Digital Markets, Competition and Consumers Bill

Jeremy Wright Excerpts

Report stage
Monday 20th November 2023 Commons Chamber

[Saqib Bhatti]

I am honoured to have been appointed as the Minister with responsibility for tech and the digital economy, and as one of the Ministers with responsibility for the Digital Markets, Competition and Consumers Bill. When I was appointed last Tuesday, many helpful colleagues came up to me to say, “You have been thrown in at the deep end,” but it is a blessing to have responsibility for taking this legislation through the House.

In that vein, I thank my hon. Friend the Member for Sutton and Cheam (Paul Scully) for his tireless work to get the Bill to this stage.

I am aware of the importance of this legislation and the sentiment across the House to deliver the Bill quickly. The benefits of the digital market measures in part 1 of the Bill are clear to see. They will bring about a more dynamic digital economy, which prioritises innovation, growth and the delivery of better outcomes for consumers and small businesses. The rise of digital technologies has been transformative, delivering huge value to consumers and businesses. However, a small number of firms exert immense control across strategically critical services online because the unique characteristics of digital markets, such as network effects and data consolidation, make them prone to tip in favour of a few firms. The new digital markets regime will remove obstacles to competition and drive growth in digital markets, by proactively driving more dynamic markets and by preventing harmful practices such as making it difficult to switch between operating systems.

I turn now to the Government amendments. When the Under-Secretary of State for Business and Trade, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) first stood in the House, he stated that the legislation would unleash the full opportunities of digital markets for the UK. That intention has not changed, and our amendments fully support that. The Government’s amendments to part 1 will provide greater clarity to parties interacting with the regime, enhance the accountability of the regulator and make sure that the legislation is drafted effectively and meets its aims. I will address each of those themes in order.

This new regime is novel. To maximise certainty, it is critical that its parameters—the scopes of the regulator’s functions and the rights and obligations set out in the legislation—are clear. Therefore, the Government have tabled a series of amendments to further clarify how the digital markets regime will work in practice. The amendments relate to how legally binding commitments provided by firms within the scope of the regime will work in practice, the Digital Market Unit’s ability to amend certain decision notices, and how in certain circumstances the DMU may use its investigatory and enforcement powers after a firm is no longer designated.

Two important sets of clarifying amendments are worth covering in more detail. The first relates to conduct requirements. Consumer benefit is a central focus of the digital markets regime. The DMU must consider consumer benefit when shaping the design of its interventions. To reinforce that central focus, we are clarifying how the DMU will consider consumer benefits when imposing and enforcing conduct requirements. Amendment 7 requires the DMU to explain the consumer benefits that it expects to result from a conduct requirement, ensuring transparent, well-evidenced decisions. Amendments 13 and 14 simplify the wording of the countervailing benefits exemption, while critically maintaining the same high threshold.

[Sir Jeremy Wright (Kenilworth and Southam) (Con)]

I draw the House’s attention to my entry in the Register of Members’ Financial Interests. Let me take the opportunity to congratulate my hon. Friend the Member for Meriden (Saqib Bhatti) on his appointment. Does he recognise that it is important to be clear—and for the CMA and the DMU to be clear—that there could be a conflict between the interests of current consumers and those of future consumers? Therefore, it is important that the interests of both are balanced in what the CMA and the DMU eventually decide to do.

[Saqib Bhatti]

My right hon. Friend makes an important point. As I make progress, I hope he will be reassured that the regime will take both those things into account.

Together, amendments 13 and 14 will make sure that consumers get the best outcomes. Amendment 14 makes an important clarification on the role of third parties in the final offer mechanism process. New clause 5 and related amendments will clarify when and how third parties may make collective submissions in relation to the final offer mechanism. That is vital, as collective bargaining can help to address power imbalances during negotiations. We expect that third parties, especially smaller organisations, may seek to work together when negotiating payment terms and conditions.

My second theme is the accountability of the regulator. The discretion afforded to the CMA and its accountability to Government and Parliament have formed a large part of the debate—quite rightly—during the passage of the Bill. I will take time to address that.

