Digital Markets, Competition and Consumers Bill

Lord Tyrie Excerpts

Committee stage
Monday 29th January 2024 Grand Committee

[Lord Holmes of Richmond (Con)]

My Lords, it is a pleasure to follow my noble friend Lady Stowell in speaking to my Amendment 69. As has already been mentioned, a common theme runs through all the amendments in this group: limiting full merits appeals and ensuring that in practice they apply only to the imposition of financial penalties and the quantum of those penalties, as set out in Clauses 85 to 92.

As has already been stated, when he sums up, my noble friend the Minister needs to explain how this will operate in practice and why this situation is so special that a different approach is needed from that of any other regulatory environment, such as Ofcom.

There is nothing more to be said. Following on from the noble Baroness, Lady Jones, I am tempted to ask whether the amendments were government late amendments or late government amendments, but I will leave that hanging with the Committee. Ultimately, we need to ensure that we have clarity on how this approach will work when the Bill becomes law and that there is a watertight limit on the deployment, and potential misuse, of full merits appeals.

[Lord Tyrie (Non-Afl)]

I have put a couple of amendments down which I suspect will not fully accord with the mood of the majority of the Committee on JR. I also support the removal of full merits appeals on fines, and I would like to explain why I have taken that position.

The Government took a number of important decisions on appeals in the other place. One was an amendment conceding that the scale of fines will be subject to a full merits review. Another stuck with the narrow definition of JR, or pure JR. Those two decisions are directly linked—politically, economically and legally—and there is a trade-off between them. They are best considered together.

My view on the fines issue is straightforward. There are two main reasons why the Government have got this decision wrong. First, a key point that we must bear in mind is that fines in the UK for all forms of breach of competition, anti-trust and consumer protection law are, on average, far lower than those in any comparable jurisdiction. As a result, both in the competition field and with many financial regulatory issues, fines are treated as a business cost by large firms. This has been a major weakness of our regulatory framework for decades and is still there now. If fines are to serve as a deterrent to platforms, they need to be large—perhaps very large, even unprecedentedly so for the UK. I fear that a full merits review will drag fines in only one direction, and we have the history of fines review by the CAT in other areas in support of that view.

Incidentally, I am amazed that the Treasury has not taken a closer interest in all this, because fines score against the consolidated fund, but it seems quite sleepy on this issue. It should be very wary of a full merits review of fines.

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[Lord Clement-Jones (LD)]

My Lords, following this superb debate, I am worried about being able to add much to what has been said.

First, I want to pick up what the noble Lord, Lord Tyrie, said. As ever, I agree entirely with half of what he said, but the other half is rather more controversial. This seems to be a growing habit. Exactly as the noble Baroness, Lady Harding, said, if there is a solution to overreach, it must be through greater parliamentary scrutiny. The noble Baroness, Lady Stowell, also referred to this and we have amendments coming down the track on it. Going back to JR-plus for the majority of decisions to be made under the Bill would be a retrograde step.

[Lord Tyrie (Non-Afl)]

The noble Lord said that we should not go back to JR-plus, which would bring in a limited form of merits review. However, many decisions in merits appeals have been found to be clearly wrong, once in the appeal, and would have harmed consumers’ interests had they been allowed to stand, under full judicial review. Does the noble Lord agree with that remark? Before he decides whether or not he does, I remind him that I am quoting him in his opposition to the move made in 2017.

[Lord Clement-Jones (LD)]

My Lords, it is lovely to be reminded of previous remarks but, of course, that was then and this is now. We were talking about the standard for Ofcom then; today, we are talking about the CMA standard. The noble Lord would need to produce evidence that that standard did not in fact have a really poor outcome as a result of the power of big tech not being as limited as it could have been. He talked about us needing to recognise the power of big tech, but that is exactly what adopting the JR standard—the Wednesbury “unreasonable” standard that the noble Lord, Lord Faulks, talked about last week, and which all of us are content to stick with—would do.

