Digital Markets, Competition and Consumers Bill (Third sitting)
Thursday 15th June 2023
(11 months ago)
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The Chair
Good morning. We are sitting in public and the proceedings are being broadcast. We have Mr Ross with us; thank you for your kind attendance. Will you introduce yourself to the Committee for the record, please?
Neil Ross: Yes. My name is Neil Ross. I am associate director for policy at techUK, which is a trade association that represents about 1,000 technology companies that operate in the UK.
Alex Davies-Jones (Pontypridd) (Lab)
Q
Neil Ross: As you rightly said, techUK represents the wide breadth of the tech sector. Our members fall broadly into three categories: the likely strategic market status or SMS firms, which will be regulated; their immediate challengers, which stand to benefit the most from the Bill and which I think you will hear from later; and a third group, the wider tech sector, which sees the benefits of the Bill but is perhaps not engaging as deeply as others.
The Bill sets up a structure and confers on the digital markets unit powers to boost competition in digital markets. The way those powers are set out is sound, but how they are exercised is something that happens after the legislation has passed. Ultimately, whether the Bill results in a positive regime depends on a number of things: how the regime has its priorities set; how it is held accountable by this House and by Government; how proportionate the regime is, in terms of when guidance is consulted on and who is engaged with after the scheme is up and running; and how we ensure that the checks and balances in the regime—such as the appeal standard—work for the Bill.
Alex Davies-Jones
Q
Neil Ross: The key thing that the digital markets unit will have to do is to ensure that it is actually consulting those companies and engaging with them throughout the process. At the moment, the rules for how the digital markets unit will consult are not set out in legislation—the Bill just gives a duty to consult, and subsequently the digital markets unit will issue guidance on how it will do that—but, ultimately, we want to ensure that those companies are involved at pretty much every single stage of the discussion and that they are able to submit evidence privately to engage with the DMU informally. Competition regulation often uses requests for information, which can be quite heavy-handed tools to extract information from firms, but we think that the DMU will have to come up with a much more sophisticated way of doing its stakeholder engagement, which is likely to involve a blend of panels, stakeholder engagement and those RFIs, to make sure that it does not overburden smaller and challenger firms, which will want to feed in but will be cautious about going through the legal mechanisms.
Alex Davies-Jones
Q
Neil Ross: We have seen this throughout the process of consultation on the Bill and in submitting evidence to the Committee. We have found that smaller and challenger firms, which often have very tight commercial relationships with the larger companies and often rely on and benefit from them for scale and various things, are very sensitive about what they can and cannot submit. The Bill says very little about confidentiality requirements, so the DMU will have to set out in a lot of detail how that is going to work. We really encourage it to ensure that it consults those firms closely, to make sure that there are clear guardrails around what confidentiality marks are put on evidence that is submitted, what could be shared in summaries, and so on. That is going to be absolutely critical to make sure that the DMU can actually gather the information it needs to do its job.
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
Q
Neil Ross: There is a risk of that, so we have put forward a position that aligns with what the Government want, which is an appeal standard that is principally based on judicial review principles, but has the flexibility to consider the different requirements of the case. Both techUK and the Government have pointed to the standard used by Ofcom as one that would be suitable in this case. The issue is that we are not sure that with the way the Government are applying the standard in the Bill, it will actually meet that test. As far as I understand it, the Government have set out a legal position that the appeal standard will be flexible because the Competition Appeal Tribunal will be able to look at human rights law, as well as private property rights, to consider how that standard will flex. We have tested that legal argument very widely with members—in-house legal counsel as well as other lawyers—and, to be blunt, a very limited number of people share that view.
Ultimately, what we want to do is work with the Government to see where we can go further to provide additional clarity on how that appeal standard would work—what the flex would look like. Ultimately, the standard will have to principally sit in JR principles, but have that flex higher up.
The point you made about speed is also hugely important. We set out a position saying we would like to see a standard that makes sure that any appeals are limited to about six months in length, because these are very fast-moving markets. If the standard means that things are bogged down, you know that the market might move on and the benefits might not be conferred across. We understand why hard limits might not be possible as part of the regime, but you could take steps in the Bill to try to encourage the courts to move a bit quicker, especially in more dynamic or high-impact cases.
Kevin Hollinrake
Q
Neil Ross: Yes.
