA to obtain approval from the Secretary of State before publishing its guidance outlining how it will exercise its functions.

[Viscount Colville of Culross (CB)]

My Lords, I have asked for my Amendment 76 to Clause 114 to be decoupled, because I think it goes to the centre of the operation of Part 1 and I want noble Lords to focus on debating the issues raised by this clause as it stands. I also thank the noble Baroness, Lady Jones of Whitchurch, and the noble Lords, Lord Black and Lord Holmes, for putting their names to this amendment. I am glad that Amendment 77 in the name of the noble Baroness, Lady Stowell, is also in this group; I support its aims. Clause 114 seems to be a small section hidden away on page 70 of the Bill, yet the guidance process that it outlines is fundamental to the operation of the regime set out in Part 1 of the Bill.

This is a high-level Bill, which leaves a lot of fine-tuning and detail to the CMA. It will be the first part of the process to become operational after Royal Assent has been granted. Without these guidelines, the CMA will not be able to start its urgently needed investigations into the activities of large tech companies and their domination of many digital markets.

18:15

Clause 114(1) states that:

“The CMA must publish guidance”,

which means that its publication is mandatory for the process to begin, yet it is with this clause that the Government have granted the Secretary of State huge powers. They have the power to approve or veto these guidelines and to do so without any time limit. This is more egregious than the other Secretary of State powers that I brought to your Lordships’ attention in Amendment 7 regarding the SMS designation regime and Amendment 32 regarding the CR permitted criteria. At least, in those instances, the Henry VIII powers were to be examined by Parliament via affirmative procedure. However, the powers in Clause 114(4)(b) are given to Ministers with no accountability. There is no power for anybody, including Parliament, to check their decisions.

The Bill is aimed at only four companies, yet their range of activities is so varied that CMA investigations will need detailed fine-tuning. The powers of the guidance given through this clause will be threaded through the whole Part 1 process. It will determine whether a firm has strategic significance, thus allowing it to be designated as an SMS firm; it will also set out how individual digital activities will be identified, as requirements placed on firms will be applied to specific activities, rather than to a whole SMS firm.

The guidance will also set out the DMU’s approach to imposing and monitoring the conduct requirements that we have placed on the SMS firms’ digital activities. It will also set out how the DMU will conduct assessments of adverse effects on competition that will require pro-competitive interventions, and how it will determine what interventions are required. Finally, the guidance will set out the DMU’s approach to enforcement, including its powers to fine companies up to 10% of annual turnover. On the first day of Committee, we spent time debating the criteria of SMS designations and CR conducts, but so much of that will depend on the decisions included in the guidance issued.

I do not understand why subsection 4(b) needs to be included. I am assured by the CMA that the Government will be working very closely with it on the formation of the guidance powers. The CMA will have its say and chance to influence the guidelines at every point in the process that I have just outlined. Despite this involvement, their publication could still be thwarted by the Secretary of State playing ping-pong with the CMA and not approving the guidance. There is no limit to how many times the guidance can be sent back for reconsideration by the CMA or to when ping-pong should end.

Throughout the Bill’s passage through Parliament, the need for speed in its implementation has been emphasised time and again. The indicative timeline published by the CMA shows that it hopes to publish final guidance by October 2024. Can the Minister confirm whether he has a date in mind for the start of this process and how that timeline could slip if the Secretary of State fails to agree the guidelines? Subsection (2) also envisages that the guidance will be revised or replaced in response to the fast-changing digital market. This will provide repeated opportunities for the Minister to delay—or to continually get amended—new and maybe badly needed updated guidance.

The power granted to Ministers in Clause 114(4)(b) is a lobbyist’s charter; the Minister and the CMA will be dealing with the wealthiest and most powerful lobbyists in the world. In my speech on Amendment 7, I already warned noble Lords of the power of the tech companies to lobby politicians in the US: their lobbying was so effective that it stopped two important pieces of anti-trust legislation becoming law. Data from the US Senate Office of Public Records shows that, in 2022, Google’s parent company, Alphabet, spent $13 million in the US on direct lobbying or hiring lobbyists. That pales in comparison with the US Chamber of Commerce’s spend of $81 million, much of which was provided by the big tech companies—and that is before one investigates their campaign donations to politicians and spending on political action committees, which contribute so much campaign finance to individual candidates. Then there is the direct advertising spend of hundreds of millions of dollars.

The most powerful tech lobbying organisation is the CCIA, or the Computer and Communications Industry Association. Its members include Meta, X—formerly Twitter—and Alphabet, the parent company of Google. In the past year, it has spent hundreds of thousands of dollars lobbying politicians across the US on behalf of its members. They have us in their sights. The bad news is that the CCIA arrived in London last year—its first office outside Washington DC and Brussels. Many might say that the good news is that the London office is run by Liz Truss’s former economics adviser—I do not think that we can let our guard down on that account. It is already campaigning heavily against this Bill. Today, it published new research from a survey commissioned by Europe Economics, which found that the Bill will impose large costs on digital services and lead to British consumers receiving worse services. In apocalyptic terms, it warns that overly broad regulation could, over the next 10 years, leave consumers up to £160 billion worse off, and claims that there will be a loss in investment in digital services of 4% to 8% over the same period. The organisation has called for more amendments to the Bill to restrain the CMA and allow greater consideration of merits in appeals—an issue that worried many Members in today’s debate on the first group; notably, on how the merits appeal has been maintained for penalty appeals. This is just a warning shot across the bows of the CMA.

The Minister will, despite my determined arguments, claim that the powers are essential to allow the Bill to be nimble. I am glad, therefore, that Amendment 77 is also being considered; it is surely an answer to the Minister’s claim that this unchecked ministerial power is needed. The suggestion from the noble Baroness, Lady Stowell, of a parliamentary committee to consult and publish a report on revision to the guidance is a move that we, as parliamentarians, must applaud. I look forward to her speech on her amendment.

The whole point of this legislation is to create a level playing field between big tech and challenger companies. Subsection (4)(b), which was only added on Report in the other place, gives enormous and overmighty power to the Secretary of State to control, and possibly hinder, the whole rollout and updating of the CMA anti-competition process. It exposes the process to being watered down by the very companies it aims to rein in.

[Baroness Stowell of Beeston (Con)]

My Lords, I speak to my Amendment 77 in this group. I thank the noble Lords, Lord Tyrie and Lord Clement-Jones, and the noble Baroness, Lady Jones of Whitchurch, for adding their names to it.

I do not support what the Government did in the Commons, which the noble Viscount, Lord Colville, described and which his amendment seeks to overturn. However, I think that I understand why they did it, and I have some sympathy with their reasoning, if it is, as I assume, about increasing oversight of the CMA. Where I differ is that I do not believe that this is a job for the Secretary of State. In saying that, it is important to add that this is not just about a turf battle, for want of a better expression, between the Executive and Parliament. It is quite dangerous for the Secretary of State to position herself in this way, because she will become the subject of intense lobbying if she has the power to approve the CMA guidance on how Part 1 of the Bill will operate. That lobbying will be done in private—it could go on for weeks, as the noble Viscount said—and any change made as a result of that activity would be subject to massive rows, if not legal challenge. For me, nothing makes sense about the solution to the problem with which I have some sympathy.

As I have said on several occasions, the need for regulators to be independent can sometimes be over-argued. I very much believe that their regulatory decisions should be made independently without fear or favour or any kind of political interference. What I am most concerned about is that they must be accountable, even though they are independent. We are giving the CMA substantial new powers, so we must also ensure that we—Parliament—oversee its use of them properly.

