Digital Markets, Competition and Consumers Bill (Second sitting)
Seema Malhotra ExcerptsTuesday 13th June 2023
(11 months, 1 week ago)
Public Bill CommitteesRead Full debate Digital Markets, Competition and Consumers Bill 2022-23 View all Digital Markets, Competition and Consumers Bill 2022-23 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 13 June 2023 - (13 Jun 2023)
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Some conversations that we have had have been more explicit about the increased costs of innovation, and the difficulties when there is no interoperability or access, and increased costs being passed on to customers. Is that consistent with your experience, and what are the likely economic benefits to businesses and consumers of this legislation? I will take Professor Fletcher first, and then we will come back to Professor Furman and Professor Marsden.
Professor Fletcher: That was exactly our experience. We heard about the importance of interoperability with systems, and access to data and consumers, and how all those things were not always effective. Some innovation was fostered by big tech and some was less fostered by it, but the point is that they were in control of what happened in a way that we felt was not right for a proper, innovative environment, and certainly not right if you want to see real, disruptive innovation coming through—and I think that is what we do want to see.
We also thought that interoperability, data portability and data access were all pretty intrusive interventions. Therefore—unlike what has been done in the EU, where they have particular rules that require interoperability and require data portability on a fairly widespread basis—we instead thought that that should not be part of the core code of conduct, and that the aim could be achieved via pro-competitive interventions that were evidenced, bespoke and really well targeted. Again, that has been taken through into the Bill’s design, and shows that it is targeted at the barriers to innovation that we identified.
Seema Malhotra
Q
Professor Furman: The short answer is yes, I think it gets it right. It strikes what my colleagues have described—and I agree—as a delicate balance. It depends on who is the head of the DMU and who is the head of the CMA.
In general, my experience with the regulators in the UK is that they are very thoughtful in understanding the importance of markets, competition and taking evidence seriously. The legislation gives them a certain amount of discretion. As my colleagues have testified, that is unavoidable; in a market and an environment where things are changing very rapidly, it would be very difficult to try to write into the legislation every single detail. This sets the standard for what the world should do. Frankly, part of the reason I agreed to do this project is that I would love to see the United States following legislation like this. I hope the UK serves as a model for the world in this regard, and I think it is doing so.
On innovation, I agree with Amelia that what we heard from businesses and reviewed in the academic research is that it is not just a question of how much innovation, but what type of innovation. Are you trying to innovate so you can be acquired by Google or are you trying to become the next Google? There is one thing that motivated us. It is very hard to see the future of this space, but four years ago we thought the next big thing would involve artificial intelligence and machine learning. Unlike the past waves of innovation—where IBM was dominant, and then it became about PCs so it was Microsoft, and then it was about the internet so it became Google, and we saw one wave after the next displacing the previous—we were very worried that because artificial intelligence required large amounts of data, it would not necessarily lend itself to a new upstart competitor, but would instead entrench the power of the existing ones. So far, what we are seeing with OpenAI and the role that Microsoft plays in it, and with what Google is doing in this space, is that it is largely playing out along the lines that we were concerned about. That is partly motivating us looking forward.
Seema Malhotra
Q
Professor Marsden: Let me take your first point with respect to evidence related to economic benefits. We had a natural experiment before this, called open banking. You will have heard things about this before. No matter what hopes or disappointments people had about open banking, we seemingly had the power at the time to investigate a market that had competitive problems but no anti-trust violations, so there was nothing we could address with anti-trust law. We identified certain competitive structure problems, and there was an expectation on us perhaps to break up the banks, and we hear that with respect to some platforms.
That power is there in the Bill, but with the Furman review and this Bill, which has been kindly carried forward by the excellent civil servants, our emphasis is on the idea of opening up these markets with the same kinds of ex ante obligations on the larger platforms that we imposed on the big banks. Did we break up the banks? No. Did we see massive amounts of switching from one bank to another? No, but we have evidence that British people switch their spouse more frequently than they switch their bank.
What we want is more engagement. We want customers, users and small businesses to be engaged with their platform—with their bank—and that is what we will be seeing. We saw new offers coming in without the extensive capital requirements to bring in a full new entry, but there were new services offers in real intermediation and disintermediation of various products. If anything, open banking allowed consumers and users to—I hate this term—have affairs. It allowed them to check out where they could get the best mortgage, the best loan and those kind of things. That disciplines the incumbents, especially HSBC and Barclays, to provide competitive offers themselves. That is an example, to me at least, about how a pro-competitive, ex ante set of rules on very large platforms with a lot of data can help diversify the economy without harming the platforms. If anything, it puts a little bit of heat under them. I think that was a good achievement, whatever people think politically about it. It was supposed to be a balanced, gradual attempt to try to fix a market that had competitive structure problems, and I believe that is what the Bill does here.
In terms of global leadership, the UK is definitely still leading, despite a bit of a delay. It is the most bespoke, nuanced and balanced bit of legislation that has been proposed so far that I have seen, as we have already discussed this afternoon. At the same time—I completely understand your jurisdictional point—there is a real zeitgeist politically around the world to introduce measures like these of some sort. Of course, they depend on the economic, political and legal backgrounds of the society, but I cannot imagine like-minded authorities and Governments not trying to work hard or co-operate in this space.
We are seeing some examples of that already in the digital space. It is not really an area where there is a competition of competition laws; it is more that this is a regulated solution that we are putting forward in various jurisdictions through a democratic process. It does not depend too much on the discretion of the authority. It depends on the process that the authority undergoes to understand the markets and to then work with the tech platforms to find out which remedies would be available. That participative nature is a very important part of this, rather than an adversarial nature where we just chase after the companies after they have done something that is alleged to be wrong.
Seema Malhotra
Professor Fletcher and Professor Furman, do you want to add anything?
Professor Fletcher: A lot of jurisdictions around the world are looking at this space. We talked earlier about how some of what we will achieve through this is stuff that can be achieved through competition law, and almost all jurisdictions have competition law. In a way, the more jurisdictions that have regulation, the easier it becomes for other jurisdictions to achieve some of the same things through competition law, because it changes the costs and benefits for the firms to change their business model.
The firms have quite an interesting decision to make on a global basis anyway about how much they do the same thing globally as they are required to do locally. I think it will vary depending on what thing it is. If it is terms and conditions, they can easily change that on a local basis. If it is interoperability, it is quite hard or rather more hard to design a system so that it has different interoperability standards in different places. We may well see an extraterritorial effect—not a deliberate one—because of the cost considerations and reputational considerations of the firms themselves. That will have a positive benefit in terms of providing a more consistent framework globally for the third parties that we are hoping to innovate. The more consistent global framework they have to compete upon, the better it is for innovation.
Professor Furman: The ideal thing would be if the whole world sat down and agreed how it was going to approach this problem and there was a single global system, or lots of countries co-ordinated and did the same thing. In practice, that is impossible, so what one should aspire towards is having essentially correlated actions in different countries, where different countries have similar rules and are looking at each other and learning from each other.
This puts the UK in a position to be a leader in that global process, and that, frankly, is the way mergers work already. It is not like there is a single global merger authority; there are merger authorities in economies around the world, but they use similar rules, are looking at similar evidence, come up with similar decisions and all, to some degree, talk to each other. That is what this is—an emerging correlation of approach.
We have seen in the United States in both the House of Representatives and the Senate legislation being put forward and in some cases being passed out of Committee that would accomplish some of the different pieces of what this legislation would do, frankly, more comprehensively than anything I have seen in the United States.
The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)
Q
Professor Fletcher: I know this is something that Philip cares a great deal about. I will come in first and then let him have a go. We have talked about it being a delicate balance. I discussed the EU regulation, where they have gone very far towards ensuring administrability and enforceability by having the rules set out in the legislation with quantitative thresholds. That is how they have dealt with the need for administrability and enforceability.
We have tried to be more bespoke, as I have said, and more evidence based, but there is a real risk in terms of administrability and enforceability that we end up in the same place as we have been with competition law, whereby the cases get hugely burdensome and hard to bring to a conclusion within a sensible timescale, and there are insufficient agency resources really to do everything that is needed.
I think there is a real risk that if you play around with what might seem like tiny changes to the legislation, that could really threaten the administrability and enforceability of it, and we could lose the benefits of it over competition law and put us in a bad place relative to the EU—whereas at the moment I think we could show ourselves to be better in terms of getting the right balance by being more bespoke and evidence based. The appeals standard goes to that point. I strongly support the JR appeals standard because if we went for a full merit standard, it would be too far and would become inadministrable. I am sure the CMA would find a way to try to administer it, but I do not think it would be the right balance. I feel the same way about the customer benefits exception.
Seema Malhotra
Q
Noyona Chundur: Thank you for the great question. Perhaps I can start with a little bit of context. We believe that confident consumers will drive competitive markets. There is a lot that the Bill does really well. It is great progress, and I commend the work of colleagues in the Department, as well as partners in the CMA and Tracey from Consumer Scotland for their input in getting us to this point. There are eight areas that could be strengthened or clarified. There is building consumer confidence. There is the potential risk of only the CMA having direct enforcement powers. It is around the supervision of enforceable standards, practice and conduct of businesses. It is the ability to add and remove—
Vicky Ford (Chelmsford) (Con)
Slow down!
Noyona Chundur: Sorry, would you like me to step through each one? Would that be easier?
Seema Malhotra
You are going through them quite well, but could you go you through them slightly more slowly, because colleagues will want to write them down?
Noyona Chundur: The first thing for us is building consumer confidence as a priority, because prioritising consumer protection to build the foundations that create confidence in competitive markets will benefit both the consumer and the economy. We are looking at this through the prism of the cost of living crisis and through the heightened prism of vulnerability. In the packs that we provided, you can see that vulnerability has certainly increased in the last 12 months. The Consumer Council has dealt with over 33,000 consumers, and they are showing increasingly more complex and multifaceted needs. Income in Northern Ireland has—
Seema Malhotra
Q
Noyona Chundur: Understood. Did I get to adding to or removing from the list of banned practices in the Consumer Protection from Unfair Trading Regulations 2008?
Seema Malhotra
Could you start the list again?
Noyona Chundur: Okay. Building consumer confidence is a key priority for us. The second thing is the potential risk of only the CMA having direct enforcement powers. The third is perhaps expanding the Bill in some way to include the supervision of enforceable, standards, practice and conduct. The fourth is adding to or removing from the CPR list of banned practices.
Next is establishing enforceable minimum standards to alternative dispute resolution schemes. We welcome the mandatory accreditation as part of the Bill, but we would like to take it a step further. Then there is a question around better regulation of firms that exploit behavioural bias or nudge techniques for negative effect. Finally, we recommend going further on subscription traps with opt-in clauses after the trial or end-of-contract period.
