Question proposed, That the clause stand part of the Bill.

With this it will be convenient to discuss clauses 4 to 8 stand part.

We do not oppose clauses 3 to 8, on the basis that they set out what constitutes a digital activity for the purpose of part 1 of the Bill. Clause 3 is an important clause with a number of subsections that clarify the exact definitions of digital activities and provision of services. These are all critical to empowering the DMU, which, if properly supported, has the potential to be a world-leading regulator and is ultimately the critical first step in modernising our competition policy.

We can all agree that the UK has the potential to be recognised as a global leader in technology and innovation, and capitalising on that is vital to our economic growth, yet the current situation, which sees a small number of firms dominate digital markets, is reducing competition for other businesses. Ultimately, it is consumers who are paying the price in the products and services we all receive.

This clause is crucial to defining exactly which digital activity will fall under the regulation, and it is welcome. After all, Labour has been clear and has long called for measures to regulate the digital space more widely. We specifically support the clause, as it gives us all clarity on how we can define digital activity.

Subsection (3), which outlines how the regime will give the CMA the power to treat multiple digital activities carried out by a single undertaking as a single digital activity, is particularly welcome. For different activities to be grouped together, they must either have substantially the same or similar purposes—for example, a social media provider offering a number of internet services under different brands with a common function, allowing users, such as advertisers and publishers, to interact and communicate with each other; or can be carried out together to fulfil a specific purpose—for example, services and products that are part of the same supply chain, such as services selling advertisements and the provision of an advertising platform. We all know the rapid rate at which companies can develop and expand, so it is particularly welcome to see this subsection.

Subsection (4), which sets out that where the CMA is required to give or publish a notice or other document under part 1 of the Bill, it may describe the digital activity by reference to the nature of that activity, brand names, or a combination of these, is also vital to the success of the regime. We clearly support the clause, which we regard as crucial to establishing the barometers of the CMA’s regulatory powers, and we have therefore not sought to amend it at this stage.

Clause 4 sets out the ways in which a digital activity could be linked to the UK for the purposes of designation. We are pleased to see that the clause considers the number of UK users in its criteria, as we have all read the reports of tech firms threatening to leave the UK if other legislation places requirements on them in future. That is why, with regard to pro-competition law, the UK user base must be considered when it comes to implementing this regime.

Once on the statute book, the DMU will be empowered to oversee a new regulatory regime for the most powerful digital firms, promoting greater competition and innovation in these markets and protecting consumers and businesses from unfair practices. It is vital that UK-specific connections are established in the Bill. The clause is also an important opportunity to highlight the significant impact that inaction is having on our digital markets in the UK. As we know, these markets are characterised by having just a few big tech firms with entrenched market power and the ability to shape the market to the detriment of consumers and smaller businesses. The 2020 CMA market study said:

“Both Google and Facebook grew by offering better products than their rivals. However, they are now protected by such strong incumbency advantages—including network effects, economies of scale and unmatchable access to user data—that potential rivals can no longer compete on equal terms.”

The current balance of power means the big tech companies often have an unfair advantage over their competitors and dominate key markets. For example, virtually all UK smartphones run either Apple or Google operating systems. In 2018, Google had a more than 90% share of the UK search advertising market, and Meta owns 50% of the UK’s digital display advertising space. Thanks to their dominance, Apple and Google made in excess of £4 billion of profits from their mobile businesses in 2021. The CMA estimates that Facebook and Google made profits of £2.4 billion above what would be considered a fair return in the digital advertising market in 2018. On Meta’s market dominance, the CMA noted:

“Facebook’s average revenue per user in the UK has increased from less than £5 in 2011 to over £50 in 2019.”

The consequence is worse outcomes for smaller businesses and consumers. That is why we welcome the clarity in the clause and support its inclusion.

Clause 5 requires the CMA to look at the next five years when assessing whether an undertaking has substantial and entrenched market power in respect of a digital activity. Specifically, it must be satisfied that the undertaking’s market power and influence in the digital activity is neither small nor transient. Although we welcome that requirement—ultimately, none of us wants companies to be stifled to their detriment—I hope the Minister will flesh out exactly how he thinks the clause will work in practice. The CMA is clearly well placed to assess digital firms’ plans for progression and development over the next five years, but we are concerned that the clause is broadly asking the impossible, given the rate at which technological developments and expansion can occur in this space. I would therefore welcome the Minister’s assessment.

The clause further outlines that the CMA must take into account expected or foreseeable developments if it does not designate the undertaking as having strategic market status in respect of the digital activity to which the investigation relates. Again, that is the kind of welcome and balanced approach to designation that we would expect of a new regulatory regime, but will the Minister confirm how the Bill will ensure that such decisions and designations are made public so that the transparency of the regime as a whole is enhanced? It would be helpful for all of us—parliamentarians, firms, civil society bodies and stakeholders in the sector—to understand how designations are made, and transparency is central to that. I hope the Minister will address those points. We seek some assurances, but I am sure we will be happy to support the clause as it stands.