I will come to parliamentary accountability and how we might improve on that in another amendment in my name, which relates to this group but is in another, for the reasons that the noble Viscount set out. But here, my Amendment 77 proposes that, instead of the Secretary of State approving the CMA guidance, the CMA must

“consult the relevant Parliamentary committees … and publish its response to any recommendations”

made by the committee at the same time that it publishes the final version of its guidance. That approach would ensure oversight of the guidance before it is implemented. It would also make sure that there is scrutiny of the CMA, that the CMA is properly accountable to Parliament and that any debate about the guidance happens in the open and not behind closed doors.

I am pleased to say that I have received widespread support for my proposal from many stakeholders and trade bodies, from all angles. I am not exaggerating when I say that what is proposed by way of Amendment 77 serves everyone’s needs and shared objectives, whether that is big tech, challenger tech, Parliament or the Government. I am grateful to my noble friends—both the Ministers—for our meeting to discuss this matter, which we had a couple of weeks ago. When my noble friend comes to respond—having already, I hope, discussed my amendment with colleagues in Whitehall—I hope he is able to express some support for what is proposed here. This is an important amendment to the Bill and I hope very much that he, speaking for the Government, feels able to accept it and make it their own.

[Lord Black of Brentwood (Con)]

My Lords, I want to support Amendment 76, to which I have added my name, with some brief remarks because the noble Viscount, Lord Colville, has put the case with great power and eloquence. I also support Amendment 77 in the name of my noble friend Lady Stowell, which is a clever solution to the issue of accountability.

I support Amendment 76 in particular, both because I do not believe the requirement is necessary and because—this is a consistent theme in our Committee debates—it builds into the legislation a completely avoidable delay and poses a very real threat to the rapid enforcement of it. Quite apart from the issues of principle, which are significant, this is also intensely practical. The CMA’s guidance on the Bill, published earlier this month, set out the expected timetable for the consultation phase on the Bill’s implementation, running through to October 2024, which could be a very busy month. It is almost certainly when we will have a general election or be in the midst of one.

It seems highly unlikely that the Secretary of State will be able to approve guidance during the purdah of an election campaign and if, after the election—whoever wins it—we have a new Secretary of State, there will inevitably be a further delay while he or she considers the guidance before approving it. The Bill therefore ought to be amended to remove the requirement for the Secretary of State’s approval, or, at the very least, set a strict timetable for it, such as the draft guidance being automatically approved after 30 days unless it is specifically rejected. That would ensure that there is not unnecessary delay, which could run into many months, before the new regime takes effect—especially if there is, as a number of noble Lords have made clear, intense lobbying of the Secretary of State behind the scenes.

[Baroness Kidron (CB)]

My Lords, I support both amendments in this group. This seems to be fundamentally a question of what happens in private and what happens in public. I was struck by the number of exchanges in the second day in Committee last week in which noble Lords raised the asymmetry of power between the regulator and the companies that may be designated SMS. The right reverend Prelate the Bishop of Manchester said,

“let us get this right so that Davids have a chance amid the Goliaths”.—[Official Report, 24/1/24; col. GC 230.]

18:30

When I read Hansard, having first read the letter from the Parliamentary Under-Secretary at the department to colleagues in the other place, quoted by the noble Lord, Lord Lansley, I felt there was a loud drum beat of what the Minister, the noble Viscount, Lord Camrose, called “participative arrangements”, in which the word “appropriate” is replaced by “proportionate” and the word “indispensable” vanishes from the definition of the countervailing benefits, in the name of balancing power between a powerful regulator and the SMS. These amendments go to that point: they say that we need Parliament to have the power to hold SMS firms to account and to not give a balancing power back to the very companies that we are trying to regulate. That seems absolutely fundamental. It is not the role of the regulated to hold the regulator to a fair interpretation of this task; it is the role of Parliament.

During the passage of the Online Safety Act, the Joint Committee on the draft Bill, chaired by Damian Collins MP, who was for a short time a Minister in the department, felt passionately that we should have a Standing Committee of both Houses to look at digital regulation in the round and keep regulators in its eye. I understand that the noble Baroness, Lady Stowell, is suggesting something much more modest than that on this occasion, but we keep coming back to this need to oversee powerful new regulation. In this case, for the reasons given by my noble friend Lord Colville, the noble Lord, Lord Black, and the noble Baroness, Lady Stowell, we have to find routes for transparency and a role for Parliament in this equation. Fundamentally, the last-minute amendments in the other place through which the Government are seeking a balance have upset the balance. They have upset what was a broadly welcomed Bill to give too much power to the regulated and not enough oversight to the regulator.

[Baroness Stowell of Beeston (Con)]

I urge the noble Baroness to stay for the debate on the next group of amendments, in which we will talk about parliamentary accountability. I think she will find that the committee I am proposing is perhaps not quite as modest as she has just described it.

[Baroness Kidron (CB)]

Indeed.

[Baroness Harding of Winscombe (Con)]

My Lords, I promise I will speak briefly to associate myself with the remarks of my noble friend Lady Stowell and support her Amendment 77 and Amendment 76 in the name of the noble Viscount, Lord Colville.

Despite the fact that there are fewer of us here than there have been in the debates on some of the other quite contentious issues, this is an extremely important amendment and a really important principle that we need to change in the Bill. To be honest, I thought that the power granted to the Secretary of State here was so egregious that it had to have been inserted as part of a cunning concession strategy to distract us from some of the other more subtle increases in powers that were included in the other place. It is extremely dangerous, both politically and technocratically, to put an individual Secretary of State in this position. I challenge any serious parliamentarian or politician to want to put themselves in that place, as my noble friend Lady Stowell said.

On its own, granting the Secretary of State this power will expose them to an enormous amount of lobbying; it is absolutely a lobbyist’s charter. This is about transparency, as the noble Baroness, Lady Kidron, said, and parliamentary scrutiny, which we will come to properly in our debate on the next group of amendments. However, it is also about reducing the risk of lobbying from the world’s most powerful institutions that are not Governments.

For those reasons, I have a slight concern. In supporting Amendment 77, I do not want the Government or my noble friend the Minister to think that establishing parliamentary scrutiny while maintaining the Secretary of State’s powers would be a happy compromise. It would be absolutely the wrong place for us to be. We need to remove the Secretary of State’s powers over guidance and establish better parliamentary scrutiny.

[Lord Clement-Jones (LD)]

My Lords, it has been very interesting to listen to noble Lords on this amendment. I am getting a strong sense of déjà vu from our debates on the then Online Safety Bill.

The noble Viscount, Lord Colville, made a devastating case for the deletion of the Secretary of State’s power, and the noble Baroness, Lady Stowell, made a superb case for the inclusion of parliamentary oversight over the guidance. The fact is that, just as we argued in our debates on the then Online Safety Bill, there is far too much power for the Secretary of State in this Bill. This example is the most egregious, but there are so many other aspects that one could argue with, and have argued with—the noble Viscount reminded us of his earlier amendments—such as the conditions for an undertaking to have an SMS designation; the turnover condition; the permitted types of conduct requirements; the period during which the DMU must decide which terms to include in the final transaction under the final offer mechanism; the amount of penalties imposed by the DMU on individual undertakings; and the DMU’s statement of policy on penalties. That is a heck of a lot of different powers for the Secretary of State and, as I say, power over guidance is the most egregious of them.

The way in which the noble Baroness, Lady Stowell, expressed this was exactly right. We will come on to parliamentary scrutiny in our debate on the next group, but the word “accountability” is crucial. Of course the regulator should be independent but, at the same time, it should be accountable. This is not just a licence to roam beyond the bounds; it is the right and duty of Parliament to have oversight of the regulator, which is exactly what this amendment would provide for. You have only to look at the draft that was put together of the Overview of the CMA’s Provisional Approach to Implement the New Digital Markets Competition Regime to see just how broad the Secretary of State’s powers over the way in which the CMA carries out its functions will be. That is why this is such an important amendment.