Seema Malhotra
Q
Noyona Chundur: The key thing for us comes from research that the Government have published. I think the Department for Business and Trade estimated that 81% of UK households signed up to at least one subscription last year, and consumers are spending £1.6 billion per year on subscriptions that they do not want. That is a huge amount of money that a lot of consumers do not have in the current cost of living crisis. Our own research highlights the lived experience. In the online detriment research that we carried out, one consumer told us that they signed up for a 30-day trial but it took them six months to get the subscription cancelled. In the light of that, I think that it is appropriate for us to recommend that legislating for opt-in clauses after the initial trial or end-of-contract period is reasonable. I also believe that that may deliver the most immediate and material benefit to consumers in the short term, given the vast quantities involved.
Seema Malhotra
Q
Peter Eisenegger: Our overall approach here, at the more strategic level, is that the Bill contains lots of good stuff. It is a significant step forward. What we do not want is, as has happened with the Online Safety Bill, for it to hang around forever and not enter law. Our view is that we can talk about improvements in some areas. You mentioned one—the way that fake reviews are handled. To delve into that detail, however, would just prolong the process of getting it into law. We recommend that the Bill gets enacted as soon as possible, that we recognise it as a step forward, and that the CMA and this Committee look at areas of improvement beyond it. There is something that would relate to online reviews in terms of whether the information being provided is accurate, but it is good enough. Let us press on and get it done.
That said, I have not heard a discussion about the role of standards and supporting regulation. We are in the digital world, and an awful lot of regulation is supported by standards. You will find that General Data Protection Regulation is leaning very heavily on work in Europe to adapt and put some final European tweaks on the work that has gone on at the ISO level, and similarly with AI. If you want to be a leading player in this area, particularly an innovative one, from our perspective—we play in international, European and UK standards—you have to be very well aware of, and participating in, all those arenas.
To make an innovation comment—having spent two thirds of my career in product management and innovation, I am now doffing the consumer cap and putting the real-life innovation one on—good innovation practice is to look at what other people are doing and pinch as many legitimate ideas as you can from them. Quite honestly, the fact that the EU has the same sort of intent but a slightly different approach is great. Just keep an eye on its members to see whether there is good stuff. To be fair, I will say the same to them, because I am participating in the AI standardisation at the moment.
Seema Malhotra
Q
Tracey Reilly: Broadly speaking, we welcome the Bill. As your previous panellists said, it has lots of good stuff in it. It should provide the CMA with more flexible powers, which can be used in a more responsive and timely way to prevent detriment. On how the Bill will affect individual consumers, we hope that it will lead to consumers experiencing lower levels of detriment and being less subject to unfair, misleading or aggressive trade practices so that if and when such practices occur, they can be stamped out more quickly and easily, and it is easier for consumers to seek redress through ADR systems that are appropriately regulated and standardised.
In terms of how the Bill will affect Scottish interests, in many ways the level of detriment experienced by consumers across the UK is similar. The consumer protection survey is UK-wide and the patterns of detriment for Scottish consumers are generally not hugely different from those experienced in the rest of the UK. That said, there are obviously differences between the two nations in the regulatory enforcement and judicial landscapes, and it is important that we understand and pay attention to them. Equally, I understand that the Department has been engaging with Scottish stakeholders. We welcome that and would obviously like that to continue through the implementation process.
Some markets operate differently in Scotland, either because they are entirely devolved because there are fewer providers and therefore lower levels of competition, or because consumers access services differently, for example, due to geography. It is important that, within the overall UK framework, the system can respond to those regional differences or local issues. We hope that the additional levels of flexibility granted to the CMA under the Bill will allow for a more flexible and targeted response, particularly if any local practices cause detriment. We look forward to liaising with the CMA on that. Noyona may wish to make additional comments, given that she is in Northern Ireland.
Kevin Hollinrake
Q
Noyona Chundur: There is a heightened risk, Minister, if the new direct enforcement powers sit only with the CMA. Ultimately, the purpose of those powers is to be much more agile, flexible and responsive to consumer detriment in the market. Is there a heightened risk that enforcement will default to the CMA because perhaps it may deliver a solution that is much more agile and responsive and much more in keeping with the pace of detriment in the marketplace compared with a courts-based system? The sector regulators and trading standards could therefore have the same or similar powers. The question is about agility and responsiveness to detriment, which is exploding in the marketplace. We see it increasingly, particularly in digital markets, which evolve so quickly. That is our perspective.
Vicky Ford
Q
Peter Eisenegger: Yes, I can. It was a consumer-initiated standard on complaints handling. If you want the number, I can blind you with it: it was ISO 10002. It was initiated by the consumer side of ISO. It is clearly written for the big company: it has lots of good practice where you divide all the responsibilities, the analysis of the complaints and things like that. There is an annex for SMEs. I have been through the main part of the document and counted the number of requirements: there are more than 250. For the SMEs, there are eight.
Where you look at the consumer and it is your small local trader, you go, “That’s fine,” because they know you personally—you know where they live, basically, and that changes the whole local relationship. But you do not really see that many standards where the practicalities for the smaller company are reflected. I am quite pleased that the consumer world did a decent job for the SMEs there, because they are very important to us in terms of local service and providing competition to the big guys.
Seema Malhotra
Q
Peter Eisenegger: Do as much as you feel you can make time for, while getting the Bill implemented as quickly as possible. I come back to the key clauses that relate to the appropriateness of the information provided. Is it complete? Is it misleading? As a charity, we have looked at how heat pumps are being advertised at the moment. About 80% of the online information did not provide the right contextual information for your heat pump decision; some did not even mention it at all, and a few hid it away behind several layers of interaction with the website before you found it out. That would fall under the incompleteness clause, but again, you are going to come back. The CMA would be able to apply an interpretation, which would probably go through some sort of intense dialogue with the industry people concerned, but if you do not have time to cover all those other aspects as explicitly as you would wish in the Bill, I think there is a clause that gives the CMA some capability for addressing it.
Noyona Chundur: Maybe I can add to that. This talks to the point in the earlier session on how quickly or whether fake reviews should be automatically added to the list of bad practices, or should we go through full consultation. In all these things, we need to have appropriate consultation and the appropriate due diligence carried out. It needs to be done as quickly and thoroughly as possible so there is no doubt. I am completely supportive of what was said earlier today that there is a lot of detriment as a result of fake reviews, and the sooner that is resolved, the better. None the less, we need to be careful about setting the right precedents. We need to have consistency in procedural application. For all those things—I believe we are all in agreement that drip pricing is of huge concern, as are misleading green claims—we need to follow the right process and get through it as quickly as possible.
Seema Malhotra
I think Ms Reilly wants to come in as well.
Tracey Reilly: I simply want to endorse much of what Noyona said. There are issues around fake reviews, drip pricing and greenwashing that we all want to see addressed, and for that to happen as soon as possible. However, there is also a need to ensure that the definitions are right and the provisions are effective. We would hugely support the Secretary of State having the power, which is in the Bill, to amend the schedule by regulation. I realise that is a Henry VIII clause, which is not always popular, but in this case I think it is an acceptable use of that power, and it comes with appropriate safeguards in terms of the affirmative statutory instrument procedure and the requirement to consult first.
Touching briefly on greenwashing in particular, we acknowledge that existing regulators have powers to tackle that and that there are existing programmes of both education and enforcement. However, greenwashing claims are hugely prevalent and there is a lot of work to be done. It is an issue that, for us, has real risks associated with the net zero transition, because we are going to get consumers to make quite different choices around what they eat, what clothes they buy, how they heat their houses and what vehicles they drive. Some of those are quite big-ticket items in terms of cost, so there is a real risk for consumers and a real need for them to be able to trust the information they are given, which links back to the points my colleague Noyona was making about consumer confidence.
Seema Malhotra
Q
Tracey Reilly: Just a couple of quick points. There is a need to produce very clear guidance on the new plans and have very clear referral processes to the CMA for the use of those plans, so that advocacy and advice bodies have almost a direct line, if you like, into the points of contact. Essentially, it is about pathways and signposting, and ensuring that the routes from an individual consumer experiencing detriment to those who are able to take action on it are as quick and flexible as possible.
Noyona Chundur: From my perspective, I would ask for two things. The first is greater connectivity across the ecosystem. We all have a lot of data; we all have a lot of intelligence; we all have a lot of on-the-ground insights that should be shared and published in a more connected and co-ordinated way. Ultimately, that is more holistic, but it gives the level of granularity we need on a four nations basis. The other is greater focus on the broader issues of online behavioural bias and the exploitation of behavioural bias—you know, nudge techniques—to negative effect. To my mind, the Bill does not adequately cover that, so I believe this is an area of potential development.
As has been touched on already, vulnerability is not just about personal characteristics or social circumstances; the behaviour of organisations can cause harm and put you in a vulnerable position. That is a key area that we would love to see explored in more detail as the Bill passes through scrutiny.
Peter Eisenegger: In terms of support, having mentioned standards, there is a Government mechanism for providing the consumer arm of BSI with money to support its experts. Keep a careful eye on that, and work with BSI and its consumer arm to ensure that that is suitable for the level of really important issues we need to address.
There is another area of the consumer world, which is about the smaller, really voluntary charities, such as ourselves and the Child Accident Prevention Trust, which have no regular income and live hand to mouth. We have been on the brink of extinction every now and then, and although we have managed to haul ourselves back, it is a very precarious position. When we and others in a similar position contribute to this sort of arena or talk to regulators, our voice is valued and has something to offer, but we are very precarious. If Parliament looks at the people who really represent the grassroots and different perspectives and are without a regular income, and if something can be done, that would be extremely useful. Some of these voices drop out.
Vicky Ford
Q
Tracey Reilly: I think that is a very difficult question. Without remotely passing the buck, I think that ultimately it is a judgment for your Committee to take as to whether it considers there is sufficient clarity in the definitions proposed during the amending stages to allow for those decisions to be made now. If the Committee is confident that there is sufficient clarity, and the soundings you are receiving from stakeholders indicate that they are content, it is a matter for the Committee to decide. Ultimately, our position is that we want to see it as soon as possible, but we also want to see it done correctly, because as we all know it is very difficult to amend primary legislation once that is in place.
Kevin Hollinrake
Q
Professor Myers: Again, I think the Bill strikes quite a good balance with the judicial review approach. To bring in some practical experience from my days at Ofcom, I have had a role as an expert witness in quite a number of appeals of Ofcom decisions, in front of both the Competition Appeal Tribunal and the High Court. At the Competition Appeal Tribunal, those have been under different standards: there used to be a full-merits review, but recently that was changed to a judicial review.
