Digital Markets, Competition and Consumers Bill

Lord Clement-Jones Excerpts

Committee stage
Wednesday 24th January 2024 Grand Committee

[Lord Kamall (Con)]

My Lords, I have not put my name to these amendments but I want to speak in favour of Amendments 16, 17 and others in this group. After the first day of Committee, which I sat through without speaking, one noble Baroness came up to me and said I was unusually quiet—“unusually” being the key word there. When another noble Lord asked me why I sat through proceedings without saying a word, I said I had once been told about the principle that I should speak only if it improves the silence. Given the concern for my welfare shown by those two noble Members, I am about to violate that principle by making a few remarks and asking a couple of questions.

As this is the first time for me to speak in Committee, I refer noble Lords to my interests as set out in the register. These include being an unpaid member of the advisory board of Startup Coalition and a non-executive director for the Department for Business and Trade. I have also worked with a couple of think tanks and have written on regulation and competition policy, and I am a professor of politics and international relations at St Mary’s University. I mention that last role because in future interventions I will refer to some political science theories, but I assure noble Lords that I will try not to bore them. I am also a member of the Communications and Digital Committee.

I want to make only a short intervention on the amendments. Previous noble Lords made the point that we want to understand the Government’s intention behind deciding to change the word from “appropriate” to “proportionate”. I am grateful to my noble friend Lord Lansley for seeking to answer that question. I am not a lawyer, so I am very grateful to the noble Lord, Lord Faulks, for his intervention, which explained the legal context for “proportionate”. It has to be said, however, that at Second Reading I and a number of other noble Lords repeatedly asked the Minister to clarify and justify the change in wording. A satisfactory answer was not given, hence we see these amendments in Committee.

We could argue that this is an entirely appropriate response to what my noble friend said in Committee. Maybe the Government could argue that it was a proportionate response. It is a very simple question: can the Minister explain the reasons? Is it, as my noble friend Lord Lansley says, that there is something wider in “proportionate” than “appropriate”? Will the Government consider bringing forward an amendment that explains this—sort of “appropriate-plus”—to make sure that it is legally well understood? Can the Government assure us that it is not a loophole to allow more movement towards a merits appeal, as opposed to judicial review, which many of us have come to support?

I have some support for Amendment 222, in the name of my noble friend Lord Holmes, which seeks clarity on the appeal standards for financial penalties and countervailing benefits, but I know we will discuss these in a later group.

[Lord Clement-Jones (LD)]

My Lords, this has been a really interesting and helpful debate, with a number of noble Lords answering other noble Lords’ questions, which is always pretty useful when you are summing up at the end. One thing absolutely ties every speaker together: agreement with the letter to the Prime Minister from the noble Baroness, Lady Stowell, on behalf of her committee, about the need to retain the JR principle throughout the Bill. That is what we are striving to do.

It was extremely interesting to hear what the noble Lord, Lord Lansley, had to say. He answered the second half of the speech by the noble Lord, Lord Tyrie. I did not agree with the first half but the second was pretty good. The “whiff” that the noble Lord, Lord Tyrie, talked about was answered extremely well by the noble Lord, Lord Lansley. It was a direct hit.

The interesting aspect of all this is that the new better regulation framework that I heard the noble Lord, Lord Johnson, extolling from the heights in the Cholmondeley Room this afternoon includes a number of regulatory principles, including proportionality, but why not throw the whole kitchen sink at the Bill? Why is there proportionality in this respect? It was also really interesting to hear from the noble Lord, Lord Faulks, who unpacked very effectively the use of the proportionality principle. It looks as though there is an attempt to expand the way the principle is prayed in aid during a JR case. That seems fairly fundamental.

I hope that the Minister can give us assurance. We have a pincer movement here: there are a number of different ways of dealing with this, in amendments from the noble Lords, Lord Holmes and Lord Faulks, and the noble Baroness, Lady Stowell, but we are all aiming for the same end result. However we get there, we are all pretty determined to make sure that the word “proportionate” does not appear in the wrong place. In all the outside briefings we have had, from the Open Markets Institute, Foxglove and Which?, the language is all about unintended consequences and widening the scope of big tech firms to challenge. What the noble Lord, Lord Vaizey, had to say about stray words was pretty instructive. We do not want language in here which opens up these doors to further litigation. The debate on penalties is coming, but let us hold fast on this part of the Bill as much as we possibly can.

