Digital Markets, Competition and Consumers Bill

Lord Clement-Jones Excerpts

Committee stage
Monday 29th January 2024 Grand Committee

[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.

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[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.

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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.

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[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.

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[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.

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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.

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[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.

Digital Markets, Competition and Consumers Bill

Lord Clement-Jones Excerpts

2nd reading
Tuesday 5th December 2023 Lords Chamber

[Lord Clement-Jones (LD)]

My Lords, it is a great pleasure, as it always seemed to be on the then Online Safety Bill, to follow the noble Baroness, Lady Harding, especially with her great advocacy of the power of competition. That passionate belief in competition is something that unites us all around the House today. First, I declare an interest as a consultant to DLA Piper and as chair of the Trust Alliance Group, which runs the Energy Ombudsman service.

I thank the Minister—the noble Lord, Lord Offord—for what I thought was a comprehensive introduction that really set the scene for the Bill. As my noble friend said, we very much welcome the Bill, broadly. It is an overdue offspring of the Furman review and, along with so many noble Lords around the House, he gave very cogent reasons, given the dominance that big tech has and the inadequate powers that our competition regulators have had to tackle them. It is absolutely clear around the House that there is great appetite for improving the Bill. I have knocked around this House for a few years, and I have never heard such a measure of agreement at Second Reading.

We seem to have repeated ourselves, but I say to the noble Lord, Lord Vaux, that repetition is good. I am sure that in the Minister’s notebook he just has a list saying “agree, agree, agree” as we have gone through the Bill. I very much hope that he will follow the example that both he and the noble Lord, Lord Parkinson, demonstrated on the then Online Safety Bill—as the noble Baronesses, Lady Kidron and Lady Harding, said—and will engage across and around the Chamber with all those intervening today, so that we really can improve the Bill.

It was very important that the noble Baroness, Lady Stowell, reminded us that it is not just size that matters: we must consider behaviour, dominance, market failure and market power. We need to hold on to that. We need new, flexible pro-competition powers and the ability to act ex ante and on an interim basis—those are crucial powers for the CMA. As we have heard from all round the House, the digital landscape, whether it is app stores, cloud services or more, is dominated by the power of certain big tech companies, particularly in AI, with massive expenditure on compute power, advanced semiconductors, large datasets and the scarce technology skills forming a major barrier to entry where the development of generative AI is concerned. As the noble Lord, Lord Knight, indicated, we can already see the future coming towards us.

In that context, I very much welcome Ofcom’s decision to refer the hyperscalers in cloud services for an investigation by the CMA. The CMA and the DMU have the capability to deliver the Bill’s aims. We were reminded by the noble Lords, Lord Tyrie and Lord Lansley, about the importance of the ability to implement the new legislative powers. Unlike some other commentators, we believe, as my noble friend said, that the CMA played a positively useful role in the Activision Blizzard-Microsoft merger. As a number of noble Lords, including the noble Lords, Lord Holmes, Lord Kamall and Lord Tyrie, and the noble Baroness, Lady Stowell, emphasised, it is crucial that the CMA needs to be independent of government. All around the House, there was comment about the new powers of the Secretary of State in terms of guidance. The accountability to Parliament will also be crucial, and that was again a theme that came forward. We heard about the Joint Committee proposals made by both the committee of the noble Baroness, Lady Stowell, and the Joint Committee on the Online Safety Bill.

We need to ensure that that scrutiny is there and, as the Communications and Digital Committee also said, that the CMA’s DMU is well resourced and communicates its priorities, work programmes and decisions regularly to external stakeholders and Parliament.

The common theme across this debate—to mention individual noble Lords, I would have to mention almost every speaker—has been that the Bill must not be watered down. In many ways, that means going back to the original form of the Bill before it hit Report in the Commons. We certainly very much support that approach, whether it is to do with the merits approach to penalties, the explicit introduction of proportionality or the question of deleting the indispensability test in the countervailing benefits provisions. We believe that, quite apart from coming back on the amendments from Report, the Bill could be further strengthened in a number of respects.