Of course, what we are trying to do, if possible—if the amendments in the name of the noble Baroness, Lady Jones, are accepted—is to revert back to a JR standard for penalties. I believe that consistency across the board is rather more important than trying to revert to a form of appeals standard that obtains in a different part of the regulatory forest. However, as the noble Lord said, the danger of executive overreach is much more easily cured by increased parliamentary scrutiny than by trying to, in a sense, muddy the waters of the test for appeals.

What the noble Baroness, Lady Harding, said about incentives was entirely right. Litigation has clearly been used and is being used by big tech for strategic business purposes. We are trying to make sure that this does not drag on for ever and that appealing against the penalties does not open up the whole caboodle as a result. The noble Lord, Lord Black, and others who talked about the change of standard for penalties infecting other aspects of a CMA decision, made very strong points.

Ultimately, the Minister has a large number of questions from noble Lords. The noble Baroness, Lady Stowell, asked what would be relevant for an appeal on penalties. What is the motivation for the Government in putting forward this new standard for penalties? What is so special about it and what evidence did they use to come to that view? Is not the danger of using a merits appeal basis that the decisions on which the penalty was based will be unpicked? The practicalities were also raised by a number of noble Lords.

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[Viscount Camrose (Con)]

As the noble Lord says, the intent is to keep those two separate. During and on the merits appeal for the penalty, the penalised firm could argue that the value of the penalty exceeded the crime, or that the breach took place inadvertently or by accident. It could not argue, however, that no breach took place; the fact that a breach took place is the premise against which the rest of the penalty appeal takes place. If the firm then wants to appeal that no breach took place, that would be done under JR, not on the merits.

The boundaries of the merits appeal process are explained in the Explanatory Notes for Clause 89. If those can be made any clearer, I am happy to engage on that. We will continue to listen to any concerns that noble Lords have on this important point.

I turn now to Amendments 72A and 72B from the noble Lord, Lord Tyrie. I thank him for his amendments, which raise an important question about the appeal standard across the wider digital markets regime. These amendments would align the appeal standard of all regulatory decisions in the regime with appeals carried out against Ofcom’s decisions taken under the Communications Act 2003. I am sure that many noble Lords are aware that the appeal standard in the Communications Act regime is often referred to as judicial review-plus. Although Parliament amended the Act in 2017 so that these appeals are to be decided on judicial review principles, the CAT has ruled that, due to retained EU law, it must also

“ensure that the merits of the case are duly taken into account”.

To turn back to this Bill, the Government heard the strong views expressed by your Lordships on the Select Committee, among others, on the importance of retaining judicial review. The changes made by the Government in the other place sought to uphold the use of the well-known judicial review principles for appeals in the new regime, except for those about penalties, as I have already discussed. Judicial review principles balance robust scrutiny of the CMA’s decisions with the need for the CMA to use its expertise to act quickly and iteratively to resolve issues.

As we discussed on the second day in Committee, the Government have made an explicit requirement for the CMA to consider proportionality when imposing conduct requirements and PCIs. As I set out during that discussion, it is right that interventions should be proportionate, but we are clear that any appeals of these matters should be heard under standard judicial review principles.

[Lord Tyrie (Non-Afl)]

In which case, it is clearly not the Ofcom standard, is it? The Ofcom standard imports a measure of appeal on the merits. Why are the Government continuing to assert that this is the Ofcom standard? It is nothing of the sort.

[Viscount Camrose (Con)]

I suggest that I set out a comparison in writing and perform the analysis as to the differences, should there be any, between the two.

Noble Lords expressed a concern on the second day in Committee that there should not be ambiguity in how appeals will be conducted. Introducing a requirement in a new domestic regime that requires an analysis of unrelated retained EU law to be able to understand how an appeal should be decided risks creating that kind of ambiguity. Complicating the appeals standard with EU case law would slow down appeals while the boundaries of what is captured by JR-plus are agreed.

Regarding decision-making, the noble Lord, Lord Tyrie, mentioned the CMA independent panel. Our approach to internal decision-making balances accountability and independence. Launching major market-shaping investigations under the regime will be reserved for the board. A board committee will oversee the regime’s regulatory interventions. At least half the members of the committee will be non-executive directors and members of the CMA’s independent panel. This make-up will ensure an independent perspective and the ability to develop deep expertise over time.