Kevin Hollinrake
Q
Neil Ross: It is a concern that has been raised. There is nothing in the legislation that would mean that that was what happened. It is going to rely much more on how the digital markets unit itself exercises its powers. I think that if we can make sure that the regime is proportionate, is accountable to Parliament and has a pro-innovation focus, we can get over that. But it could happen. It is just that it is much more dependent on the subsequent guidance and the role that the DMU itself plays.
Kevin Hollinrake
Q
Neil Ross: If the digital markets unit, as I think the Government and the CMA intend, is focusing on a small number of firms with very significant market share in a select number of markets, then yes, that will be the case. However, some concerns have been brought by other companies, which are perhaps leading in their market but would not consider themselves as having a strategic position or causing serious consumer harms and which look at the Bill and think, “At its widest possible scope, I could be included.” That is why we have to make sure that, in exercising the powers, the regime is being held to account.
The Chair
Mr Ross, we will now have a quickfire round, because we have you for only another five minutes and there are three Members seeking to ask questions. It will be one question each and one answer each.
Jerome Mayhew (Broadland) (Con)
Q
Neil Ross: We put out a position paper ahead of the Bill being published and we did not argue in favour of full merits; we argued in favour of what is often referred to as a judicial review-plus system, which is a blended system that gives a bit more flexibility for the CAT to decide what factors to take into account.
Jerome Mayhew
Q
Neil Ross: I am not 100% sure of exactly how it would work in practice. We are just reporting back that what our members are really keen to see happen is that they move forward at speed. There is a lot of debate about exactly how you speed up that process, and we are pretty open to what solutions might be brought forward.
Jerome Mayhew
Q
Neil Ross: Yes, absolutely.
Jerome Mayhew
Q
Neil Ross: I think there is a balance to be struck depending on what the case is and what is being discussed. Ultimately, the aim would be speed and flexibility. There are going to be trade-offs between the two, depending on what is happening. We want to give the CAT as much discretion as it needs to make that judgment, depending on what is being put before it. Because this regime has enormously flexible and very invasive powers at the upper end, we do not know exactly what kind of cases are likely to be brought forward or discussed. That is why we will want that focus on flexibility as well as speed.
Andy Carter (Warrington South) (Con)
Q
Neil Ross: Yes. Sorry to repeat points I have made before. I think it depends on exactly how the DMU exercises the power. They have to look ahead five years when making an SMS designation, which puts a lot of pressure on the digital markets unit to make an assessment about how a market is going to be used.
Andy Carter
Q
Neil Ross: It is as much as five years; it could be longer. It is really how the digital markets unit looks at that. Companies in the broader sector would be given a lot of certainty if the DMU came out fairly early on and set up a priority list of where it is likely to look first. There is quite a good precedent in the Communications Act 2003 of the reporting powers conferred on Ofcom. I know the CMA has some reporting capabilities, but given the wide-reaching powers of the Bill, it might make sense to also think about applying the same standards to the digital markets unit.
Vicky Ford (Chelmsford) (Con)
Q
Neil Ross: With this Parliament, the CMA is here quite a lot and so are the other regulators, so there is regular scrutiny of the regulators themselves. As the various different Bills go forward, whether that is the Online Safety Bill, the Digital Markets, Competition and Consumers Bill or the Data Protection and Digital Information (No. 2) Bill, we might have to think again about exactly how we are scrutinising those interrelated bits of digital regulation. That is a decision for this House and how you want a change of structures. It would be important to make sure—
Vicky Ford
Q
Neil Ross: That is certainly one example to look at. I know a number of people in this House are actively thinking about that, given the loss of those Committees following the referendum.
Vicky Ford
Q
Neil Ross: Not really. I do not think we would necessarily go so far as to advise Parliament on how to set up a Committee structure.
Vicky Ford
Q
Neil Ross: They certainly do, and we can get back to you on that if that is something you wanted in more detail.
The Chair
Mr Ross, you have been a complete star. Thank you very much indeed for your time.
Examination of Witnesses
Gene Burrus and Tom Smith gave evidence
The Chair
We move on to the next panel. Gene Burrus is coming in by Zoom. Tom Smith is in the room with us. Mr Burrus, please introduce yourself to the Committee briefly.
Gene Burrus: My name is Gene Burrus and I am here on behalf of the Coalition for App Fairness, which is a coalition of mobile app developers numbering over 70 at this point, from the UK, the US, the EU and around the world. I have been a competition lawyer for 30 years and have worked for the last two decades in dominant digital platforms, with time at Microsoft, Spotify and now in private practice.