In the light of the recent Open Markets Institute report, we should be asking whether we are going far enough in limiting the power of big tech. In particular, as regards the countervailing benefits exemption, as my noble friend said, using the argument of countervailing benefits—even if we went back to the definition from Report—must not be used by big tech as a major loophole to avoid regulatory action. It is clear that many noble Lords believe, especially in the light of those amendments, that the current countervailing benefits exemption provides SMS firms with too much room to evade conduct requirements.

The key thing that unites us is the fact that, even though we must act in consumers’ interests, this is not about short-term consumer welfare but longer-term consumers’ interests; a number of noble Lords from across the House have made that really important distinction.

We believe that there should be pre-notification if a platform intends to rely on this exemption. The scope of the exemption should also be significantly curtailed to prevent its abuse, in particular by providing an exhaustive list of the types of countervailing benefits that SMS firms are able to claim. We would go further in limiting the way in which the exemption operates.

On strategic market status, one of the main strengths of the Bill is its flexible approach. However, the current five-year period does not account for dynamic digital markets that will not have evidence of the position in the market in five years’ time. We believe that the Bill should be amended so that substantial and entrenched market power is mainly based on past data rather than a forward-looking assessment, and that the latter is restricted to a two-year assessment period. The consultation aspect of this was also raised; there should be much greater rights on the consultation of businesses that are not of strategic market status under the Bill.

A number of noble Lords recognised the need for speed. It is not just a question of making sure that the CMA has the necessary powers; it must be able to move quickly. We believe that the CMA should be given the legal power to secure injunctions under the High Court timetable, enabling it to stop anti-competitive activities in days. This would be in addition to the CMA’s current powers.

We have heard from across the House, including from the noble Viscount, Lord Colville, about the final offer mechanism affecting the news media. We believe that a straightforward levy on big tech platforms, redistributed to smaller journalism enterprises, would be a far more equitable approach. However, as a number of noble Lords have mentioned, we need to consider in the context of the Bill the adoption by the CMA of the equivalent to Ofcom’s duty in the Communications Act 2003

“to further the interests of citizens”,

so that it must consider the importance of an informed democracy and a plural media when considering its remedies.

As my noble friend and many other noble Lords said—including the noble Baroness, Lady Bennett, the noble Viscount, Lord Colville, and the noble Lords, Lord Lansley and Lord Black—the Bill needs to make it clear that platforms need to pay properly and fairly for content, on benchmarked terms and with reference to value for end-users. Indeed, we believe that they must seek permission for the content that they use. As we heard from a number of noble Lords, that is becoming particularly important as regards the large language models currently being developed.

We also believe it is crucial that smaller publishers are not frozen out or left with small change while the highly profitable large publishers scoop the pool. I hope that we will deal with the Daily Telegraph ownership question and the mergers regime in the Enterprise Act as we go forward into Committee, to make sure that the accumulation of social media platforms is assessed beyond the purely economic perspective. The Enterprise Act powers should be updated to allow the Secretary of State to issue a public interest notice seeking Ofcom’s advice on digital media mergers, as well as newspapers, and at the lower thresholds proposed by this Bill.

There were a number of questions related to leveraging. We want to make sure that we have the right approach to that. The Bill does not seem to be drafted properly in allowing the CMA to prevent SMS firms using their dominance in designated activities to increase their power in non-designated activities. We want to kick the tyres on that.

Of course, there are a great many consumer protection issues here, which a number of noble Lords raised. They include fake reviews and the need for collective action, as was mentioned by the noble and learned Lord, Lord Etherton, and the noble Lord, Lord Sandhurst. It is important that we allow collective action not just on competition rights but further, through consumer claims, data abuse claims and so on. We should cap the costs for claimants in the Competition Appeal Tribunal. I heard what the noble Lord, Lord Sandhurst, had to say on LFAs, which is highly relevant as well. These issues also include misleading packaging.

Nearly every speaker mentioned subscriptions. I do not think that I need to point out to the Minister the sheer unanimity on this issue. We need to get this right because there is clearly support across the House for making sure that we get the provisions right while protecting the income of charities.

There is a whole host of other issues that we will no doubt discuss in Committee: mid-contract price rises, drip pricing, ticket touting, online scams and reforming ADR. We want to see this Bill and the new competition and consumer powers make a real difference. However, we believe that we can do this only with some key changes being made to the Bill, which are clearly common ground between us all, as we have debated the Bill today. We look forward to the Committee proceedings next year—I can say that now—which will, I hope, be very productive, if both Ministers will it so.