I think what matters, as well as the legal standard of review as laid out in this legislation, is the nature of the appeal body. In this case, it is the Competition Appeal Tribunal. Compared with the High Court, these are specialists—both judges and lay members—with specialist knowledge and experience of dealing with both competition and regulatory cases. They have a greater appetite to get into the detail and merit issues, to the extent that that is compatible with the judicial review standard, than the High Court would. Having appeared in front of the Competition Appeal Tribunal under a judicial review standard, I can say, as I think Professor Fletcher did, that that is not a walk in the park for the regulator. You get a thorough testing, and what the Competition Appeal Tribunal is looking to identify is clear errors of either law or reasoning. I think that that is an appropriate way to strike a balance here.
Seema Malhotra
Q
Professor Myers: You heard some evidence earlier this afternoon about the relationship between jurisdictions in different countries. Clearly, the Digital Markets Act in the European Union is being implemented at the moment and the effects of that will come in. The longer the UK legislation takes, the more that will condition the context within which the CMA will have to operate in implementing this regime. That is probably the most likely thing. There are obviously some other countries that are looking into that, but that is probably the main issue I would point to.
Seema Malhotra
Q
Professor Myers: I do not think that that kind of timeline of 2025 means it is all a waste of time and we should not bother; I think it will still be important. It is not a complete all or nothing. There are some digital services where the platforms will want to standardise globally, but there are others where they will be interested in making national variations. I think the CMA can influence things using its competition powers. An example of that at the moment is the competition case it has had about Google’s Privacy Sandbox and the use of third-party cookies on Chrome. That is a Competition Act case where the commitments that Google has agreed with the CMA are actually influencing how it is operating Chrome globally, so there is still some scope for the UK to have a role even before this Bill comes in. Then when it does, obviously that will increase.
Seema Malhotra
Q
Professor Myers: Perhaps one of the few things I did not entirely agree with in the evidence room was when Professor Marsden talked about the participative approach which, again, is obviously not in the legislation, but is envisaged in how the CMA will operate. I do not think what you want out of that is a cosy relationship between the regulator and the SMS firms. You need to have a constructive relationship, but that is going to be adversarial. To expect it not to be adversarial to some extent is probably over-optimistic and, indeed, probably undesirable, but it is also very important for the CMA to build a wider set of relationships with the industry, consumers and smaller stakeholders, who are not so used to dealing with a regulator. It is important for the CMA as a regulator to have a good overview of a cross-section of all the views in the industry and not just be captured by the SMS firms, which they are inevitably talking to an awful lot.
The Chair
That brings us to the end of this session. On behalf of the Committee, I thank you, Professor, for taking the time to give evidence.
Professor Myers: Thank you very much.
Examination of Witness
Graham Wynn gave evidence.
The Chair
We will now hear oral evidence via Zoom from Graham Wynn, assistant director for consumer competition and regulatory affairs at the British Retail Consortium. Graham, will you introduce yourself for the record?
Graham Wynn: I am Graham Wynn. I am assistant director at the British Retail Consortium, dealing with consumer affairs mainly and a number of other issues for some years now—about 20, I think. Today, I am representing the views of members.
Seema Malhotra
Q
Graham Wynn: As far as the Bill is concerned, it is about 50:50. We would like the Committee to examine about 50% of the issues particularly carefully. Generally, we support the Bill—we think it does some useful things—but there are one or two matters of detail. On the other hand, we think that some omissions need to be looked at, whether in the Bill or elsewhere; they are necessary for the Bill to succeed.
We have some concerns about the enforcement landscape as a whole, the resources available to trading standards, and whether the Bill and its focus on the CMA will mean that trading standards go even more into the background. Members tell me they find that enforcement activity by trading standards has declined quite dramatically over the years. The other day, someone said to me, “Online, it is the wild west out there.” Although people try to comply with all the regulations, they find that many businesses—many of their rivals—do not do so, and that no one enforces anything. One of the issues retailers hope will be looked at is whether the whole regime, with the CMA’s new powers, will lead to better enforcement to create a level playing field for consumers and for businesses.
We are concerned about fake reviews. We support the banning of them. We wish that what the Government propose for them was on the face of the Bill. It is also important that people understand exactly what a review or a website should and should not include. They should include both negative and positive reviews, but it is very difficult to define what a fake review is and to ensure that whatever we come up with is enforced. The key theme is enforcement. It is no good giving people protections if they are not enforced.
The other thing is the CMA’s new approach to consumer issues and admin powers. We have a good relationship with the CMA. Members are more—let us say—acquiescent with the proposal to move towards an administrative-based regime. They accept that it has been debated over many years now, and that the Government are determined, so the key thing is to make it work. The real thing is to make sure that there is a good appeals system, independent of the CMA at the end of the day.
Another concern about what is missing from the Bill is the requirement for the CMA to accept primary authority advice. The CMA refuses to do that. When a business has been given primary authority advice—assured advice—that governs what other local authorities and trading standards do in the area, but that is not the CMA approach. We think that with its new powers, it is important for the CMA to accept primary authority advice, or indeed, to devise its own system by which it gives advice to businesses that is assured advice. It will do that in the competition area—on sustainability—but we think it would be very important in the consumer area as well.
There are other issues, of course. The review of the blacklist is another that I would pick out as one we are slightly concerned about. One of the dangers in all politics is a knee-jerk reaction to a political issue, and we think that one such danger is in adding to and subtracting from the blacklist in schedule 18 by statutory instrument, rather than right up front in primary legislation. We argued this in the EU when it first came out with the unfair commercial practices directive. We argued that successfully in relation to much retail and commerce across Europe. The point is that we want to make sure that anything that goes into or comes out of the blacklist is properly debated and analysed and so on, rather than going through virtually on the nod, which is likely even with affirmative resolution. Those are some of the things you might want to bring out, such as unit pricing, and you might want to ask about those.
Seema Malhotra
Q
Graham Wynn: Yes.
Seema Malhotra
Q
Graham Wynn: I think it is important that they co-operate and that there is a clear line of responsibility for each and a clear demarcation. The real problem with trading standards is not so much their powers but their lack of resources. One business with over 2,000 stores —not a supermarket—said the other day that the number of inspections and the number of times they see a trading standards officer has come down dramatically in the last few years. It makes it very difficult for those who are responsible for compliance in the business to persuade those who are responsible for, say, marketing and promotions to keep in line. The lack of trading standards activity makes that more difficult and also leads to a playing field that is not totally level. The problem is resources.
Kevin Hollinrake
Q
Graham Wynn: The view is, as I said, that we do not want to see what I call knee-jerk reactions to Daily Mail items that are politically sensitive or are political problems. The obvious answer is to say, “Let’s add it to schedule 18 as a banned practice.” It really is important that the schedule and what is in it is clear, clearly understood and that we do not add or subtract from it just on the basis of needing to get over a political problem, for example.
You can make sure that you do proper consultation and all that sort of thing, but we can understand why the Government would want to be able to add to it more quickly—obviously, primary legislation takes a while. In Europe, we certainly argued against Governments or the Commission being able to add to it willy-nilly. We were keen to keep it as something that had to be put in the directive originally. On balance, we would rather it was debated fully and that it amended legislation. Alternatively, you could decide to make changes once a year, say, rather than as you go along. That might be an alternative answer to the danger of a knee-jerk reaction.
Kevin Hollinrake
Q
Graham Wynn: Yes. I think it needs to be done, but without committing us, we would expect it to be done in the context of a product safety review and how you are going to deal with product safety issues in the future. It needs a thorough examination, including the role of marketplaces, their general obligations and what is practical and proportionate. I would not add that to this Bill now, because it requires more of an assessment and consideration than would be possible.
Seema Malhotra
Q
Graham Wynn: ADR is not something that our members are exercised about in the same way as some other people are. Those who are responsible for selling high-value items tend to be members of ADR schemes. Their criticism of the current arrangement has been that they are not convinced that there is a full assessment of the ADR providers, so everything that is necessary to give them the confidence to use the systems. They believe that that perhaps has held back ADR schemes from really taking off in some places.
Those who sell high-value items—kitchens, some white goods and furniture items—generally are members of ADR schemes. Those who sell groceries, as they are generally called these days, including food and non-food, tend to feel that it is not really appropriate for them because of the cost. When dealing with something worth only a few pounds, it is much cheaper and much more sensible to just deal with the consumer and, ideally, give them their money back if there is a problem, rather than take everyone through ADR. It is not necessarily the best approach. However, the accreditation system and making sure that companies abide by what they are supposed to do in ADR is vital to have confidence in general.
The Chair
I am afraid that brings us to the end of this witness session. Thank you very much for your evidence.
Examination of Witness
Max von Thun gave evidence.
The Chair
Thank you all very much. We will move on to our next session to hear from John Herriman, chief executive, and David MacKenzie, lead officer, from the Chartered Trading Standards Institute. Could you introduce yourselves for the record?
John Herriman: I am John Herriman, chief executive of the Chartered Trading Standards Institute.
David MacKenzie: I am David MacKenzie. My day job is with the Highland Council on trading standards, in the sunny north of Scotland. I also have a role with the CTSI across the UK for free commerce and related issues.
Seema Malhotra
Q
John Herriman: Obviously, as you have heard, we have been very publicly supportive of the Bill. The key point, which I know others have made, is that in the online marketplace and the landscape, it feels like a bit of a wild west out there—I know that term was used this morning—and there has been a lack of protection for consumers and clarity for businesses. We have also seen that dramatic change in business and consumer behaviours, particularly during the pandemic, which is good for consumers, businesses and the economy. Trading standards absolutely sees that first hand. Trading standards plays a very unique role in this discussion; we are at that interface between the business and the consumer, so the lens through which we look at this is consumer confidence. Essentially, that is what we are really taking a perspective on.
We very much welcome the Bill and the new powers, particularly for the scope of the CMA, which we work with closely. We think it provides clearer legislation and changes to CPRs. We think it will enable quicker and stronger action, and we think it is very supportive of competition and innovation but, as you have alluded to, we do think there are some opportunities in the Bill where it could go further and where it would not impact on competition and innovation, and also where it would be more supportive of consumer confidence. We are happy to talk in more detail about those.
It is probably best to explain that we are both here because I can take that very strategic view and answer questions about that. David is our lead officer for the online marketplaces, so when we get into more of the technical detail he will be able to answer some of those questions. Essentially, in those areas around drip pricing, fake reviews, subscription traps and greenwashing, we think there are opportunities to go further or for some further discussion.