[Lord Bassam of Brighton (Lab)]

My Lords, I thank the noble Lord, Lord Faulks, for his neat and precise analysis of the position in which we find ourselves in the discussion on this group of amendments. This debate is a prequel to that which will follow on penalties, and we should see it in that light; the two things are very much connected, as the noble Lord, Lord Clement-Jones, made clear. Like him, I completely agreed with the noble Lord, Lord Vaizey, when he warned about using stray words. Proportionality is probably one of the most contested terms in law, and in all the 25 years or so that I have been in this House, I must have heard it in all the legal debates we have come across.

These are the first amendments seeking to restore some of the Bill’s original wording, which, as we have heard, was changed late in the day in the Commons. We are yet to receive a full explanation from the Minister of the reasons for that. The noble Lord, Lord Faulks, asked why, and we on these Benches pose the same question. Were Ministers lobbied into this and, if so, why? We support Amendments 16 and 53 in the name of the noble Lord, Lord Faulks, which, as he outlined, seek to restore the original wording of the Bill, taking out the word “proportionate”, removing proportionality as the determining factor behind a CMA pro-competition intervention and reinserting the word “appropriate”.

We have two, possibly three, sets of solutions to the problem that the Government have set. However, we also have added our names to Amendments 17 and 54, in the names of the noble Baronesses, Lady Stowell and Lady Harding, and the noble Lord, Lord Clement-Jones, with the intent of ensuring that clarifying that the condition for conduct requirements imposed by the CMA to be proportionate does not create that novel legal standard for appeals of decisions and the confusion that will flow from that. In our view, as the noble Baroness, Lady Harding, says, the original wording strikes the right balance, roughly speaking, whereas the Government’s version would weaken the intent of this part of the Bill.

The formulation of the noble Baroness, Lady Stowell, relies on prevailing public law standards—in other words, standards that are commonly understood. We take the view that we all need to know what rules we are working to, and if the Bill introduces or creates a new standard then that certainty is removed. Of course, when it comes to the issue of pre-emption, we will need to resolve the best way forward on this issue at the next stage of the Bill. For my part, I think that reversion might be the best route, but no doubt by negotiating round the Committee we can come up with a workable solution.

The amendments of the noble Lord, Lord Holmes, particularly Amendments 220 and 222, offer another way through it. However, on the face of it, for us they are useful in the context of reminding our Committee that guidance will need to be produced on the operation of this regime as it covers financial penalties and the countervailing benefits exemptions.

We have heard a lot about the new regime being flexible and participatory as a framework for regulation, and we agree with that principle. However, we think that, with this particular change, the Government strike at the heart of that and bring in a measure of uncertainty that is unwise, frankly, in this particular process. The intervention of the noble Lord, Lord Lansley, was very telling. What he told the Committee was extremely important and we should listen very carefully to what was said in that exchange of correspondence. He rather shot the Government’s fox.

In conclusion, the Minister has a bit of a difficult job on his hands here. He may feel the weight of the Committee against him. I rather hope that he can offer us a measure of reassurance and perhaps help us come to a point where the whole Committee can agree a sensible reversion or an amendment that makes the Bill as workable as it seemed when it was first drafted.

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[Viscount Camrose (Con)]

I believe that, in most cases, A1P1 rights would be invoked, but there are cases where A1P1 would not necessarily be invoked, rare as those cases are. The intention of the Government is to treat all those cases in the same way. As I say, it is important that we also consider the safeguards around the new powers. Having an explicit requirement for proportionality, rather than just the implicit link to A1P1, sets a framework for the CMA as to how it must design and implement significant remedies. A proportionate approach to regulation supports a pro-innovation regulatory environment and investor confidence. I am also aware, of course, that later we are due to debate concerns noble Lords may have about the accountability of the CMA. Without pre-empting that debate, it is worth pointing out that setting out the requirement for proportionality explicitly will help ensure that the CMA uses its powers responsibly.

[Lord Clement-Jones (LD)]

This all sounds as though, really, the Minister should come clean and say that what he is trying to do is bring in merits by the back door.

