AI: “Nudify” Apps

Lord Clement-Jones Excerpts

Tuesday 13th February 2024 Lords Chamber

[Viscount Camrose (Con)]

An outright ban on the creation of any deepfake material presents a number of challenges, but obviously I applaud the sentiment behind the question. With respect particularly to deepfakes involved in intimate image abuse, we are clearly putting in place the offence of sharing, whether as part of the new intimate image abuse offences in the Online Safety Act that commenced two weeks ago, as part of the Criminal Justice Bill shortly to come before your Lordships’ House, or indeed under the existing child sexual exploitation and abuse offences. There are severe penalties for the sharing of intimate image abuse deepfakes, but it is a fast-moving space and we have to continue to monitor it.

[Lord Clement-Jones (LD)]

My Lords, it is quite clear that simply banning the sharing of these deepfakes is not sufficient. This is an issue that concerns us all, whether in relation to sexual images, fraud or misinformation. Can the Government not overcome their reluctance to regulate AI? What evidence would persuade them to go further and make sure that the creators of these deepfakes are liable?

[Viscount Camrose (Con)]

As regards the overall regulation of AI, I hope that noble Lords have had a chance to peruse the Government’s response to the AI White Paper consultation. It makes the argument very clearly that there will come a time when it is right to legislate to create binding rules on all creators of AI. When that time comes, due to the policies that we are putting in place, we will have an agreed risk register informing us. We will have set up monitoring and evaluation techniques, again gathering evidence. We will have working relationships with the AI labs, defined procedures for the creation of AI, and regulators trained to regulate AI within their own sectors. That means that, when we do regulate AI, it will be done in a targeted and sophisticated way, on the basis of evidence.

Combating Disinformation: Freedom of Expression

Lord Clement-Jones Excerpts

Tuesday 13th February 2024 Lords Chamber

[Viscount Camrose (Con)]

Yes, I am very happy to write any such letter. I confirm now in front of the House that the function of the NSOIT, formerly the Counter Disinformation Unit, is to analyse attempts to artificially manipulate the information environment for purposes of national security. It is not its function—and never has been its function, regardless of its name—to go after individuals, whether they are politicians, journalists, or anybody else. It looks for at-scale attempts to manipulate the information environment.

[Lord Clement-Jones (LD)]

My Lords, it is clear we need to be assured that the rather concerning activities reported about the CDU treating political criticism as disinformation are no longer practised by NSOIT. Can the Minister explain where we can find a copy of NSOIT’s policies? Can he confirm whether it has a policy to prohibit it from flagging lawful domestic speech for terms of service violations to social media companies?

[Viscount Camrose (Con)]

Information on NSOIT is posted on GOV.UK, and I am happy to share that location with the noble Lord. I can confirm not only that it is not the role of NSOIT or the CDU to go after any individuals, regardless of their political belief, but that it never has been. NSOIT looks for large-scale attempts to pollute the information environment, generally as a result of threats from foreign states. I am happy to say in front of the House that the idea that its purpose is also to go after, in some ways, those who disagree politically with the Government is categorically false.

Digital Exclusion (Communications and Digital Committee Report)

Lord Clement-Jones Excerpts

Thursday 8th February 2024 Lords Chamber

[Lord Clement-Jones (LD)]

My Lords, I first declare an interest as chair of the board of the Trust Alliance Group, which runs the Communications Ombudsman service.

I thank the noble Baroness, Lady Stowell, for setting out the committee’s stall so cogently, and thank the committee for its excellent report. As she said, it has been a busy week for it, and we all look forward to debating its recent report on large language models. Trying to catch up with digital developments is a never-ending process, and the theme of many noble Lords today—the noble Baroness, Lady Stowell, herself, the noble Baronesses, Lady Armstrong and Lady Harding, and the noble Lord, Lord Griffiths—has been that the sheer pace of change means we have to be a great deal more active in what we are doing in terms of digital inclusion than we are being currently.

Access to data and digital devices affects every aspect of our lives, including our ability to learn and work; to connect with online public services; to access necessary services, from banking, which my noble friend Lord Foster highlighted, to healthcare, which the noble Baroness, Lady Lane-Fox, highlighted; and to socialise and connect with the people we know and love. For those with digital access, particularly in terms of services, this has been hugely positive—I chime with what the noble Lord, Lord Young, said about the glass being half full for those with the right connectivity—as access to the full benefits of state and society has never been more flexible or convenient if you have the right skills and the right connection.

However, a great number of our citizens cannot get take advantage of these digital benefits. They lack access to devices and broadband, and mobile connectivity is a major source of data poverty and digital exclusion. As the noble Baroness, Lady Lane-Fox, mentioned—she chaired the committee, of course—this proved to be a major issue during the Covid pandemic. The noble Lord, Lord Holmes, mentioned the mental health impacts of a lack of data connection; I was very taken by his phrase, “connection without inclusion”. Of course, as the right reverend Prelate mentioned, the digital divide has not gone away subsequently—and it does not look as though it is going to any time soon.

There are new risks coming down the track, too, in the form of BT’s Digital Voice rollout. The Select Committee’s report highlighted the issues around digital exclusion. For example, it said that 1.7 million households had no broadband or mobile internet access in 2021; that 2.4 million adults were unable to complete a single basic task to get online; and that 5 million workers were likely to be acutely underskilled in basic skills by 2030. The Local Government Association’s report, The Role of Councils in Tackling Digital Exclusion, showed a very strong relationship between having fixed broadband and higher earnings and educational achievement, such as being able to work from home or for schoolwork.

To conflate two phrases that have been used today, this may be a Cinderella issue but “It’s the economy, stupid”. To borrow another phrase used by the noble Baroness, Lady Lane-Fox, we need to double down on what we are already doing. As the noble Baroness, Lady Stowell, and the committee emphasised, we need an immediate improvement in government strategy and co-ordination. The Select Committee highlighted that the current digital inclusion strategy dates from 2014. The noble Baroness was supported in calling for a new strategy by many noble Lords, including my noble friend Lord Foster and the noble Lords, Lord Holmes and Lord Lipsey; all of them called for a new strategy, despite the Government’s reluctance. We need a new framework with national-level guidance, resources and tools that support local digital inclusion initiatives.

The current strategy seems to be bedevilled by the fact that responsibility spans several government departments. It is not clear who—if anyone—at ministerial and senior officer level has responsibility for co-ordinating the Government’s approach. My noble friend Lord Foster mentioned accountability, and the noble Baroness, Lady Harding, talked about clarity around leadership. Whatever it is, we need it.

Of course, in its report, the committee stressed the need to work with local authorities. A number of noble Lords—the noble Baronesses, Lady Armstrong, Lady Lane-Fox and Lady Harding, and the noble Lord, Lord Griffiths—have talked today about regional action, local delivery, street-level initiatives: whatever it is, again, it needs to be at that level. As part of a properly resourced national strategy, city and county councils and community organisations need to have a key role.

The Government too should play a key role, in building inclusive digital local economies. However, it is clear that there is very little strategic guidance to local councils from central government around tackling digital exclusion. As the committee also stresses, there is a very important role for competition in broadband rollout, especially in terms of giving assurance that investors in alternative providers to the incumbents get the reassurance that their investment is going on to a level playing field. I very much hope that the Minister will affirm the Government’s commitment to those alternative providers in terms of the delivery of the infrastructure in the communications industry.

Is it not high time that we upgraded the universal service obligation? The committee devoted some attention to this and many of us have argued for this ever since it was put into statutory form. It is a wholly inadequate floor. We all welcome the introduction of social tariffs for broadband, but the question of take-up needs addressing. The noble Lord, Lord Lipsey, may not be a fan of social tariffs, but the take-up is desperately low at 5%. We need some form of social tariff and data voucher auto-enrolment. The DWP should work with internet service providers to create an auto-enrolment scheme that includes one or both products as part of its universal credit package. Also, of course, we should lift VAT, as the committee recommended, and Ofcom should be empowered to regulate how and where companies advertise their social tariffs.

We also need to make sure that consumers are not driven into digital exclusion by mid-contract price rises. I would very much appreciate hearing from the Minister on where we are with government and Ofcom action on this. The committee rightly places emphasis on digital skills, which many noble Lords have talked about. These are especially important in the age of AI. We need to take action on digital literacy. The UK has a vast digital literacy skills and knowledge gap. I will not quote Full Fact’s research, but all of us are aware of the digital literacy issues.

Broader digital literacy is crucial if we are to ensure that we are in the driving seat, in particular where AI is concerned. There is much good that technology can do, but we must ensure that we know who has power over our children and what values are in play when that power is exercised. This is vital for the future of our children, the proper functioning of our society and the maintenance of public trust. Since media literacy is so closely linked to digital literacy, it would be useful to hear from the Minister where Ofcom is in terms of its new duties under the Online Safety Act.

We need to go further in terms of entitlement to a broader digital citizenship. Here I commend an earlier report of the committee, Free For All? Freedom of Expression in the Digital Age. It recommended that digital citizenship should be a central part of the Government’s media literacy strategy, with proper funding. That might be described as the digital social contract that the noble Lord, Lord Holmes, spoke of. Digital education in schools, which was very much subject of what the right reverend Prelate had to say, should be embedded, covering both digital literacy and conduct online, aimed at promoting stability and inclusion and how that can be practised online. This should feature across subjects such as computing, PSHE and citizenship education, as recommended by the Royal Society for Public Health in its #StatusOfMind report as long ago as 2017.

Of course, we should always make sure that the Government provide an analogue alternative. We are talking about digital exclusion but, for those who are excluded and have the “fear factor”, a term almost used by the noble Baroness, Lady Bennett, we need to make sure and not assume that all services can be delivered digitally.

Finally, we cannot expect the Government to do it all. We need to draw on and augment our community resources; I am a particular fan of the work of the Good Things Foundation, FutureDotNow, CILIP—the library and information association—and the Trussell Trust, and we have heard mention of the churches, which are really important elements of our local delivery. They need our support, and the Government’s, to carry on the brilliant work that they do.

--- Later in debate ---

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

I start by sincerely thanking my noble friend Lady Stowell for tabling what we must all agree is a deeply important debate on this far-ranging and critical subject of digital exclusion, which we know affects millions of people across the UK, with costs to them as individuals and, as has been pointed out, to all society. I hope to be able to reassure noble Lords on most of the very wide range of points that were made, but I look forward to continuing the dialogue. As has been observed, this is not a problem that will go away overnight, but I hope some of the things I will put forward will provide some reassurance in the meantime.

Let me take a step back by way of introduction. Our transition to the digital age in the last two decades has brought with it a period of extraordinary change. The fourth industrial revolution has transformed our economies, our public services and our day-to-day lives. We can expect that change to continue as technology continues to develop, bringing with it opportunities that would have been unimaginable for previous generations.

On the whole, the UK is well positioned to seize those opportunities by taking the lead in technological innovation. We are able to do this because, among other things, we are building on a proud history of technological development that takes us right up to the present day, from Sir Tim Berners-Lee and the world wide web to pioneers such as Dr Katalin Karikó and Dr Drew Weissman, who led the world in the development of the Covid-19 vaccine.

Across the country, we have a wealth of science and tech expertise. We are home to four of the world’s top 10 universities, and in 2022 we became only the third country in the world to have a tech sector valued at over $1 trillion. It is important that we continue this tradition of leading technological development through digital transformation. Not only will it help us boost productivity and increase all kinds of operational efficiency but, if we manage the transition properly, these innovations can deliver wider social benefits too: we can connect communities, reduce loneliness, and make public services easier and faster to access.

But—and there is always a but at this point—we absolutely must recognise the deep, genuine concern that some will be left behind. This is something that I personally, and the Government overall, take very seriously. That is why we do not want just to drive progress in tech; we want to do so responsibly and ensure that the tech we develop improves all lives across the country. Tackling digital exclusion is a fundamental part of this and a complex issue. No one department can solve this challenge; it will require close collaboration across government.

Digital exclusion negatively affects people’s lives. Individuals who are digitally excluded are less likely to be in well-paying jobs. They have worse health outcomes and overall lower quality of life. As a result, digital exclusion creates new inequalities and exacerbates existing ones, making it difficult to participate fully in society.

Rising living costs have also made it more difficult for people to afford devices and internet access, which will increase digital exclusion. Some 18.7 million people—that is 35% of us in the UK—feel that increases in the cost of living are impacting their ability to go online, and 11.5 million—22% of people in the UK—have already taken steps to reduce the costs associated with going online by seeking alternative solutions such as libraries, community centres or, indeed, as we heard, churches for free access.

The Government have been clear that ensuring that no one is left behind in the digital age is a priority and consider that credible steps have been taken to offer needed support. Encouraging more people to engage and stay online requires overcoming the barriers to access, skills, motivation and trust. Digitally excluded people also require continued support to ensure that these barriers remain lowered, and this is what we continue to focus on across government.

I thank noble Lords on the Communications and Digital Committee for their important work on the digital exclusion inquiry last year. Since the committee’s report was published, we have established, again as a number of noble Lords observed, a new interministerial group to drive progress and accountability on digital inclusion priorities across government, to set clear objectives and to monitor delivery. I thank the noble Lord, Lord Clement-Jones, and can confirm that the Minister for Tech and the Digital Economy, Saqib Bhatti, is responsible for digital inclusion and that is why he is in the position of chairing the group. The group met for the first time in September, and departments agreed to undertake departmental mapping exercises to drive work on digital inclusion. With the group meeting, as has been said, every six months, this is the first step of many in a cross-government effort.

[Lord Clement-Jones (LD)]

Does the noble Lord believe that meeting once every six months is adequate?

[Viscount Camrose (Con)]

The crux of the work is done at departmental level and that feels to me more like a board meeting. So, yes, I think that set-up makes logical sense, but we will watch with interest and adapt as necessary.

Many noble Lords raised points about a new digital inclusion strategy. As the Secretary of State for Science, Innovation and Technology said to the committee on Tuesday, the Government are focusing their resources on delivery—on the doing rather than on the writing of the new strategy. The key themes for the last strategy on digital inclusion—access, skills, motivation and trust—are still relevant today. I will point to some of this action as I go through my speech.

I agree with the point that the noble Lord, Lord Foster, made very well: the digital strategy should and does include the basis for digital inclusion. The 2022 digital strategy outlined work across government that will promote digital inclusion, including broadband rollout across the UK, essential digital skills support and legislation to tackle online harms, now the Online Safety Act. I thank the noble Baroness, Lady Jones, for raising the issue of who in government is working on digital inclusion, and my noble friend Lady Stowell for asking about the relationship between teams working on AI. My department has various teams, from the newly named Responsible Technology Adoption Unit, formerly the Centre for Data Ethics and Innovation, to AI skills feeding in to work on digital inclusion. This is alongside teams working on telecom skills and the tech sector. Given its varied nature, there are teams across government that work on policy linked to digital inclusion, including the Department for Culture, Media and Sport’s work with libraries, the Department for Work and Pensions’ work on unemployment and the Department for Education’s work on digital skills. There is a new official-level working group that sits across government to support this cross-cutting work.

Starting with the issue of access, I will focus on the affordability and availability of telecom services. UK consumers have access to one of the most competitive telecom markets in Europe. The cost of a gigabyte of data, at 50p in the UK, is less than half that of the average price in the EU, at £1.18. The headline cost of an average broadband package and mobile service has actually decreased since 2019.

Prices have fallen, but usage has increased: the average household broadband connection uses 53% more data today than it did in 2019. Mobile data consumption has increased 25% year on year. We have been working hard to ensure that people have the access to the internet and broadband that they need. In March 2021, we launched Project Gigabit, our £5 billion mission to deliver fast, reliable broadband to the hardest-to-reach parts of the UK, areas that would have otherwise been left out of commercial gigabit rollout plans without government subsidy.