We also think the Bill addresses the national issues around the CMA’s powers, but we do not think it is sufficiently robust in some areas to enable trading standards which, in the context of this conversation, does the place-based and local regulatory enforcement and support for local businesses and enterprise. That national system does not work effectively if you do not have the local system working effectively alongside it, because they are mutually supportive of each other as part of that same system.
Seema Malhotra
Q
John Herriman: It is a combination of both. David will be best placed to comment on the powers. Essentially, there are some issues there that we would like to consider, but it is also a factor of capacity. If I just focus on that, David can answer the second part of the question. From a capacity point of view, trading standards over the last 10 years or so—I think the National Audit Office reported back in 2021; it has also just done a very recent report—has been hit by about 50%. Relative to other regulatory services and local governments, regulatory services—according to the latest National Audit Office report—have been hit by about 25% cuts.
Trading standards has been hit exponentially harder than some of those other services. If we do not have enough capacity, we cannot do the enforcement activity. If we cannot do the enforcement activity, we cannot ensure that there is a level playing field for businesses. There is a definite capacity issue there. This Bill will make the legislation more robust, but we also need the capacity alongside that to make that system work effectively, because regulatory systems do not work effectively unless you have the right levels of enforcement capacity. David, do you want to answer the other part of that question?
David MacKenzie: We really welcome the strengthening of civil enforcement in the Bill. It introduces a range of potential punitive sanctions that can be imposed on businesses. That potentially strengthens our position, and we really welcome that.
At the same time, as John says, that is really dependent on our guys up and down the country being able to utilise that through civil enforcement, which is still a relatively newish thing for us. Our officers are very well versed, over many decades, in criminal law investigations and going for prosecutions. The civil law is relatively newer. Along with these new powers, there needs to be a bit of a campaign across the whole UK to ensure that local authorities have the skills and necessary legal backing to take these cases. I have certainly discussed that with the Department and will continue to do so.
Those are the good things in the Bill—giving us more powers and more sanctions. Our disappointment is what is not included: officers’ powers. The way that I like to characterise it is that the existing powers are very good, but are they very good for a world that is changing all the time? They are essentially based on one of our officers being on physical premises, doing the work.
The powers are all really good: powers of entry, of inspection, to test, to get documents, and all that kind of stuff. But we increasingly find that, when it comes to the documents side of things, if somebody still has a filing cabinet with bits of paper in it, that is fine—we can get that and use it as part of our investigation—but, as we would all expect nowadays, even small business do not operate in that way anymore. The information will be in the cloud; it will be somewhere else that is not necessarily accessible from those premises.
Seema Malhotra
Q
David MacKenzie: The current powers do not give us direct access to that—they just don’t. The Bill addresses that to a degree in that, in terms of entry under a warrant, as long as the files are accessible—again, from that physical premises—there is an extra power there. We welcome that. That is good progress. But it is important to realise that the vast majority of our investigations are done not under warrant, but using normal powers of entry, so the vast majority of situations are not covered by the change.
Even when the power is exercised through warrant, and we are able to use the new provision, that is only when the files are accessible from that premises, but we are increasingly finding that the local branch manager just does not have access to that information. I suppose that we are calling for a general power to access that information, in the same way as if it happened to physically be on those premises, and to be able to use it in all cases, including criminal prosecutions.
The other point that goes along with that is about online enforcement and takedown powers. I think it would really surprise the public if we told them that we do not have any formal powers of takedown at all for any online content. The only way we can do that is through ways and means—trying to get platforms to do the right thing and all that kind of stuff. It is long past time that we got a formal takedown power.
Seema Malhotra
Q
David MacKenzie: Absolutely, yes. It could be a whole website, an account on a website or just a narrow bit of content. The Bill contains the concept of online interface orders that the CMA can apply to the court for, and we think that that should be applied to other regulators—particularly trading standards, from my point of view, but to other regulators as well. I think that if we are to be taken seriously in—
Seema Malhotra
Q
David MacKenzie: Absolutely. A lot of the stuff in the Bill that replaces the consumer protection regulations is really good, and we really welcome it. There is still some stuff around the definition of “trader” that we think is a little bit of a missed opportunity.
There are two angles. When does a consumer become a trader? How many things do you have to sell in an online marketplace before you become a trader? That is a difficult judgment for us to make and we feel that some work should be done on that. The point you have made is equally important: the status of the seller in an online marketplace. We think there should be a requirement for the online marketplace to declare whether the seller is a consumer or a business because that makes a massive difference to the consumer rights of the buyer and it also makes a difference to what we do.
If someone is a business seller, they have to comply with all consumer law; if they are a private seller, they do not really have to comply with anything, so this is for both consumers and for us. To be fair to other businesses that operate on the site, we think this is a necessary change that is not in the Bill.
Kevin Hollinrake
Q
John Herriman: That was another point that we wanted to make. This is not the only legislation that impacts on the landscape: the product safety review is fundamentally important in this space. The key point there is being clear on where those boundaries are.
We will be contributing to the product safety review. It is fundamentally important that it should come out quickly, so that we can address it and respond to the consultation. We can then look at that in the context of this Bill and others that it might impact on as well. We think that some things would be best placed in the product safety review—anything to do with legislation there—and would not appear here. But it is important that those provisions work hand in hand over a similar period, so that we can make sure that there are not any gaps. Consumers will then be better protected and businesses will have the clarity that they need, which is really important for them.
David MacKenzie: I agree with everything John said, but if we leave all these issues to the product safety review, presumably that would apply only to unsafe products. There is a wider range of situations for which we need these take-down powers when it comes to fair trading—scams and so on.
Digital Markets, Competition and Consumers Bill (First sitting)
Seema Malhotra ExcerptsTuesday 13th June 2023
(11 months, 1 week ago)
Public Bill CommitteesRead Full debate Digital Markets, Competition and Consumers Bill 2022-23 View all Digital Markets, Competition and Consumers Bill 2022-23 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 13 June 2023 - (13 Jun 2023)
The Chair
Before we start hearing from the witnesses, do any Members wish to make declarations of interest in connection with the Bill? No.
We will move straight on then to hear oral evidence from the Competition and Markets Authority. This morning, we are privileged to have a trio of stellar CMA executives: Sarah Cardell, the chief executive; George Lusty, the senior director for consumer protection; and Will Hayter from the digital markets unit.
Before calling the first Member to ask a question, I remind all Members that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings in the programme motion that the Committee has agreed. For this session, we have until 9.55 am. Could I ask our three witnesses, starting with the chief executive, to introduce themselves for the record?
Sarah Cardell: I am Sarah Cardell, chief executive of the CMA.
George Lusty: I am George Lusty, senior director for consumer protection at the CMA.
Will Hayter: I am Will Hayter, senior director for the digital markets unit at the CMA.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Sarah Cardell: I will start off, and Will might come in with a specific example. We are talking here specifically about the provisions around digital markets in the Bill. What we have got with the design of the provisions here is exactly as you say—something that is really quite bespoke, quite targeted and flexible. I think that is really important. When we look at the issues that we are seeking to tackle in digital markets, there are many benefits that come from them, but there are real competition concerns. We see a concentration of market power. We see the characteristics of these markets, where there are substantial economies of scope and of scale, and the aggregation of data, and that results in potential harm, both for consumers, in terms of their ability to access a broad range of products and services, and for competing businesses that want to be able to compete and grow and innovate on a level playing field.
What does the Bill do? The Bill enables us to tackle those concerns in a very targeted way. That is critical. You asked about the comparison with the European Union’s Digital Markets Act. In terms of the underlying concern, what we have in the EU is designed similarly—there is no fundamental difference there—but it is a more blanket approach, with a blanket list of prohibited conduct, whereas what we have here is a Bill that enables the CMA to designate particular companies in relation to particular activities, and then to design conduct requirements to manage their market power in relation to those specific activities. That is a much more bespoke system from the outset—it is targeted at the individual company and the individual conduct that is a cause of concern.
I think this Bill also has a greater degree of future-proofing. That is obviously critical in these markets, because they evolve so rapidly. The system in the EU is a slightly more static approach. You have a set of provisions that prohibit certain conduct as things stand at the moment. What we will have is the ability to bring in new conduct requirements if we see new concerns emerging, and to vary those or remove them when they no longer apply. That means that the system over time will be much more responsive and much more future-proofed. Will might want to come in with a couple of specific examples.
Seema Malhotra
Q
Sarah Cardell: My view is that it is entirely the opposite. Competition and open competitive markets are the foundation of an economy that encourages investment, innovation and growth. We see that from a vast range of economic literature and economic research. The work that the CMA already does is very much tied to driving innovation, investment and growth.
So the starting point is that open competitive markets are good for innovation, good for investor confidence and good for growth. We then need to make sure that the design of the regime delivers that, and that the implementation of the regime, by the CMA, delivers that. I think the design does, for the reasons that I broadly outlined, and obviously the scrutiny is then, rightly, on the CMA to make sure that in practice we deliver the regime in a way that inspires that confidence.
I think we will do that in a number of ways. The first is to look at the outcomes that we deliver, which will ensure that businesses, large and small, are able to grow, invest and thrive in these markets. The second way is to make sure that we have really strong stakeholder engagement. This is not a regime where we want to operate behind closed doors. The whole design of the regime is a participative approach where we will engage with a broad range of stakeholders, businesses and consumers as we consult on designation, design the conduct requirements, and then enforce against them.
Seema Malhotra
Q
Sarah Cardell: If I quickly take accountability, George might come in on secondary tickets. Accountability is key. The Bill gives us greater responsibility and power, and with that must come greater accountability. That comes in a number of forms. Parliamentary accountability is critical. We are accountable to Parliament. We do that already through a number of appearances and engagement with Committees, but I am sure that there is more that we could do in the design of that, and we are very keen to work with colleagues in Government and across Parliament to ensure that that happens. Accountability for our decisions through the courts is another important element, and accountability to stakeholders, going back to the previous point, is key as well.
George Lusty: On secondary tickets, the CMA has taken a lot of action in this area. It has taken Viagogo to court. We found ourselves up against some of the inherent weaknesses in the existing consumer protection toolkit when we did that. We effectively had to initiate an attempt to start contempt of court proceedings to get Viagogo to comply with the court order that we had secured. We think that many of the changes in the Bill will address those weaknesses directly by giving us civil fining powers for the first time. We set out specific recommendations back in August 2021 about other things that we think could be done, but ultimately it is a matter for the Government to decide what they want to include in the legislation.
The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)
Q
Sarah Cardell: On digital markets, the design works very well, because you have an engaged approach where we will work with businesses to secure compliance with the conduct requirements. We hope that that will be a constructive engagement, and that much of that compliance will be achieved without any enforcement activity. That is the aspiration and the goal. Of course it is important to have enforcement as an effective backstop and that that enforcement happens rapidly for the reasons that you stated. The Bill envisages a six-month time limit for enforcement, which is important so that everybody knows that that timing is ringfenced.
