I beg to move amendment 55, in clause 2, page 2, line 25, at end insert—

“(5) An SMS investigation in subsection (4) may take account of analysis undertaken by the CMA, on similar issues, that has been the subject of public consultation, within the five years prior to Royal Assent of this Act.”

This amendment and Amendments 56 and 57 ensure that the CMA is able to draw upon analysis and consultations that took place before the passing of this Act.

With this it will be convenient to discuss the following:

Amendment 56, in clause 13, page 7, line 18, at end insert—

“(3) Consultation on matters relevant to a decision under section 14(1) undertaken before this Act is passed is as effective for the purposes of subsection (1) as consultation undertaken after it is passed, unless the CMA considers that there has been a material change of circumstances.”

See statement for Amendment 55.

Amendment 57, in clause 47, page 26, line 10, at end insert—

“(3) Consultation on matters relevant to a decision under section 14(1) undertaken before this Act is passed is as effective for the purposes of subsection (1) as consultation undertaken after it is passed, unless the CMA considers that there has been a material change of circumstances.”

See statement for Amendment 55.

With your permission, Dame Maria, I will make some general points about clause 2 before turning to the amendments. Clause 2 gives the CMA the power to designate undertakings, as defined in clause 115, as having strategic market status in respect of a digital activity. Of course, only those undertakings designated with SMS will be subject to the digital markets regime.

The clause is vital in establishing the CMA’s new functions that will allow it to regulate digital markets. We welcome efforts to put the previously established digital markets unit on a statutory footing, and we see it as a key step in establishing the CMA’s responsibility for overseeing digital businesses of a certain size and status operating in the UK. As colleagues will note, this part of the Bill is seen by many as the UK’s version of the EU Digital Markets Act as it has many similarities to it. For an undertaking to be designated as having SMS, the following conditions need to be met: the undertaking carries out a digital activity, which means either providing an internet service or digital content; that digital activity is linked to the UK; and the undertaking must have substantial and entrenched market power. The latter condition requires the CMA to look five years ahead and imagine future developments. The undertaking must also have a position of strategic significance in that it generates £25 billion in global turnover or £1 billion turnover in the UK.

We see those as sensible barometers for SMS status, but I want to take this brief opportunity to press the Minister further on the CMA’s ability to look to the future. He will know—and, I am sure, agree—that the sectors we seek to regulate are often incredibly fast moving. We will debate this further shortly in clause 5, but I would be grateful for the Minister’s thoughts on this particular point, especially around his assessment of the CMA’s capacity and ability to essentially predict how changes across industries will emerge.

Amendments 55 to 57 would ensure that the CMA would be able to draw on analysis and consultations that took place before the passing of this Act. The amendments are critical to ensuring that the CMA is able to draw on the work that it did in shadow form once the Bill lands on the statute books. We cannot risk further delay to implementing this regime when we already know that the lack of competition regulation is having a significant impact on both consumers and businesses.

Last week we heard evidence from Professor Myers, who is a visiting professor in practice at the London School of Economics and Political Science. He had some interesting comments to make on the timeline for the Bill so far which I feel are worth reiterating here. Professor Myers said that

“this legislation has taken a while to come to fruition. At one point the UK looked like it was going to legislate before the European Union, but the CMA has done a lot of preparatory work, and I am sure that it recognises that it needs to hit the ground running as soon as this legislation is passed.”––[Official Report, Digital Markets, Competition and Consumers Public Bill Committee, 13 June 2023; c. 46, Q72.]

That is why the amendments are so important, because they would allow the CMA to reflect on the lessons learned in the various consultations and analysis that it has already undertaken. I hope the Minister can see that these simple amendments would make sense for all involved.

Before we proceed, I note that the shadow Minister has efficiently covered clause 2 stand part, so perhaps the Minister could also do so in his response, in the interests of time.

Amendments 55 to 57 relate to ensuring that the DMU will be able to use, in its digital markets investigation, evidence that was gathered and consultations that were undertaken before the Bill becomes an Act. I am grateful for the opportunity to explain this really important aspect of the regime.

To provide some context, clause 2 will give the DMU the power to designate undertakings with strategic market status with regard to a specific digital activity. It sets out that, to designate a firm with SMS in respect of a digital activity, the DMU will need to be satisfied that a number of conditions detailed in clauses 3 to 8 are met. SMS designation is the gateway into the digital markets regime. Only the very small number of firms that are designated will be subject to the rules of the regime. The DMU will only be able to designate a firm following an evidence-based SMS investigation, which must include a public consultation that allows the firm itself and wider stakeholders to provide input on the designation decision. I explained earlier that I would use “firm” and “undertaking” interchangeably. Accordingly, when I say a “firm with SMS” or an “SMS firm”, that is the same thing as a “designated undertaking”.