In 2021, the Department for Culture, Media and Sport, in partnership with the charities AbilityNet and Good Things Foundation, launched the £2.5 million digital lifeline fund. The fund aimed to reduce the digital exclusion of people with learning disabilities by providing free devices, data and digital support to over 5,000 people with learning disabilities who cannot afford to get online.

To support children with access to devices, the Department for Education has also delivered over 1.95 million laptops and tablets to schools, trusts, local authorities and further education providers for disadvantaged children and young people since 2020. This is part of a £520 million government investment to support access to remote education and online social care services.

Once again, I thank the noble Lord, Lord Clement-Jones, for his valuable contribution and for raising the broadband universal service obligation, which the Government introduced in March 2020. This gives everyone the legal right to request a decent and affordable broadband connection of at least 10 megabits per second. The broadband universal service obligation is a safety net, providing a minimum level of service to participate in society and the economy, based on information provided by Ofcom. Given the significant changes to the broadband market since the USO was designed in 2019, we want to take this opportunity to review the broadband USO and ensure it remains relevant and up to date with the current technical standards required in practice, reflects the current and future market environment, and delivers on the policy principles set out by the Government when it was established. In October last year, the Government published a consultation on reviewing the broadband universal service obligation, and a response to it will be published in due course.

I also thank the noble Baroness, Lady Armstrong, and the noble Lord, Lord Lipsey, for their thoughtful contributions, which noted the importance of social tariffs provided by telecoms companies, and the right reverend Prelate the Bishop of Bristol for her well-made point on affordability. We recognise that cost is a barrier for many. As I have noted, prices in the UK are falling and the Government have worked closely with the telecoms industry to ensure the provision of low-cost, high-quality fixed and mobile tariffs, also known as social tariffs, for those on universal credit as well as other means-tested benefits. There is of course a balance to be struck between ensuring investment in UK telecoms infrastructure and ensuring that services remain affordable.

We have established a pro-investment, pro-competition environment and remain committed to the idea that a competitive market will deliver the best outcomes for all consumers. Social tariffs are now available from 27 providers, up from 10 in November 2022, from the likes of BT, Sky and Virgin Media and across 99% of the UK. We have seen an increase in uptake of almost 160% since September 2022, but I am afraid to say that this represents just 8% of total eligible households. I absolutely acknowledge that we need to make more progress and we will continue to look at how to accelerate that.

[Lord Clement-Jones (LD)]

Perhaps the Minister can give us just a little more detail. Is there any movement towards auto-enrolment and the kind of ideas that have come out of the committee?

[Viscount Camrose (Con)]

Yes, but I am going to have to write because that would be a multi-bullet point communication.

There is also the timely issue of contract price rises. We appreciate that households across the country are struggling with their bills because of the rise in the cost of living, and that price rises in any services will be unwelcome. That is why it is essential that important clauses within telecoms contracts, such as in-contract price rises, are clear and transparent. Consumers need to be aware of what they are agreeing to when taking up a broadband or mobile contract.

In December, Ofcom completed its review of inflation-linked in-contract price rises and launched a consultation that would end CPI and RPI increases, replacing them with a clear pounds and pence figure for what consumers will pay. For the avoidance of doubt, social tariffs do not incur in-contract prices rises.

I draw noble Lords’ attention to the commitments made by industry bosses in June 2021 to support their customers. The sector agreed to allow consumers facing financial difficulties to enter into affordable payment plans or move to cheaper plans without penalty. We have been clear that any customer who believes they are facing digital exclusion can contact their provider to discuss the support that might be available.

On VAT, as noted by the noble Lord, Lord Young, it is important to remember that decisions to deviate from the standard VAT rate of 20% have to be considered carefully and based on clear evidence, as lowering tax in one place can mean raising tax in another. Taxation policy is kept under review, and we would be happy to receive evidence of the benefits of reducing VAT on social tariffs.

In addition to the provision of social tariffs, we have increased access to gigabit internet. Approximately 80% of UK premises can now access gigabit-capable broadband—a huge leap forward from 2019, when coverage was just 6%. We are on track to meet our target of 85% coverage by 2025. We will continue to expand our mobile network too. By 2025, we will have 95% coverage through the shared rural network, and we are aiming for the majority of the population to have access to 5G signal by 2027, via the 5G Testbeds and Trials Programme.

Government cannot, and should not, be expected to tackle the issue of digital inclusion alone. We call on private sector organisations to prioritise digital inclusion in their business, which they could do by joining device donation schemes, for example. We encourage telecoms providers to continue to provide social tariffs and advertise them to eligible households. We encourage companies to adhere to the public sector bodies accessibility regulations and other government accessibility guidance, which are published and freely available online, for their websites and other publicly available information.

I thank the noble Baroness, Lady Jones, and my noble friend Lady Stowell for their thoughtful contributions and for raising the important issue of high-quality localised hubs, including libraries and banking hubs. Banking hubs are a voluntary initiative provided by the UK’s largest high street banks. I agree that it is imperative that banks and building societies recognise the needs of all their customers, including those who need to use in-person services. Over 100 banking hubs have been announced so far, and the Government hope to see these hubs open as soon as possible.

Around 2,900 public libraries in England provide a trusted network of accessible locations, with staff, volunteers, free wifi funded by the Department for Culture, Media and Sport, public PCs, and assisted digital access to a wide range of digital services. My noble friend Lady Sanderson’s An Independent Review of English Public Libraries, published in January, called for the establishment of formal links between digital-by-default public services, particularly health services and libraries, to ensure the provision of one-to-one support. In his response to my noble friend Lady Sanderson, my noble friend Lord Parkinson committed to exploring her recommendations further, as part of the development of the Government’s libraries strategy, due to be published in 2024. The noble Baroness, Lady Jones, asked for a date for that, but I will have to come back to her with the timelines, as I do not have that detail.

On access to support for those seeking work, Jobcentre Plus work coaches can provide support to eligible claimants who are not online with financial support to buy six-month broadband connections. This is administered by the Department for Work and Pensions through the flexible support fund. This cross-government approach is working to reach millions of people across the UK and to provide necessary access for the digital age.

We know that, in addition to access, the right skills are needed, as many noble Lords rightly pointed out, to be able to use and take advantage of digital content and services. Digital skills are central to the jobs of today and the workforce of tomorrow. Ensuring that the workforce has the digital skills for the future is important to meet the UK’s ambition to be a global science and tech superpower.

I thank the noble Baroness, Lady Jones, for raising the skills gap. Tackling the digital skills gap and the shortage of digital workers across the economy cannot be done by government alone, which is why the Government launched the Digital Skills Council in June 2022, bringing together government and industry to strengthen the digital workforce. The council is focused on addressing industry’s current and future demand for digital skills, including through digital apprenticeships and by increasing the amount of business-led upskilling.

I thank the noble Baroness, Lady Jones, for raising also the role of the employer to support training staff. More than 80% of those who will be in the 2030 workforce are already in the workforce today. Given the need to continually refresh digital skills, upskilling existing workers with workplace training be essential. We have put employers at the heart of our apprenticeship system, empowering them to design the standards they need. Employers in the digital sector have developed 30 apprenticeship standards in digital. These high-quality apprenticeships are in a wide range of occupations and emerging technologies, including data scientist, software developer, cybersecurity and artificial intelligence specialist.

The noble Baroness, Lady Jones, also raised investment and support for young people. For children and young people, we are supporting and inspiring the next generation of technologists. It is crucial that we challenge perceptions of what being in a tech career is all about if we are to attract diverse and high-quality talent into our digital workforce. To achieve this, we are working closely with the Department for Education, industry and academia through the Digital and Computing Skills Education Taskforce, launched last summer to increase the numbers of students choosing digital and tech educational pathways into tech careers.

We are also working in partnership with industry and other government departments to inspire and engage students before they make key subject choices at GCSE and A-level—for example, through the CyberFirst programme, which encompasses technology-focused initiatives, from free online extracurricular learning to national competitions and bursaries. This includes DSIT’s Cyber Explorers programme, launched in February 2022, which seeks to support the teaching of computing in schools and to inspire young people aged 11 to 14 to take up computer science for GCSE and the opportunities that a career in cybersecurity can offer. Over 60,000 students are registered across nearly 2,500 schools.

I thank my noble friend Lord Holmes for his question on the national curriculum. In addition to the programmes that I have just outlined, the DfE introduced computing as a statutory national curriculum subject in 2014 from key stages 1 to 4. In addition to this, we are investing a total over the Parliament of £3.8 billion in skills in England by 2024-25 and, in October, we quadrupled the scale of skills bootcamps.

I thank the noble Baroness, Lady Jones, for raising the essential digital skills framework. The Department for Education has used that framework as the basis for the national standards for essential digital skills of 2019, which set out the skills that the qualifications funded and that the adult digital statutory entitlement must cover.

I thank the noble Baroness, Lady Lane-Fox, for her important question on the links to community groups. These really are an important part of the digital inclusion landscape. The Department for Education funds community learning and other non-regulated learning, such as building confidence in essential digital skills for learners who are not ready to take a qualification.

I reassure noble Lords that I am almost at the point of closing. The secondary barriers of trust and motivation must be tackled to have a true, positive impact on digital inclusion, but these are harder to measure. We recognise that some people are hesitant to access online services for fear that they may become victims of fraud, or that it is an unsafe environment. We have introduced the Product Security and Telecommunications Infrastructure Act, which will come into force in April this year.

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.

Digital Markets, Competition and Consumers Bill

Lord Clement-Jones Excerpts

Committee stage
Monday 22nd January 2024 Grand Committee

[Baroness Jones of Whitchurch (Lab)]

My Lords, we have also added our names to Amendment 7. At the outset, I should say that we are in broad agreement with all the amendments in this group.

Before I explain the detail of our amendment, and without wishing to rerun the Second Reading debate, I would just like to say that we believe that the essence of the Bill is important and necessary. Our concerns, where we have them, are about some of the details in the Bill and we will give them proper challenge and scrutiny. However, it is not in the interests of consumers or businesses for the Bill to be unduly delayed and we hope to get it on the statute book in an improved form and in a timely manner.

Part 1 of necessity gives the CMA considerable new powers. We support the model that is being proposed, with priority being given to identifying the big tech players that have strategic market status. However, it is important that those new powers are carried out with clarity and with transparency and a number of our amendments in this and other groups address this issue. Our Amendment 1 is a simple but important amendment. It would enable the CMA to draw on its analysis and consultations that have taken place before the passing of the Bill.

Those of us who attended the briefings with the CMA last week will have heard the amount of detailed preparation that it has carried out in anticipation of the Bill being passed. We believe that it is important that it can draw on this wealth of knowledge without starting from scratch and having to do it all again. This will strengthen its effectiveness going forward, as it can reflect on the lessons learned and the outcomes of the various consultations that have already been undertaken.

When this issue came up in the Commons, the Minister, Paul Scully, said:

“I strongly support the point that the CMA should not have to repeat work that it has already done. It is for the DMU to decide what is and is not relevant analysis to its investigations, and it should be able to draw on insight from previous analysis or consultations when carrying out an SMS investigation where it is appropriate and lawful to do so. I am happy to confirm that the Bill does not prevent the DMU from doing that”.—[Official Report, Commons, Digital Markets, Competition and Consumers Bill Committee, 20/6/23; col. 116.]


However, this is our concern. The Bill as it currently stands is silent on the issue. It does not make it clear either way and, specifically, it does not make it clear that this retrospection is within the powers of the CMA. We want to put this clarity in the Bill to avoid the potential for any legal challenges about the way the CMA is going about its investigation. Noble Lords will be familiar with this argument, as it will be a running theme during our scrutiny of the Bill. We want the rules to be watertight and we want to close any legal loopholes from those who stand to lose if the CMA rules against them. Therefore, we believe that this amendment is important in shoring up the CMA’s powers to act and I beg to move.

[Lord Clement-Jones (LD)]

My Lords, at the opening of this Committee stage, I want to repeat, rather in the same way as the noble Baroness, Lady, Jones, what I said on Second Reading: we broadly welcome this Bill. In fact, since the Furman report was set up five years ago, we have been rather impatient for competition law in the digital space to be reformed and for the DMU to be created.

At the outset, I also want to thank a number of organisations—largely because I cannot reference them every time I quote them—for their help in preparing for the digital markets aspects of the Bill: the Coalition for App Fairness, the Public Interest News Foundation, Which?, Preiskel & Co, Foxglove, the Open Markets Institute and the News Media Association. They have all inputted helpfully into the consideration of the Bill.

The ability to impose conduct requirements and pro-competition interventions on undertakings designated as having strategic market status is just about the most powerful feature of the Bill. One of the Bill’s main strengths is its flexible approach, whereby once a platform is designated as having SMS, the CMA is able to tailor regulatory measures to its individual business model in the form of conduct requirements and pro-competition interventions, including through remedies not exhaustively defined in the Bill.

However, a forward-looking assessment of strategic market status makes the process vulnerable to being gamed by dominant platforms. 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. It enables challengers to rebut the enforcer’s claim that they enjoy substantial and entrenched market power, even where their dominance has yet to be meaningfully threatened. Clause 5 of the Bill needs to be amended so that substantial and entrenched market power is based on past data rather than a forward-looking assessment. There should also be greater rights to consultation of businesses that are not of SMS under the Bill. As the noble Baroness, Lady Jones, said, this will be discussed later, under another group of amendments.

The provisions of Clause 5, as it is currently worded, risk causing problems for the CMA in practice. Part of the problem is the need for evidence to support a decision by the CMA of a market position over the entire five-year period. The five-year period requires current evidence of the position in the market in five years’ time. In dynamic digital markets such as these, no such evidence is likely to exist today. The CMA needs evidence to underpin its administrative findings. Where no such evidence exists, it cannot designate an SMS firm.

The CMA will have evidence that exists up to the date of the decision—evidence of the current entrenched position, market shares, barriers to entry, intellectual property rights and so on. In that respect, we support the noble Baroness, Lady Jones, with her Amendment 1, because it should of course include earlier investigations by the CMA. All that evidence exists today in 2024, but what the position will be in 2028 will need to be found and it has to be credible evidence to support a CMA decision under Clause 5. Particularly in fast-moving technology markets, the prediction of future trends is not a simple matter, so lack of sufficient evidence of the entrenched nature of a player at year 5 or over the entire period would prevent a rational decision-maker from being able to make a decision that the player will have SMS over the five-year period, as demanded by the Bill. Every designation and subsequent requirement or investigation imposed on the designated undertaking risks being subject to challenge on the basis of insufficient evidence.

As the Open Markets Institute says,

“the inevitably speculative nature of a forward-looking assessment makes the process vulnerable to being gamed by dominant platforms. For example, such firms may use the emergence—and even hypothetical emergence—of potential challengers to rebut the enforcer’s claim that they enjoy substantial and entrenched market power, even where their dominance has yet to be meaningfully threatened by those challengers”.

It gives the example of the rise of TikTok, which Meta has used in arguments to push back against anti-trust scrutiny:

“Yet while experiencing rapid growth in terms of user numbers, TikTok has so far failed to seriously challenge the economic dominance of Meta in online advertising (the basis of Meta’s market power), generating less”


than

“a tenth of the latter’s global revenues. Dominant platforms will also use emerging technologies—such as generative AI—to claim that their dominance is transitory, claims that will be difficult for the CMA to rebut given future uncertainty”.


Our Amendments 3, 4, 5 and 6—here I thank the noble Lord, Lord Vaux, for his support for them, and sympathise with him because I gather that his presence here today has been delayed by Storm Isha—suggest that the number of years should be removed and the provision clarified so that the assessment is made based on current evidence and facts. If the market position changes, the CMA has the power to revoke such designation in any event, on application from the SMS business, as provided for by Clause 16.

That is the argument for Amendments 3, 4, 5 and 6 in Clause 5. I look forward to hearing what the noble Viscount, Lord Colville, has to say on Amendment 7, which we very much support as well.