Digital Economy Agreements

Lord Clement-Jones Excerpts

Monday 24th July 2023 Lords Chamber

[The Earl of Minto (Con)]

I entirely agree with my noble friend. Our vision is for the UK to be a global leader in digital trade, with an entire network of international agreements that drive economic growth, create jobs and improve productivity throughout the UK.

[Lord Clement-Jones (LD)]

My Lords, how do the Government intend to ensure that while conforming to the terms of digital trade agreements such as the UK/Singapore agreement, or the digital terms of the CPTPP, they still retain data adequacy for EU purposes? Is the Government’s market-driven championing of the international flow of data and the terms of these agreements not in conflict with that?

[The Earl of Minto (Con)]

No, my Lords, I am not sure that they are in conflict. Technological advances in free trade agreements will ensure that this country, among others, will be able to trade freely with a very wide range of companies and countries.

[The Earl of Minto (Con)]

The noble Lord makes a very good point: anything that improves the speed of these free trade agreements can only be for the benefit of the country. The ones we are looking at at the moment are with India, Switzerland, Israel, Canada, Mexico and the GCC, and digital economy agreements will be in every one. There are digital trade provisions in a further 30 to 40 free trade agreements: I am very happy to give him a list but I do not think it is appropriate to read it out now. The very heart of this is making trade easier, faster, more secure and of course cheaper.

[Lord Clement-Jones (LD)]

My Lords, I shall have another go. The Minister really did not answer my question on data, so perhaps I should put it another way. Can the UK ensure regulatory interoperability among free trade agreement partners with different data protection regimes given the discrepancy in their regulatory frameworks? What I am trying to find out is the care with which these agreements have been negotiated with regard to data adequacy.

[The Earl of Minto (Con)]

My Lords, I absolutely understand the point and I am assured that the security of data is second to none throughout these free trade arrangements, but I will be very happy to write with the full details.

Economic Crime and Corporate Transparency Bill

Lord Clement-Jones Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, I have tabled Amendment 63 to Clause 90. I refer to my interests as set out in the register. I am a director of several companies and a person with significant control of an LLP, so I have had a lot of interaction with Companies House over the years.

My amendment might sound rather anodyne, but the amendments I have tabled to the Bill are the first building blocks of the transformational change that will be needed in Companies House once this Bill has been passed. We are taking an organisation that ever since its creation has simply been a passive receiver of data and has never had any cultural inclination to challenge it. This Bill changes that, which we welcome, and I am most grateful to my noble friend the Minister for all his positive engagement so far. What I am asking for here is a direct and specific requirement for the registrar to construct a process that will enable her essentially to triage the cases that are coming through the system. As my noble friend the Minister said, there are 5 million companies on the register and some 300,000 to 400,000 new companies are created annually.

When the Bill is passed we will have a problem with what I call stock and flow—in other words, a huge cleaning-up operation of the 5 million companies that are already there will be needed, and that will take some time. We also need to ensure, as quickly as possible after the Bill has passed, that the new registrations coming through are of the highest standard possible. Essentially, I am asking for the registrar to be required to make a risk assessment of new companies being created. One example that is well known in the financial word is that of Danske Bank in Denmark, which was the largest ever anti-money laundering fraud case in Europe, worth some €200 billion. Much of that started here through our LLP and LP structures. It would not have been difficult to have seen that there were trends among a lot of the LLPs that were being created. Many of them were coming from the same registration agent and with similar, often the same, addresses. That would have been a serious red flag that could have been investigated.

I am trying not to the rewrite the past but to set the tone for the future. It will not be realistic for the registrar to go into enormous detail on every registration, but if she builds a triaging system at the beginning, with a series of red flags, in aggregate the ones with the most red flags will be the ones that need priority. When I was the Minister for Grants, I discovered that we were doling out £30 billion a year in grants, but we had no system to assess the validity of the people receiving the grants. We put in place one very simple piece of software called Quantexa which shows immediately all the connections of the person making the grant to other people who are not necessarily good actors in the system. It cost £1 or £2 a go, or maybe £5 a go, but it had a dramatic impact very quickly. It is those sorts of tools that Companies House in its new format will need to use. I am not specifying an app, but I am most anxious that the Minister considers my amendment and includes it as one of his own.