I very much hope that the Minister will hear our voices. This is a really important area of the Bill. As the Minister can see, it is something about which, having had the experience of the then Online Safety Bill, we feel very exercised.

[Lord Bassam of Brighton (Lab)]

My Lords, this is the beginning of an important couple of debates about accountability. The breadth and the import of what noble Lords have said so far underlines how much we value that. We on the Labour Benches are co-signatories to both amendments in this group—the first, Amendment 76 in the name of the noble Viscount, Lord Colville, and the second, led by the noble Baroness, Lady Stowell.

Put simply, if the CMA is to be a regulator genuinely independent of government and accountable to Parliament, these amendments should stand. As it is, the legislation seems to suggest that, before the CMA can take any initiative on guidance, it first has to receive the approval of the Secretary of State. This is surely not only a time-consuming process but a wholly inefficient way of conducting business. I can well understand and appreciate why the Government desire to understand how the CMA intends to implement its regulatory policy, but do they really require such a firm and strong hand in the process? As it is, the CMA will be in constant consultation, discussion and interaction with government Ministers, and I do not see why, in the final analysis, approval has to come from the Secretary of State.

Can the Minister tell us how the regulatory regime compares with others? Do regulators like the Charity Commission, Ofcom, Ofwat, the Electoral Commission et cetera all require approval from the Secretary of State before issuing guidance? How does this process contrast with these other regulators? Is there a standard practice, or does it vary across regulatory frameworks? We need something that will work for this particular part of our economy, and it has to be built on trust and understanding and not reliant on the heavy hand of the centre of government coming in and ruling things in or out of guidance which the experts, in the form of the CMA and the DMU, have reflected and consulted on.

We obviously support the amendment of the noble Baroness, Lady Stowell, which, as I said, we co-signed. Consulting the relevant parliamentary committees seems a wholly sensible solution and step. These committees are powerful entities, as we know, full of expertise and insight, and they provide a layer of accountability that Parliament rightly expects. After all, the CMA is a creature of Parliament and of legislation that we will put through this House.

I am sure there are plenty of examples of where legislation, particularly secondary legislation, has benefited from the input and oversight of Select Committees and other committees of both Houses. The points made about lobbying the Secretary of State were important and powerful. We need maximum transparency, and we need openness in this process; otherwise, suspicion will abound, and we will always have cynics who say that Secretaries of State are very much in the pockets of business and commercial interests. We do not want that in this legislation; we want something that works for the market, for the competitive interests in the digital world, and particularly for consumers.

Ministers would do well to listen carefully to what the noble Baroness, Lady Stowell, said. She is an experienced parliamentarian, but, more than that, she was the chair of a regulator, so she understands exactly the import of the pressure that can come from central government and how it can best be managed.

These amendments are important for us in order to secure accountability in this market and in the way in which the various institutions work and operate together. I happily lend my support to both of them.

[Viscount Camrose (Con)]

I start by thanking my noble friends Lord Black, Lady Harding and Lady Stowell, the noble Viscount, Lord Colville, the noble Baroness, Lady Kidron, and the noble Lords, Lord Clement-Jones and Lord Bassam, for their thoughtful and valuable contributions. I absolutely recognise the seriousness of this part of the debate and look forward to setting out the Government’s position on it. I will address each amendment in turn.

I thank the noble Viscount, Lord Colville, and my noble friend Lady Stowell of Beeston for highlighting the subject of accountability to government and Parliament. As I said, I am aware of the importance of the topic, and I welcome the chance to speak to it now. Amendment 76, from the noble Viscount, Lord Colville, would remove the requirement that the Secretary of State must approve guidance produced by the CMA in relation to the digital markets regime. Amendment 77, from my noble friend Lady Stowell of Beeston, would also have this effect. Additionally, Amendment 77 would add a requirement for the CMA to consult certain parliamentary committees about proposed guidance and publish responses to any committee recommendations.

18:45

The Bill will empower the CMA to make substantial interventions in strategically important markets. The CMA will be afforded significant discretion over its approach to supporting competition in digital markets. It is important that these far-reaching powers and discretion are matched with robust oversight. A range of mechanisms are used to hold the CMA to account for its actions, and it is right that both Parliament and the Government have a role, alongside the courts. As set out in the framework agreement, the CMA is accountable to Parliament for the performance of its functions and duties, while the Government set the wider framework for competition and consumer policy to deliver the Government’s objectives.

In practice, this means that Parliament reviews the CMA’s annual reports and examines its performance through committee hearings. The Government supply the CMA with a strategic steer, setting out its policy priorities, which the CMA responds to in its annual plan. They also make key appointments within the regulator and sponsor the CMA as a non-ministerial department. The requirement for approval from the Secretary of State for guidance will provide an important means for government oversight over how the CMA says it intends to use the discretion afforded in this legislation.

The Government have responsibility for the effectiveness of regulators and the outcomes they deliver, as well as the policy framework for competition. That is why the Government believe it is important that the guidance aligns with the policy intent—for example, ensuring that the CMA is embedding a participatory approach to regulation in its plans for delivering the regime. The CMA will consult with a broad range of stakeholders, and the Government will take the full spectrum of views into account when exercising this function.

Such a role for the Government will not impinge on the CMA’s vital operational independence, and the Secretary of State will not be involved in decisions about individual cases. This is key to the integrity of the UK’s business environment. It is the Government’s view that it also does not undermine Parliament’s role in this regime, and we have heard debate at prior stages of the Bill on the important topic of how best to ensure that Parliament’s own oversight of the CMA is sufficient.

Amendment 77 proposes making certain parliamentary committees statutory consultees in the production of guidance. I agree with my noble friend Lady Stowell on the important principle that regulators should be accountable to Parliament. However, parliamentary committees and parliamentarians are already able to respond to CMA consultations, and consultation is required before the CMA’s guidance can be published. As such, the Government take the view that the existing provision in the Bill and framework agreement will support the aims of my noble friend’s amendment to be achieved without further amendment.

The Government will continue to work closely with the CMA, as they have throughout—

[Lord Clement-Jones (LD)]

I am sorry to interrupt the Minister, but, if the logic were being followed for what he said, there would be—at the very least—some form of affirmative resolution for the guidance, as with all the other powers in the Bill.

[Viscount Camrose (Con)]

I am happy to look into that as a mechanism, but, as currently set out in the Bill, the logic is that the Secretary of State can approve the guidance.

The Government will continue to work closely with the CMA, as they have throughout the drafting of the Bill, to ensure that the timely publication of guidance is not disrupted by this measure. Published guidance is required for the regime to be active, and the Government are committed to ensuring that this happens as soon as possible. Guidance will be published in good time before the regime goes live, to allow affected stakeholders to prepare. The Government hope that, subject to parliamentary time and receipt of Royal Assent, the regime will be in force for the common commencement date in October this year.

In response to my noble friend Lord Black’s question about guidance and purdah, the essential business of government can continue during purdah. The CMA’s guidance relates to the CMA’s intentions towards the operation of the regime, rather than to a highly political matter. However, the position would need to be confirmed with the propriety and ethics team in the Cabinet Office at the appropriate time, should the situation arise that we were in a pre-election period.

I thank the noble Viscount, Lord Colville, and my noble friend Lady Stowell for their amendments, and I hope that this will go some way towards reassuring them that the Government’s role in the production of guidance is proportionate and appropriate. As I said, I recognise the grave seriousness of the powerful arguments being raised, and I look forward to continuing to speak with them.