[Viscount Camrose (Con)]

It is not my intention to bring in merits by the back door, nor is it my intention not to come clean, or to conceal from Members of this Committee any intentions of the Government. All this is about producing the clarity that we need to safely deliver the wide-ranging new powers of the CMA.

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[Viscount Camrose (Con)]

In respect of my noble friend Lord Vaizey’s concern that proportionality will affect how the CAT conducts an appeal, the retention of judicial review in Clause 103 will still apply to the CAT, which will still have to conduct an appeal when a firm raises non-ECHR proportionality arguments in a JR style. It will not become a full merits appeal.

Amendments 33 and 52, from my noble friend Lord Holmes of Richmond, also remove the statutory requirement for proportionality but, in doing so, create greater impacts on the regime. Amendment 33 would remove the obligation on the CMA to set out, in its conduct requirement notice, the objective in relation to which it must consider proportionality. However, this is a key feature for setting a conduct requirement and it is important to include it in the notice for both the SMS firm and third parties.

Amendment 52, by removing Clause 46(1)(b), would reduce the Bill’s clarity that the primary objective of PCIs is to address competition problems. It is important that the Bill is clear on the objective that PCIs must pursue. Additionally, proportionality provisions will ensure that the CMA addresses its objectives without placing unnecessary burdens on firms and harming consumers.

I turn to my noble friend Lady Stowell’s Amendments 17 and 54. As she set out in her explanatory statement, these amendments seek to clarify that the use of “proportionate” does not create a novel legal standard. The amendment would state that it is defined in accordance with prevailing public law standards. Of course, I agree with her that it is important to be clear about what we expect from the CMA and concur with the spirit of her amendments. However, I hope my explanation of this provision as currently drafted will satisfy my noble friend’s concerns.

These amendments assume that there is a single public law definition of proportionality, when there is not. However, proportionality is also not a novel concept for either the CMA or the domestic courts to apply. There is domestic case law about how proportionality requirements have been interpreted. We expect that the CMA, the CAT and courts would follow the broad approach set out in the Bank Mellat 2 case, which considered proportionality in relation to the application of ECHR rights, as well as fundamental rights at common law. This is relevant when considering whether an infringement of a qualified ECHR right and/or a fundamental common-law right is justified. Noble Lords with an interest in this area will be familiar with the four-limb test set out by Lords Sumption and Reed. Previously, our domestic courts applied a separate, but broadly similar, test when considering proportionality under EU law.

In the event of an appeal against CMA interventions, it is the role of the courts to provide a definitive interpretation of the legislation, but they will likely give a certain amount of deference to the CMA as the expert regulator. When an intervention has engaged A1P1, there would be a clear link with the approach of the domestic courts to the ECHR proportionality requirements that I have already discussed. In the rare situation when an intervention did not engage A1P1, it seems logical that the courts would take an approach consistent with how they approach digital markets cases which do engage A1P1, although this could involve some modifications on a case-by-case basis.

The basic requirements of proportionality—that it balances private interests adversely affected against the public interests that the measure seeks to achieve—is well understood. As such, I hope my noble friend can appreciate that although I agree with the spirit of her amendments, in practice I do not believe they would provide the clarity they seek.

Amendments 220 and 222 from my noble friend Lord Holmes of Richmond would require the Secretary of State to publish guidance on how the appeals standard for financial penalties, proportionality and countervailing benefits exemption would operate. The amendments set out that the CMA could not impose conduct requirements, pro-competition interventions or financial penalties before this guidance was published.

I thank my noble friend for these amendments. He should be pleased to hear that the CMA will, as part of its approach to implementing the regime, produce guidance outlining its approach to delivering the regime before it is implemented. We expect this guidance to include the CMA’s approach to proportionality and the countervailing benefits exemption. The Secretary of State will have oversight of the CMA’s approach through the approval of that guidance. The Government feel that this approach strikes the right balance between maintaining the independence of the CMA and the CAT, and providing appropriate government oversight and clarity about how the regime will work. Suitable guidance will already be in place before the regime commences; as such, these amendments are not required.