[Lord Clement-Jones (LD)]

My Lords, I thank the noble Lord, Lord Johnson, for his introduction today, and I acknowledge the work of the noble Lord, Lord Callanan, on the previous Bill and in the run-up to today. I am very sorry that my noble friend Lord Fox is unable to be here to help kick off proceedings. I am merely his understudy today—but he will, I am assured, be back with a vengeance after Easter.

--- Later in debate ---

As we expand our legislation and continue as a Government to crack down on illicit financial activity, it is highly likely that new organisations with new skill sets and further investment will be placed at the disposal of Companies House. While I do not have the figures to hand—I am happy to clarify them in a later debate—tens of millions of pounds, if not hundreds of millions, have been allocated over the past two years to ensure that we reduce the high levels of illicit activity in our country.

[Lord Clement-Jones (LD)]

I just interrupt the Minister before he goes much further. I have been listening very carefully to what he has to say, but he seemed to imply that a risk-based approach could lead to box-ticking. Surely, a risk-based approach is the very antithesis of box-ticking.

[Lord Johnson of Lainston (Con)]

I appreciate that intervention. Our view is that if we legislate specifically for a risk-based approach, on top of what we believe is already a risk-based approach, we are not achieving our goals. The concern from the Government’s point of view—and mine, as someone who has registered companies with Companies House—is that you end up box-checking. The Bill is designed to ensure that the registrar is responsible for ensuring the integrity of the register and minimising criminal activity. In my view, those are the core functions of the registrar and the activity of Companies House, so we already have what one would describe as a risk-based approach built in. We feel very comfortable that this ambition, which is what this is all about, is well built into the legislation and will be the core function of the registrar—this is the essence of it—and we believe this to be well represented. Clearly, the ambition of the registrar will be to take a risk-based approach to her activities. We may be arguing over the same point, but I take it very seriously and am happy to consider it with more thought. As I said, this has been drafted effectively to encompass the concepts and points raised by noble Lords.

I believe I have covered most of the points raised. My last point was raised by the noble Lord, Lord Clement-Jones: we are trying to create the registrar as a proactive gatekeeper. That is at the core of the Bill’s ambition. We welcome input on how we can ensure this is done more specifically.

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[Lord Clement-Jones (LD)]

My Lords, I think I need to say very little given the barrage we have heard. These Benches firmly support the amendments of the noble Lord, Lord Vaux, and congratulate him on putting up with the mispronunciation of his name on such a consistent basis. I expect that the noble Lord, Lord Faulks, has exactly the same problem, so there is a commonality across the Benches here. The noble Lord, Lord Agnew, talked about “heavy lifting” and others have talked about “very light requirements”. Those who have argued for the amendments have made a very strong case, not least my noble friend Lord Wallace of Saltaire on the implications for overseas territories and revealing beneficiaries there. Transparency is the essence of what we are trying to achieve here.

I think we all agree that one of the core competencies of Companies House needs to be expertise in verifying the identity of applicants, whether subscribers or members, and so on. Identity verification, which we will discuss throughout Part 1, will be a vital tool in the policing of the sector if it is to be successful and should be a core competence of what we might call the new model of Companies House. There is some doubt about how far this is being, in a sense, outsourced to others. These amendments make it absolutely clear, particularly as regards nominees, that it should be the applicant and Companies House which make sure that we know who we are dealing with here. It has several distinct advantages and, as everyone has emphasised in this debate, is not an onerous requirement.

[Lord Johnson of Lainston (Con)]

I thank noble Lords for their amendments. The Government appreciate their intent but consider that we already have the powers we need in the Bill to address the substance of these concerns. Following on from comments from my noble friend Lord Faulks and the noble Lord, Lord Clement-Jones, we are not discussing the verification of corporate providers. I think there is a significant amount of discussion to be had on that a bit later.