[Viscount Colville of Culross (CB)]

I thank noble Lords for their contributions and ask the Minister to listen to the concerns Members have expressed today. The clause gives extraordinary power to the Secretary of State, and I ask the Minister to listen to his noble friends, the noble Baronesses, Lady Stowell and Lady Harding, who called the power dangerous. In particular, the noble Baroness, Lady Harding, said that it was so dangerous and such a big power that it must be a distraction.

The noble Lord, Lord Black, said that the concern about having this power is that it would create a delay, and that that would especially be a concern over the period of the election, both before and after. He called for draft guidance to be approved within 31 days, which is certainly something that could be considered; after all, no one wants ping-pong to go back and forth do they? They want the CMA’s guidance to be put into action and this process to start as soon as possible.

The noble Baroness, Lady Kidron, said that the asymmetric power between the regulators and the tech companies means that there will be a drum beat of what she called “participative arrangements”. That is quite a complex thought, but the idea behind it—that the CMA must not be stopped from using its power to deal with some of the most powerful companies in the world—is very important.

The noble Baroness, Lady Stowell, is a former regulator and called for Parliament to have a role in overseeing this. We were reminded by both the noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Kidron, that we had a discussion on Secretary of State powers in the debate on the Online Safety Act, much of which was about whether a joint digital committee could oversee digital regulation. I suspect that that will be discussed in the next group. We have given enormous powers to Ofcom with the Online Safety Act, we are giving big powers to the CMA and I imagine that we are giving big powers to the ICO in the Data Protection Act, so Parliament should have a powerful standing role in dealing with that.

The Minister called for robust oversight of the CMA and said that it must be accountable before Parliament. Already, Parliament looks at its review and annual reporting. I come back to the concern that the Secretary of State still has powers that are far too great over the implementation of this guidance, and that the CMA’s independence will be impinged on. I repeat what I and other noble Lords said on the concern about Clause 114: it stands to reduce the CMA’s independence. I ask the Minister to consider very seriously what we have been saying.

The Minister’s suggestion that he will look at the affirmative resolution for Secretary of State approval of guidance is something that we should certainly push further—at least that is some step towards reducing Secretary of State powers. With that, I beg leave to withdraw my amendment.

Amendment 76 withdrawn.

Amendment 77 not moved.

Clause 114 agreed.

Clause 115 agreed.

Amendment 78

Moved by

[Lord Offord of Garvel]

78: After Clause 115, insert the following new Clause—
“Restriction on disclosure orders(1) This section applies for the purposes of—(a) digital markets proceedings, or(b) competition proceedings.(2) A court or the Tribunal must not make a disclosure order requiring the CMA to disclose or produce information where the court or the Tribunal is satisfied that another person would be reasonably able to provide the information.(3) A court or the Tribunal must not make a disclosure order requiring the CMA to disclose or produce digital markets investigation information before the CMA gives notice of the closure or outcome of each investigation to which the information relates.(4) In this section—“competition proceedings” has the meaning given by paragraph 2(4) of Schedule 8A to the Competition Act 1998 (further provision about claims in respect of loss or damage before a court or the Tribunal);“digital markets investigation information” means information—(a) prepared by a person other than the CMA for the purpose of a digital markets investigation;(b) sent by the CMA in connection with such an investigation to a person that is the subject of the investigation;“digital markets proceedings” means proceedings under section 101 (rights to enforce requirements of Part 1 of that Act) or proceedings on appeal from such proceedings.(5) Paragraphs 7 and 27 of Schedule 8A to the Competition Act 1998 (other definitions; disclosure orders) apply for the purposes of this section as they apply for the purposes of Part 6 of that Schedule.(6) In Schedule 8A to the Competition Act 1998—(a) in paragraph 7 (other definitions), after sub-paragraph (2) insert—“(2A) “Digital markets proceedings” means proceedings under section 101 of the Digital Markets, Competition and Consumer Act 2024 (rights to enforce requirements of this Part).”;(b) in paragraph 28, after “competition proceedings” insert “or digital markets proceedings”;(c) in paragraph 29, after “competition proceedings” insert “or digital markets proceedings”;(d) in paragraph 30(1), after “competition proceedings” insert “or digital markets proceedings”.”Member’s explanatory statement
This amendment would prevent a court or the Tribunal from making a disclosure order in respect of certain material held by the CMA.

Amendment 78 agreed.

Amendment 79

Moved by

[Lord Bassam of Brighton]

79: After Clause 115, insert the following new Clause—
“Digital Markets Unit and CMA: annual statement to Parliament (1) The Secretary of State must, at least once each year, lay before Parliament a statement containing the Secretary of State’s assessment of the conduct and operation of—(a) the Digital Markets Unit, and(b) the CMA as a whole.(2) The first statement must be laid before 31 October 2024.(3) Each further statement must be laid before 1 February of each subsequent year.”Member's explanatory statement
This new Clause would require the Secretary of State to lay before Parliament each year a written statement about the conduct and operation of the DMU and CMA.

[Lord Bassam of Brighton (Lab)]

My Lords, we now move on to the second debate about accountability. We have two amendments in this group—in moving this amendment, I will speak also to the other—relating to the accountability in various forms of the CMA, the Secretary of State and Parliament. With these amendments, we seek to strengthen parliamentary oversight over the CMA by obliging the Secretary of State to bring before Parliament an annual report on the work of the DMU and the CMA. We are grateful to the noble Lord, Lord Clement-Jones, and the noble Baroness, Lady Bennett, for their support for this amendment.

This is a common device exercised by parliamentarians to try to improve the quality of accountability to Parliament. I have almost lost count of the number of times I have seen similar amendments moved by Members on either side of the House—from a Labour Government and from a Conservative Government—but they are nevertheless important because they remind us all of the value of Parliament and why we are here. They also oblige the Secretary of State to make it clear in their annual reporting how the work of a particular regulator is progressing and the content of that work.

Additionally, we want Parliament to have an opportunity to debate and discuss the workings of the DMU. We also want to ensure that the DMU has sufficient financial support and staff to do that work—that is, the work that Parliament has ultimately asked it to do in protecting the public interest and promoting competition that is beneficial to consumers. There are already some concerns that both the CMA and the DMU might lack the resource and clout to undertake their work in tackling the giants that dominate the digital marketplace. That is why we have tabled Amendment 83: to focus attention on this concern.

The question of resources is important because, unlike many other regulators, the CMA is funded not by a levy on the firms it regulates but by a grant. We are not seeking to change this with our amendment, but does the Minister have any concerns that the CMA and the DMU may lack the certainty enjoyed by other bodies such as Ofcom? Does he have any worries that the CMA’s funding arrangements could have an impact on its ability to scale up certain operations and ensure that investigations take place as quickly and efficiently as possible?

We argue that this must be a primary concern from the outset. The history of regulators is littered with examples of underpowered institutions lacking the ability to tackle the big issues of the day. The water industry is a critical example of what can go badly wrong when an infrastructure regulator cannot cope. Digital infrastructure is key to the nation’s future economic success and prosperity, so this is every bit as important. For those reasons, I beg to move Amendment 79.

While I am on my feet, I would like to address Amendment 81 in the name of the noble Baroness, Lady Stowell. It goes to the heart of the issue in requiring the regulator or regulators to report to the relevant parliamentary committees; this is consistent with the noble Baroness’s Amendment 77 in the previous group. For the reasons argued in our debate on that group, we support Amendment 81.

Amendment 82 in the name of the noble Lord, Lord Fox, seeks to inquire whether the CMA will be able

“to play a proactive role in promoting international standards of digital market regulation”.

It would be most odd if it were prevented doing so. Although this amendment is of interest for good trade reasons, I would also be interested to hear from the Minister how the Government view the international regulatory field and the CMA’s role, part and place in it.

I look forward to the Minister answering some of those questions and points.

