Digital Markets, Competition and Consumers Bill – in a Public Bill Committee am 9:27 am ar 13 Mehefin 2023.
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?
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.
Thank you very much for coming today to give evidence. We very much appreciate your time. The CMA has supported this legislation, and there has been quite a lot of talk about how it provides a different approach to how the EU has taken forward legislation in this area. Do you think we have got the balance right, and why do you think a more flexible approach is helpful? You may have an example that you might want to use from your experience of a shadow digital markets unit.Q
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.
We have quite a lot to get through, so let me just ask a follow-up question. There has been some criticism that the approach of regulating firms with strategic market status would be a discouragement to business investment and confidence in the UK technology sector. What would your view be?Q
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.
Q The Government have not taken forward the recommendations from the CMA on tackling consumer detriment in the secondary ticketing market. Do you think that that was a mistake and that that should be in the Bill? Finally, huge new powers are going to the CMA. Do you think that the accountability mechanisms have the right balance? That will be a concern for Parliament. Mr Lusty and Mr Hayter might want to come in.
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.
Q How will the enforcement powers accelerate your enforcement action in particular? Remediation needs to come quickly in digital markets, especially with the appeals process, which has been a topic of conversation. Why do you believe that judicial review is sufficient to give proportionatality for people to push back and for keeping the speed up?
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.
So you believe this is the right balance between being robust enough for those with strategic market status and being speedy enough for remediation for challenger tech.Q
Good morning. We have talked a lot this morning about accountability to Parliament. That was highlighted quite heavily on Second Reading by Members from across the House. One of the other things that we have already discussed is the need for the CMA’s strategic priorities to be directed and advised by Parliament. Could you expand on your thoughts on that point? Also, where do you see the priorities for the Digital Markets Bill? That is not intended to be a loaded question.Q
I will give a high-level response, and Will might come in on some of the specific priorities for the DMU. It is really important to highlight the difference between accountability and independence. The CMA is independent when we take our individual decisions, but, as you say, it is absolutely accountable for those decisions, both to Parliament and to the courts. That is accountability for the choices that we make about where we set our priorities, accountability for the decisions that we take when we are exercising our functions, and accountability for the way that we go about doing that work. I think it is important to have accountability across all three areas.
On the strategic priorities, since I came into the role as chief executive and our new chair, Marcus Bokkerink, came into post, we have put a lot of focus on really setting out very clearly what our strategic priorities are, looking at impact and beneficial outcomes for people, businesses and the economy as a whole. We see those as a trio of objectives that are fundamentally reinforcing, rather than in tension with one another.
We also take account of the Government’s strategic steer. That is in draft at the moment. You can see that there is a lot of commonality between our own strategic priorities that we set out in our annual plan and in the Government’s strategic steer. That sets a very clear framework for our prioritisation.
Will might want to come in on how we will set the priorities for the DMU.
Will Hayter:
We are obviously thinking very carefully about where to prioritise action under the strategic market status regime. We cannot jump too far ahead with that, because Parliament is going through this process now and we have to see where the Bill comes out, but, as Sarah says, we will be targeting our effort very firmly at those areas where the biggest problems and the biggest current harmful impacts on people, businesses and the economy are likely to be.
You can get a bit of a sense of what those areas might be from the areas we have looked at already, particularly the digital advertising market, search, social media, interactions between the platforms and news publishers, and also mobile ecosystems. We did a big study there, where we see a range of problems stemming from the market power of the two big operating systems.
We will continue to update our thinking as we go through the next year-plus, building on our horizon-scanning work and understanding of how developments in the markets are shaping up and what that might mean for where the problems are.
Q First, thank you for the work that you do. You are obviously an independent body and you make difficult decisions. You receive more scrutiny than we have ever seen before, with the CMA’s higher profile, and at times that must put you under quite a lot of strain. I appreciate the work that you do. You make the decisions as you see fit, of course, but those often come with criticisms, so thank you.
My question is about innovation. If you speak to some of those who are likely to be designated SMS—strategic market status—businesses, many of them might say, “Well, this will inhibit innovation from our businesses.” I think part of that is about the power to look ahead at where this may take us. What do you say to that? If one of those platforms was opening a new type of supermarket, for example, it might be claimed that this would limit innovation. How would you respond to that?
I have a couple of points, and Will might come in. The general point is that this regime is very much pro-competition and pro-innovation, both from the major platforms, which are likely to be designated in relation to some of their activities, and across the economy. It is important that we encourage innovation that supports competing businesses, large and small. You can have innovation that supports an incumbent by allowing that incumbent to offer additional services, but sometimes at the cost of entrenching their market position. We want to ensure that we have an environment that enables those major players to continue to innovate, sparked and incentivised by the competitive pressure that they are facing, but equally allows smaller competitors to thrive and innovate too. That is the broad point.
As we have said, it is a very targeted and bespoke regime. We will be focusing only on areas where there is substantial and entrenched market power already. Therefore, the principal point is that businesses, large and small, will continue to be free to innovate and to develop their products and services. Of course we want to ensure that that happens in a way that does not reinforce positions of market power. Will, you might want to come in on that.