[Viscount Colville of Culross (CB)]

My Lords, I have put down Amendment 7 to Clause 6 and, in later groups, amendments relating to Clauses 20 and 114. I will come to them later in Committee, but all of them have the aim of limiting the wide powers given to the Secretary of State in the Bill to intervene in the setting up of the processes for dealing with anti-competitive behaviour by the big tech companies. Amendment 7 would prevent the Secretary of State having broad powers in revising the criteria for establishing the designation of the SMS investigative process. My particular concern is about the power that the Minister might have to alter the criteria for the process in order to de-designate a company following heavy lobbying.

As this is my first intervention at this stage of the Bill, I join other noble Lords in saying that I too very much welcome it and the Government’s approach to dealing with anti-competitive behaviour by the big tech companies. In fact, I welcome it so much that I want to ensure that it is implemented as quickly and effectively as possible, to safeguard our digital start-ups and smaller digital companies.

The independence of the CMA is central to the effectiveness of the processes set out in Part 1. However, the huge powers given to the Minister in these chapters should worry noble Lords. They are proposing great powers of oversight and direction for the Secretary of State. I fear that these will undermine the independence of the CMA and dilute its ability to take on the monopolistic behaviour of the big tech companies. I hope that these amendments will go some way to safeguard the independence of the regulator.

I support the collaborative approach set out in the SMS and conduct requirement processes; it seems to be preferable to the EU’s Digital Markets Act, which is so much more broad-brush, with a much wider investigation into designated companies’ business activities. The Bill sets out a greater focus on a company’s particular activity and ensures that the CMA and the DMU work closely with stakeholders, including the tech companies which are going to be under investigation. However, despite this collaboration, it can only be expected that the companies involved in the process will want to give themselves the best possible chance of maintaining their monopolistic position. Clause 6 is central to the start of the process—after all, it sets out when a company can be considered to be under DMU oversight.

Designation as an SMS player means only that the company is subject to the jurisdiction or potential oversight of the DMU; it does not mean that it has done anything wrong. The deliberate aim of the Bill is to ensure that only large players are to be included in the SMS status. These criteria will not dictate how the investigation will go, so the criteria for designation as an SMS player does not need to be changed if the market changes. However, Clause 6(2) and (3) will give Ministers power to take criteria away from this section. This will mean that powerful tech players could fall outside the jurisdiction of the DMU and will not be open to SMS designation as a result. If the clause allowed only new criteria to be added, so that a wider scope of companies could be included, that would not be so bad. However, the ability to reduce the scope of the DMU’s potential designation should alarm noble Lords. These subsections give the tech companies huge powers to lobby the Secretary of State to ensure that there is not the possibility to designate them. Effectively, this would be a de-designation of these companies, which would defeat the purpose of the CR process before it has even got off the ground.

I am also concerned that the Secretary of State’s powers in this clause go against the law’s need to be normative: as a basic principle, it must apply to all the companies, without discrimination. The DMCC Bill is a law that applies only to those who qualify, but it is, in principle, generally applicable. Chapter 2 of Part 1 sets out a set of criteria that apply to all companies, but only a few will satisfy the criteria. The criteria for being an SMS requires enduring market power and a collection of other criteria. It is likely, as a result, that these will cover Microsoft, Amazon, Apple, Google and Facebook; each has enduring market power and qualifies for designation under the criteria in Clause 6. However, if that law can be varied by a Secretary of State to take away criteria, as it currently can, then the law can be made to apply to only a few companies. At the extreme, it could be altered to apply to only one or two. I am advised by lawyers that this is likely to be discriminatory.

Imagine if the law were varied so it applied only to a business that provides both a digital platform and home deliveries. This would mean it would apply only to Amazon, and the company would go to town lobbying against the change in criteria as discriminatory. Noble Lords must continually remind themselves that the Bill is taking aim at the biggest, most powerful companies in the world. I ask them to consider just how far these companies would go to put pressure on politicians and Ministers to safeguard their position, and how effective that pressure can be in changing their minds.

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[Viscount Camrose (Con)]

I would struggle to name a particular one, but if we were to look back over the last five to 10 years we might reflect that there have been a number of developments in markets that have been largely unpredictable and that technology changes might drive further developments. The point is to create a balance between predictable and durable legislation and the ability to adapt to changes in business practice and technology as they emerge. As a thought experiment, if we were to flip it round and say, “No, we have to stick with only these four things for the duration of the eventual Act”, many of us would be concerned about an ongoing inability to adapt to change in what is a fast-moving marketplace that is likely to see an accelerating pace of change, rather than anything else.

That said, I hope my words provide the noble Baroness and noble Lords with sufficient assurance not to press their amendments.

[Lord Clement-Jones (LD)]

My Lords, the Minister rather glossed over the importance of Clause 5. In Clause 2(2), the SMS conditions are that

“the undertaking has—

(a) substantial and entrenched market power (see section 5), and

(b) a position of strategic significance”.

The conditions in Clause 6 are rather formulaic, in the way that the noble Lord, Lord Knight, talked about, but the determination, examination and assessment in Clause 5 as to whether an undertaking has substantial and entrenched market power is really important. The Minister glossed over this and said that it is not necessary to have a determination based on current evidence and that this forward-looking element must be in there.

Can the Minister confirm that he has taken advice within the department from competition lawyers who deal with this kind of potential challenge on a daily basis? He seems extraordinarily complacent about the fact that big tech will look at that assessment and say, “The evidence is not there. It’s all speculation for the next five years. You haven’t based it on the actual conduct in our market currently, or indeed an adjacent market”. No doubt we will come to that later in another group. This is absolutely at the core of the Bill, and all the advice that I get, whether from the Open Markets Institute or others, is that this is a real failing in the Bill that could open up a litigation problem for the CMA in due course.

[Viscount Camrose (Con)]

I certainly do not intend to gloss over any of these issues. I can confirm that the department receives extensive advice on these matters, as have those working on the Bill, not only from competition lawyers but from other stakeholders in the market of all different sizes and types, and indeed from the CMA itself. To turn around the noble Lord’s position, if we make a designation that is designed to last for five years, it is crucial that we take into account existing evidence and what is foreseeable today when determining whether to make that designation. Nobody is being asked to be overly speculative, but it is possible to identify existing trends and available information that can form part of the analysis, and use that to make the determination, particularly as the CMA will then have a duty to explain in detail the rationale behind its decision to designate a firm with SMS, or indeed not to do so.

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Moved by

[Lord Clement-Jones]

2: Clause 4, page 3, line 19, at end insert—
“(d) the digital activity or the way in which the undertaking carries on the digital activity is likely to have a substantial impact on the creation, displacement, quality or conditions of work or work environments in the United Kingdom.”Member's explanatory statement
This amendment would ensure key definitions such as ‘digital activity’ take into account impacts on UK work and workers in determining whether there is a sufficient link to the UK.

[Lord Clement-Jones (LD)]

My Lords, I was looking forward to hearing the noble Lord, Lord Knight, introduce these amendments but, owing to a glitch in timing when tabling the amendments, I am unfortunately in the hot seat this afternoon. As well as moving Amendment 2, I will speak to Amendments 18, 23, 56 and 61.

These amendments, developed by the Institute for the Future of Work, are aimed in particular at highlighting the direct and indirect impacts on job creation, displacement and conditions and on the work environment in the UK, which are important considerations that are relevant to competition and should be kept closely under review. I look forward to hearing what the noble Lord, Lord Knight, says, as co-chair of the All-Party Parliamentary Group on the Future of Work, which helped the Institute for the Future of Work to develop the amendments.

Digital markets and competition are shaping models for work, the distribution of work, access to work and the conditions and quality of work for several different reasons. Digital connected worker and labour platforms are used across the economy, not just for online or gig work. There is concentration in digital markets, with the emergence of a few dominant actors such as Amazon and Uber, which impacts the number and nature of local jobs created or lost. There are specific anti-competitive practices, such as wage and price fixing, which is currently subject to litigation in the US, and there are secondary and spillover impacts from all the above, including the driving of new models of business that may constrain wages, terms and work quality, directly or indirectly.

A good example is cloud-based connected worker platforms, which use behavioural and predictive algorithms to nudge and predict performance, match and allocate work and set standards. There is also increased market dominance in cloud computing, on which a growing number of UK businesses depend. For example, Amazon Web Services leads four companies in control of 67% of world cloud infrastructure and over 30% of the market.

Other examples are algorithmic hiring, job matching and task-allocation systems, which are trained on data that represents past practices and, as a result, can exclude or restrict groups from labour market opportunities. Social, environmental and well-being risks and impacts, including on work conditions and environments, are under increasing scrutiny from both the consumer and the corporate sustainability perspective—seen, for instance, in the World Economic Forum’s Global Risks Report 2024, and the EU’s new corporate sustainability due diligence directive, due to be formally approved this year, which obliges firms to integrate their human rights and environmental impact into their management systems.

This suggests that consumer interests can extend to local and supply-chain impacts, and informed decision-making will need better information on work impacts. For a start, key definitions such as “digital activity” in Clause 4 need to take into account impacts on UK work and workers in determining whether there is a sufficient link to the UK. Amendment 2 is designed to do this. Secondly, the CMA’s power to impose conduct requirements in Chapter 3 of the Bill should make sure that a designated undertaking can be asked to carry out and share an assessment on work impacts. Similarly, the power in Chapter 4, Clause 46, to make pro-competition interventions, which hinges on having an adverse effect, should be amended to include certain adverse impacts on work. Amendments 18, 23 and 56 are designed to do this.

Thirdly, information and understanding about work impacts should be improved and monitored on an ongoing basis. For example, the CMA should also be able to require an organisation to undertake an assessment to ascertain impacts on work and workers as part of a new power to seek information in Clause 69. This would help investigations carried out to ascertain relevant impacts and decide whether to exercise powers and functions in the Bill.

Evidence is emerging of vertical price fixing at a platform level, which might directly impact the pay of UK workers, including payment of the minimum wage and, therefore, compliance with labour law, as well as customer costs. Such anti-competitive practices via digital platforms are not limited to wages, or gig, remote or office work. Ongoing research on the gigification of work includes connected worker platforms, which tend to be based on the cloud. This is indicative of tight and increasing control, and the retention of scale advantages as these platforms capture information from the workplace to set standards, penalise or incentivise certain types of behaviour, and even advise on business models, such as moving to more flexible and less secure contracts. At the more extreme end, wages are driven so low that workers have no choice but to engage in game-like compensation packages that offer premiums for completion of a high number of tasks in short or unsociable periods of time, engage in risk behaviours or limit mobility.

The Institute for the Future of Work has developed a model which could serve as a basis for this assessment: the good work algorithmic impact assessment. The UK Information Commissioner’s Office grants programme supports it and it is published on the DSIT website. The assessment covers the 10 dimensions of the Good Work Charter, which serves as a checklist of workplace impacts in the context of the digitisation of work: work that promotes dignity, autonomy and equality; work that has fair pay and conditions; work where people are properly supported to develop their talents and have a sense of community. The proposed good work AIA is designed to help employers and engineers to involve workers and their representatives in the design, development and deployment of algorithmic systems, with a procedure for ongoing monitoring.

In summary, these amendments would give the CMA an overarching duty to monitor and consider all these impacts as part of monitoring adverse effects on competition and/or a relevant public interest. We should incorporate this important aspect of digital competition into the Bill. I beg to move.

[Lord Knight of Weymouth (Lab)]

My Lords, I congratulate the noble Lord, Lord Clement-Jones, on the way he occupied the hot seat and introduced his amendments. I had hoped to add my name to them but other things prevented me doing so. As he said, I co-chair the All-Party Group on the Future of Work with Matt Warman in the other place. I am grateful to the Institute for the Future of Work, and to Anna Thomas in particular for her help in putting these amendments together.

I start with a reflection on industrialisation, which in its own way created a massive explosion in economic activity and wealth, and the availability of goods and opportunities. There was innovation and it was good for consumers, but it also created considerable harms to the environment and to workers. The trade union movement grew up as a result of that.

In many ways, the technological revolution that we are going through, which this legislation seeks to address and, in part, regulate, is no different. As the Minister said a few moments ago, we see new opportunities with the digital tools and products that are being produced as part of this revolution, more jobs, more small and medium-sized enterprises able to grow, more innovation and more opportunities for consumers. These are all positive benefits that we should celebrate when we think about and support the Bill, as we do on all sides of the Committee.

However, the risks for workers, and the other social and environmental risks, are too often ignored. The risks to workers were totally ignored in the AI summit that was held by the Government last year. That is a mistake. During the Industrial Revolution, it took Parliament quite a while to get to the Factory Acts, and to the legislation needed to provide the protection for society and the environment. We might be making the same mistake again, at a time when people are being hired by algorithm and, as the noble Lord, Lord Clement-Jones, pointed out, managed by algorithm, particularly at the lower end of the labour market and in more insecure employment.

The Institute for the Future of Work’s report, The Amazonian Era, focused on the logistics sector. If you were ever wondering why your Amazon delivery arrives with a knock on the door but there is nobody there when you open it to say hello and check that the parcel has been delivered, it is because the worker does not have time to stop and check that someone is alive on the other side of the door—they have to get on. They are being managed by machine to achieve a certain level of productivity. They are wearing personalised devices that monitor how long their loo breaks are if they are working in the big warehouses. There is a huge amount of technological, algorithmic management of workers that is dehumanising and something which we should all be concerned about.

In turn, having been hired and managed by algorithms, people may well be being fired by algorithm as well. We have seen examples—for example, Amazon resisting trade union recognition in a dispute with the GMB, as the trade union movement also tries to catch up with this and do something about it. Recently, we saw strikes in the creative sector, with writers and artists concerned about the impact on their work of algorithms being used to create and that deskilling them rapidly. I have been contacted by people in the education world who are exam markers—again, they are being managed algorithmically on the throughput of the exams that they have to mark, despite this being an intensive, knowledge-based, reflective activity of looking at people’s scripts.

In this legislation we have a “user”, “consumer”, “worker” problem, in that all of them might be the same person. We are concerned here about users and consumers, but fail to recognise that the same person may also be a worker, now being sold, as part of an integrated service, with the technology, and at the wrong end of an information asymmetry. We have lots of data that is consumer-centric, and lots of understanding about the impacts on consumers, but very little data on the impact of their function as a worker.

In the United States, we have seen the Algorithmic Accountability Act. Last month, the Council of Europe published its recommendations on AI. Both are shifting the responsibility towards the companies, giving them a burden of proof to ensure that they are meeting reasonable standards around worker rights and conditions, environmental protection and so on. These amendments seek to do something similar. They want impacts on work, and on workers in particular, to be taken into account in SMS designation, competition decisions, position of conduct requirements and compliance reports. It may be that, if the Government had delivered on their promise of many years now to deliver an employment Bill, we could have dealt with some of these things in that way. But we do not have that opportunity and will not have it for some time.

As I have said, the collective bargaining option for workers is extremely limited; the digital economy has had very limited penetration of trade union membership. It is incumbent on your Lordships’ House to use the opportunities of digital legislation to see whether we can do something to put in place a floor of minimum standards for the way in which vulnerable workers across the economy, not just in specific digital companies, are subject to algorithmic decision-making that is to their disadvantage. We need to do something about it.

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[Viscount Camrose (Con)]

The CMA does have power and remit to request an algorithmic impact assessment. I will take advice on this, because I believe that the algorithmic assessment that it undertakes must be in the direction of understanding anti-competitive behaviours, rather than a broader purpose. I will happily take advice on that.

As the Bill stands, the CMA will already have sufficient investigatory powers to understand the impact of complex algorithms on competition and consumers. The suggested expansion of this power would fall outside the role and remit of the CMA. Moreover, the CMA would not have appropriate tools to address such issues, if it did identify them. The Government will continue to actively look at whether new regulatory approaches are needed in response to developments in AI, and will provide an update on their approach through the forthcoming AI regulation White Paper response.