I hope that the reasoning I have put forward provides the necessary reassurances to noble Lords and that they will feel able not to press their amendments.

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[Lord Ranger of Northwood (Con)]

My Lords, I rise with an equal amount of trepidation to the noble Baroness, Lady Harding. I am a new Peer in the House with a background in the technology industry and the delivery of digital services. Although we are talking about market competition, we are straying into a complex conversation around labour markets and digital skills—the fundamental, No. 1 topic that drives a lot of thinking in digital organisations. I refer noble Lords to my register of interests.

The complex nature of a global digital skills market is the one thing that is challenging all digital businesses at this point in their ability to deliver and drive innovation. It is so competitive; in fact, the hyper-competitiveness is driving the inability to deliver. People are cannibalising other organisations. The agility and speed at which the market is moving, the hyperinflation in pricing, the investments that people are trying to make—indeed, that international businesses are trying to make globally—and the length and longevity of those investments’ value are becoming increasingly challenging. Therefore, the CMA intervening and having some influence will be challenging. We will have to think hard about how to enable understanding; about the speed at which the market is moving; about where this kind of activity would take place; and about how it would operate, understanding the global size and scale of this challenge.

I view this market with some concern but also with some excitement because of its ongoing development. One thing that I have seen is the move from triage, where outsourcing and moving to international markets for labour skills in digital was a trend, to the emerging nearshore and onshore trend of looking at bringing more skills into local geographies. Why do I say that? I say it because of the speed of the change in the market. If we try to regulate and legislate for that speed, it will be extremely challenging.

Humbly, that is the point I wanted to make at this stage of the debate.

[Lord Tyrie (Non-Afl)]

I have tabled a couple of amendments in this group. One concerns cost recovery for mergers while the other is about the need to review whistleblowing. This group is a proper mixed bag; it has all sorts of things in it.

Let me just say that I agree with what the noble Baroness, Lady Harding, said. We are at risk of “take note” and “have regard” confetti with respect to a number of our regulators. The problem is that they deflect attention away from their central function and make it much more difficult to hold regulators to account adequately; in fact, they make it virtually impossible for Select Committees to do their already difficult job. We will come on to discuss this later, but those two issues are more closely related than they might initially appear.

On cost recovery for mergers, it is important that we all know what is going on at the moment. When the CMA examines a merger, for example the Microsoft-Activision deal or the Sainsbury’s-Asda merger, the taxpayer subsidises a considerable part of the costs incurred by the regulator for that investigation. I cannot think of a good reason why the scrutiny and approval of big-ticket mergers should be subsidised. However, there is—it is important for me to say this—a wide divergence of view and practice on this, both domestically and internationally. I discussed this issue over many years with a number of my counterparts when I was the chairman of the CMA, as well as internally within the CMA and with what I suppose one might call the competition community of lawyers, which is pretty large.

Some jurisdictions argue that merger control is an imposition on firms by government and that, therefore, the public sector should pay for all of it—at least, that is their starting position. Germany takes this position; it has something to do with its long history in the treatment of cartels and the creation of the Bundeskartellamt, but we do not need to go into that. The fact is that it is in its bloodstream to pay for this from general taxation. Others argue, like me—it varies from regime to regime—that this public service is a perfectly reasonable, chargeable event. After all, anti-competitive practices, which many mergers might facilitate, are a cost to the economy and welfare.

In 2011, the Government looked at all this in the White Paper that led to the creation of the CMA, when they put together the Competition Commission and OFT. As a result of that White Paper, the Government compromised between the wide variety of views and increased cost recovery for mergers as a whole—that is, the whole task of scrutinising mergers—from 50% to 60%. It is important to bear in mind that, in deciding what to do on merger fees, firms seeking approval for their mergers pay consultants huge sums and that the cost of the CMA scrutinising it is a residual in their calculations. Indeed, it would be a residual of a residual, because these numbers are so very large.