The Chair
You sound dangerously overqualified. Mr Smith.
Tom Smith: I am a competition lawyer and have been for 17 years. I most recently spent seven years as legal director at the CMA, including working on the digital markets taskforce that recommended these proposals. Two years ago, I went into private practice and launched the London office of a competition boutique firm called Geradin Partners. I advise a lot of companies on competition and digital regulation.
Alex Davies-Jones
Q
Gene Burrus: If properly enforced, I think this Bill will break the distribution monopoly that currently exists with respect to mobile devices. Currently, app developers have no choice but to use the existing app stores of the dominant firms, Apple and Google, if they want to get their products to consumers. This Bill holds the promise that that monopoly will be broken, so that if the fees are too high in any given instance or for a particular developer, they will have other options and other ways to get their products to consumers. We think it is a great step forward. It is a problem that has been recognised around the world and various approaches have been tried to get at that problem. This gives the DMU the flexibility to both develop bespoke solutions to this problem, as well as the ability to future-proof what is going on, which will take us a great deal forward on avoiding that specific problem and, I think, the broader problems that come with the distribution monopoly that exists.
Alex Davies-Jones
Q
Tom Smith: From my point of view, the Bill is very well drafted indeed. It gets it exactly right; I think a lot of careful thought has gone into it. It is really a very modest approach. The CMA cannot do anything at all unless it can prove its case to a high standard, which can withstand the appeals in court, but the Bill gives the CMA the right amount of discretion. There is a list of categories, for example, in clause 20, which gives it enough discretion without giving it unbounded discretion to roam over the strategic market status firms’ wider groups, for example.
Alex Davies-Jones
Q
Tom Smith: It is a concern with existing competition law, and that is why this Bill is needed. The Bill as currently drafted is exactly right. For example, the judicial review standard is the right one. It is the well-established standard for UK regulators. It is the standard used for the CMA’s market investigations, for example, which has the exact same legal test as the pro-competitive interventions under this Bill. It would be quite strange to have a different standard. By definition, one party may not like the outcome of a given decision, but everyone benefits if there is a prompt outcome, because everyone can get on with running their businesses rather than fighting in court.
The best example of fighting in court forever is the Google Shopping case in Brussels. That was started by a complaint from a UK company, Foundem, back in 2009. Unbelievably, it is still going through the courts now. Foundem has long since stopped operating, so whatever the outcome in the courts, it is not really going to benefit them. This Bill will enable the DMU to intervene before harm materialises, so that businesses do not go out of business so quickly.
Alex Davies-Jones
Q
Gene Burrus: I think the opposite is actually true. We will see immediate benefits in terms of costs to consumers, when the taxes that the dominant players are able to extract are eliminated. We will see immediate benefits in terms of innovations and features that can appear in apps that right now are being prohibited by the dominant platforms. Those things can appear immediately.
Longer term, too, the opportunity to truly unleash innovation on mobile devices is key. We are in a place in history much like we were in the late 1990s when one company owned access to the internet. As mobile devices have taken over as the way consumers access the internet, we are now in a similar position where two firms manage access to the internet. Just as intervention with Microsoft 25 years ago led to the explosion of firms just like Apple and Google that could reliably build their businesses on PC computers, we will see firms able to reliably build their businesses on mobile devices. The long-term unleashing of innovation will be key here.
Kevin Hollinrake
Q
Gene Burrus: I am not sure that those concerns are really valid. There is a consultation process in place. I agree with the prior witness that it is important for third-party input to be part of that process with the DMU, so it can fully understand what it is implementing and the ways in which it is doing that. We have seen problems emerge in the past in competition law cases with respect to trying to craft orders without sufficient input from industry, and those have fallen on the rocks as being ineffective or unwise. We saw that, for instance, when the European Commission attempted to settle cases with Google long ago. They would reach a settlement, then finally market test that settlement that they thought was great, and industry would pan it. I think that is why, with sufficient third-party input into the process with the DMU, those concerns can be addressed
Kevin Hollinrake
Q
Gene Burrus: Quite the opposite. I think it will drive their innovation as well. Right now they are in a position where they are not often faced with competitive constraints with respect to innovating on things such as the privacy and security of their app stores and features that they need to put out. Or, when they self-reference their own products, sometimes that means that they do not have to make the best product; they just have to make the product that they can ensure users will get whether they want it or not.