Clause 6 sets out the terms by which an undertaking has a position of strategic significance. It sets out a number of conditions, including size, scale and the role the firm plays in terms of digital activity more widely. We support the need for flexibility in the regime, so paragraphs (c) and (d) are particularly welcome. Paragraph (c) is intended to cover circumstances in which the undertaking can use its position in the digital activity to leverage or expand into a range of other activities. That is vital, because companies have to be agile to dominate a variety of markets, and they can abuse that. Paragraph (d), which is intended to cover scenarios where an undertaking’s position enables it to determine or substantially influence how other undertakings operate—in other words, to set the rules of the game—is equally important.

It would, however, be remiss of me not to highlight our slight concerns about subsection (2), which gives the Secretary of State the power to vary the conditions set out in the Bill. The success of the regime relies on scrutiny and direction from the Government, but will the Minister clarify exactly what type of scenario would require the Secretary of State of the day to vary the conditions?

As I have said, we support an agile approach to regulation. After all, even across other jurisdictions, the idea of regulation and encouraging pro-competition across our digital markets is a complex process for legislation. We wholeheartedly support the need to get this Bill on the statute book—it is something Labour has long called for—but none of us wants the regulator to be undermined or constrained by the opinions of the Secretary of State of the day, so I would appreciate some reassurance from the Minister on that point before proceeding.

Clause 7 outlines the turnover conditions that must be met for the CMA to designate an undertaking as having strategic market status in respect of a digital activity. Subsection (2) sets out that the turnover condition is met if the CMA reasonably estimates that the undertaking’s UK turnover in the relevant period exceeds £1 billion or that its global turnover in the relevant period exceeds £25 billion. We welcome the clarity that only one of these thresholds needs to be met for the turnover condition to be met and, if the undertaking is part of a group, the turnover of that pooled group should be considered, which is a matter we will come to when we debate clause 114.

I will take this opportunity to highlight the fact that while the £1 billion and £25 billion turnover figures may seem high, they show the sheer market dominance that certain firms have over our digital markets. Setting the conditions at the current rate will not act as a deterrent for growth, which, of course, none of us want to see. We particularly welcome subsection (5), which requires the CMA to keep the thresholds under review and, from time to time, to advise the Secretary of State as to whether they are still appropriate and proportionate.

It would be helpful for all of us in the room and those listening elsewhere to understand how the Minister envisions that this will work in practice. Will it be on an annual review basis, and when will we have clarity on that? Will the reviews be made public to ensure proper and appropriate scrutiny? These are small points, but given the lack of transparency around the regime as it stands, I would be grateful for the Minister’s assurances. Despite that, again, we support the clause as it stands and do not seek to amend it at this stage.

Finally—thank you for your indulgence, Dame Maria—clause 8 makes provision about the value of an undertaking’s or a group’s UK or global turnover in the relevant period for the purposes of the turnover condition. We see this as a fairly procedural clause, which outlines the definition of global turnover by which the CMA will make its decisions on designation. We note that subsection (4) gives the Secretary of State the power to make regulations providing further detail about how the total value of an undertaking’s or a group’s UK turnover or global turnover is to be estimated for the purposes of the turnover condition. Again, we feel that this could be problematic, and I would welcome the Minister’s reasoning as to why and in what instance the Secretary of State would need to make regulations to provide that further detail.

If the CMA is to be trusted to make reasonable decisions on a group’s turnover for the purposes of the turnover condition, it seems odd to give the Secretary of State the power to provide further detail when the merits or even the content of such further detail is so ambiguous. I hope the Minister can provide clarity and expand on that point. That aside, we support the clause because the turnover point is crucial for designation. The clause should remain and it should stand part of the Bill.

I briefly made mention of clause 7 in my earlier remarks. I am interested in the Minister’s view, particularly on clause 7(2)(b) and the definition of UK-related turnover being £1 billion or more. There is a legitimate question to be asked, because while that is a substantial amount of money, it is not that great in terms of global business. As I mentioned, I could foresee a situation whereby when a global undertaking’s global turnover is substantially less than £25 billion and its UK-related turnover is approaching the billion-pound mark, there might be a perverse incentive to direct investment and activity away from the United Kingdom because of that cliff-edge definition. I would love to propose a better alternative—it is above my pay grade—but I highlight that as being an issue we might need to take into account.

I will cover most of the points in my main speech, but the reasons for designation of SMS status will be published, so that will be public. I will cover the points on the Secretary of State and on turnover. Clause 3 sets out what constitutes a digital activity for the purposes of the digital markets regime. Digital activities are defined as the provision of digital content, such as software, operating systems or applications; services provided by means of the internet, such as an e-commerce platform; and any other activity carried out for the purposes of providing digital content or internet services, such as background processes.

A firm can only be designated with SMS in respect of a digital activity. The restriction to digital activities is appropriate for the new regime, which responds to the specific characteristics of digital markets, such as network effects and data consolidation, which makes them extremely fast-changing as well as prone to tip in favour of a few firms. With all of this, the definition of digital activities has been designed so that our regime will be able to handle the complexities of different and fast-evolving digital business models, and that is reflected in the powers given to the Secretary of State.