I hope this has helped to address the concerns of the noble Lord, Lord Faulks, and my noble friends Lady Stowell of Beeston and Lord Holmes of Richmond, and that, as a consequence, they feel able to withdraw, or not to press, their amendments.

[Lord Clement-Jones (LD)]

My Lords, what harms does the Minister think the inclusion of “proportionate” is designed to prevent? What does he really think would happen if that word was not included in the Bill?

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Moved by

[Lord Clement-Jones]

18A: Clause 20, page 12, line 8, at end insert—
“(ba) provide a means of payment within the platform in a way that offers consumer protection from goods and services disputes.” Member's explanatory statement
This amendment would allow the CMA to require online marketplaces to provide consumers with a more secure way of paying for goods or services, with a means of recourse in the case that something goes wrong.

[Lord Clement-Jones (LD)]

My Lords, let us go back to the calmer waters of Clause 20. In moving Amendment 18A, I look forward to hearing what the noble Lord, Lord Lansley, has to say about his Amendment 31, which I have signed as well.

It seems that 75% of purchase scams originate from social media platforms. They often occur when consumers go to digital marketplaces, such as Facebook Marketplace, and try to buy goods from their peers which never arrive. Such scams cost consumers over £40 million in the first half of 2023 alone, and they seem to be on the rise. Currently, many consumers purchasing on peer-to-peer marketplaces have no access to secure payment providers that offer protections in the event that their purchase never arrives. Some marketplaces, such as Vinted and eBay, have integrated with secure providers, but despite many experts stating that these integrations will protect consumers and keep money out of the hands of criminals, adoption is still patchy across major marketplaces.

Building on voluntary commitments made in the recent Online Fraud Charter, this amendment would empower the CMA to require these marketplaces to provide consumers with a way to pay on these platforms that offers protection when things go wrong, such as when goods and services do not arrive as described, provided that these marketplaces are identified by the CMA as designated undertakings which have strategic market status. This would also be a good step in protecting consumers transacting online. Some payment services, such as PayPal or Stripe, do offer consumers protection when things go awry.

Such an amendment would also have a secondary impact: marketplaces would be better incentivised to vet sellers to ensure that they are able to meet the risk-management expectations of the commercial partners that offer secure payment services. For the avoidance of doubt, this amendment does not propose that designated marketplaces use any specific provider of secure payment services. Clause 20 sets out an exhaustive list of permitted types of conduct requirements that may be applied to designated undertakings. This amendment would confer power on the CMA to impose conduct requirements that protect consumers buying goods on peer-to-peer marketplaces identified as designated undertakings with strategic market status. I hope very much that the Minister will give this suggestion serious consideration.

[Lord Lansley (Con)]

My Lords, I am grateful to the noble Lord, Lord Clement-Jones, for introducing Amendment 18A. On Monday, in the previous day of Committee, we looked at the list of conduct requirements—both the obligations placed on designated undertakings and the capacity to set conduct requirements preventing designated undertakings doing certain things. The noble Lord is asking whether we have covered the ground sufficiently, and so am I.

In Amendment 31, I come at it from the position that I took in earlier amendments, but I wanted to separate this out because it is in a different case. The train of thought is the same: to look at the detailed obligations included in the EU’s Digital Markets Act and to say that we are approaching it in what I hope is a better way that sets broader, more flexible definitions and looks to see how they will be implemented in detail by the Digital Markets Unit. That is fine; I am okay with that, but we need to be sure that the powers are there. For example, Amendment 18A is about whether the requirement to trade on fair and reasonable terms in Clause 20 comprises this power. It is a simple question: would it be possible for such conduct requirements to be included by the DMU under that heading?

Mine is a different one. In paragraph (6) of Article 5 of the Digital Markets Act, the European Union sets an obligation for gatekeepers—that is, its comparable reference to designated undertaking; in this sense it is dealing with platforms—that:

“The gatekeeper shall not directly or indirectly prevent or restrict business users or end users from raising any issue of non-compliance with the relevant Union or national law by the gatekeeper with any relevant public authority, including national courts, related to any practice of the gatekeeper”.


For our purposes, I have rendered that in the amendment as something slightly simpler in our language—that is to say, that an obligation may be placed on designated undertakings that they shall not seek

“directly or indirectly to prevent or restrict users or potential users of the relevant digital activity from raising issues of non-compliance with any conduct requirements with any relevant public authority”.