The Bill will not only unleash innovation for third parties, but force the SMS firms to innovate more in order to keep up. I think history proves that is true. I will go back again to that point in time 25 years ago. Even with all the constraints that were put on Microsoft, nothing has prevented it from innovating. In fact, Microsoft is still a great innovative company today.
Kevin Hollinrake
Q
Tom Smith: May I add something quickly on the JR-plus proposal? I think it is strange to come up with a whole new appeal standard when we have perfectly good ones already. Also, the JR-plus standard came in, as far as I understand it, to comply with an EU telecoms directive. It is strange in this period in our country’s history to start putting that standard in place again. The direction of travel is in fact the opposite—to go from merits to JR—and another place in the Bill actually does that. It is the same for Ofcom; that went from merits to JR in the Digital Economy Act. I really do not see the JR-plus standard working.
Also, it is all very well putting a deadline on an appeal, but you need to explain how you will complete the process in that time. It will not work if you just put a deadline on it, then expect everyone to do 18 months’ work in six months. I think you need to explain how on earth that would work, because I do not see it working.
Andy Carter
Q
Gene Burrus: I think that ignores and rewrites the history of how these platforms got to be as powerful as they are today. If you go back in time to 2008, for example, when there was intense competition among mobile platforms to be your phone, right? There were dozens of firms that you barely know exist any more, like Blackberry, like Nokia, like Microsoft. There were lots of firms competing in that space. And the game then was actually to be as attractive as possible to developers, to the point where those platforms were paying developers to be on their platform, because they were going to recoup that investment through the sale—in Apple’s case—of very expensive mobile devices. And that is where they have recouped—handsomely recouped. It is probably the best business in human history, actually. It is only after they gained a degree of market power that they then began to use that power to try to flip the game and try to extract. Once they had developers in a place where they could not leave, that is when they attempted to go and extract those rents from developers.
I think that argument is a false argument. Apple has recouped its investment in these markets through the sale of very expensive hardware, and Google has recouped its investment in Android through billions and billions of dollars in ad revenue that it has continued to generate. The recoupment argument is a false one, I think.
Andy Carter
Q
Gene Burrus: Yes. I think the reason we are at this place today in the UK and why the European Union has come to a place in seeking to ex ante regulate these markets, and why even the US is considering it, although unfortunately quite slowly, is because of the speed that these markets move and the reality we have experienced in the past that often the competition cases against these dominant digital firms end up being an archaeological dig for the dead bodies and bones of the companies that did not survive long enough to see the outcome of the cases.
It is also the case that continuing to flout the law is extremely profitable for these dominant digital platforms; there almost is not an ex post fine that is large enough to deter them from engaging in the conduct going forward. The ability to find a way to quickly impose the codes of conduct means that, first, it is of benefit to the companies that are actually being harmed today and, secondly, tit will bring certainty to the market in a way that allows firms to reliably make investments based on those codes of conduct, instead of where we are today, where there are probably lots of firms that are declining even to start on mobile devices today because they know that they might not be able to recoup their investment, even though they have great innovative ideas for products that they know people would love. They also know that, absent action, it is likely that all of their investments might eventually just flow to the dominant players.
Andy Carter
Q
Tom Smith: I think a lot of major economies are in the same place and moving forward in the same direction anyway. There are rulings against Google in India. There is app store legislation already in force in Korea. The Netherlands has a ruling against Apple’s app store. Australia is proposing a very similar regime to this one. There are lots of proposals, obviously, in America. Germany already has its regime in place and in force, as does the EU. There is a major benefit to all the major economies moving forward together because these are global issues.
As for deterring investment, I would say that monopolies do not stimulate innovation, competition does. That is the whole point of the Bill—to open up competition and get rid of artificial restrictions. When Apple bans alternative app stores on its devices, it is just holding the market to itself. If the DMU removes that ban, new app stores can come in and innovate. Maybe they will offer a better service than Apple; maybe they will not, and people can stick with Apple and Apple can make lots of money. That is great if it has a better product, but currently it is not being challenged.
Vicky Ford
Q
Gene Burrus: The problem bothering a great number of our members is the forcing of the use of an in-app payment system that comes along with a 30% tax on any apps that sell what are called “digital goods” from within their app. If it is a digital subscription for a gaming app, for a news app or for music streaming, that comes along with a 30% charge. Those digital platforms did not contribute anything to those products; they simply take it off the top.
Ten years ago, the game was the opposite. People were actually paying those developers to come on to the platforms. To some degree, it has been a bit of a bait and switch for these platforms. When they were facing competition, they had one business model and, once they achieved dominance, they altered their business model to try to extract those rents. Making the bet with that 30% is probably one of the best examples of that.
