Digital Regulation: Communications and Digital Committee Report

Baroness Stowell of Beeston Excerpts

Thursday 21st July 2022 Grand Committee

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[Baroness Stowell of Beeston]

That the Grand Committee takes note of the Report from the Communications and Digital Committee Digital regulation: joined-up and accountable.

[Baroness Stowell of Beeston (Con)]

My Lords, I am very pleased to introduce this debate on our report, Digital Regulation: Joined-up and Accountable. I will emphasise the principle behind that title quite a bit in the remarks I make today.

Before I get into the substance of my contribution, I note that this is my first debate as chairman of the Communications and Digital Select Committee. I pay tribute to my predecessor, my noble friend Lord Gilbert of Panteg. He is very well respected across the industries and sectors that the committee focuses its work on. He has become a respected figure because he has ensured that we as a committee have focused on matters of importance and that we have done so in a fair and balanced way. The work we have done has had some impact as a result. He is a tough act to follow.

I add to this tribute by paying thanks to Theo Demolder, who supported the committee for three years, initially as our policy analyst and then as our clerk. He finished that role at the beginning of this year. I also thank the policy analyst who then worked with us and remains part of our team, Emily Bailey Page. I would like to welcome our new clerk, Daniel Schlappa. They and the whole committee are greatly assisted, as always, by the wonderful Rita Cohen. I am very grateful to the team.

I am grateful to all noble Lords who sit on the committee and I am particularly grateful to my noble friend Lord Vaizey for being here to speak today. We had to decide whether to accept what I might describe as this “graveyard slot” in the Moses Room on the last day of term during a hot and sunny week, or perhaps wait months for another opportunity to have this debate. The trade-off was few people being available, but I know my colleagues are with me in spirit. I am grateful to the Labour and Lib Dem Front Benches for fielding their A-teams and to my noble friend the Minister for his never-ending zeal and commitment to his brief, whatever the weather or political events outside. I look forward to everybody’s contributions today.

This inquiry and the resulting report were the final pieces of work undertaken by the committee under my noble friend’s chairmanship, as a follow-up to a major inquiry into digital regulation carried out by the committee in 2019. Three years ago, the committee’s central finding was that the digital world requires not merely more regulation but a different approach to regulation. Digital technologies are playing an ever-greater role in our lives and the regulation of those technologies deserves increasing scrutiny.

As I say, that does not necessarily mean more regulation, but we believe that regulators would need new and different powers. Indeed, they would need to adopt a different kind of regulation. It would need to be principles-based, with regulators having to exercise greater flexibility and judgment, which in turn would require greater collaboration between regulators and much greater and co-ordinated parliamentary oversight than ever before.

We published our report Digital Regulation: Joined-up and Accountable in December 2021 as a follow-up to the earlier inquiry. So fundamental was the need for a change of approach in regulation, we thought it was important to find out what progress had been made in the two and a half years since. In December last year, regulators appeared to be on the verge of being granted broad new powers, urgently necessary to keep pace with the fast-changing digital world.

Unfortunately, since then, what was expected has not yet come to pass. The parliamentary progress of the Online Safety Bill has recently been delayed, and the proposals to place the Digital Markets Unit within the CMA on a statutory footing have not been brought forward, despite multiple reviews and consultations over nearly five years pointing to this as the way forward.

In the meantime, other jurisdictions are pulling ahead. The Digital Markets Act and Digital Services Act have been adopted this month by the European Parliament. As a result, the UK risks becoming a rule taker, rather than a rule maker, in this area of digital regulation. To state the obvious, this means that we could lose our influence in setting the agenda. It is hard to understand why the Government have been prepared to let this happen, because designing our own framework was a benefit of us leaving the European Union, and the UK’s proposed approach has been held up as much better—I will come back to this later.

Our report, published seven months ago, at a time when we were on the verge of change, focused on the need for better co-ordination and co-operation between regulators—and that requirement remains a priority. But, as a committee, we were also clear that more co-operation between regulators needed to be accompanied by updates to the legislative framework, because, however well co-ordinated they are, they will be ineffective if they do not have the powers required.

I of course understand that the call for more regulatory power can often trigger alarm. Mission creep and unnecessary red tape would not be supported by any sensible person, which is why our report recognised the legitimate concerns that many will have about regulators being given broad new powers and increased discretion to make judgments in complex areas. Furthermore, this is precisely why our report recommends that increased parliamentary accountability for regulators is an equal necessity. What we cannot escape, and what we are clear about, is that, given the pace of technological change, regulation needs to become more principles-based. But we are equally clear, as I say, that this must be coupled with greater parliamentary oversight.