I totally agree about the importance of the transparency of the records and understanding who the beneficial owners of companies are—that is the whole point of much of the work we are undertaking today. On the comments of the noble Lord, Lord Vaux, about the ownership level of 25%, in a private company you have to have your identity verified if you are a director, own 25% or more of the company or are a person with significant control. To clarify, the 25% level does not denote a person with significant control. Somebody who has one share can be a person with significant control, and it is the company’s duty to report who they are. It is extremely important to make that clear in this discussion.

I was not in this great House for the previous piece of legislation, the debate on which has resulted in this new piece of legislation, but I am very aware of the importance of understanding who stands behind the companies—as has rightly been said, to quote myself, the people acting for and benefiting from companies. The 25% level does not denote a person with significant control, and companies suffer significant penalties—the penalty regime, which I am happy to share with noble Lords, is substantial and at the very core of this process.

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[Lord Thomas of Gresford (LD)]

My Lords, the Companies Act says at Section 9(5) that an application

“must contain a statement of the intended address of the company’s registered office”.

That is all on registration. That opens up the sort of abuses that we have heard from the noble Baroness and the two noble Lords who have already spoken. I tend to agree with the two noble Lords, having been a solicitor myself, that it is perfectly responsible for a solicitor’s or accountant’s office to be used as a registered office, but nevertheless, the way in which the Government have attacked it does not cover the whole ground. It is very sensible, in addition to the way the Government have put it, to define an appropriate office in the negative sense. That would not include the solicitor’s or accountant’s office, for the reasons given.

[Lord Clement-Jones (LD)]

My Lords, I have very little to add to what my noble friend said. This is clearly a bit of a curate’s egg and Amendment 23 is a good start, but there are objections to it, which were very well set out by the noble Lords, Lord Leigh and Lord Vaux. As my noble friend said, it is quite usual to use professional offices as a registered office. I hope the Minister will acknowledge that new subsection (2) in Clause 29(3) is not as good as it should be and that he will take on board some of the points made about Amendment 23. Then, we would be in a much better place.

[Lord Johnson of Lainston (Con)]

I thank the noble Lords, Lord Vaux and Lord Leigh, the noble Baroness, Lady Blake, and the noble Lords, Lord Thomas and Lord Clement-Jones, for their contribution to the debate on this issue.

The Government’s view is that Clause 29 already introduces a revised Section 86 to the Companies Act 2006 in an effort to introduce a definition of what constitutes an acceptable and effective address for a company’s registered office. The amendment seeks to define the opposite: what would not represent an appropriate address. I hope your Lordships will agree with the following argument for why that is unnecessary.

I begin with the suggestion that PO box addresses be explicitly forbidden. We do not believe there is a need for this. A PO box address cannot be an address at which deliveries can be acknowledged, nor an address to which a sender can be assured that what is sent will find its way to the hands of a company representative. It is therefore clearly not an appropriate address—we very much agree with the noble Baroness on that.

I turn to the “reasonable suspicion” element of the amendment. Where the registrar has reasonable grounds to suspect that the company does not have permission to use an address, she will almost inevitably conclude that the conditions that I have just mentioned will not be capable of being met and, again, she will be within her rights to reject or force the company to change it as appropriate.

The other element of the amendment would prevent companies having their registered office address anywhere other than their main place of business. There are, frankly, many reasons why a company may choose to separate the two, so this could be problematic for many companies. That includes, for example, particularly small enterprises that carry out businesses from home but choose to register the company at the premises of their accountant in order to protect their residential address details, which I think we would agree is perfectly reasonable. We have been at pains elsewhere in the Bill to introduce measures to extend, where appropriate, the ability to suppress addresses that the public have access to which might jeopardise the safety or security of individuals. There are elements of the amendment that we believe would run contrary to those aims.

I hope the Committee will be reassured that new Section 86 will be an effective means by which to monitor and police the accuracy of company address information and that the noble Baroness will feel able to withdraw her amendment. As a final point, I personally have great sympathy with the ambitions of the amendment to make sure that the right address is being provided for the company register, but I hope I have laid out the reasons why the processes that the Government have put in the legislation should be sufficient to ensure that real addresses are given and other protections are employed.