The digital markets regime is flexible in its design, with the CMA requiring a level of discretion to deliver effective outcomes. While that is common for ex ante regulation, that does not negate the importance of taking steps to maximise the predictability and proportionality of the regulator’s actions. For that reason, the Government are introducing an explicit requirement for the CMA to impose conduct requirements and pro-competition interventions only where it considers that it is proportionate to do so.

That will make it clear to firms in scope of the regime that they will not be subject to undue regulatory burdens. Firms will be able to challenge disproportionate obligations, and the Competition Appeal Tribunal will, in its consideration of any appeals, apply the principle of proportionality in a reasonable way, as it always does. To complement that, and to ensure consistent senior oversight and accountability of the regime, amendments 57 to 60 require enforcement decisions, including the imposition of penalties, to be reserved to the CMA board or its committee.

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[Saqib Bhatti]

My right hon. Friend is always a thoughtful contributor to debates in this House. We believe that the amendments ensure consumer benefit is at the heart of what we are doing and any appeals will be carried out appropriately. Adopting these amendments would bring the digital markets regime into closer alignment with existing CMA mergers and markets regimes, where penalty decisions can be appealed on the merits. As in those regimes, all other decisions are appealable on judicial review principles.

[Sir Jeremy Wright]

I thank my hon. Friend for giving way again. He will appreciate that we are all trying to get clarity, so we understand what the proposals really mean. In relation to the appeal standard that he describes, for cases that are not specifically related to fines, he mentioned the proportionality addition earlier in his remarks. When it comes to an appeal, are we right to understand that the question of proportionality applies when the CMA originally makes its decision to require an intervention and does not apply to the JR standard that is used to determine an appeal?

It is important to be specific about that, because there are those who would argue that proportionality should be a part of the appeal process. I think the Government amendments say that proportionality applies at an earlier stage and that when it comes to considering whether the CMA has behaved in a proportionate way in making its decisions, the assessment will be made by the Competition Appeal Tribunal on JR principles. Am I right about that?

[Saqib Bhatti]

I agree that that is exactly what we are saying. I am happy to provide further clarity in my closing remarks.

Critical to accountability is, of course, transparency. The Government are committed to transparency and bringing forward amendments that will require the CMA to set out its reasons for imposing or varying a conduct requirement. That will improve transparency around CMA decision making and increase consistency with other powers in the Bill where similar justification is required. It also reinforces the CMA’s existing responsibility to consider likely impacts on consumers when deciding whether and how to intervene.

The third theme is to ensure the legislation is drafted effectively. Therefore, we have tabled further technical amendments to ensure that the Bill’s text meets the Government’s original intended aim. They relate to the scope of conduct requirements, specifically the application of the materiality threshold contained in clause 20(3)(c), the maximum penalty limits imposed on individuals, the mergers reporting duty and the service of notices on undertakings overseas in certain circumstances.

It is worth noting that there are a small number of cross-cutting amendments contained in parts 5 and 6 of the Bill that will also impact the digital markets regime. I want to ensure that there is plenty of time for hon. Members to debate the Bill at this important stage in its passage. I appreciate a collaborative approach from across the House. I am sure that there will be many different views on some of the amendments, but I look forward to a constructive and collaborative discussion.

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[Sir Robert Buckland]

The hon. Gentleman is right to make that point. That is why in other jurisdictions we have seen agreement reached between big tech and newspaper titles to ensure that there is that element of fairness. I agree with him; I want to see similar fairness and equity applied across the market. What I and others who agree with me are trying to do is to ensure that, in creating this brave new world of energetic and efficient regulation, we do not as a Parliament upset the balance by giving too much power to a particular regulator. A lot of us in this place have watched with concern the failure of other types of regulation—in our water industry or our energy industry, for example. I do not think anybody would deny that, at times, we have got regulation wrong. That is why it is important that we have this debate.

There are people outside this place who have put pressure on us by saying, “The Bill is in perfect order. There is no need for you to look at it any more; great minds have thought about it.” I say to them that it is for this place to make those decisions. I do not look kindly on comments made by the chief executive of the CMA about the merits of what this place is considering while the Bill is in Parliament. I absolutely accept the independence of the CMA and the important role that it plays, but we should not confuse independence with lack of accountability. That is a point that I will warm to in a little while, when I address the relationship between regulators—in this case, the CMA—and Parliament. At the moment, that relationship is wholly inadequate.