I turn now to what we reported in December 2021, having reviewed progress against that earlier March 2019 report. In our first report, we asked for regulation to be strengthened and better co-ordinated, to make it capable of responding to the fast pace of change and the impact of that across the economy and society. The Digital Regulation Cooperation Forum or DRCF—even the acronym is a mouthful—was then established in July 2020. This was an early step in the right direction and includes representatives of the CMA, Ofcom, the ICO and, latterly, the FCA.

But there are persistent challenges that are not being dealt with adequately, which we raised in our December 2021 report. For instance, we found that more needed to be done to improve co-ordination and co-operation, particularly to identify new and emerging risks. The DRCF told us that it is difficult to recruit people with the right skills to scan the horizon for new regulatory challenges and that it cannot compete with the salaries that big tech companies can offer to skilled individuals. Yet, although it was struggling to do that, there is a proliferation of horizon-scanning activity in industry, academia, think tanks and advisory bodies. One of our witnesses—Andrew Murray from the LSE—told us that new reports identifying a lot of these challenges were coming out “almost daily”. In fact, as an expert working on this full time, even he could not keep up with it, although it was supposed to be his day job.

So there was no need for the DRCF to attempt to replicate this work, but it needed to do better to take advantage of the work already being done by others. As a result of that, we are pleased to see that it is doing so and joining up more now with SMEs, start-ups and academia via external engagements and symposia. However, we still feel that there is more to be done. In our report, we recommended that full membership of the DRCF be extended to all statutory regulators with an interest in the digital world, and partial membership extended to relevant non-statutory and advisory bodies.

The second challenge we identified in our report is something I have already talked about: a lack of parliamentary accountability for regulators as their work expands. Just as we believe that the work of regulation in the digital world needs to be “cross-sectoral”, if noble Lords will forgive the jargon, so too must be the process of holding regulators to account in Parliament. As I have already said, as the work of regulators expands and involves more discretion and judgment, some parts of the industry are understandably concerned that this will lead to overreach and unaccountability.

The committee believes that if the DRCF were placed on a statutory footing under a non-executive board of directors and led by an independent chair, this would enable Parliament to hold the DRCF directly accountable. We made that recommendation in our report. Unfortunately, it was not supported by the Government, but this accountability is becoming increasingly important as individual regulators increasingly take joint decisions.

As noble Lords will know, no single Select Committee has a remit to focus on digital regulation across government departments and industry sectors. Many Select Committees have remits relating to digital regulation but must balance them alongside other work. Indeed, the Communications and Digital Committee must balance scrutiny of digital regulation alongside work on the media and creative industries. Stakeholders told us that they would welcome formal public scrutiny of the work of the DRCF via a parliamentary committee, both as a counterweight to regulatory reach and to ensure that regulation is effective.

Again, one of our specific recommendations was that a Joint Committee of Parliament be established to provide sustained scrutiny of digital regulation. In fact, it is worth noting that the Joint Committee on the Online Safety Bill—the committee that did the pre-legislative scrutiny—agreed and made a similar recommendation. Unfortunately, the Government did not support that recommendation, either. Maybe my noble friend the Minister can offer us some further thoughts on that, as we are identifying it as still a key issue.

The third key concern was that the DRCF lacks robust mechanisms for resolving conflicts that may arise between regulatory agendas, increasing the risk that powerful tech companies will be able to play regulators off against each other. For example, encryption might be favoured from a privacy standpoint, but child protection advocates may seek to limit it. One of our witnesses, Dr Elena Abrusci, warned that

“the DRCF may suffer from a power imbalance between regulators. Without an independent chair or a procedure to manage trade-offs between contrasting interests, the DRCF could be limited in its actions.”

So without statutory underpinning of the DRCF, which is something we have called for and which the Government do not support, there is a limit to what the DRCF can achieve here.

We also made a recommendation to formalise DRCF co-ordination by introducing statutory measures, including duties for regulators to consult one another and the creation of statutory information-sharing mechanisms. We welcome the Government’s commitment in response to that that there will be statutory duties for the CMA and the ICO to consult other regulators, but what legislation will that appear in and when will it come forward?

Since our report, albeit that there were specific recommendations that the Government did not support, as I identified, they none the less gave overall support to the report, and we welcome that. They agreed with us about the scale of opportunities and challenges posed by digital innovation, as well as the importance of ensuring that our regulatory system keeps pace with developments in digital technologies and markets.

The DRCF itself published its workplan for 2022-23 a few months ago, including plans to build further on the joint statement between the ICO and the CMA from the year before about data protection and competition, and sharing knowledge on algorithmic auditing. We welcome the joint statement from Ofcom and the CMA earlier this month on online safety and competition in digital markets. We also welcome action from individual regulators, such as the CMA’s decision to launch market investigation references into Google and Apple’s dominance in mobile app ecosystems, while it awaits the necessary powers to place the Digital Markets Unit on a statutory footing.