[Baroness Stowell of Beeston (Con)]

My Lords, I speak to my Amendment 81 in this group. I am very grateful to the noble Lords, Lord Tyrie and Lord Clement-Jones, and the noble Baroness, Lady Jones of Whitchurch, for adding their names. My amendment reflects the increasing power of some of our most important regulators in the context of digital markets and online activity; and the need for greater parliamentary oversight as a result.

19:00

In 2021, the Communications and Digital Select Committee, under its then chair, my noble friend Lord Gilbert, called for a new Joint Committee of Parliament to oversee digital regulation. It was obvious then that the increasing powers that would at that time, soon be given—we thought so, anyway—to Ofcom via the Online Safety Act, and the powers to the CMA via the digital markets Bill that we were calling for, required the kind of parliamentary oversight and scrutiny that our existing committee structures and resources could not provide. We were not alone. As the noble Baroness, Lady Kidron, has already said, the Joint Committee established to carry out pre-legislative scrutiny of the Online Safety Bill also recommended that a new Joint Committee be established because of the completely novel regulatory regime that Ofcom would be empowered to implement.

We cannot keep delegating more powers to regulators in the digital arena without giving ourselves adequate and corresponding capacity to do our jobs. We need to be sure that what we are legislating for is being implemented in line with Parliament’s expectations and achieving its intended outcomes.

The previous group, including my Amendment 77, demonstrated what more we need to be able to do. However, that in and of itself is not the only thing. Our current set-up does not allow us to do what was proposed in Amendment 77, to the extent that we ought to be able to do it, nor the ongoing oversight that will be necessary of these regulators as they gain and implement more powers through secondary legislation and so on. The current committee set-up is too fragmented, we do not have sufficient resources or expertise from existing committee staff teams—however brilliant they may be—and our respective committee remits and purposes are different from that which I envisage in my amendment. Our existing committees perform an important role in developing public policy; that should continue, but the time has come for a new committee that is specifically about overseeing digital regulation.

Early discussions with relevant committee chairmen in the other place have been encouraging—I am thinking of the chairmen of the Science, Innovation and Technology and Business and Trade Committees. They recognise that the kind of work that is necessary, as envisaged by this amendment, is in addition to—not in competition with—existing committee responsibilities and what they already do. More negotiations would of course be necessary between both Houses and the authorities to agree a remit for a new committee. My amendment refers also to the Information Commissioner’s Office and the FCA because, along with Ofcom and the CMA, they are members of the government-backed body known as the Digital Regulation Cooperation Forum. The DRCF was set up to ensure a greater level of co-operation between these four powerful regulators on the challenges posed by regulating online platforms. Even though that was set up, there has been no Select Committee oversight of the DRCF in any kind of considered way.

This amendment would not put a new Joint Committee on a statutory footing. I make that point because this is not akin to the Joint Committee on Intelligence and Security, for example, which is one of the committees of Parliament—if not the only one—that is set in statute.

If this amendment were passed, it would ensure that resources are made available to make happen the kind of committee that we need in Parliament for us to perform the kind of parliamentary oversight that is becoming increasingly needed and urgent. I urge my noble friend the Minister not just to support what is proposed—it is in the Government’s interest to support this—but, as I said on the last group when I did not seem to have much luck, to adopt the amendment as the Government’s own, as they did when the Financial Services and Markets Bill was going through the House. Parliament would then see that this kind of extra responsibility and resource has the full support of the Government. We have to be better equipped to discharge our responsibilities and I hope that this attracts widespread support from the Committee today.

[Lord Fox (LD)]

My Lords, I speak to Amendment 82 in my name. Through the medium of parliamentary reports, it seeks to probe the Government’s position on standards—as was previewed by the noble Lord, Lord Bassam. Why am I interested in standards? My experience of other sectors is that the UK’s approach to engagement in international standards is often—in my case, always—a technical approach. Technical people are sent to the relevant bodies to do the work. This flies in the face of what I have witnessed when other countries, on their own account and that of their national champions, used the process of negotiating new standards to further the strategic aims of their country and its national standards. I want to have this discussion so that I can hear how the Government view this and where the responsibility lies. Without a real handle on standards, competitivity and competition will be playing catch-up.

During the first day in Committee, when I was in the Chamber, your Lordships discussed the importance of interoperability. By my definition, interoperability has to enable both vertical interconnection between systems and horizontal interconnection with the web. The internet is a web of interconnected sites, so interoperability has to be both one to one, for example between servers and systems, and among servers and systems.

During that debate, the Minister, the noble Viscount, Lord Camrose, said that there was no need to define interoperability and that doing so might unhelpfully narrow the definition. That would be true if, when he was speaking, he had covered all types of interoperability, including web interoperability. Separately, he referred to interoperability and data access. This might be helpful if he meant interoperability generically, covering different subsets. Can the Minister clarify whether his department’s definition covers many-to-many, one-to-many and one-to-one interoperability?

To be more technically clear, this would cover interoperability among and between websites, using JavaScript and web data such as URLs, as well as one-to-many interoperability, such as browser interactions with websites, and one-to-one interoperability, such as covering apps and operating systems. At present, the language of Clause 20(3) is limited only to interoperability with a platform, so it would not address abuse by interfering with web interoperability.

This may sound too detailed, but it is deliberately detailed, because the detail of standards establishes who wins commercially. Somebody has to be inside all this to make sure that we can avoid businesses locking out their competitors, because what has happened over the past 20 years is increasing amounts of locking in.

Microsoft tried to use its operating system to lock in its media player app and its browser. Google is locking in online advertisers to its systems. Apple locks in apps through the payments and App Store terms and conditions. Amazon sought to lock people into its buy box. Facebook does not allow people to cross post, and each company runs messaging platforms that work better when plugged together than when plugged in with one of their rivals. Lock-in reinforces the network effect in communications and increases each platform’s separate monopoly. Standards define which software components work with other components, while definitions help to decide which software can work with which. Definitions of what is in the browser and what is elsewhere right across the internet are critical.

As the Committee knows, there are three principal players setting these definitions. What the browser does is overseen by the World Wide Web Consortium—W3C. Other internet standards are defined by the Internet Engineering Task Force—IETF. Telecoms standards are defined by the International Telecommunication Union—ITU, which is part of the UN in Geneva. All are relevant to interoperability and it is critical that the CMA has a role in policing interoperability, not least to ensure that standards are not rigged for the benefit of the bigger players, as I have just illustrated.

The ITU is a public body, but W3C and IETF are run by private entities for their own benefit. There is a serious risk and current concern that the definitions that are vital to avoid the intermediation of the future web are being rigged for the benefit of the big tech players. Promoting interoperability between browsers and websites means that browsers are not websites and do not operate in a way that prefers the website of the browser owners. They should render websites whoever owns the website. Different functions have to be standardised and policed for this to happen. To promote online competition, businesses need to be able to compete with the dominant browser owners. To be clear, Google and Apple own or control browser engines for all Apple, Google and Microsoft devices sold worldwide—essentially, almost everything apart from Chinese systems.

It is central to digital competition that the CMA promotes open and fair interoperability, thereby ensuring that browser owners do not give themselves discriminatory preferences or otherwise use their control over one part of the system to benefit themselves at the expense of their rivals. As we go forward and technology changes, we have an opportunity to nip this in the bud rather than trying to reclaim it in the opposite direction.

I am in danger of labouring this point, but I am going to: wallets offer storage for online payment cards. Someone running a wallet business would expect that the wallet’s operation would be discrete from the browsers. You would expect a browser to operate in a non-discriminatory way, enabling all types of wallets and cards to be used. Well, in 2022, W3C passed a standard that clearly benefits the two dominant browsers by allowing them to prefer their own wallets, casting a shadow across the whole online wallets and payments business world. This happened because Google and Apple play a considerable role in the development of standards for their own benefit. If we actually want an open market, this all needs to be actively policed; I suggest that the CMA has to be central to that policing process. Without this effort, much of the other work of the DMU will be closing empty stables’ doors while chasing bolting horses.