Vicky Ford
Q
Gene Burrus: In 2008, it was zero, and the 30% probably came in about 2012. Once the markets settled down and it was clear that there were two phone platforms to be had, that is when Apple began to try to extract that.
Tom Smith: We focus on the app store stuff, but there is potential at other SMS firms. There are a lot of allegations about Amazon’s fees going up over time for small sellers, for example, and them being pushed into buying Amazon’s logistics operations, which are said to be expensive. The DMU can go and investigate whether they are expensive and whether they should be freed up to competition more. The CMA published a very good market study report on Google’s advertising businesses. It was 2,000 pages long and detailed the excessive profits made. Google charges 30% to 40% more than Bing to reach the exact same eyeballs. Those prices are going up.
Jerome Mayhew
Q
Tom Smith: You may have seen yesterday that the European Commission is threatening to break up Google in the ad-tech business. The European Commission is formally alleging that Google is abusing its dominant position in ad tech. That is on the display side of the business. On the search side, Google has a 90%-plus market share in this country. It is a must-have product, and people are buying that product. There are lots of allegations about why it should be able to sustain such prices, but I do not want to make an unfounded allegation.
Kevin Hollinrake
Q
Tom Smith: No, I do not think so. In fact, one of the problems with subscriptions that are operated through mobile devices is that Apple inserts itself and Google inserts itself in between the developer and the customer. If you are a British person who subscribes to an app and then something goes wrong or you want to cancel your subscription, quite naturally you might want to contact the developer, such as Tinder or whatever other developer—you are talking to Mr Buse later. At that point the developer has to say, “I’m terribly sorry; you might think you are dealing with us, but you have a contract with Apple,” and that is a major source of complaints. It is pretty confusing for consumers.
Kevin Hollinrake
Q
Tom Smith: No, it is nowhere in the legislation. The idea that the CMA wants to stop SMS firms innovating is not based in any evidence that I can see anywhere. There is a leveraging principle in clause 20, which is extremely narrowly written and I think should be made slightly wider, but that is the only thing that could touch a non-SMS activity.
The Chair
I thank our witnesses for their evidence. If there are no further questions, we will move on to the next panel.
Examination of Witnesses
Tom Fish, Richard Stables and Mark Buse gave evidence.
The Chair
We will now hear oral evidence from Tom Fish, head of public policy and research at Gener8; Richard Stables, CEO of Kelkoo; and Mark Buse, senior vice president for global government relations and policy at the Match Group. Will you introduce yourselves for the record, please?
Mark Buse: I am Mark Buse, SVP for global Government affairs and policy at Match Group.
Richard Stables: I am Richard Stables, CEO of Kelkoo Group. I have been with Kelkoo for 14 years.
Tom Fish: I am Tom Fish, head of public policy and research at Gener8.
Alex Davies-Jones
Q
Richard Stables: I can jump in. Just to give you a little bit of background, Kelkoo was a shopping price comparison site—an internet darling. It started in ’99 and grew to be probably the most popular shopping comparison site in Europe, especially in the UK. Our industry and our company was decimated by the actions of Google, who decided to put themselves at the top of Google and remove the likes of us from the listings and put us on page 10 or page 20, which is pretty much in the wilderness. Why do you care? There are two big reasons. If you are a consumer, you want to see prices, and you want to see prices of lots of goods from lots of merchants.
I am a tennis player, and I want to buy a tennis racket. I am interested in what the cheapest tennis racket is, because I know that I am going to buy a Babolat or a HEAD racket. I want to see 30 to 40 merchants side-by-side, and I want to look at availability, brand and price. If I cannot see that, I am being hurt. I am not seeing the best price. With Google at the moment, you see 10 or 12 merchants. You do not see the entire industry. You can scroll to the right and see more, but what you see are the merchants that can afford to be on Google and pay the most to be in there at the top left. That is reason No. 1: you are seeing less prices.
As for the second, Google has created a complete monopoly on traffic. If I am a merchant or retailer, the only place I am going to get traffic from digitally is through Google. If I am only getting it from one place, I am basically in a monopoly. As we know, with a monopoly you are paying probably 25% to 30% more for the prices. What if I am a retailer in a cut-throat situation? What am I going to do with that price? I am going to pass it on to the likes of you and I. We are all paying a much higher mark-up to pay Google’s execs and Google for the massive amounts of money they extract from the UK economy. That is how consumers are hurt by not having proper competition in digital markets.