I was making the point that, unlike the Competition Act 1998, there is a relative lack of worked-out court interpretation of this Bill’s subject matter. That has led to distinguished commentators—no less than Sir Jonathan Jones, former Treasury counsel—making the point in evidence to the Committee that, in effect, the DMU would be able to decide who was going to regulate, set the rules that apply and then enforce those rules. The phrase “legislator, investigator and executioner” was used. While that is colourful language—perhaps too colourful for a dry debate about competition law—it is important that we reflect on the view of that former Treasury solicitor and be very careful that in going down this road, we are not making false comparisons.

A lot has been said about Ofcom and its decisions, and comparisons have been made, but we must not forget that those Ofcom decisions were heavily governed by EU framework directive 2002/21. Article 4 of that directive says that on ex-ante telecom appeals,

“Member States shall ensure that the merits of the case are duly taken into account and that there is an effective appeal mechanism.”

That is a bit different from the provisions in the Bill. A simple JR-type review is precisely that, and no more.

I listened with interest to the intervention made by my right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright), who made a really good point that needs answering. We need to understand where proportionality comes into this. If the principle of proportionality is being used in the first instance, that is all well and good, but we need to understand how that fits with the provisions of the Bill: whether it implies that the courts deem every decision made by the DMU to be proportionate, or whether there is a way to challenge a particular decision by saying that it was not made according to the DMU’s own principles, acting in a proportionate way.

[Sir Jeremy Wright]

It seems to me—I would be interested in my right hon. and learned Friend’s view—that on the basis of the Government’s proposed wording, it is more likely that a firm will be able to challenge whether the CMA has applied its proportionality test appropriately, but the means by which it will do so will be under JR principles on appeal, rather than on a merits basis. It is not that proportionality is not subject to challenge, but that that challenge is limited by JR principles at the appeal stage. Does my right hon. and learned Friend agree?

[Sir Robert Buckland]

That is what we need to bottom out. The primary worry that a lot of us have about the JR principle is that it means that any challenge will probably be vanishingly small, which is not good for ensuring that the regulator is working in the best way. None of us wants to encourage incontinent litigation—or incontinent legislation, bearing in mind the importance that we place on it—but sometimes, challenge is essential to create greater certainty. There will be ambiguities; there will be occasions where there needs to be a test. We should not be frightened of that.

Digital Markets, Competition and Consumers Bill

Jeremy Wright Excerpts

Consideration of Lords amendments
Tuesday 30th April 2024 Commons Chamber

[Kevin Hollinrake]

We have engaged significantly, throughout the Bill’s passage and before it was introduced, with large tech and challenger tech. Our understanding is that all those cohorts are happy with where the Bill is today. Certainly, during that engagement, concerns were raised about the term “appropriate,” but the clear position that we expressed to those who raised that concern was, “Of course, there is a requirement on the CMA to act proportionately.” Putting that in the Bill does not undermine its basic principles. In fact, we understand from the situation in the European Court of Human Rights, and the property rights emanating from it, that all those things are baked in anyway, so we do not feel that the wording weakens the legislation at all, but it does strike the right balance between those two different courts.

[Sir Jeremy Wright (Kenilworth and Southam) (Con)]

It is clearly important that we understand what “proportionate” means in this context. Is the Government’s position that proportionality implies that there is more for the CMA to think about than just how effectively the imposition of a conduct requirement would fulfil the CMA’s requirements? If so, what can the Government do to make that clear, so that courts and tribunals that consider such cases do not fill in the gaps themselves? The words “appropriate” and “proportionate” could be interpreted quite widely if the Government are not clear about what they mean by them.

[Kevin Hollinrake]

My right hon. and learned Friend will know from his legal background that the term “proportionate” is well established in law. Of course, the courts play an important part here. We do not prescribe everything in our legislation; there is quite rightly the opportunity for people to challenge certain decisions by the CMA. Clearly, we are trying to reduce the ability of large tech to prevent investment from smaller tech. That is the balance that we are striking, but we do not want to discourage investment from big tech, so the requirement for the CMA to act proportionately is reasonable.