I note that the noble Lord, Lord Lansley, had some interesting things to say about interoperability and data in the previous debate, so I will be interested in his response and those of other noble Lords to this amendment. I of course will not be moving it, but I want a full reply from the Minister and possibly some further dialogue before Report, just to see the department’s view of how the engagement on this highly technical and important issue is to be done at international level. If it is not the CMA, who and how?

19:15

[Baroness Harding of Winscombe (Con)]

My Lords, I will be brief. It is an honour to follow the noble Lord, Lord Fox, and his passionate exposé about the importance of interoperability while reminding us that we should be thinking globally, not just nationally. I did not come expecting to support his amendment but, as a result of that passion, I do.

I rise to support my noble friend Lady Stowell. She set out extremely clearly why stronger parliamentary oversight of the digital regulators is so important. I speak having observed this from all possible angles. I have been the chief executive of a regulated company, I have chaired a regulator, in the form of NHS Improvement, I have been on the board of a regulator, in the form of the Bank of England and I am a member of my noble friend’s committee. I have genuinely seen this from all angles, and it is clear that we need to form a different approach in Parliament to recognise the enormous amounts of power we are passing to the different regulators. Almost all of us in Committee today talked about this when the Online Safety Bill was passing through our House, and it was clear then that we needed to look at this. We have given enormous power to Ofcom in the Online Safety Act; this Bill looks at the CMA and very soon, in this same Room, we will be looking at changing and increasing the powers of the ICO, and if we think that that is it, we have not even begun on what AI is going to do to touch a whole host of regulators. I add my voice to my noble friend’s and congratulate her on the process that she seems to be well advanced in in gathering support not just in this House but in the other place.

I also express some support for Amendment 83. I am concerned that if we are not careful, the easiest way to ensure that the CMA is not bold enough is to not resource it properly. Unlike the passage of the Online Safety Act, where we got to see how far advanced Ofcom was in bringing in genuine experts from the technology and digital sector, it has not yet been so obvious as this Bill has progressed. That may be just because of the stage we are at, but I suspect it is also because the resourcing is not yet done in the CMA. Therefore, I ask the Minister for not so much an annual update as a current update on where the CMA is in resourcing and what support the Government are giving it to ensure it is able to meet a timetable that still looks painfully slow for this Bill.

[Baroness Kidron (CB)]

My Lords, I rise mainly to correct the record that I called the amendment in the name of the noble Baroness modest and also to celebrate the fact that I am once again back on the side of the noble Baroness, Lady Harding; it was very uncomfortable there for a moment.

I was on both committees that the noble Baroness, Lady Stowell, referred to. We took evidence, and it was clear from all sorts of stakeholders that they would like to see more parliamentary engagement in the new powers we are giving to regulators. They are very broad and sometimes novel powers. However, the point I want to make at this moment is about the sheer volume of what is coming out of regulators. I spent a great deal of my Christmas holiday reading the 1,500 pages of consultation material on illegal harms for the Online Safety Act, and that was only one of three open consultations. We need to understand that we cannot have sufficient oversight unless someone is properly given that job. I challenge the department and Secretary of State to have that level of oversight and interest in things that are already passed. So, the points that the noble Baroness made about resource and capacity are essential.

My other, very particular, point is on the DRCF. I went to a meeting—it was a private meeting, so I do not want to say too much, but fundamentally people were getting together and those attending were very happy with their arrangements. They were going to publish all sorts of things to let the world know how they, in their combination, saw various matters. I asked, “Is there an inbox?” They looked a little quizzical and said, “What do you mean?” I said, “Well, are you taking information in, as a group, as well as giving it out?” The answer was no, of course, because it is not a described space or something that has rules but is a collection of very right-minded people. But here in Committee, we make the point that we need good processes, not good people. So I passionately support this group of amendments.

I briefly turn to the amendment tabled by the noble Lord, Lord Fox, in which there is an unexpected interest in that I work with the IEEE, America’s largest standards organisation, and with CEN-CENELEC, which does standards for the European Union. I also have a seat on the Broadband Commission, which is the ITU’s institute that looks after the SDGs. Creating standards is, as a representative of Google once said to me, soft power. It is truly global, and as we create and move towards standards, there are often people in their pyjamas on the other side of the world contributing because people literally work in all time zones to the same effect. It is a truly consensual, global and important way forward. Everyone who has used the wifi today has used an IEEE standard.

[Lord Tyrie (Non-Afl)]

Just a short while ago, I decided that there was so much to say that I would say very little indeed. I completely agree with everything that the noble Baroness, Lady Stowell, said. As politicians, we should all be worried about a serious and growing problem that we are handing over huge powers to regulators on a monthly basis, and they will appear to the public to be accountable to nobody. If there is one book that is worth a good read, it is Unelected Power by Paul Tucker, who addresses exactly this set of issues with respect to finance and central banking. Come to think about it, it is a rather fat book, so, although I have read a large part of it myself, I suggest that the introduction and the conclusion will give noble Lords a good feel.

I will briefly join up a number of the debates we have just heard. On the one hand, we have been saying to ourselves, “We’ve got to empower David because David’s up against Goliath”, and on the other hand, it was said a moment ago that we have these huge overmighty regulators that must be held to account. There is an answer to that apparent clash of thoughts which s that while regulators have the capacity to wield huge power, many of them retreat into a comfort zone in which they do not do all the things they should. Rather, they do what they feel they can do relatively straightforwardly. Specifically, they do not wield the huge soft power they often have available to them.

Since I am going to give a long speech, I will digress momentarily to illustrate that point. When Covid struck, I was the chairman of the CMA. The hand sanitiser market started to be cornered at great speed by a small number of players, who then jacked up the price so that Mrs Wiggins, who wanted to go down to the corner shop to buy some at the only moment she dared go out, found that, instead of paying the correct price, which was probably £1.80, she was going to pay £12, £9 or something like that. I argued vigorously that we should do something about this, using consumer protection powers. I was told, “We don’t have a chance. We’ll be ignored. In any case, we might well lose the case. It’s all very complicated in terms of whether we have the power to intervene in a case like this. We certainly can’t assemble the evidence in time”, and so on. After a fortnight of persistence—I am pleased to say that the current head of the CMA was on the right side of this argument—I persuaded the top of the CMA to send a warning letter out. The practice ended immediately; that is why that big issue for the public agenda, which was leading newspaper coverage for several days, was taken away and a major problem for the Government was removed. Soft power is available to regulators in many ways but they often fail to address it.

The case for better scrutiny of regulators, digital or otherwise, has something to do with the need to hold regulators to account for the way in which they wield—or fail to wield—their power. That case has been made extensively elsewhere. In fact, I have written it down in places and published it, so I will not rehearse any of those arguments now.

I want to touch on two further points. If we are to do this job meaningfully, we need to have in place a number of things that, for example, the banking commission—I chaired it some time ago—found essential when assembling a technically competent team at pace to deal with the Libor scandal. A new body must have significantly greater resources and expertise than we currently provide to Select Committees. That will cost money. It is worth pointing out that the total cost of the work of the top eight regulators, which are meant to scrutinise the businesses on which they keep an eye, is in excess of £2 billion at the moment; that is the bill just to pay for the regulators. A few million pounds spent by Parliament to improve its oversight of those who are meant to be doing that scrutiny work would be money well spent.