Alex Davies-Jones
Q
Richard Stables: I think the Bill is well written, well founded and I would not change it. The abuse started way back—according to the Commission’s shopping decision, in 2008. The first complaint came in 2009. It came from a company that we now own, Ciao, which has now disappeared, along with LeGuide, which is now part of our company. We basically have been in a fight with Google since 2010, when the investigation started with the Commission. In 2017, it made a decision and fined Google £2.4 billion. We are still in legal uncertainty, because Google has gone to a court of first instance and lost and has now gone to the European Court of Justice. That is why a merits appeal is absolutely loved by big tech. They want to delay, delay, delay—to kick the can down the road.
If there is one thing I would say to you guys today, it would be: do not move from JR. If you move from JR, you might as well go home. For businesses like mine, if we had had the Bill 10 or 12 years ago, the CMA could have looked at what happened and said, “You know what, we will do this in an ex ante fashion. We think there is a problem here. We will go and investigate. We know there is an issue, so let’s change it.” We have been going for 13 and a half years and we still do not have legal certainty because of the problem with ex post. That is the problem with antitrust regulation in digital, where markets move so quickly, so you are absolutely right. There will be a really vibrant market for price comparison today, but it would have been great for consumers if we had this legislation 10 or 15 years ago.
Alex Davies-Jones
Q
Richard Stables: I think it is long overdue. Governments in America, Europe and the UK have, frankly, been asleep at the wheel for the last 20 years in terms of big tech. There is a worldwide movement, and everybody recognises that there is a huge problem. They realise that you need ex ante regulation in digital. You have the Digital Markets Act in Europe, and this Bill is well founded, well thought through. From discussions I have had, it seems to be really well supported from both sides of the House. I implore you guys to pass it quickly.
Alex Davies-Jones
Q
Mark Buse: We believe the Bill has the flexibility to be future-proofed. When we look at how our users access our services, it is almost exclusively via an app. Desktop has no role. You can use our products, such as Tinder, cheaper if you go to the website and download it, but nobody does. The user behaviour is that they all use apps. Our fastest growing brand in the UK is called Hinge; Hinge does not even have a website. It was not worth the time or money to build one, because nobody uses it.
When I say nobody, I mean that less than 1% of Tinder’s users go to the website. That is also partially because Apple and Google have restrictions that they impose on us contractually. They do not allow us to tell our users that they can subscribe cheaper if they go to the website. In an ideal world—we think the Bill will go a long way in creating an open market—somebody who wants to subscribe to our product will have those options right there in front of them. They will be able to subscribe using our service, PayPal, or whatever else is available, and get it cheaper.
Apple, Google or big tech say, “This is all a myth. You are not going to have cheaper products”. Match has stated emphatically and publicly that we will drop our prices if we do not have to pay an artificially imposed 30%, which is what occurs today. We will drop our prices. We have also pledged that we will put more money into research and development, the hiring of employees and online safety, which we believe is crucial. By the way, the monopoly power that both Apple and Google exert over the store hinders online safety. That also has a negative pejorative impact on consumers today.
The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)
Q
Mark Buse: Sure. There are a couple of issues when we look at safety. One is keeping bad actors off our platforms—for example, entities or individuals who intend to do harm. Another is under-age users; they do not intend any harm, but our platform is limited to 18 and over only. We do not allow people under the age of 18. We do not want them there and our users do not want them there. In both cases, we have a limited pot of data to try to assess whether somebody is a bad actor or under age. There is a lot of data that exists that could inform us about that. I am going to use this little device—my phone—when I fly home on Saturday as my boarding pass. I am going to pay my bills on it. I am incentivised to put truthful information into my phone, which is the most powerful computer that most people own. I use it for a multitude of services.
For us, 98% of our revenue is from subscriptions; ads have virtually no impact. When you look at our companies, when somebody subscribes to Tinder, we do not know who they are, because they do not actually have a subscription with us. That also has a pejorative consumer impact. Consumers cancel their subscriptions for perfectly good reasons, such as, “I have a three-month Tinder subscription and I met the love of my life. Neither of us want me on Tinder any more, so I am cancelling my subscription”.