On appeals, let me take a minute to talk through the JR standard and why I think that it is effective, because there has been a lot of debate about that. It is critical that the CMA faces effective judicial scrutiny for our work. That should go on the record. We think that the JR standard achieves that. The JR standard applies to much of our work already, including our merger control and market investigations. It applies to a number of regulators for their regulatory work already, so there is an established approach for JR.
What JR is not, certainly in our experience, is a very light-touch procedural review. It looks at process questions, but it also looks fundamentally at whether we have applied the right analytical approach, the kind of evidence that we have reviewed, how we have weighed that evidence, and the rationality—the reasonableness—of our decision making. Take the example of the Competition Appeal Tribunal review of our merger decision, which was a review of the acquisition by Meta of Giphy. We had 100-plus pages in that judgment, with 50-plus pages looking at our analytic framework, how we looked at the effect on competition, the kind of evidence that we took into account and whether we weighed it effectively. It was a very detailed critique of our assessment.
What JR does not do is start a full merits from first instance court process. It does not say, “Back to the drawing board—we are going to set the CMA’s decision to one side and then conduct the process all over again.” That is much more similar to the full merits review that we have at the moment on Competition Act 1998 cases. Our experience there is that it results in very protracted litigation—we often have cases that are in court for five or six weeks. But, fundamentally, it also changes the incentives to the parties that we are engaging with, because all eyes are on that litigation process. That means that, in our process and our own investigations, it is a lot harder to reach constructive, collaborative outcomes, because every point that we are investigating is thrown into an adversarial contest. It means that we have to turn every stone, check every piece of evidence and make sure that every point is covered, which means that our investigations themselves are more protracted and the litigation is much longer.
The benefit of judicial review in this process is that it provides absolutely robust and effective scrutiny, but it also supports an environment that is aligned with the aspirations of the Bill more broadly—to encourage engagement early on and to encourage constructive, collaborative outcomes. Then, of course, parties absolutely have the right to challenge and appeal our decisions and, where they do so, that is resolved effectively through a JR process.
The Chair
I welcome Rocio Concha, director of policy and advocacy and chief economist at Which?, and Matthew Upton, acting executive director of policy and advocacy at Citizens Advice. Thank you for coming this morning. Would you be kind enough to introduce yourselves to the Committee for the record?
Rocio Concha: I am Rocio Concha, the director of policy and advocacy, and the chief economist at Which?.
Matthew Upton: I am Matthew Upton. I am the acting executive director of policy and advocacy at Citizens Advice.
Seema Malhotra
Q
Rocio Concha: Let me start by saying that we are fully supportive of the Bill. We think that it will modernise competition policy and consumer policy in the UK, and that it will deliver clear benefit for consumers, businesses and the economy.
We are very supportive of part 1 of the Bill, which you discussed with the previous panel and which is about the additional powers to introduce a pro-competition regime. That is very important and we think that the regime will be proportionate and flexible, and will deliver benefit to consumers by providing more choice and lower prices.
One thing to say is that it important to look at the regime in its totality. The CMA explained that the regime is very proportionate and consultative. For it to work, it is important that the appeal process is on a judicial review basis, which is what is proposed in the Bill. That should be maintained as the Bill goes through Parliament. Obviously, we are very supportive of the new powers for the CMA to fine directly companies that breach consumer law. Why? Because that is a stronger deterrent to those businesses that may decide to ignore the law.
We are also very supportive of the Secretary of State having the power to act on the practices set out in schedule 18 that are clearly unfair. Why? Because we need a flexible system, particularly in the digital space where things move very quickly. We need that flexibility in the system as we identify additional areas.
You mentioned fake reviews. We welcome the commitment to include fake reviews in the Bill, but basically the commitment is that that will be introduced by the Secretary of State. We do not think that we should wait. Clearly, fake reviews are harmful, so the buying, selling and hosting of fake reviews should be included in schedule 18. We think that drip pricing is another practice that is very harmful. There is a lot of evidence that that is the case, and it should be included on the face of the Bill.
How will we measure this? When we look at our work and at the areas we want to focus on, we do quite a lot on consumer detriment; we also work with the Government and the CMA to see what the big areas of detriment are. We expect to see changes in the behaviours of some companies that decide not to follow the law. With the previous panel, you talked about, for example, the measures that the CMA took in the past on secondary ticketing companies, such as Viagogo. That took six years—six years of harm for consumers. We expect that, after the Bill becomes an Act, we will see action and that all those crimes that do harm will be resolved more quickly.
Seema Malhotra
Q
Matthew Upton: We have been asking for action on subscription traps for a long time. Any action is positive, but we are seeing this in the context of a cost of living crisis, where anything that takes cash out of people’s pockets stops them getting by from day to day. To be honest, we think that the intent is right, but this is potentially a huge missed opportunity for action on subscription traps. We have to understand how high the incentive is for firms to trap people in subscriptions. There is a huge amount of money to be made, to the extent that it changes the whole incentive structure so that for many firms, rather than thinking about how to provide a quality subscription, the rational thing to do is think about how to design the worst possible customer journey and to trap someone, whether through an online process that makes it difficult to cancel something—you will all have experience of this—or, to give a slightly facetious example, a process whereby you can cancel only when you ring between 2 and 2.30 on a Tuesday and you have wait for 45 minutes in the queue.
Obviously, we want to change that incentive structure so that we have a flourishing subscription economy, which should be encouraged, where consumers want to stay in subscriptions and firms focus on providing quality subscriptions. We do not think that the Bill as it stands will do that. For example, it says that exit has to be timely and straightforward. We do not think that that will work. We have been here before, if we think back to utility bills four or five years ago, when there was a big push to stop people rolling on to expensive contracts and to get them to switch. Regulators were focused on trying to dictate what went into letters to consumers about their renewals. Firms could make so much money by obeying the letter but not the spirit of the regulation that they would find ways round it, and switching rates did not go up. We think that the same will happen here.
The specific change that would make a huge difference and is legislatively straightforward is to provide that, at the end of an annual trial subscription, the default is that the consumer opts out. That is not about things like car insurance, where there is a detriment to people opting out, but for basic subscriptions, opt-out should be the default. That would allow firms to use all their ingenuity, power and influence to persuade consumers to stay in. They could go for it—send as many reminders as they wanted; that is absolutely fine. If the subscription is good, a consumer will stay in. That change will make the difference. We have done some polling on this and about 80% of people agree that that should happen. We think that it will put millions of pounds back in people’s pockets, that it is proportionate and that it will encourage a flourishing subscription economy.
Kevin Hollinrake
Q
Rocio Concha: A provision on fake reviews in the Bill should apply to both products and services. There is evidence to show that fake reviews also harm services. I do not think that there is a major risk. We and the CMA have produced a lot of evidence about how fake reviews are endemic on some sites. We have demonstrated the harm that they cause. It is clear what is needed. We know that we need to look at selling, buying and hosting. I do not see a risk to including such a provision on the face of the Bill. Then, in secondary legislation—
Draft Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023
Seema Malhotra Excerpts(12 months ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Dame Angela. This is a very important statutory instrument and one that I am sure the Minister will agree with me is well overdue; it was seven years ago that the then Prime Minister, David Cameron, made the first of many promises to introduce a register of overseas owners of UK property.
The SI implements aspects of the register of overseas entities by conferring a power on the registrar to impose a financial penalty on a person if they are satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to an offence under part 1 of the Economic Crime (Transparency and Enforcement) Act, and by allowing the Secretary of State to consent to the registration of a land transaction that would otherwise be prohibited in relation to Northern Ireland, bringing it in line with England, Scotland and Wales.
We should remember that the Act was passed last year as emergency legislation in the light of the situation in Ukraine and the need to sanction Russian oligarchs. Its primary purpose was to set up a register of overseas entities and their beneficial owners and require overseas entities who own land in the UK to register in certain circumstances.
Back then, we said that the Government had dragged their feet on stopping dirty money flowing through our economy. These steps were first promised in 2016, and since then £1.5 billion-worth of property has been bought by Russians accused of corruption or links to the Kremlin. In 2016, the UK implemented a register of beneficial ownership of UK companies that is called the people with significant control register and provides information to Companies House about who holds significant control of UK companies. However, there was ongoing concern about overseas entities owning property in the UK to obscure their identity when concealing illicit funds or laundering money through UK property.
The establishment of the register of overseas entities introduced a requirement for any legal entity governed by the law of a country other than the UK to register the details of individuals who own property in the UK who would otherwise hide their identity behind a foreign company. There is no doubt that we need it as part of our tools to deter and disrupt economic crime and money laundering, as well as to protect our financial systems and our economic security and, frankly, to know who owns what in Britain. During the passage of the Act, we debated at length the speed with which action was required, so it is utterly frustrating that going through these important SIs to ensure that the registrar has the necessary powers is taking so long.
The provisions of this SI are common sense and we support them, but the delays have had a cost. We want to see action stepped up against those failing to comply with the new legislation who have yet to face financial penalties, and we want the system to be robust enough to operate as a deterrent against further economic crime.
The register was set up on 1 August 2022, and overseas entities had a transitional period of six months to register. Failing to update the register, failing to respond to an information notice, responding with false information, or selling land before the transitional period ended without providing information about its status are some of the offences in the Act to which the penalties that we are debating could apply.
Transparency International claimed in February 2023 that almost half of the companies required to declare their ownership—more than 18,000 companies, which between them hold almost 52,000 properties—had failed to do so. Last month, I asked the Minister how many were yet to comply, and at that point around 7,000 companies had yet to register. In our last SI debate, the Minister sought to reassure me—as he does today—that
“Companies House is…preparing cases for enforcement”—[Official Report, First Delegated Legislation Committee, 24 April 2023; c. 8.]
against some of those companies. I will come back to the respect in which that enforcement preparation is under way, and how quickly some of the powers will be used.
This is important, because a BBC investigation noted a few days ago that 5,000 firms with property in England or Wales have failed to submit their details, three months after the January deadline. The Minister says today that the figure is more like 3,000 firms. He suggested some of the reasons why, and he may have evidence for that. He also suggested that around 750 overseas entities that sold their property before the end of the transition period had complied with legislation by sending their information through to Companies House. Are there some that did not do so? It would be helpful if the Minister could update me on that and provide more information; he can do so in writing after the Committee, but perhaps he can go back over some of the figures he provided.