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In an attempt to save the Government from themselves, the Lords have tried to return the Bill to its original shape with four sets of amendments, which I will now go through. The first set, Lords amendments 9 and 19, deals with proportionality. The original Government version of the Bill said that the CMA’s conduct in regulating digital markets had to be “appropriate”. The Government then changed that to “proportionate”. Lords amendment 9 would change it back to “appropriate”. I believe that the Government version would, in effect, render any challenge to the CMA’s conduct a test of the merits, rather than a judicial review, and provide big tech firms with limitless legal budgets with even more scope to tie the CMA up in lengthy legal wrangling. Jarndyce v. Jarndyce in the Court of Chancery would have nothing on the CMA in the High Court. The Government seem to be deliberately clipping the wings of the CMA, and Labour agrees with their lordships that in this area, the Bill should be returned to its original form.

[Sir Jeremy Wright]

How would a tribunal consider the appropriateness of a CMA intervention without considering the detail and merit of it?

[Sir Chris Bryant]

The point is that either the change is necessary because a new and different measure is being adopted by the Government, in which case it is a lower threshold and therefore inappropriate, or the change makes no difference whatsoever, in which case it is unnecessary. The normal standards for deciding whether an amendment is appropriate would lead us to ask, “Is it necessary, or does it provide a good remedy?” I do not think that either is the case, which is why Labour does not support the Government’s wording.

The second set of amendments, Lords amendments 12 and 13, deal with countervailing benefits. Just to prove that Labour Members speaking from the Dispatch Box are very consistent with one another, my next sentence was effectively said by my hon. Friend the Member for Pontypridd in a previous debate: the countervailing benefits exemption allows the Competition and Markets Authority to close an investigation of a breach of a conduct requirement if a firm can demonstrate that its anti-competitive conduct produces benefits that outweigh the harm and are therefore indispensable. On Report in the Commons, the Government significantly reduced the threshold for that exemption, removing the word “indispensable” and merely requiring that

“those benefits could not be realised without the conduct”.

It sounds the same, but it is different—subtly but importantly different. The Lords amendments would remove that paragraph and alter the next line so that it reads

“the conduct is indispensable and proportionate to the realisation of those benefits”.

I will make two points in this area. First, as I think everybody accepts, the “indispensable” standard is a well-understood concept in UK competition law: it is used in the Competition Act 1998, which I do not believe to be as outmoded as some Members have suggested. Secondly, the courts would interpret Parliament’s deliberate move away from an existing, well-understood standard as intending to create a new, lower threshold, which again will inevitably allow the big tech firms greater scope to launch complex legal challenges.

If the Government really do not see any distinction between the two thresholds, the most obvious compromise would be to reinstate the word “indispensable” alongside the Bill’s new wording and to clarify, today at the Dispatch Box and in the Bill’s explanatory notes, that the “indispensable” standard and the new form of words inserted by the Government have an identical meaning. Otherwise, there is a risk that the courts will seek to explore further whether Parliament has deliberately created a new threshold and standard.

I simply say to the Minister that I remember, when he was on the Back Benches and we had lengthy discussions about the powers of Companies House, that he was very keen on making sure that Companies House had the powers it needed to do proper investigations. He regularly made the point that lots of people have very deep legal pockets, and that does not necessarily mean that the consumer always wins out. I would argue that it is the same in this case.

Lords amendments 26 to 28 to clause 89 and Lords amendments 31 and 32 to clause 103 relate to appeals. The Bill originally had judicial review as the appeal standard for all CMA decisions under part 1, but in the Commons the Government moved to merits appeals for penalty decisions. I accept that this is only about penalty decisions, but I none the less believe that it is dangerous because, while the new regime is intended to be collaborative, it is ultimately the threat of fines that will incentivise big tech firms to comply with the CMA’s decisions. If there is no prospect of a fine, whether large or small, those large tech firms may well decide to be less collaborative.

There is the even greater danger that merits appeals on penalty decisions bleed back across the Bill into regulatory decisions, giving big tech firms greater scope to frustrate and challenge the CMA’s decisions. While it is correct that the courts are generally able to distinguish between judicial review and merits elements of appeals—that point has been made in previous debates by the former Attorney General, the right hon. and learned Member for Kenilworth and Southam (Sir Jeremy Wright)—it does not eliminate the concern about the two bleeding into each other, especially if the two streams take place together in the same case. If the Government are unable to reinstate judicial review appeals across part 1, as we would prefer, a clarificatory amendment should be inserted in the Bill to provide certainty that appeals on penalties cannot impact on other regulatory decisions to eliminate scope for speculative challenges.