Turning to amendment 55, I strongly support the point that the CMA should not have to repeat work that it has already done. It is for the DMU to decide what is and is not relevant analysis to its investigations, and it should be able to draw on insight from previous analysis or consultations when carrying out an SMS investigation where it is appropriate and lawful to do so. I am happy to confirm that the Bill does not prevent the DMU from doing that, provided that it acts in accordance with general public law principles, which would, for example, require it to ensure that evidence remained relevant. As such, I do not believe this amendment is necessary to ensure the DMU can reflect its existing evidence, understanding and expertise in its designation investigations. Further, the amendment could restrict the DMU’s ability to draw on analysis that had not been the subject of consultation, even if the DMU considered that analysis to be relevant to an investigation.

Amendments 56 and 57 relate specifically to consultations on proposed decisions as part of the DMU’s SMS and pro-competition intervention investigations respectively. The DMU can launch PCI investigations into suspected adverse effects on competition. We will return to PCIs when debating the clauses in chapter 4.

Consultation is a fundamental feature of the regime. It ensures that the decisions are based on the best available evidence and that the regime is transparent. For SMS and PCI investigations, the DMU must consult on the specific decisions that it intends to take at the end of its investigation. That will ensure that all relevant parties have an opportunity to feed in views and perspectives on what the DMU is proposing on the decision at hand, not simply on the general operation of the market.

As I have highlighted, it is absolutely right that the DMU will be able to draw on broader knowledge during the course of its investigations, but it should not be able to do away with the consultations entirely. The consultations are a necessary part of the procedural safeguards that ensure good decision making. I know that the Coalition for App Fairness said that it would raise that in its evidence. I am grateful for its evidence. I totally agree with it that the consumer should not start with a blank piece of paper, but I do not think that it is necessary to amend the Bill in order to be able to be able to use that existing analysis where it is there.

I will now turn to clause 2, which will give the DMU the power to designate undertakings with SMS with regard to a specific digital activity. To do that, the DMU will need to be satisfied that a number of conditions are met. The concept of “digital activities” is detailed in clause 3. To be in scope of the regime, the turnover condition must be met. That is explained in clauses 7 and 8.

The DMU must also consider that the digital activity is linked to the UK, and that the undertakings meet the SMS conditions in respect of the digital activity. That is to say that the firm has, in respect of the digital activity, substantial and entrenched market power, and a position of strategic significance.

It is a pleasure to serve under your chairmanship, Dame Maria. I will deal first with whether clause 2 should stand part of the Bill. It is of course axiomatic. Right at the heart of the purpose of the Bill is the designation of undertaking. Importantly, it references clause 7, which deals with the turnover of an undertaking. I am looking forward to what the Minister has to say about clause 7, particularly with reference to the levels of revenue or turnover for an undertaking. The Minister has given definitions for “undertaking” and “firm”. I look forward to his further comments about those definitions, particularly when it comes to the classification of worldwide turnover and the revenue being undertaken within the United Kingdom. I am straying slightly into clause 7, but because there is reference to it in clause 2, I hope that is acceptable.

I am just flagging that there may be consideration under clause 7 as to the possibility of the manipulation of turnover where there is a global undertaking with global turnover of less than £25 billion, but where the turnover associated with the United Kingdom is approaching the £1 billion mark. It is foreseeable that we could start to have economically significant manipulation associated with the definition of turnover—I flag that because it is referred to in clause 2. Of course, the main body of clause 2 is right at the heart of the Bill. I welcome the constructive opening comments from the hon. Member for Pontypridd, and I look forward to engaging with her and the other Members of the Committee on that basis over the coming days and, I am afraid to say, probably weeks. [Laughter.]

I turn to amendment 55. This Bill is already hundreds of pages long, and it was often noted in my former career at the Bar that legislation gets longer and longer as it seeks to become more and more specific. However, there is a risk with seeking to list all the elements that we wish to cover. By having a list, we encourage exemptions and the seeking out of elements that are not quite on the list. Through that mechanism, undertakings can avoid the intention while complying with the letter. In my submission, the approach taken by the Government in the current drafting of clause 2 is the right one, because, as the Minister has already mentioned, it gives the DMU the wide scope it needs to take account of work that has already been done without constraining it by having a specific list, as amendment 55 would require. Proposed subsection (5), which the amendment would insert, says that an SMS investigation

“may take account of analysis undertaken by the CMA, on similar issues, that has been the subject of public consultation, within the five years prior to Royal Assent of this Act.”

Who could object to that? However, the Minister made the point that it is already encompassed within the powers of the DMU under the current drafting of the Bill. If we say that this is specifically included in the body of text, it prompts the question: what if someone is just outside that but would otherwise properly be within the consideration of the DMU? It raises arguments that will be explored via litigation, particularly by organisations that have substantial turnover and considerable economic interests to defend, as we heard in oral evidence over the past week.

The last thing we want is to have legislation that invites clarification by the courts. Although I and the Minister are very sympathetic to the intentions behind amendment 55, I fear that it might have the unintended consequence of increasing the chances of prolonged litigation as we seek to explore what exactly is and is not within scope of the DMU. For that reason, I do not support the amendment.

I welcome the comments from the hon. Gentleman and the Minister, but we would like to press the amendment.

Question put, That the amendment be made.

The Committee divided: Ayes 6, Noes 8.

Question accordingly negatived.

Clause 2 ordered to stand part of the Bill.