The 2022 Act set a fine of up to £2,500 a day for overseas companies that own UK property but do not declare their owners. That was increased in Committee from a measly £500—that figure was challenged, and an amendment was accepted that made it £2,500 a day—but I understand that, because it has taken so long since the Act was passed to implement the power to impose financial penalties, no person or entity has been issued with a penalty. That includes firms that have been linked to oligarchs such as Roman Abramovich.
I would be grateful if the Minister could confirm that it is the case that no warning notices have gone out and, therefore, no financial penalties have been issued, and that no penalties will be able to be applied in respect of the three and a half months since January. Perhaps the Minister can clarify that, because there may be something in the legislation that I have missed that suggests that it may be possible for a fine to be retrospective. Estimates from the BBC investigation suggest that had we been imposing fines since the January deadline, they could have added up to £1 billion.
I will ask the Minister about the detail of the SI, so that we can all be confident that it will be fit for purpose. First, how soon after the passing of the SI will the registrar be able to issue financial penalties? I imagine warning notices will have to be issued first, unless there has been any provision for warning notices to be sent out in advance of the SI being passed, so financial penalties can be issued immediately.
Secondly, on the warning notices the dates of appeal suggest that a period of 28 days needs to be passed. We had some debate around that previously, and I was not very clear on it then. The draft regulations state that the period contained within any warning notices
“must be at least 28 days beginning on the day after the date of the warning notice”.
Is the period within which a company or entity would have to make a representation to the registrar if they disagreed with what was in the warning notice within 28 days or a minimum of 28 days? That was not very clear, and it is important for it to be clear.
If any warning notices have been issued—I am not fully clear on the detail of the legislation, which seems to imply that warning notices and financial penalties can be issued only after the SI is passed—have any written representations been received? Draft regulation 5(2)(f) in part 2 also refers to 28 days. It would be helpful to be clear whether any payments sought in relation to a penalty, whether it is a fixed penalty or a daily penalty, have to be paid within 28 days. Is that the case prior to the interest accruing? I would be grateful for clarity on that. For those who have billions to spare, is that just what will happen? Will it be 28 days, plus the interest accruing?
How does the £2,500-a-day fine that was discussed during the passing of the parent legislation align with the bands that the Minister has talked about today? I think the amounts that he described were £10,000, £20,000 and £50,000. I think that would be significantly lower than a fine of £2,500 a day, but perhaps he can clarify how that will be calculated, and how the period since 31 January has been accounted for. What assessment has he made of the level of resources and whether they are sufficient for the analysis that needs to be done, the issuing of notices and financial penalties, and penalty enforcement, which, as he outlined, is also an important part of the SI?
As I have raised previously with the Minister, there are still issues with the register of overseas entities not covered by the SI. I thank him for responding to my concerns around the 25% threshold for beneficial ownership, on which I think we still disagree, but I note that in his written response to me dated 9 May he did not respond to my concerns about another major loophole: the use of opaque offshore trusts, which enable overseas entities to access UK property and markets behind a cloak of anonymity. I would be grateful if he came back to me on that point in my previous correspondence.
In summary, the Opposition support the changes introduced by the SI, but it is utterly vital that the Government get their act together on dealing with economic crime, tackling loopholes and ensuring that we can take action quickly. It is years since action was initially promised, and there is a financial and security cost to that delay. I look forward to the Minister’s response.
Digital Markets, Competition and Consumers Bill
Seema Malhotra ExcerptsWednesday 17th May 2023
(1 year ago)
Commons ChamberRead Full debate Digital Markets, Competition and Consumers Bill 2022-23 View all Digital Markets, Competition and Consumers Bill 2022-23 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to speak on the Second Reading of this important Bill on behalf of His Majesty’s Opposition. The world has changed enormously, as has technology. I thank my hon. Friend the Member for Bristol North West (Darren Jones), the hon. Member for Weston-super-Mare (John Penrose) and other colleagues for their important and influential work in the development of this Bill, which Labour welcomes, having led the way in calling for large tech companies to be properly regulated to ensure competition in digital markets. We have long called for measures to protect consumers, enhance innovation and promote competition in digital markets, to unlock growth and level the playing field for innovative smaller businesses.
In the midst of a cost of living crisis, the Bill could not be more important. As the Minister alluded to, fairer markets will save billions of pounds for consumers. This important Bill updates the UK’s competition and consumer rules, in line with a changing economy and changing consumer behaviours, through three main areas of reform.
First, it creates a new pro-competition regime for digital markets by putting the Digital Markets Unit on a statutory footing and establishing a process for designating the “strategic market status” of firms that meet specific criteria in relation to certain specific digital activities. These firms will be subject to regulated behaviour regarding such digital activities, in the form of conduct requirements to help ensure fair competition.
Secondly, the Competition and Markets Authority will have new powers on market investigations, enforcement of existing competition rules and enhanced mergers and anti-trust activity. Thirdly, there are updates to consumer law, reforming consumer policy to increase consumer protection.
As long ago as 1950, the Labour manifesto written by Michael Young promised:
“An independent Consumer Advice Centre will be set up to test and report on the various consumer goods on the market. Good manufacturers will be protected and unscrupulous advertising exposed.”
Since then, Labour has certainly been the champion of consumers. Consumer rights are a proud part of the Labour and Co-operative tradition and values.
The Government needlessly delayed this Bill as a result of infighting and the changing of Ministers and Secretaries of State. Since the Bill was announced a year ago we have had three Prime Ministers, four Business Secretaries and four small business Ministers. I congratulate the Under-Secretary of State for Science, Innovation and Technology, the hon. Member for Sutton and Cheam (Paul Scully), who has done a full circle. He was the first Minister I shadowed in my role, and he will be winding up this debate.
It has been a year since this Bill was promised and five years since the Government established their digital competition expert panel. With these delays, we have fallen behind our European neighbours in this vital policy area, so this is an important Bill and we will support its Second Reading.
I thank the Under-Secretary of State for Business and Trade, the hon. Member for Thirsk and Malton (Kevin Hollinrake), and his officials for their meetings with me and my hon. Friend the Member for Pontypridd (Alex Davies-Jones). I hope this is the spirit in which the Bill will be considered in Committee and in which we constructively debate the gaps we believe there to be in the Bill, which I will highlight today. I also thank those who have been involved in the development of this important policy and legislation, from the CMA, Which?, UKHospitality, the Chartered Trading Standards Institute, Citizens Advice, techUK and smaller enterprises.
In digital markets, a small number of large technology companies have an ever-increasing dominance. The subsequent lack of competition and regulation has acted as a barrier to entry and expansion in digital markets, preventing new entrants from bringing innovation and choice to the market. The seriousness of this for our economy and consumers has become apparent in the billions of pounds in penalties levied for anti-trust violations.
Legislators around the world are catching up with the challenges we face in relation to this abuse of dominance in digital markets. Indeed, the OECD’s global forum on competition highlighted this five years ago, outlining how many digital markets
“exhibit certain characteristics, such as low variable costs, high fixed costs and strong network effects, that result in high market shares for a small number of firms… Firms in these concentrated markets may possess market power, the ability to unilaterally and profitably raise prices or reduce quality beyond the level that would prevail under competition.”
In the UK, the Furman report concluded in 2019 that competition in digital markets needed a “new approach,” and in December 2020 the CMA convened a taskforce that recommended the creation of the Digital Markets Unit with a new regime for regulating digital firms with strategic market status.
The Office for National Statistics reports that, between 2008 and 2020, the percentage of adults reporting having shopped online in the previous 12 months increased from 53% to 87%. This ongoing trend has increased consumer exposure to the harms associated with the digital economy, including the use of consumer data, harmful online choice architecture and misleading information.
Those are reasons why the Bill needs to deliver on being a pro-competition, pro-consumer and pro-growth Bill. We welcome steps to address consumer harm resulting from monopolisation of our increasingly digital economy, while making sure that innovation is not stifled and that we are realising the benefits of new technology for social and economic progress. The interests and rights of consumers, and the enforcement of those rights through effective competition in this new, complex and evolving digital marketplace, need to be at the core of this legislation, which is vital for all of our constituents.
The challenge now is to get the legislation right. It is important that the new powers given to the CMA to ensure competition in digital markets are not watered down as the Bill progresses. Powers are needed to crack down on unfair practices. That means there must be clarity on how the new powers will be used, along with the right scrutiny, transparency and accountability, both of the CMA and of the Government to Parliament. In addition, there must be clarity on thresholds and the process of appeals. I am sure we will discuss the checks and balances in detail in Committee, not least because 35 new Henry VIII powers are in the Bill, as listed in the delegated powers memorandum. The November 2021 House of Lords Delegated Powers and Regulatory Reform Committee report noted:
“Henry VIII powers are controversial and for good reason. Every such power; and its scope, must always be fully justified.”
Let me say a few further words about what we welcome in this Bill. We support the approach taken to the legislation, which seeks to be targeted to specific anti-competitive digital activities and is arguably more flexible than the reforms brought about in the EU. If that allows a more proportionate and targeted set of interventions, that is welcome. Legislators across the world are all learning, and we all want to see this be an effective regulatory framework that helps innovation, rather than hinders it, and protects consumers.
An example of how this is beginning to work is how the CMA has worked with Google on its digital Sandbox. An issue relating to third-party cookies emerged during the CMA’s digital advertising market study and a Competition Act 1998 case was then opened. Google’s proposed changes could have had privacy benefits, but they could also have given Google an anti-competitive advantage, strengthening even further its position in digital advertising markets. The CMA reached legally binding commitments with Google to address these concerns. It is important to say that both sides continue to work together and with the Information Commissioner’s Office. This is about working in partnership with business, and in the public interest, and this Bill represents a pragmatic step towards achieving that. We also welcome the inclusion of proposals such as monetary penalties for failures to comply and making undertakings directly enforceable, which were raised at the consultation. We welcome the strengthening of the alternative dispute resolution provisions, although we believe they could be strengthened further.
However, there are notable gaps that we are concerned about—areas where we are surprised and concerned the Bill does not go further. Such areas include subscription traps, tackling fake reviews and other consumer harms. First, on subscription traps, it is always to be welcomed when the Government decide to adopt a Labour party policy, which seems to be happening increasingly often. In April, we announced Labour’s plans to crack down on rip-off subscription traps, which trap people into subscriptions they no longer want. We want to legislate to ensure that customers must opt in to, rather than opt out of, subscriptions that automatically renew. That will end automatic renewal as the default option, ensuring that consumers are offered an alternative. Instead, businesses would have to offer customers a default option without automatic renewal, with the option for customers to seek automatic renewal if they prefer. At present, consumers only need to be informed about their continued subscription, not given a genuine choice. That means they can end up trapped into contracts they no longer want or use. Citizens Advice estimates that £306 million per year is spent in the UK on unwanted subscriptions.
