Fred De Fossard is Head of the British Prosperity Unit at the Legatum Institute.
The King’s Speech has been almost forgotten since last week’s dramas over the Metropolitan Police and the return of a former Prime Minister to Cabinet. However, the 21 Bills listed in the Speech show where the Government intends to go between now and the general election.
It is a relatively thin agenda, lacking political bite – aside from welcome liberalisation of North Sea oil and gas licencing – and little policy which will help the economy before the election. There is the sense that the legislative cupboards are a little bare; many of the Bills announced have been kicking around Whitehall for some time, like the Bill banning live animal exports, for example.
One of the most significant Bills is the Digital Markets, Competition and Consumers Bill, which is to be voted on by MPs at its Commons Report stage on Monday.
This Bill almost entirely overturns the last 25 years of competition policy law, and has gone remarkably unnoticed since its introduction to Parliament earlier this year. The finer points of antitrust regulation do not hit all too many headlines, and laws designed to attack Big Tech generally receive a warm welcome in our press and politics.
However, this Bill is awash with unintended consequences which could have a damaging effect on the digital economy and beyond.
A collection of MPs and peers have started to raise concerns, and now is the time to make reforms to the Bill. This could be the task for Saqib Bhatti, the new minister appointed to oversee the Bill at the Department for Science and Innovation.
The Legatum Institute has published a special briefing, which recommends urgent reforms to the Bill. Among the most serious problems in the Bill are the unprecedented new powers for the Competition and Markets Authority (CMA).
It is worth considering the magnitude of these powers. The Bill will give the CMA the power to determine whether a business has “strategic market status” in the digital economy – an arbitrary idea – then apply specific regulations to them.
The CMA will be given the ability to redesign companies’ products, mandate expensive and invasive information collection about mergers and acquisitions, apply fines of ten percent of global turnover, and make individuals in these businesses potentially criminally liable. To top it off, the Bill will limit a company’s ability to appeal the CMA’s decisions in court, only allowing an appeal based on process grounds, known as the Judicial Review standard, rather than on the merits of the decision. Due process will be done away with.
In summary, the house always wins, whether it makes the right decision or not.
By handing over such authority to a regulator, while reducing its democratic and legal accountability, MPs and peers may make a dangerous mistake. Supporters of the Bill have argued that it is essential for the CMA to be able to change search algorithms on websites like Google to prevent bias in news results, but this amounts to trusting an appointed regulator to take deeply political decisions.
Considering the recent missteps made by the CMA – over its failed attempts to stop Amazon investing in British start-up Deliveroo, and to block Microsoft’s purchase of Activision – it would be naïve to hand it even more powers when it makes poor use of those it has.
Furthermore, the provisions in the Bill are loosely drafted, so the regime could be subject to serious expansion. For example, to qualify as a ‘Strategic Market Status’ company under this regime, a company must use the internet and have a global turnover of £25 billion (or UK turnover of £1 billion). The Bill also allows the CMA to amend these thresholds with ease.
This leads to huge uncertainty. First, many businesses of all kinds would qualify under those turnover rules (Sainsbury’s and Tesco both have online revenues above this threshold). Second, the possibility for expansion increases this further: many will find themselves caught by it in future, either from their own growth, or through changes to definitions by the CMA.
The Legatum Institute has produced a number of recommendations, based on leading legal analysis from competition lawyer Dr Stephen Dnes, which offer pragmatic solutions to the problems outlined above. These will ensure that good governance and accountability are embedded in the regime.
These amendments will reduce regulatory drift by tightening up the definitions for designation and investigation, preventing the CMA from going on fishing expeditions within companies and extracting information from them for future prosecution, and eensure all decisions the regulator takes are transparent, not to mention accountable in court, with a hybrid appeal mechanism between Judicial Review and full merits which allows for speed and efficiency, as well as the scrutiny of evidence.
They will also benefit entrepreneurs by trimming the onerous reporting requirements included in the mergers policies, which will deter big tech companies from investing in British innovators.
This Bill has raised concern from a range of Conservatives, who are not just worried about heavy regulation, but the quality of regulation as well. Sir Robert Buckland MP, who runs the Regulatory Reform Group of MPs, has tabled a number of amendments overnight which would address some of these concerns, particularly around the evidence required for an investigation.
The Government has also tabled around 200 clarifying amendments which partially align with the recommendations in the Legatum Institute briefing, which is welcome. However, it is expected Members of the House of Lords will probe the Bill further.
There are many areas which would have grave consequences for the British tech sector: they would reduce competition and investment at a time when it is most needed; they would hurt start-ups thanks to the uncertain requirements being made of the mergers regime; and they may enable serious regulatory mission creep into other parts of the economy.
The tech sector is one of the jewels of the British economy and is central to our economic recovery. The world’s largest tech firms play a vital role in this sector, supporting a thriving tech ecosystem in which large and small firms are interdependent.
The amendments described here would preserve the Government’s ability to defend against consumer harm and regulate the abuse of market power, whilst also allowing the UK to continue to nurture one of the world’s leading digital economies in the years to come.