Will Hayter:
As Sarah says, this is all about creating a fertile environment for innovation, and you can think about that at at least three levels. First, it might be that those companies are innovating on top of the platforms that we are talking about here—in mobile ecosystems, through app stores, mobile browsers, and so on. Secondly, there are companies that are seeking to compete directly against some of the big platforms, and we want to ensure that there is a possibility that the current incumbents will be knocked off their perch by tomorrow’s innovators. Finally, increasing competition should increase the pressure on the incumbents—the most powerful firms—to innovate further themselves, in a way that delivers the greatest benefits for people, businesses and the economy.
Q Would you therefore say that those kinds of worries are ill-founded and that that is not something that would prohibit an SMS organisation from innovating?
I do not think that there is anything in the Bill that prohibits innovation. The fundamental design, and certainly the way that we would intend to operate it, is entirely pro-innovation. We want to ensure that, as the designated companies continue to seek to develop and grow their businesses—of course they will want to, and that brings many benefits—that happens in a way that does not entrench their position, which is disadvantageous either to consumers or to competing businesses. That does not inhibit innovation, but it puts some guardrails around that innovation to ensure that the impact of that is beneficial and positive.
We now come to a quick-fire round. We have six minutes left and four Members seeking to ask questions, so we want quick questions and quick answers.
Do you have the resources to take on the new powersQ ?
The short answer is yes. We are well funded in terms of our budget. We are carrying out significant recruitment, and we have a good breadth of expertise, which is particularly important to developing our digital data technology expertise. We have done a lot of that already, but it remains a key focus.
Q Do you have an in-house legal team, or will you be taking on additional lawyers, given that it has taken legal action against some companies even to get to this point?
We will have to move on, I am afraid.
I want to ask what success is and what it looks like. Is success giving my consumers greater choice and lower prices, and my businesses ensuring that the UK is an attractive place to Q invest compared with other markets? If that is the definition of success, how do you measure it both domestically, compared with what has happened in the past, and internationally, compared with other markets?
The brief answer is that in our annual plan we set out our measure of outcomes: benefits for people in terms of great choices and fair deals; benefits for businesses in terms of enabling them to compete, innovate and thrive; and benefits for the economy as a whole in terms of growing productively and sustainably. That applies across the new suite of roles, powers and responsibilities. If you are looking at outcomes for people, what is the impact on prices and choice? Can people access their data? Can they move between services more effectively? What is the impact on businesses? Can they get fair and reasonable terms when they are reliant on the infrastructure of some of these major players in order to innovate and grow? Are we seeing innovation coming from smaller businesses as well as the incumbents? When we look at the benefit for the economy as a whole, do we see the flow-through of greater competition, improving productivity and improving growth? We have our “State of UK competition” report, which reports on that, and that will continue to be an important metric.
We are taking on responsibility for an annual consumer protection study, again looking at areas of consumer concern and the impact of interventions we are taking. You mentioned international benchmarks; I think that is really important. Obviously, a lot of these issues, especially on the digital side, are international in nature. We want to see benefits in terms of changes in international trends—there is a real opportunity here for the UK to set the model for positive regulatory intervention in digital markets, and for that to be adopted by others—and real benefits for UK businesses in terms of their ability to grow and innovate, and the investment that that attracts from overseas.
Q Really quickly—will you be watching our market compared with what is happening in other markets?
You say that open, competitive markets are good for growth. I totally agree, but we are one market among a global series of markets. Building on what Vicky Ford just said, where do you see this regulatory innovation sitting? You have referenced the EU and what it is doing, and there are other things going on in the US. Will this draw investment into the UK in this sector, or will it make people say, “Hmm, I’m not sureQ ”?
Will Hayter:
You have app developers who are wanting to provide a service through these mobile ecosystems that have pent-up business—I think you are talking to one of them later—waiting to be invested in and to grow. There is also a UK-based search engine looking for opportunities to expand. Those are exactly the kind of businesses that are trying to grow and want this kind of regulatory infrastructure to create the conditions to do that.
When I go back to my constituency in Watford tonight and speak to people on the street, what can I tell them will make a difference to their lives, in the simplest termsQ ?
It is opening up choice; it is opening up access to the fullest range of services. It is enabling them to have confidence that their data will be used in an effective way and that they can move between different products and services so that they do not get locked in. When we think about the consumer side, daily we hear and see so much about consumer detriment. We are working as hard as we can to address that, but the consumer reforms will enable us to take a massive step up in terms of the impact we can deliver, the speed with which we can tackle their concern,s and the effectiveness with which we can deliver improved outcomes for people.
Q Will they see that happen, or will they need to be involved in the process to report where there are issues?
Both. On engagement, we work very much with bodies such as Which? and Citizens Advice, which I know you are hearing from shortly, so we have a lot coming in. That is really important, because when we make the choices about the work we are doing, they need to be informed directly by consumer concerns, not be something that we just think is the right thing to do. We want to deliver that visible impact.
George Lusty:
I think your constituents will see the CMA directly taking decisions. When we find that something has broken the law, they will find that we are taking direct orders to get their money back for them, and we will be imposing deterrent fines on the firms that do not do the right thing.
I thank our three stellar witnesses very much indeed for their time this morning. We wish you continued success at the CMA.