As the consumer, I go to Tinder and say, “I have a Tinder subscription that I want to cancel. Tinder, cancel it”. We have to inform them, “You don’t actually have a subscription with us. You have a subscription with Apple or Google”, who artificially put themselves in the middle of this situation because they can—because they have a monopoly and they can demand and force it. As a result, they know who I am. They have my credit card and real address—all those identifiers that we could use at Match to keep a bad actor off our platform.
This Bill would change all that dynamic. The positive impacts, as I say, go much further than just increased competition; they go directly to lower prices and increased online safety.
Paul Scully
Q
Tom Fish: Absolutely. Before I dive in at the deep end, it is worth recognising that these big tech companies play an essential stewardship role within their ecosystems, but the flipside of that is they are operating as the de facto regulator for millions of businesses up and down the country in a whole range of important public policy areas, including advertising standards, consumer protection and data protection. One thing we know is that the commercial incentives of these companies are not perfectly aligned with the optimal outcomes that we would hope to see in those areas, regardless of how hard they say they are trying. In many cases, they are operating as the rule maker, the referee and the player in that game. As a result, there are, of course, conflicts of interest. It is undeniable that some degree of growing oversight and scrutiny will be needed if participants like us in those markets are to believe that there is a level playing field and that they will get a fair crack of the whip.
When it comes to the challenges that Gener8 is facing, we struggle with unpredictable and opaque review processes. We miss out on a potential revenue stream for our browser as a consequence of Google’s dominance in search. We lose users of our browser in Windows because Microsoft disrespects our users’ choices. We suffer from surprisingly confusing and random rejections of our ad campaigns by Meta, which makes planning our user growth and acquisition strategy impossible. We observe insurmountable barriers to entry in the mobile browser market, leading to us putting development of that product on ice. When it comes to data and your question, we face unnecessary friction at every turn as we try to access our users’ data on their behalf and earn money on it for them.
Collectively, these issues cause real harm to our business—they have consequences. We face increased costs and we divert resources away from product development to fight these fires. Missing out on revenue means our users missing out on gift cards and charity donations. It makes us a less attractive investment proposition. We have a drag placed on our ability to attract and then retain new users. Most alarmingly, in my opinion, is the way I have been witnessing it filtering through into internal discussions and thinking about what we should invest in and which innovations we should bring forward to market. From our perspective, the Bills urgently need to establish this regime and address these issues.
Paul Scully
Q
Tom Fish: Gener8 is a personal information management service. Essentially what we do is we enable our users to access their data from third-party services, bring it into the app and visualise it. If they want to, they can choose to earn from it, and we then put that data to work for them, just like a bank does with people’s monthly income. The crux of this issue is we need to be able to act as an agent for our users and to access that data. Unless that is possible in a streamlined, efficient way, users quickly get turned off. What we need is really for the companies that are hoovering up all this data to enable the data owners—the consumers—to be able to access it, and then ultimately share in its value.
Paul Scully
Q
Tom Fish: That is right. I think the excess profits of these companies, year after year, is an illustration that consumers are not necessarily getting a fair deal, even though it might look like it.
Paul Scully
Q
Tom Fish: Exactly. He was being pitched to on the basis of these companies having astronomical levels of granularity and detail about what people are up to online. That is filtering through in the advertising market to vast profits. He had the idea that people should be able to take a share of that value themselves.
Paul Scully
Q
Tom Fish: That is right.
Anna Firth
Q
Tom Fish: Shall I answer quickly and then pass over? I looked it up, and in Southend-on-Sea there are 372 active Gener8 users. At the micro level, they stand to benefit from Gener8 bringing forward new features more quickly, earning more revenue more quickly, and they will quickly start to earn more value from their data themselves.
Zooming out from Southend-on-Sea and Gener8 and looking at the big picture, all these excess profits in the advertising sector filter through into the prices people pay for all goods and services across the economy, whether that is hotels, flights or insurance. They miss out on choice and potential quality that is banned by big tech, but really the biggest issue here is innovation. It is those innovations that we do not know about that never make it through to disrupt the status quo—the unknown unknowns—which are the greatest value consumers are missing out on.
Richard Stables: You have probably read George Orwell; you have probably read “1984”. Later on today, you will hear some “1984”-type speak, because they will sit in front of you and they will say, “This Bill is going to hurt innovation. This Bill is going to hurt investment in the UK.” Basically, listen to what they say and think the complete opposite, because I can tell you now that if you are a businessman or businessperson trying to invest today in digital, your No. 1 question is, “How am I going to get keeled over by big tech?” If I am going to be keeled over, I am not going to invest in it. Why would you? It makes absolutely no sense.