It is worth bearing in mind that the chief executive of the CMA has made it clear that the authority wants the judicial review standard to apply. She welcomed effective judicial scrutiny of its decisions, but said:

“We think that the JR standard achieves that.”

She went on to say that her experience of merits appeals was that they result in

“very protracted litigation”,

making it

“a lot harder to reach constructive, collaborative outcomes”,

because

“all eyes are on that litigation process.”––[Official Report, Digital Markets, Competition and Consumers Public Bill Committee, 13 June 2023; c. 7, 8, Q4.]

Let me come on to the matter of ticket touting, and Lords amendment 104. I start by thanking Lord Moynihan—a Conservative peer, of course—for tabling this amendment and for his significant work across many years. When I have not agreed with every sentence from my hon. Friend the Member for Washington and Sunderland West (Mrs Hodgson) on this subject, I have sometimes felt the scratches on my back from her very elegant fingernails, but she has also done enormous work, and I think she is much to be praised for it. There are many others in the House of whom that is true as well, including all those sitting next to her on the back row, who I am sure will catch your eye later, Mr Deputy Speaker.

I start from a very simple principle: the value of a ticket—whether for the rugby, the football or a gig at the O2—is created by the artists, the promoters and, above all, the fans. Yes, the secondary ticketing market can help all three, because sometimes people buy more tickets than they need or are unable to attend for whatever reason, but the abuse of the secondary market can lead to artists, promoters and fans all losing out, and abuse is rife.

I will take an example of a case that has already been through the courts. It is that of Lynda Chenery, Mark Woods, Maria Chenery-Woods and Paul Douglas, who bought and resold concert tickets worth £6.5 million. They bought them on primary sites, including Ticketmaster, before reselling them on secondary ticketing platforms, such as Viagogo, at inflated prices. They used endless tricks, including sending customers ripped envelopes to imply that the tickets had been lost in transit or using fraud juice, which involved the use of Tipp-Ex correcting fluid or more sophisticated digital methods, to amend tickets. They held their customers in open derision. Having scammed one person into paying £535 for a ticket for the Harry Potter west end show, they referred to him in an email as “another idiot”. These people are despicable parasites preying on fans, and we need to go far further to address this issue.

This practice prices many fans out of the market and adds no value whatsoever to the creative process, at a time when creators are in desperate need of making a living out of their craft. In 2016, one ticket for Adele at the O2 arena in London was listed on GetMeIn for £24,840, which is 290 times the face value of the ticket. Nobody in the Rhondda would be to afford such a ticket. Incidentally, Wimbledon faces exactly the same set of problems.

Viagogo is today selling two tickets for Pink at the Millennium stadium in Cardiff on 11 June for £498 each. I think the fans could perfectly legitimately start shouting:

“What about us?

What about all the plans that ended in disaster?”

It is not obvious what the original price was for those tickets. On Viagogo, people can get one ticket for Peter Kay at the O2 on 4 May for £302, or tickets for “The Book of Mormon”—it has been in the theatre for several years, and is a wonderful, hilarious show—on 4 May at £420 each. In a way, the one that upsets me the most is that tickets for the ballet “The Winter’s Tale” at the Royal Opera House on 3 May—a Friday night—are £1,006 each, but people can buy those tickets from the Royal Opera House for £140, because there is taxpayer involvement in supporting the Royal Opera House.

We could say the same of StubHub, on which two standing tickets for Doja Cat in Glasgow on 11 June with a face value of £162 are selling at £1,002. This is a pernicious industry. It is parasitical, it does nothing for the creative industries in this country and we must tackle it.