I thank the noble Lord once again for raising these important issues and hope that he feels able to withdraw the amendment.

[Lord Clement-Jones (LD)]

I thank the Minister for his considered reply, and thank all those who have taken part in this extremely important and interesting debate, particularly the amplification by a number of noble Lords of some of the issues.

I was very much taken by what the noble Lord, Lord Knight, had to say about the risks for workers—hired, managed, fired. He used the word “dehumanising”, which was very powerful. The noble Baroness, Lady Kidron, referred back to some of the really interesting papers about automation from Osborne and Frey and others over the years, telling us that it is not just Elon Musk but, perhaps I might say, other more serious people who are warning us about the dangers of automation.

At the end of the day, I think the question is how relevant this is to competition. Those of us putting forward and supporting these amendments believe that monopoly, concentration and the power of big tech have the ability to determine working conditions. The Minister talks about this detracting from the CMA’s duties, saying that it is beyond its competition remit and so on. We think it is mainstream; we do not think that it is just an add-on to the CMA’s duties. There is a very strong argument for a wider focus by the CMA.

It feels rather like the Minister is passing the parcel to another regulator. It was instructive that we had to scrabble around at the back end of Clause 107 to see what other regulator might be available to deal with this, but there is nobody to pass this parcel to: this is a direct consequence of concentration and monopoly power. We should include these considerations in what the CMA does. It should have the power to insist on an algorithmic impact assessment.

I think the noble Baroness, Lady Kidron, used the word prescient. We need to be prescient and think forward to the future and the power of the algorithm, artificial intelligence and big tech. Our working population are extremely vulnerable in these circumstances. I do not get the feeling that the Government are really taking their duties to protect them seriously. I am sure that we will have further debates on this. In the meantime, I beg leave to withdraw Amendment 2.

Amendment 2 withdrawn.

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[Baroness Kidron (CB)]

My Lords, I do not actually have much to add to the excellent case that has already been made, but I, too, was at the meeting that the noble Baroness, Lady Jones of Whitchurch, mentioned, and noticed the CMA’s existing relationships.

Quite a lot has been said already, on the first group and just now, about lobbying—not lobbying only in a nasty sense but perhaps about the development of relationships that are simply human. I want to make it very clear that those words do not apply to the CMA specifically—but I have worked with many regulators, both here and abroad, and it starts with a feeling that the regulated, not the regulator, holds the information. It goes on to a feeling that the regulated, not the regulator, has the profound understanding of the limits of what is possible. It then progresses to a working relationship in which the regulator, with its limited resources, starts to weigh up what it can win, rather than what it should demand. That results in communities that have actually won legal protections remaining unprotected. It is a sort of triangulation of purpose, in which the regulator’s primary relationship ends up being geared towards government and industry, rather than towards the community that it is constituted to serve.

In that picture, I feel that the amendments in the name of the noble Baroness, Lady Jones of Whitchurch, make it clear, individually and collectively, that at every stage maximum transparency must be observed, and that the incumbents should be prevented from holding all the cards—including by hiding information from the regulator or from other stakeholders who might benefit from it.

I suggest that the amendments do not solve the problem of lobbying or obfuscation, but they incentivise providing information and they give challengers a little bit more of a chance. I am sure we are going to say again and again in Committee that information is power. It is innovation power, political power and market power. I feel passionately that these are technical, housekeeping amendments rather than ones that require any change of government policy.

[Lord Clement-Jones (LD)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Kidron, whose speech segues straight into my Amendments 14 and 63. This is all about the asymmetry of information. On the one hand, the amendments from the noble Baroness, Lady Jones, which I strongly support and have signed, are about giving information to challengers, whereas my amendments are about extracting information from SMS undertakings.

Failure to respond to a request for information allows SMS players to benefit from the information asymmetry that exists in all technology markets. Frankly, incumbents know much more about how things work than the regulators. They can delay, obfuscate, claim compliance while not fully complying and so on. By contrast, if they cannot proceed unless they have supplied full information, their incentives are changed. They have an incentive to fully inform, if they get a benefit from doing so. That is why merger control works so well and quickly, as the merger is suspended pending provision of full information and competition authority oversight. We saw that with the Activision Blizzard case, where I was extremely supportive of what the CMA did—in many ways, it played a blinder, as was subsequently shown.

We on these Benches consider that a duty to fully inform is needed in the Bill, which is the reason for our Amendments 14 and 63. They insert a new clause in Chapter 2, which provides for a duty to disclose to the CMA

“a relevant digital activity that may give rise to actual or likely detrimental impact on competition in advance of such digital activity’s implementation or effect”

and a related duty in Chapter 6 ensuring that that undertaking

“has an overriding duty to ensure that all information provided to the CMA is full, accurate and complete”.

Under Amendment 14, any SMS undertaking wishing to rely on it must be required to both fully inform and pre-notify the CMA of any conduct that risks breaching one of the Bill’s objectives in Clause 19. This is similar to the tried-and-tested pre-notification process for mergers and avoids the reality that the SMS player may otherwise simply implement changes and ignore the CMA’s requests. A narrow pre-notification system such as this avoids the risks.

We fully support and have signed the amendments tabled by the noble Baroness, Lady Jones. As techUK says, one of the benefits that wider market participants see from the UK’s pro-competition regime is that the CMA will initiate and design remedies based on the evidence it gathers from SMS firms in the wider market. This is one of the main advantages of the UK’s pro-competition regime over the EU DMA. To achieve this, we need to make consultation rights equal for all parties. Under the Bill currently, firms with SMS status, as the noble Baroness, Lady Harding, said, will have far greater consultation rights than those that are detrimentally affected by their anti-competitive behaviour. As she and the noble Lord, Lord Vaizey, said, there are opportunities for SMS firms to comment at the outset but none for challenger firms, which can comment only at a later public consultation stage.

It is very important that there are clear consultation and evidence-gathering requirements for the CMA, which must ensure that it works fairly with SMS firms, challengers, smaller firms and consumers throughout the process, ensuring that the design of conduct requirements applies to SMS firms and pro-competition interventions consider evidence from all sides, allowing interventions to be targeted and capable of delivering effective outcomes. This kind of engagement will be vital to ensuring that the regime can meet its objectives.

We do not believe that addressing this risk requires removing the flexibility given by the Bill. Instead, we believe that it is essential that third parties are given a high degree of transparency and input on deliberation between the CMA and SMS firms. The CMA must also—and I think this touches on something referred to by the noble Baroness, Lady Jones—allow evidence to be submitted in confidence, as well as engage in wider public consultations where appropriate. We very strongly support the amendments.

On the amendments from the noble Lord, Lord Tyrie, it is a bit of a curate’s egg. I support Amendments 12A and 12B because I can see the sense in them. I do not see that we need to have another way of marking the CMA’s homework, however. I am a great believer that we need greater oversight, and we have amendments later in the Bill for proposals to increase parliamentary oversight of what the CMA is doing. However, marking the CMA’s homework at that stage is only going to be an impediment. It will be for the benefit of the SMS undertakings and not necessarily for those who wish to challenge the power of those undertakings. I am only 50% with the noble Lord, rather than the whole hog.

[Viscount Camrose (Con)]

I thank both noble Lords for speaking and for their thoughtful contributions. I will start by considering the amendments tabled by the noble Baroness, Lady Jones of Whitchurch, relating to information and transparency.

It is important to state from the outset that the Government agree it is vital that the Digital Markets Unit’s decisions are transparent and that the right information is available publicly. Currently, the DMU would be required to publish the key information related to its investigations in the summaries of its decisions. The amendments in this group, beginning with Amendment 8 and ending with Amendment 58, tabled by the noble Baroness, would create a new requirement for the DMU to send decision notices to firms that it assesses to be the most affected by decisions.

We agree it is vital that the DMU's decisions are transparent, and the appropriate information is accessible publicly. That is why the DMU is required to consult publicly before it imposes obligations such as conduct requirements or pro-competition orders. This gives third parties the opportunity to make representations on the design of interventions. While the precise nature of the consultation process is at the DMU’s discretion, we are aware of the imbalances in resources between different firms, as noble Lords have raised.

In its recently published overview, the CMA highlighted that engaging with a wide range of stakeholders will be a core principle of their approach. We therefore expect the DMU to put appropriate mechanisms in place for third parties to feed in. The consultation requirements are minimum requirements. As the CMA set out earlier this month, the DMU will undertake fair, inclusive and transparent engagement with third parties when designing its interventions. The participative approach will ensure that obligations are effective and appropriate, while minimising undue burdens and avoiding unintended consequences for both SMS firms and third parties.

However, requiring the DMU to identify appropriate third parties and send notices for each decision would introduce a significant burden on the DMU for minimal benefit. I think this will be a theme as we go through Committee: the burdens created by some of the proposed amendments are greater than they initially seem. For example, it could mean sending notices to potentially thousands of interested third parties in the case of app developers in the activity of app stores. Given this and the fact that the CMA will publish key information related to its decisions, we feel the burden would outweigh the benefit.

Amendment 14, tabled by the noble Lord, Lord Clement-Jones, would require SMS firms to inform the CMA before launching a digital activity that may give rise to competition issues. The Government agree that it is important that the CMA has access to information on potential competition issues in digital markets as they emerge. However, the CMA already has robust information-gathering powers under Part 1, supported by appropriate penalties for non-compliance. This amendment would create new burdens on the CMA, which could potentially be inundated with information. As a result, rather than focusing on priorities, the regulator would have to expend resources sifting the information provided. Further, it could introduce undue burdens on SMS firms looking to introduce innovative new products and services in areas that have healthy competition. It is important that obligations within the regime do not dissuade firms from developing innovations that are beneficial to consumers. I hope that sets out the position to the noble Lord.

[Lord Vaizey of Didcot (Con)]

I am interested in my noble friend’s point about the idea that allowing challenger firms to put in evidence to the CMA would overwhelm it with too much information that it could not cope with. Two points spring to mind. First, when you bring a case against an SMS the workload is unbelievable anyway—it is enormous—and these cases go on for years, so it strikes me that additional information from challenger firms would not unduly add to the CMA’s burden. Secondly, if my noble friend will forgive me, it seems a relatively casual phrase. I do not know whether there has been any analysis of the kind of information the CMA would expect to receive, but surely information that it received from challenger firms would simply allow it to present a much more robust case, rather than it being overwhelmed by paperwork.

[Lord Clement-Jones (LD)]

My Lords, so that the Minister does not have to stand up a second time, I will just add the other side of the coin to the question from the noble Lord, Lord Vaizey. The Minister seems very concerned about the workload within an SMS, but they are an SMS for a reason.

[Viscount Camrose (Con)]

I thank noble Lords for raising those points. My response to them both is that the key is that we are trying to set a balance between the workloads—the work that has to be performed by the regulator—and the benefit of that work for competition. We can certainly come up with examples. I shared the example of how many app developers there are and how many of them would have to exchange information with the regulator, but perhaps it would be more helpful to the Committee if I committed to giving a slightly deeper analysis of what the CMA estimates would be the time consumed on such activities and why we are concerned that it would have the potential to detract from the core basis of its mission.

[Viscount Camrose (Con)]

In that example, I would cast the app developers as participants in the ecosystem and the customers as the users of the app, but that is perhaps an ontological problem. Perhaps the most straightforward thing, to satisfy the Committee’s concerns that we are not idly throwing out the possibility of an overworked regulator, would be to provide the Committee with a greater analysis of why we believe we have to be careful with what information we ask them to exchange with interested parties to avoid the situation in which the paperwork exceeds the value work.

[Lord Clement-Jones (LD)]

My Lords, would the Minister also agree to add the whole question about the overworked SMS in his response?

[Viscount Camrose (Con)]

Yes. The point is that we are very happy for these firms to keep delivering innovative new products in competitive markets; we are less happy about them spending their time frustrating the will of the regulator. It is more difficult for me to comment on SMS workloads but I am very happy to comment on the regulators’ workloads.

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[Lord Clement-Jones (LD)]

My Lords, the foundation of the Minister’s argument is SMS workload. The issue is exactly the point that the noble Baroness, Lady Kidron, made about information being power. The SMS companies will know what they are developing. They have huge teams of developers and marketeers, and they have huge amounts of information. This is a question of the CMA trying to keep abreast of what is happening in markets which are dominated by SMS companies, so it is important that there is a proactive duty on the SMS undertaking to give information to the CMA. Maybe the Minister could, as part of this letter, explain how many people there are whose job it is to gather information from the SMS companies—maybe that is the right way around—so we can judge whether it is right to require an SMS proactively to deliver information to the CMA.

[Viscount Camrose (Con)]

Indeed. I am happy to include such analysis in my letter. However, I observe that were I to put myself in the SMS’s shoes and I had a desire to frustrate the will of the regulator, my approach would be to provide far more information than was necessary and create a significant burden on the regulator to sift that information. Any such request or any such standing order about the information coming from the SMS to the regulator must itself be quite carefully balanced.

[Lord Clement-Jones (LD)]

My Lords, all the SMS has to do is put it through one of its large language models, and hey presto.

[Baroness Kidron (CB)]

I am losing track of the conversation because I thought we were asking for more information for the challenger companies. rather than this debate between the SMS and the regulator. Both of them are, I hope, well resourced, but the challenger companies have somehow been left out of this equation and I feel that we are trying to get them into the equation in an appropriate way.

[Lord Clement-Jones (LD)]

That is not incompatible. These are two sides of the same coin, which is why they are in this group. I suppose we could have degrouped it.

[Viscount Camrose (Con)]

Indeed, and I apologise for getting slightly sidetracked on the issue. I think the outcomes we want are that challenger tech firms should be duly informed about the information they need, whether to rebut claims set out by an SMS or to understand the implications and contribute to the process of determining what interventions the regulator should need to make. In the Bill, we are trying to develop the machinery that balances both sides of that equation most effectively, and I remain concerned that we need to manage the workload requirements of the regulator so that it is optimally focused on delivering the right outcomes based on the right information.

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[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to take part in this first day of Committee on the Bill. As it is my first time speaking in Committee, I declare my technology interests as set out in the register, not least as an adviser to Boston Limited. In moving Amendment 15, I will also speak to Amendment 24, and I am very interested in the other amendments in this group.

Much of the discussions so far rest on the most important point of all when it comes to legislating. It reminds me of many of the discussions that we had in this very Room last year on the Financial Services and Markets Bill, as it was then, about accountability, the role of the Secretary of State and the role of the regulators. Much of this Bill as drafted, if not a pendulum, simultaneously swings significant powers to the regulator, and indeed to the Secretary of State. But the question that needs continually to come up in our deliberations in Committee and beyond is where Parliament is in this process. We hear every day how the physical building itself is crumbling, in need of desperate repair and in need of a decant, but, when it comes to this Bill, Parliament has already disappeared.

There is a massive need for accountability in many of the Bill’s clauses. Clause 19 is just one example, which is why my Amendment 15 seeks to take out a chunk of it to help in this process. Later in Committee, we will hear other amendments on parliamentary accountability. It is not only essential but, as has already been mentioned, goes to the heart of a trend that is happening across legislation, in different spheres, where huge powers are being given to our economic regulators without the right level of accountability.

What we saw as one of the major outputs of FSMA 2023, as it now is, was a new parliamentary committee: the financial services and markets committee. In many ways, you can see this as a process that may happen repetitively, but positively so, across a number of areas if this approach to legislation is perpetuated across those areas when it comes to competition. I look forward to my noble friend the Minister’s response to my Amendment 15 on that issue.

I move on to Amendment 24, which concerns a very different but critical area. It seeks to amend Clause 20, which makes brief mention of the accessibility of the information pertaining to these digital activities but is silent on the accessibility of the digital activities themselves. Does my noble friend the Minister agree that we need more on the face of the Bill when it comes to accessibility? With more services—critical parts of our lives—moving on to these digital platforms, it is essential that they are accessible to all users.