The second thing that we must develop in Parliament is institutional memory, which is largely missing at the moment. There is very little institutional memory in our scrutiny bodies. It requires a group of officials who will stay the course for a significant time and are certainly not dispersed every time there is an election, which is what happens to a large number of Select Committee teams in both the Lords and the Commons, including the clerks and deputy clerks.

The third thing that we must do, which may seem obvious but is not always done—indeed, it is often not done—is keep good records. The body must have high-quality record-keeping. It has been a major bugbear of mine that, on the whole, records are not kept by Select Committees across Parliaments—that is, after an election, they start again as if everything is fresh. Incidentally, one of the reasons why the Treasury Committee has done better than other Select Committees in scrutinising across Parliaments is that it has one specialist adviser—I will not embarrass him by naming him—who works on monetary policy and the Bank of England and has been there for about 15 years. He loves his job and does only that job. He used to work in the Bank of England and knows a huge amount about it. That tiny fragment of institutional memory has dramatically improved the performance of the Treasury Committee over the years and does so today.

19:30

Fourthly, in creating this body, we must ensure that it uses to the full the powers available to Parliament at the moment; in particular, the power to demand people and papers. Many committees are nervous about doing this. They become scared about challenge and people not turning up, but it is within the power of a parliamentary committee, if it has problems with a regulator, to embed specialists into the regulator itself. It can do what the Fed Reserve or the SEC can do: put people directly into these institutions to challenge regulatory activity, if they are concerned about a specific issue. We did that through the Treasury Committee and the banking commission for what was then the FSA, which became the FCA. It was an innovation which has not been built on since, but which would greatly increase the power of Select Committees.

It is important to bear in mind, too, that the fact that we have not had regulators doing as much as we would like is not just a question of regulators not quite meeting their targets. They have generated a number of very serious problems for us: a substantial part of the productivity problem, many of the weaknesses on the supply side and a good deal of the perception that much of the public have that capitalism no longer serves them well. I am thinking, for example, of renewal penalties, whereby the public feel disenchanted with capitalism because they sense that they are being ripped off when they try to make renewals.

Parliament needs to do a better job of scrutiny but that is only part of what is required. I have gone through what the committee itself, acting institutionally, can achieve. I want to end by mentioning a few of the major obstacles that there will be to making progress as the noble Baroness, Lady Stowell, would very much like.

First, there will be the government mantra—I hope we will not hear more of it right now—which is, “Oh, this is all up to Parliament. It’s really Parliament’s business and we wouldn’t want to interfere. It would be improper”. That is a fig leaf. We are fortunate enough to have the noble Lord, Lord Young, in the chair at the moment. He was Leader of the House in the Commons in 2010, and it was only when he persuaded the Government to back the election of Select Committee chairmen by secret ballot that this substantial step- shift and improvement in the performance of Select Committees was achieved, as a result of pushing through that reform. Of course, it was a parliamentary decision but it needed leadership from the Government.

The second obstacle is the Government’s self-interest. The risk here will be that the Government fear that a body will be created which will end up criticising them every bit as much as it might the regulators; and that even when it criticises regulators, the public will not hear that and will hear only criticism of the Government.

I will end with just one more obstacle, which we need to have in mind. It is what might be summarised as turf wars between Select Committees. It sounds to me, from what she reported, as if the noble Baroness, Lady Stowell, is making great progress on that front. The idea of a financial services scrutiny committee collapsed when the current Treasury Committee said that it could do all of that job as part of a sub-committee. Any support that there might have been in the Commons fell away at that point.

It is quite a bumpy road ahead that we are going to try to travel through. I have named only three of a good number of obstacles. I very strongly support the attempt being made and very much hope that it will get an unusual degree of flexibility from the Government when we hear from them.

[Lord Kamall (Con)]

My Lords, I will speak to Amendment 81 in this group. I also wanted to speak to Amendment 77 in the previous group; I apologise that I was not here earlier to speak to it then.

I will refer to three notions from political science that may be relevant here. The first is that of the principal-agent theory and principal-agent problem. That is when a Government—namely, the principal—delegates authority to an agency. There is a huge body of work about delegating power to regulators, including the notion of agency slack, where the regulator does not act as was originally intended for a number of different reasons, raising the question of how you hold it accountable for that. Alternatively, it may perform very badly; for example, in some government departments there are concerns about arm’s-length bodies. How do we make sure that a poorly performing regulator is acting as it should have done in the first place?

The second notion is public choice theory. When people call for government intervention, they usually assume that officials and politicians are benign and will act in the public interest. Public choice theory suggests, however, that we must remember that individuals are also motivated by their own incentives and may act in their own self-interest at certain times—not because they are bad people, but because they are human. There are many cases of that; for example, with the housing market, most people agree that we need to build more houses, but many people just do not want their homes anywhere near those new houses. It is therefore very difficult in parts of the country for a candidate to stand up and campaign for more development because, according to public choice theory, they are acting in their own interest about wanting to get elected, even though they know that there should be more homes in the country. One of the fathers of public choice theory, James Buchanan, called it politics without the romance. It is when officials, who are well intentioned when the organisation starts up, just like politicians, suddenly do not act as was intended in the first place, because there are certain interests that conflict with each other. Therefore, how do we address that problem when it happens?

The third notion is the idea of unintended consequences. Given that we do not have complete knowledge, we should ask ourselves sometimes what happens if we are wrong. Are we absolutely sure that the JR appeals will prove a better way to achieve faster and more accurate decisions? We all support them, because many of the small challenger companies are asking us to do that—I have spoken in favour of them, as have many other noble Lords—but what if we find down the line that the appeals are taking longer, or that large companies are winning their appeals and the CMA has to start all over again? What if we find that it in fact takes longer than if we had gone to a time-limited merits appeal?

I considered laying an amendment asking for a review after three or five years, but I was worried about that, in case it became another loophole that large companies would use to undermine the JR appeals process, so I stood back. Another reason I did not do that was because the noble Lord, Lord Clement-Jones—I thank him for this—said to me, “You may well be right, but surely this should be about the accountability of the CMA to Parliament, and Parliament can question it on the issue of why some of the cases it is bringing are being lost on appeal”.

The other question that many of us politicians across the spectrum are asking is: who regulates the regulators? This comes from people right across the board. How do we make them accountable? I suggest that my noble friend Lady Stowell’s Amendment 81 addresses those three concerns. I hope that I have laid out the reasons why I support her amendment, notwithstanding some of the concerns raised by the noble Lord, Lord Tyrie.

I speak briefly to Amendment 82 in the name of the noble Lord, Lord Fox; he has raised an important issue. When I was in the European Parliament, we looked at digital regulation as well as financial regulation. I was told by many national European regulators, including those in the European Commission, and other global regulators that they had a huge amount of respect for UK regulators. Quite often, they would use what we did previously. For example, early telecoms regulators basically took what we did in the 1980s and replicated it across many countries in Europe.

I teach students about intergovernmental organisations. We can see that even the more technical intergovernmental organisations, some of which are over 100 years old, have now become more political. Companies and Governments are starting to influence soft power, as another noble Lord said. The EU, for example, wants to be the technical standard for regulation; China also wants to get involved in international bodies and to set the standards in its own interests—look at the debate over CDMA a few years ago. This is not just in the tech sector; we see its officials active in many intergovernmental organisations. I am not sure that the amendment tabled by the noble Lord, Lord Fox, is the right way to address these concerns, but he is certainly on to something and it deserves further consideration.

[Lord Clement-Jones (LD)]

My Lords, I am going to be extremely brief as the hour marches on: yes to Amendments 79 and 83. Most of the debate has been around Amendment 81 but I want to mention my noble friend’s Amendment 82 because the concept of lock-in is absolutely crucial. I am a big fan, particularly in the AI field, of trying to get common standards, whether it is NIST, IEEE or a number of them. The CMA’s role could be extremely helpful.