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I understand the noble Lord’s aims with this amendment, so I assure him that the Government stand ready to use the flexibility to bring forward changes to merger fees in secondary legislation, should it be needed.

[Lord Tyrie (Non-Afl)]

On this point, can the Minister say whether he supports the cross-subsidy that currently exists? Given the fact that a lot of mergers of a very large size will be coming through, as he has pointed out, does he think that a logical way of dealing with the problem to which he has alluded—that of the small dynamic mergers that do not want to be discouraged by excusive scrutiny costs—would be to extend that cross-subsidy?

[Lord Offord of Garvel (Con)]

The noble Lord will know that, on the current pie chart of activity undertaken by the CMA, 80% is for mergers with companies with a turnover north of £100 million, while 20% of it is for companies with turnovers below that. The 80:20 rule always works in life, so there is obviously scope to charge the larger companies more if that is the decision taken. I refer to the reassurance given that this can be amended in secondary legislation if that is deemed appropriate.

Let me move on to media merger public interest interventions. Amendment 93 in the name of the noble Lord, Lord Clement-Jones, would expand the list of public interest grounds for the Secretary of State to intervene in a merger case to include the need for free expression of opinion and plurality of ownership of media enterprises in user-to-user and search services. I am grateful to the noble Lord for raising this issue. Media mergers are particularly sensitive, as they could have an impact on how the UK public access and consume information.

The Government are currently reviewing the recommendations on changes to the media public interest test in Ofcom’s 2021 statement on media plurality. Ofcom did not recommend that online intermediaries or video and audio on-demand services should fall within the scope of the media mergers regime, which this amendment would provide for. We are considering Ofcom’s recommendations carefully and, as we do that, we will look closely at the wider implications on the industry. The Government have not proposed pursuing substantive changes to the grounds for public interest interventions in mergers in this Bill. The changes recommended in Ofcom’s review can be addressed directly via secondary legislation under the made affirmative procedure, if appropriate.

For these reasons, I hope that the noble Lord opposite will not press this amendment.

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[Baroness Kidron (CB)]

My Lords, I rise mainly to correct the record that I called the amendment in the name of the noble Baroness modest and also to celebrate the fact that I am once again back on the side of the noble Baroness, Lady Harding; it was very uncomfortable there for a moment.

I was on both committees that the noble Baroness, Lady Stowell, referred to. We took evidence, and it was clear from all sorts of stakeholders that they would like to see more parliamentary engagement in the new powers we are giving to regulators. They are very broad and sometimes novel powers. However, the point I want to make at this moment is about the sheer volume of what is coming out of regulators. I spent a great deal of my Christmas holiday reading the 1,500 pages of consultation material on illegal harms for the Online Safety Act, and that was only one of three open consultations. We need to understand that we cannot have sufficient oversight unless someone is properly given that job. I challenge the department and Secretary of State to have that level of oversight and interest in things that are already passed. So, the points that the noble Baroness made about resource and capacity are essential.

My other, very particular, point is on the DRCF. I went to a meeting—it was a private meeting, so I do not want to say too much, but fundamentally people were getting together and those attending were very happy with their arrangements. They were going to publish all sorts of things to let the world know how they, in their combination, saw various matters. I asked, “Is there an inbox?” They looked a little quizzical and said, “What do you mean?” I said, “Well, are you taking information in, as a group, as well as giving it out?” The answer was no, of course, because it is not a described space or something that has rules but is a collection of very right-minded people. But here in Committee, we make the point that we need good processes, not good people. So I passionately support this group of amendments.

I briefly turn to the amendment tabled by the noble Lord, Lord Fox, in which there is an unexpected interest in that I work with the IEEE, America’s largest standards organisation, and with CEN-CENELEC, which does standards for the European Union. I also have a seat on the Broadband Commission, which is the ITU’s institute that looks after the SDGs. Creating standards is, as a representative of Google once said to me, soft power. It is truly global, and as we create and move towards standards, there are often people in their pyjamas on the other side of the world contributing because people literally work in all time zones to the same effect. It is a truly consensual, global and important way forward. Everyone who has used the wifi today has used an IEEE standard.