I use the term “user” deliberately because, as we have heard in previous debates, there is a great need for clarity around this legislation. “User” is used—indeed, peppered—throughout the legislation. This is right in that “user” is a term of art that would be understood across the country; however, it does not appear in the title of the Bill, which is at least interesting. We must ensure that all users or consumers are able to access all these digital platforms and services fully. Let us take banking as an example. It is far more difficult to get face-to-face banking services and access to cash, so much more is moved online. However, if those services are not accessible, what use are they to people who have been physically excluded and are now being financially and digitally excluded in the digital space?

When it comes to sporting events, mention has been made of sport in our debates on earlier amendments. I think everyone in the Committee would agree that VAR has not demonstrated technology at its brightest and best in the sporting context. I wonder whether, if we completely turned referees into bots, there would be questions about the visual acuity of the bot on the decisions that it similarly made when it went against our team. If we are to have so many ticketing services for sporting, musical and cultural events available largely, if not exclusively, online—and if, at the front end of that process, there is the all-too-familiar CAPTCHA, which we must go through to prove that we are not yet a bot—what will happen if that is not accessible? We will not get tickets.

I put it to my noble friend the Minister that there needs to be more in Clause 20 and other parts of the Bill around the accessibility of those digital services, activities and platforms. If we could fully embrace the concept of “inclusive by design”, this would evaporate as an issue. I beg to move.

[Lord Clement-Jones (LD)]

My Lords, this is quite a group of amendments. Clearly, it will take a bit of time to work our way through all of them. It is a pleasure to follow the noble Lord, Lord Holmes, who is so knowledgeable about digital aspects—I thought that he would slip stuff about the digital aspects of sport into his introduction.

I am in curate’s egg country, as far as the two amendments in the name of the noble Lord are concerned. I am not quite sure about Amendment 15, but I look forward to the Minister’s response. I think Amendment 24 is absolutely spot on and really important. I hope that the noble Lord succeeds in putting it into the Bill, eventually.

I will start by speaking to Amendments 21, 28 and 55 on interoperability, Amendment 30 on copyright and Amendment 20 in the name of the noble Lord, Lord Lansley. I will refer to Amendment 32 in the name of the noble Viscount, Lord Colville, but I will not speak on it for too long, because I do not want to steal his thunder. If possible, I will also speak to the amendments in the names of the noble Baroness, Lady Jones, and the noble Lord, Lord Vaizey, on leveraging. They are crucial if the Bill is to be truly effective.

Interoperability is the means by which websites interoperate, as part of the fundamental web architecture. Current problems arise when SMS players make browser changers and interfere with open web data, such as header bidding, which is used for interoperability among websites. Quality of service and experience can be misused for the benefit of the platforms; they can degrade the interoperability of different systems or make video or audio quality either higher or lower for the benefit of their own apps and products.

At Second Reading, my noble friend Lord Fox reminded us that Professor Furman, in evidence in Committee in the Commons, said that intervention on interoperability is a vital remedy. My noble friend went on to say that interfering with interoperability in all its forms should be policed by the CMA, which should be

“proactive with respect to promoting international standards and aiming to create that interoperability: for a start, by focusing on open access and operational transparency, working for standards that allow unrestricted participation and favouring the technologies and protocols that prevent a single person or group amending or reversing transactions executed and recorded”.—[Official Report, 5/12/23; col. 1396.]

At my noble friend’s request, the Minister, the noble Viscount, Lord Camrose, followed up with a letter on the subject on 7 December. He said:

“Standards are crucial to building the UK’s economic prosperity, safeguarding the UK’s national security, and protecting the UK’s norms and values. The Government strongly supports a multi-stakeholder approach to the development of technical standards, and it will be important that the CMA engages with this process where appropriate. The UK’s Plan for Digital Regulation, published in 2021, confirms the importance of considering standards as a complement or alternative to traditional regulation”.


It is good to see the Minister’s approach, but it is clear that there should be a stronger and more explicit reference to the promotion of interoperability in digital markets. The Bill introduces an interoperability requirement under Clause 20(3)(e) but, as it stands, this is very vague. Interoperability should be defined and the purpose of the requirement should be outlined; namely, to promote competition and innovation, so that content creators can provide their services across the world without interference and avoid platform dependency.

I move to Amendment 30. Breach of copyright online is a widespread problem. The noble Baroness, Lady Kidron, referred to the whole IP issue, which is increasing in the digital world, but the current conduct requirements are not wide enough. There should be a simple obligation on those using others’ copyright to request the use of that material. As the NMA says, the opacity of large language models is a major stumbling block when it comes to enforcing rights and ensuring consumer safety. AI developers should be compelled to make information about systems more readily available and accessible. Generative outputs should include clear and prominent attributions, which flag the original sources of the output. This is notable in the EU’s proposed AI Act.

This would allow citizens to understand whether the outputs are based on reliable information, apart from anything else.

If publishers are not fairly compensated for the use of the content by generative AI systems in particular—I look towards the noble Lord, Lord Black, at this point—and lose audiences to them, it will harm publisher sustainability and see less money invested in quality journalism. In turn, less trusted content will be available to train and update AI systems, harming innovation and increasing the chance that these systems produce unreliable results.

--- Later in debate ---

[Viscount Camrose (Con)]

I start by thanking all noble Lords who spoke so compellingly. It was a great pleasure to listen. I must say my head is slightly spinning, it is such an eclectic group of amendments, but I will do my best to respond properly to all the points raised.

I start with the discussion on the imposition and use of conduct requirements by the regulator. I thank my noble friend Lord Holmes of Richmond for tabling Amendment 15, which would remove the conduct requirement objectives—fair dealing, open choices and trust and transparency—and instead allow the CMA to impose conduct requirements for any purpose, so long as they fall within the list of permitted types. I intend to cover only the impacts of this amendment on the conduct requirement objectives, not its impacts on the proportionality requirement, as we shall be turning to that in detail later. Both the objectives and the permitted types of conduct requirement reflect extensive and expert evidence and analysis on types of harms in digital markets. These have been set out in legislation to provide clarity up front about the types of rules that designated firms could be subject to. It is right that the powers given to the CMA have clear and defined limits, and the objectives provide an appropriate framework for them to operate within. The Government feel that this clarity of objective is essential to the success of the regime, ensuring that it remains targeted and proportionate.

Amendment 19, tabled by the noble Lord, Lord Clement-Jones, would allow the CMA to gather and publish information relating to commercial deals. I sympathise with the sentiment behind his amendment and believe this regime will provide a crucial means to address the imbalance that exists between the most powerful tech firms and other parties. The CMA will already, as part of investigatory requirements, conduct requirements and the final offer mechanism process, be able to gather relevant information about payment terms and deals, and require SMS firms to share information with third parties. The CMA will also, where appropriate, be able to publish aggregated and anonymised information. As such, we do not believe that this amendment provides the CMA with any necessary additional powers.

Amendment 30 proposes that conduct requirements on unfair use of data be amended to allow the CMA to also prevent SMS firms using copyright material without permission. I absolutely agree, needless to say, with the sentiment that properly functioning, competitive markets that respect intellectual property rights have a vital role to play in stimulating growth and encouraging innovation.

I assure the noble Lord, Lord Clement-Jones, that the CMA is well equipped to address competition issues in a range of contexts, including where these issues intersect with intellectual property rights. When making interventions, the CMA will consider a range of factors, which can include the fairness of terms in issues related to copyright, where they are relevant, on a case-by-case basis. Existing permitted types of conduct requirements already allow the CMA to set requirements for unfair and unreasonable terms, which can include payment terms.

[Lord Clement-Jones (LD)]

I am sorry to interrupt the Minister but that is very general. We have heard around the Room that people are really concerned. As we go forward, so many areas of intellectual property—the ingestion of copyright material, the issues with synthesisation of performances—are being affected by artificial intelligence. The kind of language the Minister is using sounds far too generic. It needs to be much more focused if we are to be convinced that the CMA really has a role in all of this. He is the Minister for both AI and IP, so he is right at the apex of this issue; maybe he is right on the point of the whole thing. He has the ability in his ministerial role to start trying to resolve some of these issues. We have the IPO coming up with a code of conduct—

[Lord Vaizey of Didcot (Con)]

We have a vote soon.

[Lord Clement-Jones (LD)]

This is a long intervention, I agree. I would just ask the Minister to focus on the fact that this is not just any old fairness of terms but something that should be explicitly stated in the Bill.

[Viscount Camrose (Con)]

There is a much broader set of work looking at issues of copyright, intellectual property and artificial intelligence together—a hugely complex piece of work with many stakeholders pulling in a range of different directions. The goal of this Bill is to address that in so far as it affects competitive markets. We may debate this, but the design of the Bill is such that, in so far as competition is affected by the misuse of intellectual property or intellectual property infringements, the CMA is empowered to intervene to drive greater competition or address issues that limit competition. It is targeted only at addressing competitive issues but, in so far as they affect competitive issues, it is empowered to address IP infringement issues, as set out here.

Existing permitted types of conduct requirements already allow the CMA to set requirements for unfair and unreasonable terms, which can include payment terms. The Government are committed to our world-leading IP regime. Copyright legislation already provides a robust framework for rights holders to enforce against copyright infringement. We will take a balanced approach to the use of AI across the press sector and departments across government are working together closely to consider the impact of AI, ensuring that AI innovators and our world-leading creators can continue to flourish.

I turn to Amendments 26, 27 and 25. I thank noble Lords for their thoughtful and considered contributions on these amendments. Amendments 26 and 27 are intended to expand the ability of the CMA to intervene outside the designated digital activity. Amendment 25 also seeks to expand this power specifically in relation to self-preferencing behaviour that takes place outside the designated activity. We agree with noble Lords that it is crucial that the CMA can deal with anti-competitive behaviour outside the designated activity where appropriate. My noble friend Lord Offord and I have had a number of representations giving further examples of this kind of behaviour and we are committed to finding the right means of addressing it.

Our current drafting has sought to balance the need for proportionate intervention with clear regulatory perimeters. The regime is designed to address the issues that result from strategic market status and is therefore designed to address competition issues specifically in activities where competition concerns have already been identified. This recognises that SMS firms are likely to be active in a wide range of activities and will face healthy competition from other firms in many of them.

I assure noble Lords that the power to prevent self-preferencing is already sufficiently broad. It can apply where an SMS firm is using its power in the designated activity inappropriately to treat its own products more favourably, but without a need for those products to be linked to the designated activity. In addition, the existing power outlined in Clause 20(3)(c) to intervene in non-designated activities, which noble Lords are referring to as the whack-a-mole principle, has been carefully calibrated. It is available only where the conduct has a material impact on the strategic market status in respect of the designated activity.

The same conduct in respect of a different activity may not have the same impact on the market. It will not always be anti-competitive and may instead form a part of normal business practice in a more contestable market. The DMU will therefore take a targeted, evidence-based approach when considering intervention. The DMU can intervene via conduct requirements outside the designated activity to prevent leveraging into the designated activity or via PCIs to address an adverse effect on competition in a designated activity. Therefore, the Government’s view is that broadening the CMA’s powers would risk over-intervention, creating uncertainty for businesses and risks to innovation and investment.

--- Later in debate ---

My noble friend Lord Lansley talks about the two types of conduct requirement. To be clear, subsection (2) refers to the requirements for the purpose of “obliging” conduct, and subsection (3) refers to the requirements for the purpose of “preventing” conduct. The specific conduct requirements imposed by the CMA may be framed as either obligations or restrictions, regardless of whether they fall within types of requirements under subsections (2) or (3). This means that the CMA can already promote interoperability in the way that my noble friend rightly wants. PCIs could also include remedies, such as mandated interoperability, data sharing and consumer choice screens.

[Lord Clement-Jones (LD)]

My Lords, we are getting on in the Committee, but I was really interested in the Minister’s interpretation point, because quite a lot hangs on that. The noble Lord, Lord Lansley, illustrated extremely well the difference between promoting and not restricting, so to speak—that is a crucial distinction. The Minister prayed in aid Clause 20(2) versus (3), but could he write on that in due course?

[Viscount Camrose (Con)]

I am very happy to do so. As I say, anything that ensures the clarity of the Bill is valuable and important.

On the reference to international technical standards, these can be an important tool in supporting good regulatory outcomes, and we expect the CMA to pay due regard to these, along with other relevant considerations.

Finally, Amendment 34 would place a duty on the DMU to consider opening a PCI investigation when reviewing the effectiveness of, and an SMS firm’s compliance with, conduct requirements. Conduct requirements are tailored rules to manage the effects of an SMS firm’s market power and prevent harms before they occur. PCIs will tackle the sources of SMS firms’ market power, which can arise from both structural features of a market and SMS firms’ conduct. These are different but complementary tools, and the CMA will need to carefully decide when it is appropriate to use each tool, depending on the specific competition issue at hand. This amendment risks narrowing and reframing PCIs as a tool of last resort for non-compliance with conduct requirements.

I hope noble Lords feel assured that the issues they have raised have been carefully considered and reflected throughout the Bill, and I hope that the noble Lord will be able to withdraw his amendment.

Online Safety (List of Overseas Regulators) Regulations 2024

Lord Clement-Jones Excerpts

Tuesday 16th January 2024 Grand Committee

[Lord Clement-Jones (LD)]

My Lords, I thank the Minister for his introduction. We all welcome the fact that the Bill is now an Act, of course. In a sense, these regulations are the first swallow of spring. We have many more affirmative SIs to come, I have no doubt, along with the codes of conduct that will eventually come to us in their final form. Like the Minister, I very much hope that we will proceed at speed in how we implement the terms of the Act.

Although this SI looks quite narrow in what it is about, it raises the whole question of co-operation between regulators. It is not just going to be about Ofcom helping overseas regulators, as set out in the regulations, in what they do; obviously, the Communications Act provisions will be important as well. It would be useful if the Minister could give us an idea of the areas of co-operation between the regulators that he thinks would be particularly fruitful. For instance, relationships with the Irish regulator will be extremely important in understanding how the DSA is working for it. How might its redress mechanism work? The DSA has explicit redress mechanisms under it whereas we are going to be working towards that in future; that is quite a long way away.

As the Minister will recall, other aspects are still somewhat inchoate under the Act. There is the question of research, which is an important area. How is that working? How are the other regulators seeing it operate? There is also the app store aspect, the other area of the Act that is not quite there in the way that its other parts are. It would be useful if the Minister could give us an idea of the areas that Ofcom will be working on.

I very much welcome the Minister’s assurances about the use of personal data and the kind of information that will be available. I assume that this will be of some importance, and that these case studies will involve some of the category 1 platforms to be discussed between the regulators. They will be helpful in making sure that, on an international basis, we see conformity by these large platforms to the kinds of regulation that are being installed. Does the Minister have an idea about the scale of the exchange of information that will be required? Clearly, it will require some resource by Ofcom in making security absolutely certain and being able to deliver on the assurances that the Minister has given.

Finally, it would be interesting to hear from the Minister whether other candidates will be coming down the track. Clearly, this instrument sets out the key regulators. Might others come along that are a speck in the eye, or does the Minister think that we have pretty much settled who the key regulators are and that, for the moment, they will be the ones with which we will co-operate under the terms of this SI?

[Lord Stevenson of Balmacara (Lab)]

My Lords, I join the noble Lord, Lord Clement-Jones, in welcoming this SI, and I thank the Minister for his kind comments about the work that went into the Bill. I share with him our pleasure that it is now in force and up and running; this instrument is proof positive that it is indeed so. Like the noble Lord, Lord Clement-Jones, I have many questions about what is happening, but certainly no objections to what is proposed.