Of course, many other regulators are involved. That brings us into the landscape about which the noble Baroness, Lady Stowell, has—quite rightly—been so persistent over the course of the then Online Safety Bill and this Bill. She is pursuing something that quite a number of Select Committees, particularly her one, have been involved in: espousing the cause of a Joint Committee, as our Joint Committee previously did. It is going to be very interesting. I am a member of the Industry and Regulators Committee, which has been looking at the regulatory landscape.

These accountability, independence, resourcing and skills issues in the digital space are crucial, particularly for those of us in this Committee. For instance, the role of the DRCF and its accountability, which were raised by the noble Baroness, Lady Kidron, are extremely important. I very much liked what the noble Baroness, Lady Harding, said about us having talked about Ofcom before but that we are now talking about the CMA and will talk about the ICO very shortly; for me, AI brings a lot of that together, as it does for her.

So what is not to like about what I think is a rather cunning amendment? The noble Baroness gets more cunning through every Bill we get on to. The amendment is shaped in a way that is more parliamentary and gets through more eyes of needles than previously. I strongly commend it.

[Viscount Camrose (Con)]

My Lords, I shall be as brief as I can possibly be, I promise.

I thank all noble Lords for their brilliant and stimulating contributions. Amendment 79 in the name of the noble Baroness, Lady Jones of Whitchurch, would require the Government to undertake an annual assessment of the operation of the CMA, to include the DMU specifically. The CMA is already required to present and lay its annual report in Parliament. This covers the operation and effectiveness of the CMA, including a review of its performance, governance and finances. The CMA recently published a road map setting out how it will report on the digital markets regime in its annual report. Although I of course appreciate the intent behind the noble Baroness’s amendment, adopting it would run the risk of being duplicative of the CMA’s assessment of its activities, which could lead to concerns regarding its operational independence. The Government set out their priorities for the CMA in their strategic steer and the CMA reports publicly on how it meets these priorities. The Government will also carry out a post-implementation review of the regime to assess how it is delivering on its aims.

Amendment 81 from my noble friend Lady Stowell of Beeston would require additional reporting by the CMA, the Financial Conduct Authority, the Information Commissioner’s Office and Ofcom. It would require these regulators to publish annual reports on the impact of the digital markets regime on their activity and its effectiveness in supporting them in regulating digital markets. The Government agree that it is vital that regulators are held to account for their activities. Each of these regulators already produces annual reports that are laid in Parliament covering their operations and effectiveness. An additional report by each of the sector regulators would again run the risk of being duplicative and creating an unnecessary additional administrative burden. Additionally, the Digital Regulation Cooperation Forum was established in 2020 to support the co-ordinated regulation of digital markets and includes the regulators named in this amendment; the DRCF also publishes an annual report on its activities and priorities.

In response to my noble friend Lady Stowell’s important point regarding a committee on digital regulation, I agree with her that parliamentary accountability is crucial and thank her for engaging so clearly with me and my noble friend Lord Offord earlier on this topic. I absolutely recognise the problem. Perhaps I can offer to continue to engage with her on how to drive this forward. At the risk of disappointing the noble Lord, Lord Tyrie, we have a concern that the formation of parliamentary committees is a matter for Parliament, not the Government, but I welcome ongoing work to determine how best to ensure that committee structures can scrutinise the important issue of digital regulation.

19:45

Amendment 82, from the noble Lord, Lord Fox, would require the Government to review the impact of the Bill on the CMA’s role in promoting international standards in digital markets regulation within 12 months of the Bill being passed. I absolutely accept his offer to engage more on this. Before the noble Lord spoke, I thought that I knew a little about interoperability, but it was less than I thought.

I agree that the CMA should have a role in promoting international competition in digital markets. The Government believe that the CMA, as an independent regulator, may choose to engage with digital standards when designing interventions as it sees fit. As an example, the CMA considered the role of standards in consumer outcomes as part of its recent report on AI foundation models. However, as set out in the CMA’s statutory objective, such engagement should be for the purpose of promoting competition for the benefit of UK consumers. A separate requirement to review the role of the CMA in promoting international standards in digital markets regulation would therefore risk distorting the CMA’s work beyond its proper focus. It would also risk creating additional burden, especially in the first year of the Bill’s implementation.

In response to the noble Lord’s question about interoperability, the term has been left undefined in the Bill so as to be capable of a broad interpretation, which I understand he is seeking. However, as I said, I am happy to continue to engage with him on this important matter.

Amendment 83, from the noble Baroness, Lady Jones of Whitchurch, would require the Secretary of State to produce a report at least every two years on the DMU’s resourcing. It is of course vital that the CMA has the resources it needs to deliver this regime effectively. I know that the noble Lord, Lord Tyrie, has also spoken on this issue. I want to reassure noble Lords that the Government are confident that the CMA’s resourcing plans will allow this to happen. The CMA recently published its road map for implementing its new powers, including an update on its operational readiness. The CMA also provides Parliament with an annual update on resourcing through its annual report. The Government established the DMU in 2021 in shadow form so that it could begin to build the expertise and resources to effectively deliver the new digital markets regime.

In response to the concerns of my noble friend Lady Harding on resourcing, the CMA has continued to undertake significant work on digital markets, including market studies into mobile ecosystems and music streaming, and a number of anti-trust and merger enforcement cases against the most powerful digital firms. We expect the CMA to continue to use its existing tools to address competition issues in digital markets, where appropriate.

As noted in the road map, around 60 people currently work in the DMU, and the CMA expects 200 people across the institution to be working on the regime once it comes into force. As resourcing will be drawn from across the regulator, an assessment of DMU staffing alone will not provide a complete picture of staff delivering the regime. Allocation of resourcing is for the CMA to decide in order to best address competition issues across its range of tools. As a non-ministerial department, the CMA’s financial sponsor is the Treasury. Its funding, which includes the DMU’s, is determined by the Treasury through its usual spending review processes. The Treasury engages regularly with the CMA to ensure that its funding arrangements remain appropriate. The CMA’s digital markets costs will be recovered by a new levy on SMS firms and returned to the Exchequer. It is currently anticipated that around 95% of costs will be recovered in this manner, making the regime close to cost neutral.

I hope this has addressed the concerns of noble Lords who spoke so powerfully and eloquently on this subject and that, consequently, the noble Baroness, Lady Jones, will feel able to withdraw her amendment.

[Lord Bassam of Brighton (Lab)]

Noble Lords will be pleased to know that I, too, intend to be brief. I am grateful to the Minister for his response: there was more detail than I thought we would get. I am also grateful to the other Members of the Committee who supported the two amendments in the name of my noble friend Lady Jones. We should congratulate the noble Baroness, Lady Stowell, for her sterling efforts in arguing her case for better regulation through specific committees of both Houses.

I assume we will return to the issue of accountability. There has been sufficient concern expressed this afternoon about the shortcomings of where we currently are. I heard what the Minister said about annual reporting to Parliament, and we all need to think more about how we can make that much more effective.

A number of noble Lords made the killer point that there is a lot coming down the line, including the CMA, online safety and data protection. All those topics demand further scrutiny to make sure that we get the very best from regulation and legislation.

Collectively, our amendments address two issues: the accountability of the Secretary of State to Parliament, and the accountability of the regulator to Parliament. They are two very important things with important principles behind them.

I was interested and impressed by what the Minister said about the staffing details; it is something we should regularly debate in your Lordships’ House. Have we got it right? Have we got the balance right? Where are the staff coming from? Have they got the right skill set?

It was a very useful debate, and I beg leave to withdraw the amendment.

Amendment 79 withdrawn.

Committee adjourned at 7.51 pm.