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[Lord Trevethin and Oaksey (CB)]

I was going to make a similar point. Obviously, there are a number of different classes of shares; as it stands, the amendment is, with respect, a little unclear as to how it would operate in relation to voting shares, non-voting shares, preference shares, class A shares, class B shares and so forth. That would need to be tightened up.

On the amendment creating a dangerously onerous regime, it occurred to me that a further aspect of its onerousness relates to what the registrar is required to do pursuant to this amendment. It currently states that the registrar must

“verify the number of shares the person claims to control.”

If taken literally, that might require the registrar to look quite carefully at what is being said about the slightly tricky concept of control, which is not quite the same as ownership. That might need to be reconsidered in due course, or perhaps watered down or removed.

[Lord Clement-Jones (LD)]

Noble Lords, including my noble friend Lady Bowles, have usefully teased out some of the principles that we need to adopt and the fact that we are not quite there in terms of trying to find a relatively simple formula that is not unduly onerous. They also point out that the current provisions are not adequate. Indeed, it is quite interesting that we have two separate groups here, in coming to government Amendment 42. This whole area of persons with significant control and what the noble Lord, Lord Agnew, set out in terms of shareholders holding more than 5% of shares demonstrate that we need a greater level of transparency.

I very much hope that the Minister will come back in the spirit in which these proceedings have been conducted and say, “Yes, we think there is more to be done and that it is possible to get over the SME issue that has been raised by a number of noble Lords. However, we think in principle that it is desirable to go down this sort of route that has been suggested.” I hope that we will get a positive reply from the Minister and an undertaking to take this forward in the way that the noble Lord, Lord Vaux, suggested.

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[Lord Clement-Jones (LD)]

My Lords, all this is well above my legal pay grade, but the Minister has no doubt heard all the voices; clearly, there are flaws in this new clause. I suggest that he listen to those voices, take advice and not move this amendment and that we should come back to this at a later stage. As the Minister can see, there is considerable appetite around the Room for a proactive approach to the new Companies Act powers and duties, the registrar and so on. However, there are genuine concerns that have been expressed, so I suggest that the Minister takes this away and considers it pretty carefully, given the opinions that have been vouchsafed this afternoon.

[Lord Browne of Ladyton (Lab)]

My Lords, I am fully in favour of this matter being taken away and simplified, if it can be. I just take advantage of this opportunity to do something I probably do not do very often, which is to support the existence of the words “reasonable excuse” as a defence in this strict liability clause. It is a long time since I practised law, but I am certain that there are lots of regulatory and other offences out there that have this defence of reasonable excuse. I am absolutely certain that the statutory provision that makes it a strict liability offence to carry an offensive weapon allows, in its drafting, a defence if you are doing it with reasonable excuse. I do not think that these two things are inconsistent, but this is not clear.

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[Lord Faulks (Non-Afl)]

I do not get the impression that the Committee is against the idea; there is simply a lack of clarity as it is currently formulated as to what constitutes “false” and a “reasonable excuse”, and what is inaccurate. I think the Committee is generally in favour of this provision and understands why it is there; we are just not quite sure that this captures it, as currently drafted.

[Lord Clement-Jones (LD)]

My Lords, the procedure in Grand Committee is quite clear: there has to be unanimity for an amendment to proceed.

[Lord Ponsonby of Shulbrede (Lab)]

We are not against the Minister’s amendment; we just think it needs clarity. The Labour Party would not object if the Committee agreed the amendment. If appropriate, we will come back to it at a later stage.

[Lord Clement-Jones (LD)]

The appropriate procedure would be for the Minister to withdraw it, and then move an amendment on Report. We would be very happy if the Minister came back on Report.

[Lord Johnson of Lainston (Con)]

At this stage, I believe it would be appropriate to consider further the amendment.

[Lord Clement-Jones (LD)]

May I just clarify for the Minister that it would be very unfortunate if he pressed his amendment? If he pressed it and lost it in Committee, I do not think he could bring back exactly the same amendment on Report. That is the rule: he would have to bring back something different on Report, even if all the officials and legal advice said that it was a perfectly sound clause—he may well get advice on that. I suggest that he withdraws it so that we do not have to vote against it.

[The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)]

My Lords, I advise that, if the amendment is voted against, it is negatived.