The helpful Explanatory Memorandum explains that the context for this instrument is

“the global nature of service providers”

and how they operate. In that sense, I recognise that there are some gaps as regards the areas from where difficulties and troubles might come. For instance, Poland and parts of the eastern European bloc are thought to be centres from which emanate quite a lot of damage and a certain amount of material that is almost certainly illegal, yet I see no reference to any organisation—maybe there is none—that might be able to help Ofcom explore what is happening there. I am also concerned about Canada, because it hosts the biggest—I think—pornography company in the world. Again, I would have thought it would be helpful to Ofcom to be able to contact a collaborative organisation in Canada to work with, but I do not see one in the list.

That leads me on to another, related point. There is, and has been for some time, a network of likeminded organisations with which Ofcom has worked well in the past. There is a list of them on its website. Not all of them are in the Government’s proposals before us, and I wonder whether that in any way reflects a clash of views by the Government. Perhaps the Minster will comment on why we do not see Korea or South Africa, for instance. I would have thought that at least those with which Ofcom has a good working relationship at the moment should have been close to appointment. Perhaps there is some sort of competition there or element that I am not aware of. Any light that could be shed on that would be helpful.

Paragraph 7.5 of the Explanatory Memorandum attached to the SI very helpfully specifies that these regulations have certain minimum standards by which they are judged—a point picked up by the noble Lord, Lord Clement-Jones. I felt they were very appropriate to the ones that the Minister mentioned, including the bespoke regulatory framework itself,

“whether its autonomy is protected in law; and whether the … jurisdiction that empowers them, upholds international human rights”.

These are all good things, and I am pleased to see them mentioned in the Explanatory Memorandum and referenced in his speech.

That raises the question: what happens if any of these organisations depart from these standards? Will another procedure or SI be required to remove them from the list, or would they just cease to be part of the group with which Ofcom discusses things? It would be helpful to have on the record some idea of what the procedure would be if that were required.

My last two points are relatively small. There is a hint that more regulators will be considered and brought forward. That is good; I think we are all in favour of more places, since, as has been said, this is a global issue. What is the timing of that, roughly? Perhaps we could have some speculative ideas about it.

Finally, as the noble Lord, Lord Clement-Jones, pointed out, this is the first of many SIs coming forward for consideration by the House. In Committee on the Bill, we discussed at length how Parliament could be involved. This SI is probably not a very good example of that, but in the codes of practice considerable work will be required by Parliament to make sure that the affirmative resolutions are properly researched and discussed.

The proposal we made, which was accepted by the noble Viscount’s colleague, the noble Lord, Lord Parkinson, was the Parkinson rule: that the statutory instruments would, in fact, be offered to the standing committees. I do not think that would have been necessary for this instrument; I just wonder whether that is still in progress and whether it is the Government’s intention to honour the idea announced at the Dispatch Box that the legwork for many of the substantial SIs that will come forward could be done with advantage by the committees, which would inform the debates required in both Houses before these instruments can be approved. I look forward to hearing from the noble Viscount whether that is likely to happen.

[Viscount Camrose (Con)]

As ever, I thank noble Lords for their valuable contributions to this debate. Needless to say, it is vital that we recognise the global nature of regulated service providers under the Online Safety Act. This SI will ensure that Ofcom can co-operate and share online safety information with specified overseas regulators where appropriate.

As set out, we will review on an ongoing basis whether it is desirable and appropriate to add further overseas regulators to the list. That is an ongoing activity. I anticipate that, as more and more jurisdictions enter the online safety regulation business, we will see an acceleration of the rate at which they can join on the lines we have set out.

I will now respond to some of the specific questions raised in the debate. The noble Lord, Lord Clement-Jones, asked about the types of information that Ofcom might share using this mechanism. The Government anticipate Ofcom being able to share information and co-operate with other regulators, which will lead to international regulatory co-operation, which is likely to reduce the regulatory burden on Ofcom, as well as international counterparts—for example, in relation to duties that are quite similar between regulators, such as duties to deal with illegal content. I anticipate that being a particular focus of their co-operative activities.

Positive benefits may also result from Ofcom supporting overseas regulators in carrying out their online safety regulatory functions and co-operating with relevant criminal investigations or proceedings. That co-operation might address a source of harm for UK users—for example, preventing malign actors disseminating suicide and self-harm content on regulated services.

Regarding the scale of the exchange, Ofcom itself would have discretion as to the scale of the information sharing that takes place through these provisions. However, it is likely to be beneficial to both Ofcom and its regulatory counterparts to engage in information exchange of this nature.

On the question from the noble Lord, Lord Stevenson, on why certain regulators have not been added, we will of course work closely with Ofcom and other stakeholders. He raised a number of interesting examples that would have been quite tempting to add to the list of criteria applied by us, which we, along with Ofcom, produced for the time being but on an ongoing basis. The intention is to review that to add other regulators that can add value in this way.

[Lord Clement-Jones (LD)]

My Lords, the Minister raised a very interesting point. He said “criteria”; I do not think we have quite heard what those criteria are. That would be very interesting so that we can gauge for the future whether the possibilities that the noble Lord, Lord Stevenson, raised are real possibilities.

[Viscount Camrose (Con)]

Indeed. Perhaps noble Lords will forgive me if I restate “criteria” as “factors considered”, because they are less algorithmic in that sense. Those factors considered would have been an existing relationship or ways of working together; bespoke online safety laws with a bespoke online safety regulator designated to those laws; regulatory autonomy, as I said; and, of course, a regulator within a jurisdiction committed to upholding human rights laws. I should add that the precise nature of any co-operation with any of the regulators on the list remains the decision of Ofcom and not the Government.

To address the question from the noble Lord, Lord Stevenson of Balmacara, about whether further statutory instruments will be required to remove overseas regulators from the list, I can confirm that this is the case. I hope that noble Lords agree with me on the importance of implementing the Online Safety Act as swiftly as possible. Therefore, I commend these regulations to the Committee.

--- Later in debate ---

[Viscount Camrose (Con)]

I apologise to the noble Lord; I misunderstood. I very much see the value of this and will strain my sinews to deliver just that. Meanwhile, I commend these regulations to the Committee.

[Lord Clement-Jones (LD)]

My Lords, before the Minister finally sits down, I want to put to him a very interesting question raised by my noble friend, who the Minister knows is extremely expert on these matters. Is this purely regulators for sovereign Governments or is there flexibility so that, for instance, a US state such as California, which has a particularly powerful governance regime and a strong regulator—it hits the criteria the Minister stated, other than being a sovereign country—could possibly be added to the list under these powers?

[Viscount Camrose (Con)]

I think we would continue to entertain the possibility. That is why I slightly withdrew from the word “criteria” and went to “factors under consideration”—so that we would have the ability to adapt to such opportunities as might arise.

Data Protection and Digital Information Bill

Lord Clement-Jones Excerpts

2nd reading
Tuesday 19th December 2023 Lords Chamber

[Lord Clement-Jones (LD)]

My Lords, I thank the Minister for his introduction to the Bill today and congratulate the noble Lord, Lord de Clifford, on his maiden speech. I think we all very much appreciated his valuable perspective on SMEs having to grapple with the intricacies of data protection. I very much look forward to his contributions—perhaps in Committee, if he feels brave enough.

The Minister will have heard the concerns expressed throughout the House—not a single speaker failed to express concerns about the contents of the Bill. The right reverend Prelate the Bishop of Southwell and Nottingham reminded us that the retention and enhancement of public trust in data use and sharing is of key importance, but so much of the Bill seems almost entirely motivated by the Government’s desire to be divergent from the EU to get some kind of Brexit dividend.

As we have heard from all around the House, the Bill dilutes where it should strengthen the rights of data subjects. We can then all agree on the benefits of data sharing without the risks involved. The Equality and Human Rights Commission is clearly of that view, alongside numerous others, such as the Ada Lovelace Institute and as many as 26 privacy advocacy groups. Even on the Government’s own estimates, the Bill will have a minimal positive impact on compliance costs—in fact, it will simply lead to companies doing business in Europe having to comply with two sets of regulations.

I will be specific. The noble Lord, Lord Davies of Brixton, set out the catalogue, and I will go through a number of areas where I believe those rights are being diluted. The amended and more subjective definition of “personal data” will narrow the scope of what is considered personal data, as the right reverend Prelate the Bishop of St Albans pointed out. Schedule 1 sets out a new annexe to the GDPR, with the types of processing activities that the Government have determined have a recognised legitimate interest and will not require a legitimate interest human rights balancing test to be carried out. Future Secretaries of State can amend or add to this list of recognised legitimate interests through secondary legislation. As a result, as the noble Baroness, Lady Bennett, pointed out, it will become easier for political parties to target children as young as 14 during election campaigns, even though they cannot vote until they are 16 or 18, depending on the jurisdiction.

The Bill will change the threshold for refusing a subject access request, which will widen the grounds on which an organisation could refuse requests. The noble Lord, Lord Sikka, reminded us of the existing difficulties of making those subject access requests. Clause 12, added on Report in the Commons, further tips power away from the individual’s ability to access data.

There are also changes to the automated decision-making provisions under Article 22 of the GDPR—the noble Lord, Lord Holmes, reminded us of the importance of the human in the loop. The Bill replaces Article 22 with articles that reduce human review of automated decision-making. As the noble Lord, Lord Knight, pointed out, Article 22 should in fact be strengthened so that it applies to partly automated processing as well, and it should give rights to people affected by an automated decision, not just those who provide data. This should be the case especially in the workplace. A decision about you may be determined by data about other people whom you may never have met.

The Bill amends the circumstances in which personal datasets can be reused for research purposes. New clarifying guidance would have been sufficient, but for-profit commercial research is now included. As the noble Lords, Lord Knight and Lord Davies, pointed out and as we discussed in debates on the then Online Safety Bill, the Bill does nothing where it really matters: on public interest researcher access.

The Bill moves away from UK GDPR requirements for mandatory data protection officers, and it also removes the requirement for data protection impact assessments. All this simply sets up a potential dual compliance system with less assurance—with what benefit? Under the new Bill, a controller or processor will be exempt from the duty to keep records, unless they are carrying out high-risk processing activities. But how effective will this be? One of the main ways of demonstrating compliance with GDPR is to have a record of processing activities.

There are also changes to the Information Commissioner’s role. We are all concerned about whether the creation of a new board will enable the ICO to maintain its current level of independence for data adequacy purposes. This is so important, as the noble Baroness, Lady Young, and my noble friend Lord McNally pointed out.

As regards intragroup transfers, there is concern from the National Aids Trust that Clause 5, permitting the intragroup transmission of personal health data

“where that is necessary for … administrative purposes”,

could mean that HIV/AIDS status is inadequately protected in workplace settings.

Schedule 5 to the Bill amends Chapter 5 of the UK GDPR to reform the UK’s regime for international transfers, with potential adverse consequences for business. The noble Lord, Lord Kirkhope, reminded us of the dangers of adopting too low standards internationally. This clearly has the potential to provide less protection for data subjects than the current test.

In Clause 17, the Bill removes a key enabler of collective interests, consultation with those affected by data and processing during the data protection risk assessment process, and it fails to provide alternative opportunities. Then there is the removal of the legal obligation to appoint a representative. This risks data breaches not being reported, takes away a channel of communication used by the ICO to facilitate its investigations, and increases the frustration of UK businesses in dealing with overseas companies that come to the UK market underprepared to comply with the UK GDPR.

Given that catalogue, it is hardly surprising that so many noble Lords have raised the issue of data adequacy. If I read out the list of all the noble Lords who have mentioned it, I would probably mention almost every single speaker in this debate. It is clear that the Bill significantly lowers data protection standards in the UK, as compared with the EU. On these Benches, our view is that this will undermine the basis of the UK’s EU data adequacy. The essential equivalence between the UK and the EU regimes has been critical to business continuity following Brexit. The Government’s own impact assessment acknowledges that, as the UK diverges from the EU GDPR, the risk of the EU revoking its adequacy decisions will increase. So I very much hope that the Minister, in response to all the questions he has been asked about data adequacy, has some pretty good answers, because there is certainly a considerable degree of concern around the House about the future of data adequacy.

In addition, there are aspects of the Bill that are just plain wrong. The Government need to deliver in full on their commitments to bereaved families made during the passage of what became the Online Safety Act, regarding access to their children’s data, as we have heard today from across the House, notably from the noble Baroness, Lady Kidron, in insisting that this is extended to all deaths of children. I very much hope that the Minister will harden up on his assurances at the end of the debate.

The noble Lords, Lord Kamall and Lord Vaux, questioned the abolition of the Surveillance Camera Commissioner, and the diminution of the duties relating to biometric data. Society is witnessing an unprecedented acceleration in the capability and reach of surveillance technologies, particularly live facial recognition, and we need the commissioner and Surveillance Camera Code of Practice in place. As the Ada Lovelace Institute says in its report Countermeasures, we need new and more comprehensive legislation on the use of biometrics, and the Equality and Human Rights Commission agrees with that too.

As regards what the noble Lord, Lord Sikka, described as unrestrained financial powers, inserted at Commons Report stage, Sir Stephen Timms MP, chair of the DWP Select Committee, very rightly expressed strong concerns about this, as did many noble Lords today, including the noble Baroness, Lady Young, and the noble Lords, Lord Knight and Lord Fox. These powers are entirely disproportionate and we will be strongly opposing them.

Then we have the new national security certificates and designation notices, which were mentioned by the right reverend Prelate the Bishop of St Albans. These would give the Home Secretary great and unaccountable powers to authorise the police to violate our privacy rights, through the use of national security certificates and designation notices, without challenge. The Government have failed to explain why they believe these clauses are necessary to safeguard national security.

There is a whole series of missed opportunities during the course of the Bill. As the noble Lord, Lord Knight, said in his opening speech, the Bill was an opportunity to create ethical, transparent and safe standards for AI systems. A number of noble Lords across the House, including the noble Lord, Lord Kamall, the noble Baroness, Lady Young, the right reverend Prelate the Bishop of Southwell and Nottingham, and my noble friend Lord McNally, all said that this is a wasted opportunity to create measures adequate to an era of ubiquitous use of data through AI systems. The noble Baroness, Lady Kidron, in particular talked about this in relation to children, generative AI and educational technology. The noble Lord, Lord Holmes, talked of this in the public sector, where it is so important as well.

The EU has just agreed in principle to a new AI Act. We are miles behind the curve. Then, of course, we have the new identification verification framework. The UK has chosen not to allow private sector digital ID systems to be used for access. Perhaps the Government could explain why that is the case.

There are a number of other areas, such as new models of personal data control, which were advocated as long ago as 2017, with the Hall-Pesenti review. Why are the Government not being more imaginative in that sense? There is also the avoidance of creating a new offence of identity theft. That seems to be a great missed opportunity in this Bill.

As the noble Baroness, Lady Kidron, mentioned, there is the question of holding AI system providers to be legally accountable for the generation of child sexual abuse material online by using their datasets. My noble friend Lord McNally and the noble Lord, Lord Kamall, raised the case of ICO v Experian. Why are the Government not taking the opportunity to correct that case?

In the face of the need to do more to protect citizens’ rights, this Bill is a dangerous distraction. It waters down rights, it is a huge risk to data adequacy, it is wrong in many areas and it is a great missed opportunity in many others. We on these Benches will oppose a Bill which appears to have very few friends around the House. We want to amend a great many of the provisions of the Bill and we want to scrutinise many other aspects of it where the amendments came through at a very late stage. I am afraid the Government should expect this Bill to have a pretty rough passage.

Artificial Intelligence: Regulation

Lord Clement-Jones Excerpts

Monday 4th December 2023 Lords Chamber

[Viscount Camrose (Con)]

I think I would regret a characterisation of AI regulation in this country as non-existent. All regulators and their sponsoring government departments are empowered to act on AI and are actively doing so. They are supported and co-ordinated in this activity by new and existing central AI functions: the central AI risk function, the CDEI, the AI standards hub and others. That is ongoing. It is an adaptive model which puts us not behind anyone in regulating AI that I am aware of. It is an adaptive model, and as evidence emerges we will adapt it further, which will allow us to maintain the balance of AI safety and innovation. With respect to the noble Lord’s second question, I will happily write to him.