This Bill goes part of the way to addressing that by introducing new requirements to remind customers at the end of a trial and the beginning of an auto-renewed subscription charge. But it does not go far enough in tackling these traps and adopting Labour’s full proposals, which stakeholders also support. We will be seeking to strengthen the legislation in this area to make subscription auto-renewals opt-in, rather than opt-out.
Secondly, the Government, with much fanfare, announced that this Bill would introduce provisions outlawing fake reviews. News headlines last month trumpeted the Government’s briefing, saying:
“Buying, selling or hosting fake reviews will become illegal as part of changes planned in new laws.”
Fake reviews cause huge damage, both by encouraging consumers to buy unsafe or poor-quality products, and by ruining the reputation of hospitality venues in the UK. Such reviews are utterly unfair for honest businesses, which have no means of redress, but banning fake reviews is not mentioned in this legislation once. What has been lauded as a huge step in banning fake reviews appears to be a clause allowing the Secretary of State to add to the list of unfair trading practices in schedule 18. This is quite vague and so it could be very weak. I would therefore welcome clarification from the Minister on why this has been left out, and whether he is able to expand on what banning fake reviews will look like in practice?
On broader consumer harms, the Bill represents an opportunity to take action on a number of issues affecting consumers in the digital economy. That includes taking action against drip-pricing and misleading green claims, and requiring online marketplaces and social media platforms to make buyers aware of the status of a seller, none of which are dealt with in this Bill. Do we need stronger statutory consumer advocates? I ask the Minister: why does the legislation stop where it does? Should it not go further in addressing further consumer harms in the digital economy?
Finally, on delay, it has been a year since this legislation was promised in Parliament. The Government’s own impact assessment acknowledges:
“The Bill’s impacts are expected to begin in 2025 once the package of Bill measures has been implemented”.
That is the earliest it could be, but action is needed now. We are prepared to work with the Government not only to ensure effective scrutiny of the Bill, but to get it on to the statute book as soon as possible. That includes ensuring speed on guidance and codes of practice, and sufficiency of resources. There should be no more delays.
This legislation is welcomed by the Opposition but it is well overdue. It is a welcome step in creating a new competition and digital markets regime that will enable the competition authorities to work closely and fairly with business to ensure fair competition, and promote growth and innovation. Labour welcomes competition, consumer choice and protection as signs of a healthy, functioning market economy. We are committed to making the UK the best place in the world to start and grow a business. We believe there is a pro-business, pro-worker, pro-society agenda to be built for Britain, and that consumer and competition law play an essential part in that. I look forward to the Minister’s response.
Draft Register of Overseas Entities (Definition of Foreign Limited Partner, Protection and Rectification) Regulations 2023
Seema Malhotra Excerpts(1 year ago)
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Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship today, Ms Fovargue.
I thank the Minister for his opening remarks, but the statutory instrument reflects the Government’s response to economic crime and corporate transparency. The Minister may or may not agree that it has been too slow and very reactive, but for years we have seen a blind eye turned to corruption and dirty money.
The Foreign Affairs Committee stated in 2020 that the Government had allowed the UK to become a “laundromat” for dirty money, and estimates suggest that economic crime could cost our economy hundreds of billions of pounds a year. In 2016, the then Prime Minister, David Cameron—that seems like a very long time ago—made what would turn out to be the first of many promises to introduce a register of overseas owners of UK property, saying that
“foreign companies that already hold or want to buy property in the UK will be forced to reveal who really owns them”.
Yet here we are, seven years later, finally taking the steps to implement the register.
The SI defines the characteristics of a foreign limited partner and allows for the removal of incorrect or fraudulent information from the register, as well as making changes to protected information. The changes are common sense and, as the Minister will know from our previous debates, the Opposition will support them, but the changes are also long overdue. It took the devastating Russian invasion of Ukraine to force the Government into action. As a result, last year’s legislation to provide a basis for a register of overseas entities had to be rushed through on an expedited timetable, and questions remain about the effectiveness of the register in preventing economic crime.
I turn to the specific measures in the SI. As the Minister noted, they amend the register of overseas entities created by the Economic Crime (Transparency and Enforcement) Act 2022. In 2016, the UK implemented a register of beneficial ownership of UK companies called the “people with significant control” register, which provides information to Companies House about who holds significant control of UK companies. However, there was still the issue of overseas entities owning property in the UK to obscure their identities when concealing illicit funds or laundering money through UK property. The register was therefore introduced last year to provide a means by which overseas entities owning or buying property in the UK provide prescribed information to Companies House, specifically about their beneficial owners. The aim of the register is to increase transparency and deter crime; deter money laundering; preserve the integrity of the financial system; and require the same transparency of overseas entities as is required from UK companies.
The SI makes certain technical changes to the operation of the register. First, as the Minister has outlined, it defines the meaning of “foreign limited partner”. Under the 2022 Act, if a foreign limited partner meets certain criteria, they qualify as a beneficial owner needing to provide information to the registrar, but the Act does not provide a complete definition of what constitutes a foreign limited partner. Has the Department made any estimate of the number of foreign limited partners who up to this point have not provided information on the register due to this missing definition? Have overseas entities faced any repercussions for not providing information on foreign limited partners in the time when there has been no definition?
The SI additionally introduces new provisions allowing for the rectification of the register through the removal of any inaccurate or misleading information from the register. That is a welcome provision, but will the Minister expand on whether already false or fraudulent information has been supplied to the register? If so, has any action been taken against the entities responsible? Finally, the SI amends the requirements for the protection of personal information from public inspection in particular circumstances of serious risk and the need to demonstrate that risk. We support that change.
To sum up, this SI reflects years of delay and inaction from successive Conservative Governments on economic crime. It is disappointing that we are still debating and amending legislation a year after it came before the House. It is important to put on the record the fact that there are still issues with the register of overseas entities not covered by this SI. Some 32,000 overseas companies were required to register with Companies House by 31 January. The Minister said that a majority have done so, but according to a written ministerial statement of 1 February, as of the 31 January deadline, around 7,000 companies required to register had not done so. The Minister told us that that might relate to companies that had been struck off and said that there may be other reasons why companies had not registered, but it would be helpful to know whether the figure has come down since the written ministerial statement of 1 February. How many companies do the Government feel still need to register? Will the Minister confirm whether companies have faced penalties for not registering by the legal deadline if they have not given a clear reason why?
I would also welcome clarity on further issues with the register. The Chartered Institute of Taxation has also argued that setting a beneficial ownership registration threshold of ownership of at least 25% of the shares in an overseas entity could easily be avoided—for example, by having a family of six say that they each own 16.67% of the shares in a company. Do the Government have any plans to re-evaluate the threshold?
The SI also does nothing to address a major loophole in the register: the use of opaque offshore trusts, which offer overseas entities a layer of protection, enabling them to access UK property and financial markets from behind a cloak of anonymity. A recent Transparency International report found that almost 52,000 UK properties are still owned anonymously, despite the register of overseas entities. That represents over half—56%—of the estimated foreign ownership of UK assets. Can the Minister explain why the Government are not doing more to ensure that overseas entities cannot hide behind trusts?
It is vital that the Government get their act together on dealing with economic crime, the scale of it, and the means by which it is happening. While the Opposition support the changes introduced by the SI, it is important that we continue to work at speed and that loopholes are closed, because continuing loopholes will make a mockery of the aims of the register, which we have spoken about today.
Kevin Hollinrake
I thank members of the Committee for their valuable contributions to the debate. As the Committee knows, the Government are committed to ensuring that the register of overseas entities is robust and effective at tackling the illicit use of UK property to launder money. The draft regulations provide the mechanics that ensure the effective operation of the register.
The hon. Member for Caerphilly made a very good point. Clearly, sometimes individuals are under threat from other people for a variety of reasons. For example, a celebrity or public figure may not want their identity to be public because of potential risks posed by individuals to them or their families. That might be the case for a host of reasons—stalkers, for example. Where there is serious risk of violence or intimidation of that nature, which has to be proven to the registrar, the person is allowed not to disclose their address, particularly when it is a residential address, although the information is still held by Companies House and is available to law enforcement agencies. The protection regime is not a way of circumventing the purpose of the legislation; it applies in situations where there is proven potential for harm to the individual.
I think the shadow Minister, the hon. Member for Feltham and Heston, was a little unfair in some of her comments. The Government have certainly never turned a blind eye to some of the corruption that goes on in society. She says the Government have not acted, but as someone who has often spoken out about the need for stronger measures to deal with economic crime, I would say that Governments of all persuasions have not dealt with this issue in the past. She points to the fact that David Cameron stood up in 2015 and talked about the need for these kinds of measures. I agree with both him and her, but this country has failed to introduce appropriate measures for decades, and now we are doing so.
The hon. Lady points to Russia’s invasion of Ukraine bringing this issue into public consciousness. We parliamentarians react to public concern and we have concerns in the House about the invasion, which brought these kinds of issues into stark relief and provided the impetus to deal with them. We should all welcome the fact that we are dealing with them now. This SI is one of a number of measures we are taking forward that will make it much more difficult to use either properties or companies to launder ill-gotten gains through our society.
Seema Malhotra
The Minister has a track record in Parliament on this, but I think it is important to say that over the last seven years things have not been moving as quickly as they should have done. It is important to put on the record that various Committees in Parliament have raised this issue. We welcome things moving forward more quickly, but we have to keep our foot on the accelerator. That is extremely important.
Kevin Hollinrake
We are in violent agreement on moving things forward more quickly. I absolutely agree that we should have moved more quickly, but we are where we find ourselves. We have the momentum to act now, so let us make the best use of that opportunity.
The hon. Lady asks what Companies House is doing. As far as I am aware, 7,000 entities have not complied with the legislation. Some of them will no longer be entities that we need to worry about—they may well have closed down, and an address may have changed because there is no more purpose to an entity—but we are clearly keen to find out such information. Companies House has written to tens of thousands of organisations to ask them to register and to point out that there are now restrictions on being able to rent or sell land. There are meaningful measures in place to restrict the use of land and property, which is important. Companies House is also preparing cases for enforcement, which is another important message that we send to people who have not complied with the legislation. I am keen to make sure that the measures are taken forward as quickly as possible, and I am prepared to take personal oversight of making sure they are properly implemented.
The hon. Lady asked about how the measures can be avoided, such as by sharing ownership between a family of six. A beneficial owner is a beneficial owner regardless of how the ownership is distributed, and even if there are proxies. We had this discussion on the economic crime legislation, too. I think it is fair to say that if somebody is determined to avoid the rules by giving false evidence, they will do so, but there are significant penalties for doing that, which are a key part of the legislation.