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[Damian Collins]

I will speak briefly on the question that I raised earlier in the debate about the change of language from “appropriate” to “proportionate” and follow on from the remarks of my hon. Friend the Member for Weston-super-Mare (John Penrose). On one level, what the Minister is saying now—similar to what the Minister in the House of Lords, Lord Camrose, said in the debates there—is that proportionality is implicit in the law anyway and that the rights an organisation would have under article 1 of the European convention on human rights would apply anyway. Ministers are saying that bringing this language into the Bill is therefore a tidying-up exercise that re-emphasises rights that people already have. On another level, Ministers are also saying that this change creates a better balance, which means that there will be some change in how things work. It is important at this point that the House is clear about what is intended with this change.

There is a concern that the change effectively opens up a full merits appeal basis, which we have been keen to avoid doing in all the debates on this Bill as it has gone through both Houses. The Government have rightly resisted calls from big tech companies to bring that in, because it is a recipe for multiple and lengthy litigations, just as with every single measure of tech regulation that exists as a whole. That is not the intention.

Let us say that a company may be guilty of overcharging in an app store, but the cost to the consumer is relatively low. Would an intervention from the CMA be proportionate? Overcharging in the mobile app market may exist, but ultimately companies are happy to pay it and it is a relatively small charge. Would a big intervention by the CMA be a proportionate response? There are so many competing priorities, and often the individual consumer cost of some of these measures would be low, but there is the business significance of a company self-preferencing a service to the exclusion of other companies from the market. The company might say, “There is no particular consumer detriment to this, because the price is relatively low”, but it drives strategic market status. We have already seen in the European Union with the Digital Markets Act that the companies are challenging the designation of strategic market status, and they are looking for grounds to challenge at every opportunity, and we must expect that they will do the same thing here as well. That is why we should be clear that we are clear about what we mean.

My hon. Friend the Member for Weston-super-Mare invited the Minister to say that effectively, in terms of enforcement and how the courts should interpret it, the change should not make any difference from the original drafting. He invites the Minister to say that we should not be concerned that moving from “appropriate” to “proportionate” is moving from saying that the regulator should do what is within its rights to do—it is appropriate because it has the power to do it and it has made an intervention based on that power—to saying, “Even if it was appropriate for it to do it, it should not have done it, because it was disproportionate.” What would the grounds for that disproportionality be?

It is really important that the guidance to the legislation makes clear what we should expect on how the CMA can determine to find what it believes are proportionate responses, with that not being easy to dismiss on the grounds that the cost to consumers may be relatively low or the impact limited to a certain area of business.

[Sir Jeremy Wright]

My hon. Friend is, as ever, making a good case. As he knows, I agree with him about the need for the Government to be clear about what these terms really mean. One thing that we are not talking about today but which is linked to the question of definitions is what we mean by “consumer benefit”. Does he agree that there may be a difference between benefit to the current consumer and a benefit to the future consumer and that we should be clear in the Bill, should we not, that “consumer benefit” includes future consumers as well as current ones?

[Damian Collins]

My right hon. and learned Friend makes an important point. We could have a digital service provided for free, self-preferenced by a big company, offering a new service to its customers—how could there be a consumer detriment in that? But a consequence of that could be constriction of the market and the driving out of other businesses. The mobile mapping market is a really good example: Google Maps and Apple Maps totally dominate a market that used to have multiple competing companies in it. Now it does not, and there could be future consumer detriment in that.

That is why it is important that this is an ex-ante regime, which anticipates not just the detriment that may exist now, but future consequences. That is such an important principle for digital markets, which have tended to see the consolidation of market power in the hands of a relatively small number of players, who often do not compete against each other directly but dominate certain sections of the market, be it through the mobile ad market, search and retail.

There are only in effect two app stores, and given the lack of interoperability, they are virtually monopolies. We see those things already, and the development of large language model systems and the massive acquisition of data required for AI to run them is consolidating that market largely into the hands of the five or six companies that have enough data to be effective operators within it. That means that, in the future digital market world, any challenger tech developer will have to access its market and customers through the services provided by a relatively small number of companies. That is important.

I would be grateful if the Minister said in winding up whether he believes that the Bill offers a better balance. Has that balance changed, or has it not, and it is just a question of language and interpretation of meaning? What does it mean? I hope we all agree that, through making this change, we are not seeking to open up the legislation to wider judicial challenge, with more ruling through the courts, more lengthy delays and costs to try to bring forward the CMA’s interventions.