It is not just the CMA, of course; there may be others involved, such as the Information Commissioner and other public authorities.

For this purpose, I looked at the conduct requirements laid out in Clause 20 to find where this might be covered. I do not think it is covered by the material about complaints handling processes. This is not about whether you can make a complaint to the designated undertaking; this is about whether one is subject to the provision, as a user or potential user, such as an app seeking to complain about the non-compliance of a designated undertaking to the Digital Markets Unit. That is not the same as having a complaints process in place.

Do we think this could happen? Noble Lords will make their own judgments about that. All I am assuming is based on the fact that, for example, in April 2021, in the Judiciary Committee hearings on competition in app stores in the US Senate, Senator Klobuchar said, to paraphrase, that a lot of providers of apps were afraid to testify. They felt that it was going to hurt their business and they were going to get intimidated. So I am not having to invent the proposition that there may be a degree of intimidation between the providers of apps, for example, and the platforms that they wish to use.

In a sense, we do not actually need to know that it is happening to know that we should give the power to the Competition and Markets Authority to set conduct requirements as and when necessary to prevent such a thing happening. I do not think that it is comprised within the existing text of Clause 20.

I hope that my noble friend will take this one away, with a view to thinking positively about whether it is required to be added to the conduct requirements in Clause 20 at Report.

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[Lord Stevenson of Balmacara (Lab)]

The Minister is very generous.

[Lord Clement-Jones (LD)]

My Lords, I think there is quite a lot of meat in what the Minister said just now, both in respect of the amendment in the name of the noble Lord, Lord Lansley, and my amendment.

I appreciate that we have a set of moving parts here, including the response to the consultation on smarter regulation, improving consumer price transparency and product information for consumers, which came out this morning.

The answer to the noble Lord, Lord Stevenson, was quite interesting. However, if what the Minister said about the conduct requirements in Clause 20 is to be put into effect, I suggest that he has to bring forward amendments on Report which reflect the response to the consultation. I do not think this can be done just as a sort of consumer protection at the back end of the Bill; it has to be about corporate conduct, and at the Clause 20 end of the Bill.

Obviously, we will all read the words of the Minister very carefully in Hansard. It is interesting. I have written down: “Why are we kicking the tyres on Clause 20?” As the noble Lord, Lord Stevenson, said, this is absolutely central to the Bill. Basically, it could not be more important; getting this clause right from the outset will be so important. This is why not only we but the CMA will be poring over this, to make sure that this wording absolutely gives it the powers that it needs.

I take the point of the noble Lord, Lord Stevenson. These are very important powers, and we have to make sure that they are used properly, but also, as the noble Lord, Lord Lansley, said, that the powers are there. Otherwise, what are we spending our time here in Committee doing, if we are going to put forward a Bill that is not fit for purpose? We have to make sure that we have those powers. I like what the Minister had to say in reference to the Clause 20(3)(a) provision. Again, when people look at Pepper v Hart and so on, that will be an important statement at the end of the day.

We have certainly managed to elicit quite a useful response from the Minister, but we want more. We want amendments coming down the track on Report which reflect some of the undertakings in the response to the consultation on consumer price transparency and product information for consumers.

The only other thing to say—exactly as the noble Lord, Lord Stevenson, has said—is that comments about the consultation are that it was half a loaf. There is a whole lot more to be said on drip pricing. We have a discussion coming down the track on that, and we will reserve our fire until then.

[Lord Lansley (Con)]

As I understood it, Clause 20(3)(a) is about discrimination between users; it is not about trying to stop any user of a platform going to the CMA to complain about non-compliance or other conduct requirements—or indeed that conduct requirement. I will happily look at what my noble friend said and hope that it meets the test of the kicking of the tyres. If it does not, we may have to return to this.

[Lord Clement-Jones (LD)]

My Lords, that is a useful warning that we need to read Hansard extremely carefully to see what the Minister thinks the scope of that really is and whether it covers the point that the noble Lord, Lord Lansley, has made.

This is a continuing discussion and, in the meantime, I beg leave to withdraw my amendment.

Amendment 18A withdrawn.