The register of overseas entities provides a novel approach, and it is important to recognise that we are setting a new global standard. By setting up a register and introducing transparency, we are at the front of the pack with the legislation, so although the Opposition constantly put forward a fair challenge by saying that we are not going far enough, we are going further than any other jurisdiction I am aware of.
Seema Malhotra
It is not just the Opposition who are raising this issue. The Minister will know that many of the organisations with which he has worked in the past have also raised concerns about the threshold. I want to probe him on the threshold being 25%. It was not clear from his answer whether he was saying that any threshold, even a low one, would have people working around it. It feels fairly high for this purpose.
Kevin Hollinrake
We think it is at the appropriate level. We can perhaps have a discussion about it at length on another occasion, but as I say, the idea behind this is that the beneficial owner is disclosed. I will probably write to the hon. Lady to clarify this, but as I understand it, even if somebody put a proxy or nominee in place for the ownership of a property, it would still not get them off the hook in terms of whether they are actually the beneficial owner of the property. Perhaps I can write to her to confirm that.
The register is a crucial part of the Government’s fight against illicit finance. The Economic Crime and Corporate Transparency Bill, which is before Parliament, features substantial changes to UK company and partnership law, and complements the Economic Crime (Transparency and Enforcement) Act 2022. The Bill will introduce amendments to the Act that provide further operational detail to the register of overseas entities. For example, new measures in the Bill will require more information about overseas entities, including the title numbers of the properties held by overseas entities, and put in place minimum age limits for managing officers, to ensure that details of a person over 16 years of age must always be provided. The Bill will also make further provisions for registrable beneficial owners in cases involving trusts, and it includes an anti-avoidance mechanism to ensure that those in scope of the register at the time that the Act was first published as a Bill to Parliament cannot circumvent the requirements. The laying of the draft regulations complements the measures in the Bill to ensure that the register is as effective as possible, and I commend them to the Committee.
Question put and agreed to.
Oral Answers to Questions
Seema Malhotra Excerpts(1 year, 1 month ago)
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Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Our great British businesses are being let down by 13 years of Tory failure, with little to help but sticking-plaster policies. The Minister may not be aware, but insolvency numbers are at their highest level in four years, which is perhaps no surprise when we look at this Government’s record on small businesses, with Help to Grow: Digital ditched, energy bill support slashed and business investment the lowest in the G7. It is no wonder that the Federation of Small Businesses says that the Budget has left many businesses feeling “short-changed”. It is clear that for this Tory Government, small businesses are an afterthought, so will the Minister follow where Labour leads—reform business rates, boost skills, make Brexit work and make Britain the best place to start and grow a business?
Kevin Hollinrake
I wish I could say I was surprised that the hon. Lady is once again talking Britain down. The reality is that UK growth since 2010 has been the third fastest in the G7. The private sector is now bigger than it was pre-pandemic. Private sector growth has been on trend in terms of other countries, with businesses growing. The FSB says that three out of five businesses are more resilient than they were pre-pandemic. Of course, we would all like to reform business rates, and it has been looked at on a number of occasions, but simply saying that we will scrap something that would cost £22 billion a year without putting in place a replacement for that funding is irresponsible. What will she do to replace business rates—[Interruption.] She made the point. She wants to scrap business rates, but what will replace it with, given that it would cost £22 billion a year?
Whistleblowing Awareness Week
Seema Malhotra Excerpts(1 year, 1 month ago)
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Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
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Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship today, Ms McDonagh, and to speak on this important issue during the first Whistleblowing Awareness Week, which was launched in Parliament on Monday. I am pleased to add my voice to calls for organisations to change and for people to have the courage to come forward. There should be no fear or cover-up in organisations, and we need to look at how we change the law to enable and support that.
I congratulate the hon. Member for Cheadle (Mary Robinson) on securing the debate. There is no greater champion in Parliament for the protection of whistle- blowers. We now also have colleagues in the Lords, whom we have mentioned today, who are taking forward the call for stronger legislation. I support the hon. Lady’s argument that UK standards should also be global standards. I thank WhistleblowersUK for its relentless advocacy in this space. I encourage everyone to be involved as much as possible in any remaining programmes and activity this week. I am sure that Whistleblowing Awareness Week will be an annual event; it is vital to keep a focus on the issue and keep Parliament’s mind focused on not just legislation, but perhaps how well that new legislation could be working. It was a pleasure to speak alongside WhistleblowersUK chief executive Georgina Halford-Hall at the start of the week, with the Minister also present at the event.
Most importantly, as I am sure the whole House and all who are present will agree, those in most need of our thanks this week are the whistleblowers themselves, for the extraordinary risks they take and the great sacrifices they make to uphold justice, transparency and accountability, in this country and internationally. It is clear from the contributions today that that sentiment is felt across the House.
The hon. Member for Cheadle laid out some of the new insights that were shared at roundtables this week and spoke about the misuse of non-disclosure agreements. There were also important contributions from the hon. Members for Bury North (James Daly) and for Erewash (Maggie Throup) and the right hon. Member for Aldridge-Brownhills (Wendy Morton), who has her very own constituency connection to the passing of PIDA 25 years ago. The right hon. Lady called for clarity and, perhaps, more urgency on the Government’s next steps. I acknowledge and support the arguments made by colleagues and the connection with the harrowing Casey report that is out this week and is very much a part of all our lives, particularly those of us who are London Members of Parliament. I also thank the hon. Member for Erewash for chairing roundtables at some of the events this week. SNP colleagues have also been supportive, not just today but during the ongoing debates on the issue.
The importance of whistleblowing in upholding transparency in opaque institutions and exposing law-breaking cannot be underestimated, whether that is regarding sexual abuse scandals, Grenfell, economic and financial crime, financial institutions, the police, Government Departments, sporting organisations, religious institutions or large multinational corporations—the list goes on. In every single one, at some point, whistleblowers have been responsible, sometimes solely, for drawing attention to wrongdoing and for bringing justice.
I reiterate the comments of the hon. Member for Cheadle on economic crime, an area in which I worked closely with the Minister, on the Economic Crime and Corporate Transparency Bill. The National Crime Agency estimates that fraud costs the UK economy £190 billion each year, including £40 billion to the public sector. Between 43% and 47% of serious economic crimes are exposed by whistleblowers. The numbers show the huge scale of the issue, the huge role that whistleblowers play in exposing economic crime, and the impact they could have on our economy, if they were granted more protection under legislation.
One example is the Danske Bank money laundering scheme, where criminals took advantage of UK limited liability partnerships. It was a whistleblower that exposed the $230 billion economic crime operation, halting a stream of Russian money laundering.
That is why better protection of whistleblowers is so important—because, in so many cases, they are the first line of defence. They deserve greater legal protections than they currently receive. Multiple Ministers have promised us that change is coming, but that is not a message currently commanding the greatest of confidence. The Minister is likely to say that he is reviewing the whistleblowing framework and moving forward as soon as possible. That is an area on which we have common ground.
James Daly
The hon. Member is making some valid points. As parliamentarians, we could come up with new legislation that could give new protections. The problem is that if certain organisations have toxic cultures, no matter what the legal protections are, people are intimidated and will not come forward. That is where the issue is, no matter the legislation. The Met is one example, but there are others. I wonder what she feels we can do on institutionalised attitudes.
Seema Malhotra
The hon. Member raises a significant point, which I alluded to in my comments on the speech by the hon. Member for Cheadle. This issue needs serious leadership, commitment and accountability for change. The debates we have had in Parliament on the Casey report are some examples. Transparency and accountability at the very top really do matter.
When the Government bring forward measures, this is an area on which we will have common ground. The Minister knows we will support the Government on those measures, but I hope he will also understand that we want to see measures brought forward more quickly than is apparent at the moment—perhaps he will speak to that that in his remarks—because whistleblowers are being let down by inaction.
The Public Interest Disclosure Act 1998, which was referred to in the debate, was initially celebrated as groundbreaking. Now, only 4% of people who bring claims under its provisions succeed. There are arguments that it effectively discourages whistleblowing, and there are questions now about its scope. Independent data shows an overall decline in whistleblower reports across the public and private sectors, and reports of harassment against those threatening to whistleblow are increasing. That is utterly unacceptable.
Last year the International Bar Association, as has been mentioned, conducted the first review of its kind to assess countries with whistleblower legislation against compliance with international best practice. The UK ranked only 12th out of 16 countries. As the APPG for whistleblowing, chaired by the hon. Member for Cheadle, highlights in its recent report,
“Whistleblowers in general remain the subject of suspicion and scepticism and while organisations and official bodies sing the merits of whistleblowing and parade policies and procedures the lived experience of whistleblowers remains poor.”
It is clear that much more needs to be done if we are to adequately protect whistleblowers and ensure greater transparency in our public and private institutions. That is why during the passage of the Economic Crime and Corporate Transparency Bill through the Commons, both in Committee and on Report, the Labour party supported the amendment tabled by the hon. Member for Cheadle, which would have established an office of the whistleblower. That happens in the United States, so why not here?
The office would protect whistleblowers from detriment, ensure that disclosures by whistleblowers are investigated, and escalate information and evidence of wrongdoing outside of its remit to another appropriate authority. The objectives of the office would be to encourage and support people to make whistleblowing reports, to provide an independent, confidential and safe environment for making and receiving whistleblowing information, to provide information and advice on whistleblowing, and to act on evidence of detriment. As the hon. Member for Cheadle raised on Report, there is evidence that an office of whistleblowers incentivises and increases disclosures.
In 2020 the International Bar Association tested countries with whistleblowing legislation against a list of 20 best practices. The UK met just five. Meanwhile, the United States, which has an Office of the Whistleblower, met 16, and that office received 12,300 disclosures in 2022, nearly double the number of 2020.
The Labour Front Bench will join cross-party calls in Parliament to increase protections for whistleblowers at a time when it could not be needed more. I hope the Government will say more today about the steps that they will take. I note that during the passage of the Economic Crime and Corporate Transparency Bill through the Commons the Security Minister said he agreed with the need for an office of the whistleblower. His exact words were:
“what the country needs is an office for whistleblowers, and what we need to do is ensure that we have the updates to the legislation that she”—
the hon. Member for Cheadle—
“so correctly highlighted.”—[Official Report, 25 January 2023; Vol. 726, c. 1094.]
So I ask the Minister: what progress have the Government made in carrying out that latest commitment?
I seek assurances from the Minister that action is on its way—not just a commitment to having a review, but genuine action. I look forward to his response and hope that the Government will get a grip of what is an important issue and make sure that there is support for whistleblowers and for the sacrifices that they make every day to uphold justice and transparency.