[Lord Clement-Jones (LD)]

My Lords, the Government have just conducted a whole summit about the risks of AI, so why in the new data protection Bill are they weakening the already limited legal safeguards that currently exist to protect individuals from AI systems making automated decisions about them in ways that could lead to discrimination or disadvantage? Is this not perverse even by this Government’s standards?

[Viscount Camrose (Con)]

I do not think “perverse” is justified. GDPR Article 22 addresses automated individual decision-making, but, as I am sure the noble Lord knows, the DPDI Bill recasts Article 22 as the right to specific safeguards rather than a general prohibition on automated decision-making, so that subjects have to be informed about it and can seek a human review of decisions. It also defines meaningful human involvement.

Data Protection (Adequacy) (United States of America) Regulations 2023

Lord Clement-Jones Excerpts

Wednesday 22nd November 2023 Lords Chamber

Moved by

[Lord Clement-Jones]

That this House regrets the Data Protection (Adequacy) (United States of America) Regulations 2023 and regrets in particular (1) the absence of an Impact Assessment at the time it was laid; (2) the lack of any public consultation; and (3) that the explanatory material laid in support does not provide sufficient information to gain a necessary understanding of the instrument’s policy objective and intended implementation.

Relevant document: 53rd Report from the Secondary Legislation Scrutiny Committee, Session 2022-23

[Lord Clement-Jones (LD)]

My Lords, this is clearly box-office this evening. As soon as I saw the Secondary Legislation Scrutiny Committee’s report and its comments, I thought these regulations were a prime candidate for a regret Motion. This does not mean that the Minister has to be quite as persuasive as he would be if they were subject to the affirmative process, but it does mean that he has to recognise they we are not just going to let this kind of important secondary legislation go through on the nod—especially where his department has not excelled itself in giving the necessary explanatory and impact assessment material.

On purely procedural grounds, the tale of how DSIT has dealt with this SI is not a happy one. These are regulations made under Section 17A of the Data Protection Act 2018 to establish a data bridge with United States of America through the UK extension to the EU-US data privacy framework. The impact assessment for the regulations was first submitted on 4 August for Regulatory Policy Committee scrutiny, and the RPC’s initial review of it, sent to DSIT on 15 September, found that it was not sufficiently robust and identified areas where improvements should be made. As the RPC states:

“We considered that the points raised would generate a red-rated opinion, if not addressed adequately”.


Following discussions, DSIT submitted a revised impact assessment on 20 September. The data protection adequacy regulations were laid before Parliament the day following, 21 September.

In its report of 17 October, the SLSC said:

“We regret the absence of the IA and of a public consultation and recommend that the EM be revised to include the missing contextual information”.


The regulations are drawn to the special attention of the House on the ground that the explanatory material laid in support provides insufficient information to gain a clear understanding of the instrument’s policy objective and intended implementation.

The SLSC also said:

“We regret that … important context to the UK Extension to the EU-US Data Privacy Framework was not included in the EM. While the purpose of the Regulations is made clear by the EM, without the additional information provided by the Department and the link to the Government’s analysis, it is not possible for a reader of the EM to understand fully the policy context and framework of the adequacy decision and how this policy was developed. We therefore ask the Department to revise the EM to include the contextual information and the links to relevant external material. We are disappointed that the Department was unable to provide a final, green-rated IA when the Regulations were laid before Parliament … We regret—


and this is a broad point which comes up time and again—

“that this is a further example of relevant impact information not being shared with Parliament at the right time … We take the view therefore that it would have been desirable to carry out a public consultation”.

The SLSC concludes:

“We regret the absence of the IA and of a public consultation and recommend that the EM be revised to include the missing contextual information”.


If it had not been for the noble Baroness, Lady Jones, bumping into me today, I would not have realised that the Explanatory Memorandum that I read to prepare my speech today had been switched from 20 September to 21 November. I have the two versions in front of me, thanks to the noble Baroness, and they do differ. It seems extraordinary that two months should elapse before we get the revised memorandum. When I actually looked at it, I realised that it is considerably different. I am not surprised that the SLSC had something to say about this.

All the basic data protection principles that the US is meant to observe are set out in paragraph 7.7 of the new Explanatory Memorandum. They appear nowhere in the original memorandum. There is a whole slew of things: international data transfers, the need to consult expert counsel, and the fact that the Information Commissioner has produced an opinion, which I shall go on to talk about. There is also a third element of considerable importance: the impact on monetary net present value, under paragraph 12.3.

These are considerable changes, and it has taken two months and this regret Motion to elicit that kind of response from the department. That is not a happy start to these regulations: are these teething troubles at the new department, or something more serious? What is the Minister’s response to all these criticisms, in particular the lack of public engagement and the whole process by which these Explanatory Memorandums are produced?

This new arrangement is designed to be compatible with the EU-US data privacy framework and is what we must now call the UK-US data bridge. It came into force on 12 October 2023: from then on UK businesses may transfer personal data to US organisations certified under the UK extension to the EU-US data privacy framework without the need for alternative safeguards such as standard contractual clauses. Those US organisations that have committed to complying—and this is important—with the enforceable principles and requirements under the UK extension to the EU-US data privacy framework can be identified on the data privacy framework list. Organisations not subject to the jurisdiction of the US FTC or the US DoT are not eligible to participate, and that includes major institutions such as banks and insurance and telecommunication companies.

This is what a prominent firm of lawyers has said about the new regulations and the bridge:

“Organisations should take care to review the nature and scope of transfers permitted in practice and to consider the steps that should be taken to effectively make those transfers in accordance with the new arrangements. For example, certain journalistic personal data may not be transferred in reliance on the UK-US data bridge. It will also be necessary to actively indicate to the US recipient organisation that it must treat genetic data, biometric data for the purpose of uniquely identifying a natural person and data concerning sexual orientation as sensitive information. Whilst these types of data are special categories of data under Article 9(1) UK GDPR, they are not designated as sensitive information under the UK Extension to the EU-US Data Privacy Framework. Specific identification to the data recipient is therefore required. There are also specific requirements regarding the transfer of certain criminal offence data.”


The deeper you dig, it still remains potentially very complicated, and I wonder what guidance the department is giving in detail on this. For example, how exactly do the UK and the EU data bridge agreements translate to a US state basis? Do they require state ratification of some kind, or verification of the principles they adopt? If we are comfortable with the data adequacy aspects of the UK-US data bridge, there are clear advantages in terms of participating organisations being exempted from the need to conduct a transfer impact assessment, rather than having standard contractual clauses where TIAs needs to be made.

However, what is the response of the Minister and his department to the Information Commissioner’s Office’s opinion on these regulations: that there are areas that could pose risks to UK data subjects if the protections identified are not properly applied? He identifies several potential issues with the UK-US data bridge: it does not contain substantially similar rights to the UK GDPR’s right to be forgotten, right to withdraw consent, and right to obtain a review by a human of an automated decision. He says:

“As a result, UK data subjects might not have the same level of control over their data as they do under UK GDPR.”


Secondly:

“The definition of sensitive information,”


much like the legal opinion,

“under the UK-US Data Bridge does not specify all the ‘special categories of personal data’ of the UK GDPR. Instead, the framework has a broad ‘umbrella’ concept providing that sensitive information can be any data regarded as sensitive by the transferring entity. UK businesses will have to clearly label certain types of data as ‘sensitive’ when transferring to a US organisation certified under the UK Extension to ensure adequate protection.”

Thirdly:

“For data on criminal offences, the ICO highlights potential vulnerabilities, even when tagged as sensitive. Since the UK places restrictions on the use of ‘spent’ convictions, there are concerns about a lack of comparable protections in the US for transferred data”.


The opinion of the ICO does not even deal with the potential impact of the Data Protection and Digital Information Bill going through Parliament, which will water down data subject rights, especially in the legitimate interest balancing test and Article 22, and in the provisions around DPOs and data protection impact assessments. Our data protection adequacy is not even secure, and the ICO specifically draws attention to this:

“If the Secretary of State becomes aware of a significant change in the level of data protection that applies to personal data transferred from the UK as a result of either the review or ongoing monitoring obligations, the Secretary of State must amend or revoke the regulations to the extent necessary”.


In addition:

“The Secretary of State is also required to monitor, on an ongoing basis, developments in a country, territory or international organisation which is the subject of UK adequacy regulations”.


Where did any of that appear in the Explanatory Memorandum? This is important stuff; it is our personal data.

How do we therefore know that our personal data is safe under these arrangements? How will the data bridge stand up, especially with the new Bill going through Parliament? Perhaps the Minister can also explain how the transfer of legally privileged data will be dealt with.

Even if this were satisfactory, one might ask how long the EU-US DPF will last before Mr Schrems gets to work. What will be the impact on our UK-US data bridge then, given that it is dependent on the EU-US bridge? Given the opinion of the ICO, should we expect litigation along the line of Schrems?

Under the DSIT analysis of last December, it is clear that the department has to take a view on, for instance, the sharing of sensitive data:

“DSIT considers that these exemptions are comparable to exemptions provided for under Article 9(2) of the UK GDPR and do not pose a material risk to UK data subjects”.


It says similarly about HR, and on personal data:

“Therefore, DSIT does not think that the extra protections afforded to criminal offence data … are likely to be undermined”,


and so on. What is DSIT actually advising businesses to do, given its opinion? Would it not be prudent to take some external advice, rather than rely on internal DSIT views about this? Would it not be safer for a business to agree or keep using standard contractual clauses?

Given the limited scope of the UK-US data bridge, a limited number of businesses can take the benefit of it. The impact assessment says: “The assumption that 23.4%”—that seems very granular—

“of those organisations who currently send personal data to the US will be risk averse due to legal uncertainty and continue to use standard data protection clauses is based on evidence from EU transfers. However, the assumption may be too conservative as many businesses reverted to using standard data protection clauses for EU transfers due to the previous risk of no-deal Brexit”.

That sounds like it is both on the one hand and on the other; it is not a very good basis for making assumptions and the figure may be even higher, given the uncertainty and difficulties surrounding some issues, such as the transfer of sensitive data.

I conclude in saying that I strongly agree with this sentence in the impact assessment:

“There is a clear rationale for creating a UK extension to the EU-US Data Privacy Framework”.


I very much believe that, if this works, it can pave the way for many other forms of co-operation with the EU. I just hope that the data protection Bill does not make that impossible.

--- Later in debate ---

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

I thank the three noble Lords who spoke for their valuable and robust contributions to this debate. Let me start with some general remarks about the SI.

In 2022, the UK exported more than £99 billion in data-enabled services, such as finance and IT, to the US. That amounts to about 30% of the UK’s total data-enabled services exports globally. UK data bridges such as the one established with these regulations ensure that high data standards are upheld when UK individuals’ personal data is transferred internationally while reducing the compliance burdens for businesses, realising responsible innovation and growth. The UK-US data bridge restores a robust and reliable mechanism for transatlantic personal data flows and is expected to benefit around 16,000 UK businesses, 92% of which are small or micro businesses, and provide a combined benefit of an estimated £115 million per year.

The UK-US data bridge has been established following several years of collaboration between both countries and follows a robust assessment by the Secretary of State of the high standards and protections available to UK personal data when it is shared with organisations in the US under the bridge. DSIT published a series of supporting documents alongside the regulations for the US data bridge, including a policy explainer, a fact sheet for UK organisations, a series of letters detailing the operational delivery and enforcement of the frame- work, an analysis of the assessment which underpinned the Secretary of State’s decision and the Information Commissioner’s opinion.

I acknowledge absolutely the disappointment of the Secondary Legislation Scrutiny Committee that an impact assessment was not made available when the regulations were laid. As was remarked on, an initial impact assessment was submitted to the Regulatory Policy Committee in 2022 which was returned to my department with a green rating, meaning it was considered fit for purpose. Deeply regrettably, the updated version containing much of the same content was not reviewed and approved in a timely manner to coincide with the laying of the regulations. My officials worked at pace to address the additional comments from the Regulatory Policy Committee. I am pleased to say that the impact assessment for these regulations, which has been rated as fit for purpose, was published in mid-October. Furthermore, I can assure noble Lords that DSIT takes the concerns raised by the committee seriously.

In relation to the additional material included within the Explanatory Memorandum published alongside these regulations, as the noble Lord, Lord Clement-Jones, mentioned, an updated version of the Explanatory Memorandum addressing the areas raised by the committee in the report was laid, I am afraid as late as Monday 20 November, and is now available online. I am confident that these changes address the issues raised by the committee in its report.

On the concerns raised by the committee about the absence of a public consultation, I agree that these regulations may be an issue of public interest. These regulations have not been developed in isolation. As part of this assessment, the department worked closely with the UK’s independent data protection regulator, the Information Commissioner’s Office, throughout the assessment and the Information Commissioner was consulted by the Secretary of State prior to taking the decision to establish these regulations in accordance with the Data Protection Act 2018. Additionally, on five occasions since 2021, the department has publicly issued statements in relation to the progress made towards establishing these regulations. These include the UK-US comprehensive dialogue on technology and data launched in October 2022 and the Atlantic declaration announced by the Prime Minister and President Biden in June 2023.

Furthermore, the UK’s approach to facilitating international data transfers was the subject of a public consultation under mission five of the UK’s National Data Strategy, published in December 2020. This was focused on plans

“to remove unnecessary barriers to international data flows”,

drive high standards and build trust in the international use of data. These plans and the department’s approach in this area have been strongly and consistently welcomed by businesses of all sizes looking to operate and trade internationally between the US and UK.

I turn to questions specifically raised in this debate. The noble Lord, Lord Clement-Jones, asked what is being done by the department to address these issues in the future. The delays to the impact assessment and issues raised with the Explanatory Memorandum are unfortunate. It was always the department’s intention to publish the impact assessment once reviewed by the Regulatory Policy Committee and update the Explanatory Memorandum following the Secondary Legislation Scrutiny Committee’s report. As I have said, the department takes the concerns of the Secondary Legislation Scrutiny Committee seriously. There are steps being taken to ensure the delivery of high-quality, comprehensive documentation alongside future secondary legislation. This includes setting up a departmental better regulation team in the new year to support policy teams in the development of impact assessments, and providing a comprehensive library of best practice resources to officials and policy teams. I know that these steps do not help with the issues that arose in this statutory instrument, but I hope that it provides some reassurance towards the steps we are taking to prevent any repeat of these issues in future.

The noble Lord also raised how the data bridge agreements translate on to the US and whether they need to be approved on a state-by-state basis. The answer is that they do not need to be approved by individual states; they are arrangements which operate across the US in relation to any organisations which have signed up to the framework.

Regarding what guidance the department has provided to businesses, it has published a fact sheet on GOV.UK which provides additional clarity and information for businesses regarding using the data bridge, including explaining the need to specify certain types of data as sensitive. Additionally, the ICO has published a complaints tool to help businesses and individuals navigate the new redress mechanism which strengthens and protects UK data subjects’ rights when their personal data is transferred to the US.

Regarding the DPDI Bill, the changes to that Bill will not affect the validity of existing data bridges such as this one. They will continue to have effect under the new regime. The Secretary of State will continue to monitor the data bridge on an ongoing basis for any developments in the US which could affect the decision taken to make these regulations and will take such action to amend or revoke them if necessary.

The noble Lords, Lord Clement-Jones and Lord Fox, both raised what the longevity is of the data bridge, given the Max Schrems case, and the robustness of this legislation. We are aware of the stated intentions made by certain individuals such as Max Schrems to challenge the EU’s adequacy decision for the EU-US data privacy framework, as they have done twice previously. Our data bridge for the UK extension to that privacy framework is a separate decision from the EU’s adequacy decision, following the UK’s independent assessment of relevant laws and practices. We are continuing to work with the US now that the data bridge is online to ensure that it functions as intended and will continue to engage should any challenge to the EU’s adequacy decision be successful. Should the EU’s decision be invalidated, that would not directly impact the UK’s data bridge for the US.