So all of this is welcome, but without the DMU being put on a statutory footing and the new pro-competition regime we will not have a UK equivalent of the news media bargaining code, which has provided enormous benefit to the news industry in Australia. I know that the Government care about the future of journalism. They committed to a news media bargaining code in their response to the consultation on the pro-competition regime for the digital market, but the policy solutions that the media industry is crying out for are sat on the table.

We welcome the initial progress, but there remains a long way to go. We as a committee are concerned that the UK is falling behind in this vital area of digital regulation, particularly in the area of competition. We urge the Government to bring forward legislation to put the DMU on a statutory footing and give it the ex-ante powers it needs to address fundamental imbalances in the market.

As I have commented before in debates, my noble friend has had busy slate of legislation to steward through your Lordships’ House, but, as much as I am concerned for his well-being in undertaking all that work, I am now also concerned about the potential delay to some of this. Will my noble friend give us an update on what is happening to the Online Safety Bill, the latest on the media Bill and, in response to something in the newspaper today, the Government’s latest position on the independent review of the BBC’s future funding? I look forward to all noble Lords’ contributions to this debate, particularly the Minister’s, and I beg to move.

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[Baroness Stowell of Beeston (Con)]

My Lords, I am very grateful to everyone for their powerful contributions. This may have been a small Committee, but it has been perfectly formed.

To repeat something that I said at the beginning, I welcome the important work of the statutory regulators, which are responsible for a lot of important aspects of our national life. It is incumbent on me in particular—as chair of the Communications and Digital Committee, which engages with all of them—to put on record just how much we acknowledge and recognise the important work they do.

I also again welcome the creation of the DRCF. As I said, this is an important step in the right direction and, as noble Lords touched on, its work is already making a difference, which is to be acknowledged. I was taken by my noble friend the Minister’s remarks on the benefits, sometimes, of something not being statutory but agile and flexible. I take that point, but I emphasise that the nature of what we are talking about requires us to keep this under constant review. I remain of the view that there needs to be some statutory underpinning for a body that is able to pull together the work of these various regulatory bodies and deal with the occasional conflicts and issues that might require trade-offs. If it were to be on a statutory footing, that would make its accountability and the parliamentary oversight of it that much more effective.

I also endorse noble Lords’ references to the non-statutory bodies that do important work in this area. I will name a few: the Internet Watch Foundation, the Advertising Standards Authority and the British Board of Film Classification—that is not an exhaustive list. It is important that we recognise their work, the importance of the statutory regulators working hand in hand with them and the requirement for that to continue.

I was encouraged that my noble friend said that the Government remain committed to bringing forward the draft Bill on digital competition. What he said about the potential for a new Joint Committee to scrutinise the implementation of the Online Safety Bill once it is passed by Parliament was interesting. As he alluded to, when that Bill comes to your Lordships’ House, we might want to return to some of the issues we have talked about. If a Joint Committee is to be set up specifically for that, it may make sense to look at its remit.

In closing, I want to repeat something that the noble Lord, Lord Clement-Jones, said: regulation is not the enemy of innovation; it can encourage public trust and therefore the take-up of new technologies. It is important for us to understand that properly. As I said in my opening speech, I acknowledge and appreciate that there is fear about regulation being stifling. What we are calling for and recommending in our report—I am very pleased with my noble friend’s constructive response—is the need for a new approach to regulation in the digital sphere and making sure that our regulators are equipped to serve the public interest as a whole. Just believing that what exists currently will be adequate for a very different kind of world is not right. Things are changing, and we need to make sure that regulation changes too.

To illustrate that point, I turn to of putting the Digital Markets Unit on a statutory footing. One of the real-life impacts of it not having ex-ante powers—at least, not yet—and therefore not having the ability to assign strategic status to the likes of Google or Facebook is that it is very limited in how it can intervene in these markets at the moment. As I say, and wish to stress, intervention by regulators is a very sensitive area for anything to be done. In 2018, the CMA did a study of online advertising which showed that both Google and Facebook were consistently earning profits well above what is required to reward investors with a fair return to the tune of £2 billion. That was in 2018. The real risk of not being able to revisit this sort of thing—which would need to be very sensitively done; it is not something you would want to do without proper oversight—means that customers are potentially being overcharged for products and services that make heavy use of digital advertising, such as consumer electronics, hotels and insurance. In a world where we are talking about a cost of living crisis, that brings into focus that there is sometimes a need for regulators to intervene in the public interest which, at the moment, they would be not well equipped to do. Should it be decided that that is the right thing for them to do, the oversight of that does not exist in the way we might want it to in the future.

This has been a very helpful and rewarding debate. I say again that I am very grateful to all noble Lords for their contributions. I am grateful to the Minister for his update on the legislation and where we are with the Government considering the committee’s recommendations on the future funding of the BBC and their decision to launch an independent inquiry. I look forward to reconvening with him after the summer break when we are all refreshed to crack on with the important work we are responsible for.

Motion agreed.