Clause 4 sets out when the DMU will be able to consider a digital activity as being linked to the UK for the purposes of designation. As we have heard, the global nature of digital markets means that business actions in other countries can impact on consumers and businesses in the UK, so it is important to allow the DMU to address harm to competition in the UK, even when all or part of a firm’s physical operations are located elsewhere.

Clause 4 will allow the DMU to do just that. The DMU will be able to designate an undertaking in respect of a digital activity, if the activity has a significant number of UK users, the undertaking carries on business in the UK in relation to the activity, or the digital activity or the way it is carried on is likely to have an immediate, substantial and foreseeable effect on trade in the UK. That is a proportionate approach, which is consistent with global practices.

Clause 5 requires the DMU to carry out a forward-looking assessment when considering whether an undertaking has substantial and entrenched market power in respect of a digital activity. The Government expect that, when considering whether a firm has substantial and entrenched market power, the DMU will consider whether a firm exercises significant influence in respect of an activity. That could be for a number of reasons, including where users of a firm’s product or service lack sufficient alternatives or there are few other suppliers. The DMU’s assessment will be evidence-based. The DMU will need to consider whether power is entrenched—that is, determining that it is not temporary and is likely to persist.

Clause 6 sets out what constitutes a position of strategic significance, which is the second of the two SMS conditions which the DMU must assess. The clause sets out the specific factors that the DMU must take into account when assessing whether a firm has a position of strategic significance. Those factors align with the challenges identified by reports such as the Furman review.

A firm has a position of strategic significance where one or more of the conditions set out in clause 6 is met. Those are: the firm has a position of significant size or scale in respect of the digital activity; a significant number of other firms use the activity in their business, such as where the firm operates an ecosystem on which others rely; the firm is able to leverage its position to expand into other activities, for example by bundling products together; and the firm’s position allows it to determine or substantially influence how other firms operate, such as by setting the rules of the game, as it were.

It is important for the regime to be capable of adapting to change, such as the discovery of new technologies or changes to business models. That is why clause 6 also gives the Secretary of State the power to amend the conditions as necessary. The affirmative resolution procedure is the appropriate mechanism for the power, as the parameters of the DMU’s power to designate firms will define the scope of the regime.

Clause 7 sets out the turnover condition. It ensures that the DMU cannot designate a firm as having SMS in a digital activity unless the DMU estimates that the firm’s, or group’s, global or UK turnover exceeds minimum thresholds. The clause also gives the Secretary of State the power to amend the turnover thresholds by regulations subject to the affirmative procedure. It ensures that only firms with a 12-month turnover of more than £1 billion in the UK or £25 billion globally are in scope of the regime.

The Minister may have explained this elsewhere, but I am wondering about the thresholds of £1 billion and £25 billion. Will those thresholds be assessed over time, because firms’ turnover and so on can change from year to year? When is the point at which assessment is made, and will the threshold change subsequently if turnover drops?

The hon. Lady makes a good point, which relates to what my hon. Friend the Member for Broadland said about fluctuation of turnover and what companies may do with their turnover. It might be a good time to tackle that.

First, the turnover of the whole corporate group needs to be considered. That approach will help to avoid complications in revenue allocation, which could result in firms avoiding investigation and designation by virtue of their corporate structure or accounting practices. The DMU will be able to consider the past two periods of 12 months, not just the more recent one when calculating turnover—that should cover fluctuations, which the hon. Member for Feltham and Heston asked about. Markets can fluctuate, and turnover is not the same as market power; it is just part of the definition. The flexibility will also reduce the likelihood of the figures being manipulated and circumvented for the purposes of the turnover threshold.

Importantly, the use of the turnover thresholds will provide certainty to the vast majority of firms that they cannot be in scope of the regime, as they will easily be able to determine that their turnover is below the thresholds. However, if a firm meets the turnover threshold that does not necessarily mean that it will be subject to an investigation. The DMU will also need to have reasonable grounds to consider that the firm meets the two SMS conditions in respect of a digital activity that is linked to the UK—that is, that it has substantial and entrenched market power, and a position of strategic significance in respect of that activity.

Clause 7 will give power to the Secretary of State to amend those thresholds. That will ensure that they remain relevant as digital markets develop, evolve and grow over time. The DMU will be required to keep the thresholds under review and advise the Secretary of State whether they are still appropriate. The Government anticipate that the DMU may take into account factors such as inflation and currency fluctuation when doing so, using its expertise and while having its finger on the pulse of digital markets. As was the case for clause 6, the affirmative resolution procedure is the appropriate mechanism, as this is a significant power that would alter the scope of the regime.

Clause 8 relates to the turnover condition and sets out further details about the meaning of global and UK turnover. Any activity of the firm will be considered when estimating global turnover. Both digital and non-digital activities will be considered, making it easier for firms to know whether they are in scope without having to distinguish between different types of activity.

For UK turnover, any activity of the firm will be considered, but the turnover must relate to UK users or UK customers. The clause also gives the Secretary of State the power to make provision about how turnover should be estimated, including provision about amounts that should or should not be regarded as comprising turnover. That level of detail would not be suitable for primary legislation. We believe a negative procedure is most appropriate because of the technical and non-controversial nature of any regulations.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clauses 4 to 8 ordered to stand part of the Bill.