[Lord Tyrie (Non-Afl)]

Just a short while ago, I decided that there was so much to say that I would say very little indeed. I completely agree with everything that the noble Baroness, Lady Stowell, said. As politicians, we should all be worried about a serious and growing problem that we are handing over huge powers to regulators on a monthly basis, and they will appear to the public to be accountable to nobody. If there is one book that is worth a good read, it is Unelected Power by Paul Tucker, who addresses exactly this set of issues with respect to finance and central banking. Come to think about it, it is a rather fat book, so, although I have read a large part of it myself, I suggest that the introduction and the conclusion will give noble Lords a good feel.

I will briefly join up a number of the debates we have just heard. On the one hand, we have been saying to ourselves, “We’ve got to empower David because David’s up against Goliath”, and on the other hand, it was said a moment ago that we have these huge overmighty regulators that must be held to account. There is an answer to that apparent clash of thoughts which s that while regulators have the capacity to wield huge power, many of them retreat into a comfort zone in which they do not do all the things they should. Rather, they do what they feel they can do relatively straightforwardly. Specifically, they do not wield the huge soft power they often have available to them.

Since I am going to give a long speech, I will digress momentarily to illustrate that point. When Covid struck, I was the chairman of the CMA. The hand sanitiser market started to be cornered at great speed by a small number of players, who then jacked up the price so that Mrs Wiggins, who wanted to go down to the corner shop to buy some at the only moment she dared go out, found that, instead of paying the correct price, which was probably £1.80, she was going to pay £12, £9 or something like that. I argued vigorously that we should do something about this, using consumer protection powers. I was told, “We don’t have a chance. We’ll be ignored. In any case, we might well lose the case. It’s all very complicated in terms of whether we have the power to intervene in a case like this. We certainly can’t assemble the evidence in time”, and so on. After a fortnight of persistence—I am pleased to say that the current head of the CMA was on the right side of this argument—I persuaded the top of the CMA to send a warning letter out. The practice ended immediately; that is why that big issue for the public agenda, which was leading newspaper coverage for several days, was taken away and a major problem for the Government was removed. Soft power is available to regulators in many ways but they often fail to address it.

The case for better scrutiny of regulators, digital or otherwise, has something to do with the need to hold regulators to account for the way in which they wield—or fail to wield—their power. That case has been made extensively elsewhere. In fact, I have written it down in places and published it, so I will not rehearse any of those arguments now.

I want to touch on two further points. If we are to do this job meaningfully, we need to have in place a number of things that, for example, the banking commission—I chaired it some time ago—found essential when assembling a technically competent team at pace to deal with the Libor scandal. A new body must have significantly greater resources and expertise than we currently provide to Select Committees. That will cost money. It is worth pointing out that the total cost of the work of the top eight regulators, which are meant to scrutinise the businesses on which they keep an eye, is in excess of £2 billion at the moment; that is the bill just to pay for the regulators. A few million pounds spent by Parliament to improve its oversight of those who are meant to be doing that scrutiny work would be money well spent.

The second thing that we must develop in Parliament is institutional memory, which is largely missing at the moment. There is very little institutional memory in our scrutiny bodies. It requires a group of officials who will stay the course for a significant time and are certainly not dispersed every time there is an election, which is what happens to a large number of Select Committee teams in both the Lords and the Commons, including the clerks and deputy clerks.

The third thing that we must do, which may seem obvious but is not always done—indeed, it is often not done—is keep good records. The body must have high-quality record-keeping. It has been a major bugbear of mine that, on the whole, records are not kept by Select Committees across Parliaments—that is, after an election, they start again as if everything is fresh. Incidentally, one of the reasons why the Treasury Committee has done better than other Select Committees in scrutinising across Parliaments is that it has one specialist adviser—I will not embarrass him by naming him—who works on monetary policy and the Bank of England and has been there for about 15 years. He loves his job and does only that job. He used to work in the Bank of England and knows a huge amount about it. That tiny fragment of institutional memory has dramatically improved the performance of the Treasury Committee over the years and does so today.