In response to the noble Baroness, Lady Jones, I can confirm as above that the published impact assessment has a green rating. With regard to her question on how the data bridge differs from the EU framework, the UK is relying on our own extension to the EU-US data privacy framework, which mirrors the EU framework.

The noble Baroness asked whether individuals can opt out from the data bridge and about its robustness, including the important point about Palantir. UK individuals’ data is protected to the high standards expected within the UK under the UK GDPR and Data Protection Act 2018. We have conducted a robust and detailed assessment of the new US framework, which is published online on GOV.UK, and which the Secretary of State has decided meets the high standards necessary to establish a data bridge. This includes strict requirements and rules surrounding how US organisations should use, process and disclose personal data that they hold. When deciding whether to share personal data with a US organisation under the data bridge, the transferring organisation in the UK still needs to comply with all the requirements of the UK GDPR, including the need to have a lawful basis for sharing the personal data.

In response to the noble Lord, Lord Fox, who asked who the department engaged with in the US and which regulatory bodies are responsible for the US framework, this is a federal rather than a state government-level framework. The US Department of Commerce administers the framework and is our main counterpart, and the US Federal Trade Commission and US Department of Transportation enforce the framework. We also engaged with the US Department of Justice where there were questions in relation to US national security laws and practices. We have received reassurances from each of these bodies with regard to their commitments to upholding the principles and protecting the rights and protections of UK personal data shared with the US. These have been published online along with our full analysis detailing our assessment of the US data bridge and explaining the role of the different US bodies mentioned, which is on GOV.UK for anyone to view.

On the collection of data by UK political parties and the possibility of transfer to a server outside the UK, the policy governing this aspect falls outside the scope of data bridge policy, and so my department will follow up on that question.

Finally, on the question from the noble Lord, Lord Fox, about the self-certifying annual process for US companies and how the department can be sure that the process is being monitored, the US Department of Commerce has committed in the aforementioned reassurances to conduct verification checks on organisations certified to the framework, as well as to participate in periodic discussions with the UK Government about the operation of the framework, to ensure that the expectations and new practices of the data privacy framework are being met. This includes, where necessary, input from US enforcement bodies, the Federal Trade Commission and the US Department of Transportation, as well as from the UK’s independent data protection regulator, the Information Commissioner’s Office. Additionally, the Secretary of State is obliged to monitor on an ongoing basis any developments in the US or with the US framework that could affect the decision taken to make these regulations and to take such action to amend or revoke them as necessary.

I thank the noble Lord, Lord Clement-Jones, for bringing forward the debate today. The importance of proper scrutiny by parliamentarians for new legislation is paramount, and the department will continue to move forward with renewed determination to ensure that all necessary documentation is provided, not just to a high standard but at the point when regulations are laid. I believe and hope that I have answered all the questions. If not, I am of course more than happy to write with further detail. For now, I am once again grateful to the noble Lord.

[Lord Clement-Jones (LD)]

My Lords, I thank the Minister for that response. I congratulate him on managing to pick up nearly all the questions and provide them with answers. He probably never thought that quite so many questions could be asked about a single SI, and there are a couple of areas where I think there is further inquiry to be made. This is a salutary lesson in how the SLSC really needs to get the information that it needs to scrutinise regulations, otherwise we all jump up and down and spend our evenings on regret Motions.

This has been a very useful debate. The record, and how the Minister unpacked and answered some of the questions, might be helpful for those who want to take advantage of the UK-US data bridge. It is a great illustration also as to why affirmative SIs, rather than negative ones, are actually rather useful. Why rely on me producing a regret Motion? Would not it have been better to have a proper affirmative procedure in this case, as this is a very important instrument? The Minister talked about its value, and, if it works, we will all agree.

I also very much appreciate the fact that there is a level of humility about this, in that the department is looking at its procedures and setting its house in order with a new regulatory policy process. We look forward, I am sure, to seeing how effective that will be in the future. When the Minister talks about fact sheets and the sensitive data aspects, the fact that the ICO is gearing itself on the complaints and redress side is appreciated as well.

Design Right, Artist’s Resale Right and Copyright (Amendment) Regulations 2023

Lord Clement-Jones Excerpts

Monday 20th November 2023 Grand Committee

[Lord Clement-Jones (LD)]

My Lords, it is a pleasure to follow the noble Earl, Lord Clancarty; I wholeheartedly agree with everything that he said. I should say from the outset that we on these Benches support both sets of regulations, which will, I hope, gladden the Minister’s heart as we start debating them.

There are, however, a number of points to be made in relation to them. I very much support what the noble Earl had to say about DACS, the not-for-profit visual artists’ rights management organisation. It recently helpfully published a report that highlights the pivotal role that artists’ resale rights play in supporting artists and the wider art market. As the noble Earl said, they have been somewhat controversial in the past, but, now that they have been included in trade agreements, I feel confident that they are now bolted fully into our intellectual and moral property rights. They are an absolutely vital source of income for many artists. The noble Earl talked about more than £120 million in ARR royalties, directly benefiting more than 6,000 artists and their heirs. Artists selling at the lower end of the art market benefit in particular from ARR: two-thirds of ARR payments in 2021 were less than £500 and 10% of artists received ARR royalties for the first time that year.

I will not repeat most of the rest of what the noble Earl had to say, just that I very much agree with a great deal of what he said. More than 90 countries worldwide have implemented some form of ARR legislation so we are in good company as regards what I see as this moral right. We have heard about the trade agreements; it would be useful to get from the Minister an idea of which agreements we have included this in. Christian Zimmermann, the CEO of DACS is definitely worth quoting. He said:

“The Artist’s Resale Right is more than a legislative mandate—it is a commitment to fairness, a recognition of the value of artists’ contributions, and an indispensable support for artists and their estates.”


The Minister may notice that I have used pounds sterling in my figures throughout so, naturally, I support that aspect of these regulations and, of course, the other aspects that are provided for in the regulations.

The Intellectual Property (Exhaustion of Rights) (Amendment) Regulations 2023 are, in many senses, a much weightier aspect of the regulations we are considering today. I am grateful to the Alliance for Intellectual Property and the British Brands Group for providing briefings and, indeed, their strong views on these issues. I know that the Minister will have heard many of their arguments in person but I want to put on record those views, with which, I should say, I and the All-Party Parliamentary Group for Intellectual Property strongly agree.

Members of both groups strongly consider that the status quo will deliver the strongest overall outcomes for shoppers, business and the UK economy. Following the UK’s departure from the EU, the UK Government now have control over the exhaustion regime. As the Alliance for Intellectual Property says, the importance of the decision on which exhaustion regime the Government choose cannot be underestimated. Although it seems a technical area of policy, it will have a real-life impact on businesses, consumers and regulatory authorities across the UK. Exhaustion regimes have the greatest impact on export-driven UK sectors as they underpin their ability to determine when, how and what goods to sell in international markets and at what price.

The noble Earl quoted the publishing sector. Industries of that kind are particularly successful at exporting; for example, the UK book sector derives 60% of its income from exports. We have heard that the Government have consulted on which regime the UK should select. In January 2022, the Government made an interim decision to select a UK+ regime that would maintain existing protections. As we have heard, this statutory instrument is being introduced by the Government relating to that interim decision. As the Minister said, though, the Government have not made a final decision on which regime to choose but are likely to announce their decision in the next few months. I hope that the Minister will give us some idea of the time in which he expects that decision to be made.

The British Brands Group believes that advice from officials is to make the interim decision permanent—at least, that is its impression—which would be widely welcomed. I want to take this opportunity to voice support for the interim decision and express concerns regarding any shift to an international regime that might arise in future. I am not going to explain what the alternatives are; I do not think I need to. National exhaustion is one alternative and international exhaustion is another; neither is practical nor attractive.

The current regime is regional exhaustion, an approach that has been working well for 50 years. Rights are exhausted once goods are placed on the UK or EU market, although they can be used to prevent the distribution of goods placed on markets outside those countries. This status quo operates well, as we know; it strikes us on these Benches and those organisations as proportionate, hence our strong support. The SI rightly provides for an IP exhaustion regime meaning that the holders of trademarks would not be able to object to the further distribution of their goods once they are placed on the market in the UK and the EU. They would, however, be able to object to imports from other countries.

The Government’s decision on the UK’s future exhaustion regime will be among the most important taken in relation to intellectual property policy during this Parliament. Its impact will affect businesses, consumers and regulatory authorities across the UK; as I have said, it will particularly affect export-driven UK sectors as it underpins their ability to determine how and what goods to sell in international markets and at what price.

Any shift to an international regime would also affect many of the UK’s leading design and branded goods companies. This would make it significantly more difficult to launch new products in countries around the world as those firms would not be able to vary pricing at launch for fear of those products re-entering the UK. A move to an international regime would also lead to consumer confusion since product and regulatory standards differ across countries internationally. Any “free for all” in parallel imports to the UK would undermine the UK’s product standards regulatory framework and would create uncertainty and confusion for the public.

Opponents of maintaining the status quo and supporters of an international regime suggest that there would be a reduction in pricing for consumers from an increase in parallel imports. Where parallel imports occur currently, in contravention of our regime, prices are not lower. As an example, you occasionally see bottles of Coca-Cola with foreign language labelling in some small shops but at the same pricing as compliant products.

We believe that the retail supply chain, including wholesalers and parallel importers, would therefore be the major beneficiary, rather than the UK public. The cost-benefit equation is likely to be between established creative industry sectors that find their home in the UK market but could choose to move elsewhere against a parallel import sector that does not currently exist and would not even need to be located on UK shores, nor to create UK jobs.

In summary, an international exhaustion regime would represent a significant policy shift away from innovation and growth. It would weaken competition, harm consumers and not help lower consumer prices, in our view. The SI as drafted sustains the current exhaustion regime until the Government confirm their long-term policy approach. The most recent government consultation identified no evidence at all to support a change in regime, so this debate is important.

I hope that the Minister, IPO and others in government resist calls for any change that could reduce IP rights holders’ ability to influence the distribution of their products in markets outside the EU and weaken their IP rights. A change in the UK’s trademark exhaustion regime would be a significant policy shift negatively affecting consumers, brand owners, UK exporters and public enforcement agencies, while not reducing inflation. I hope the Minister has got my message that this would not be a welcome change away from the current exhaustion regime.

[Lord Stevenson of Balmacara (Lab)]

I apologise for my slightly late arrival at the Committee. I hope that it was not noted too carefully, but we are doing two SIs as one group and I was here for the whole second part. I hope that that qualifies me to speak.

Also, it would be a terrible shame not to recapture the spirit of a few years ago, when a little group of three of four colleagues, including the noble Baroness, Lady Neville-Rolfe, debated a number of issues to do with intellectual property that came up at that time. It was interesting that a group from within the confines of Parliament then was able to get together and become quite expert at some of these issues. We had some very enjoyable debates and some of these issues have played out again today. Those who benefited from going on that journey gained a lot of knowledge and expertise, so I am not able to stun the Committee with some new insights; they have largely been covered by those who have built up their expertise from the same route that I have been on, so what I would say would be otiose.

I will congratulate both the noble Earl, Lord Clancarty, and the noble Lord, Lord Clement-Jones, for covering the points I would otherwise have made and piggyback on them to save the time of the Committee, which is a good thing.

However, it is interesting that we are still talking about issues that were live three or four years ago. I am sure the noble Baroness, Lady Neville-Rolfe, remembers them with some interest. We are still not clear what distinguishes our particular configuration of design rights. I still worry about those and hope that the department is working on a way forward with some of them. We had some clarity when we were thinking, within the EU context, of a way of trying to balance the difference between those which operated within the UK only and those that were being developed in Europe but were not able to go back to that. I do not think we quite got over the variations that can occur between the triad of patent, trademark and intellectual property in other forms, because they bump into each other. Although they have been dealt with rather well within these statutory instruments, there are occasions when they point in different directions and it is very hard to get a sense of the Government’s policy on them. There is still a need to do more work on that.

In turning to the SIs before us today, I want to raise a very narrow point on design right, ARR and copyright, from the Explanatory Memorandum. Although the noble Viscount touched on this in his introduction, he did not spend a lot of time on it. It is a question of broadly taking forward the arrangements that existed before we left the EU and making them slightly up to date as we go forward. I have no problem with the Design Right (Semiconductor Topographies) Regulations 1989, which were notably not mentioned by my two colleagues nor dealt with in any detail. That is a sensible move forward. We covered ARR and the copyright tribunal rules in some detail. That is a good change and an important way forward.

--- Later in debate ---

[Viscount Camrose (Con)]

Perhaps I had better write to all noble Lords present to say exactly what form that will take.

[Lord Clement-Jones (LD)]

I am sorry to interrupt the Minister as well. In addition to the timing, it would be useful to know what the instrument is going to be. Will it be another consultation? We have had a consultation, which finished last year, and now we have the SI. Is there going to be another consultation with another SI? The whole process needs unpacking a bit.

[Viscount Camrose (Con)]

That is fair enough. What I am hearing is that noble Lords want to know not just when it will be but what it will look like when it happens. That is an entirely reasonable request, to which I am happy to accede.

I note the views of the noble Lord, Lord Clement-Jones, on how the UK-plus regime supports the publishing industry in particular. I recognise the importance of this issue to a variety of businesses, which have provided extensive contributions to the public consultation on this matter. On behalf of the Government, I thank those businesses for their constructive engagement during the consultation and since. The noble Lord also—no, I am getting ahead of myself. I will move on, except to note that this issue has the potential to impact so many business sectors and therefore it is important for the Government to take the time to get it right.

The noble Lord also mentioned his concerns about a potential move to an international exhaustion regime. As I mentioned, no decision has been made. However, I should advise noble Lords that we intend a future regime to strike the right balance between consumer choice, fair market pricing, protecting creators and promoting competition.

I turn to the matters raised by the noble Lord, Lord Stevenson. I am grateful for his and his colleagues’ expertise on this important area of policy. He raised the review of design rights. The IPO began a review of that legislation last year, with a call for views published in January 2022. We want to make sure that the UK design system best meets the needs of designers and businesses. The IPO is now working on policy proposals on which to consult, which will likely happen in the first half of 2024. The review is fairly wide ranging, as the law around designs is complex and has not been reformed in any meaningful way for some time. It is important to do this work properly to make sure that any changes work for users and all stakeholders.

The noble Lord raised concerns about transparency reports issued by collective management organisations not being audited. The purpose here is to align the treatment of CMOs with that of other organisations in Companies House of similar size; to not treat them differently simply because of the nature of the work they do as CMOs, and therefore not to require organisations that qualify as small to conduct a formal audit in that way, along with other organisations of their size, scope and scale.

Small CMOs will still be required to produce annual transparency reports and to abide by the regulations that govern their conduct and operations. Removing the statutory audit requirement strikes a fairer, more proportionate balance between risk and cost for these small entities. The changes to the audit requirements were in recommendations evidenced by the additional burden imposed on them during a 2021 post-implementation review of the regulations. To provide some reassurance, I hope: this change affects just seven of the smallest CMOs.

The noble Lord, Lord Stevenson, also mentioned the expansion of the European Economic Area and how it would affect our exhaustion regime. Currently, the geographical scope of our exhaustion regime covers the UK and the European Economic Area. If the European Economic Area expanded the Government would consider how that would affect our exhaustion regime, but we would not wish to prejudice such a decision.

I hope all noble Lords will recognise that these proposed changes support a balanced, consistent and stable IP framework that is crucial for businesses, consumers and investors. I absolutely recognise the strength of feeling and argument in favour of maintaining this regime, but meanwhile I commend these regulations to the Committee.