By creating level playing fields, you will do the absolute opposite of what they are saying. You will get investment in the UK. People will look at the UK and say, “That is a place I want to be, because I know that I have got a level playing field against big tech, therefore I will invest in it,” so you get investment. What happens with investment? Innovation. Innovation comes from well-functioning markets.
Another myth you will get today is on security, or privacy, or China, or AI. If you look at what has happened in America when they tried to bring this type of legislation, big tech went out on the biggest expenditure—bigger than they did on even Medicaid, from big pharma—trying to rubbish the Bills. They said, “Amazon Prime will stop working. Google Maps will stop working”, but that is complete baloney; it is the opposite. None of that is going on.
For your constituency, you should be thinking, “We get lower prices, investment into the UK—why the hell weren’t we doing this 10 or 20 years ago?” Why have we got only five big huge titans running the internet today? Because we have not regulated them. These are winner-takes-all markets, and they have taken their power in one market to go and gobble up the rest.
Mark Buse: Let me put some real-world facts around what my colleague here is saying. Match has been very consistent when we have said, “We will invest in markets in countries where the regulatory regime encourages competition.” So we were very active working with the Korean National Assembly to make the law pass there that broke open the app store. The law said people could have alternative payments. We then moved employees out of Japan and into Korea. Now, as they were testifying, my friends over on the big tech side of the world, said, “No, people aren’t going to move,” or, “It’s going to stifle innovation,” but others said, “Well, Match did.” They say, “No, that’s not true.” I say, “Yes, we moved employees. We absolutely did.”
When we look at marketplaces, we want to operate and headquarter in marketplaces that allow maximum innovation, flexibility and competition. What we want on our product is what you see today on Uber. You can open up Uber and choose to pay in 10 different ways; if you open up our products, you can pay one way and one way only—that is by using Apple or Google, and they take their 30%. That is the first point.
The second point is that, when you are a start-up, you are just creating the next new, great product. If you have to look at that and say, “Wait a minute! The moment I go in, I have to start paying 30%,” that changes the economics.
To make another, fine point about how fast things move, Tinder is the largest online dating app in the world, with 3.5 billion swipes a day. Tinder is 10 years old—10! That is nothing in the real world. Tinder was invented at a hackathon. If the UK creates this marketplace, all of a sudden you will see everyone flowing into it. Match would view this—absolutely, and we are happy to state this publicly—as a huge opportunity to put jobs and potentially even broad decision-making and corporate authority into a marketplace where we do not have to have our relationship with our users dictated by a couple of select big-tech companies.
Anna Firth
Q
Mark Buse: I think there are unintended consequences in every piece of legislation, some of which are impossible to anticipate, but what the UK is doing with the Bill you are considering is unique, in that it gives flexibility to the CMA to adjust and adapt. Recently, Google submitted its proposal or response to the CMA, in which it said, okay, it could do a 26% fee, which we would have to pay instead of 30%, and that there could be some flexibility so a company like Match could put an alternative payment provider in. The CMA accepted Google’s proposal because it had no authority to demand anything more from Google.
Make no mistake: 26% is a specific number chosen by Google and Apple, and they have done this in Korea and the Netherlands. They know that if we are paying a 26% commission—originally, it was called an “in-app payment fee”; now it’s a commission—and then pay to have payments processed and handled, we will be paying over 30%. What developer is going to want to choose the option that is going to cost them more money? Nobody will.
This kind of flexibility means that you do not end up in a world where you have these companies who have all the data and all the ability to come up with what are essentially programmatic solutions that are not solutions. I think that that whole dynamic is encapsulated in this flexibility in the Bill, designed to avoid unintended consequences.
Richard Stables: My unintended consequences? More jobs for the UK, more investment and the UK maybe becoming a leading digital place to be. That may be unintended—[Laughter.]
Tom Fish: A lot has been said about the fact that it has taken quite a long time to get this legislation to this point. Well, I guess that an unintended consequence of that is that it has given people a lot of time to think about these issues and to think through the design very carefully. So, actually, I cannot say that I think there are any obvious unintended negative consequences. Ultimately, a lot of the nature of the impacts will be determined by the individual decisions that the CMA makes. I think it has shown itself in recent years to be very adept at assessing the full range of potential pros and cons of the decisions it makes.
Mary Kelly Foy
Q
Richard Stables: The biggest spender in the US on lobbying—they have to make this public—is Google. They spend millions. You must have heard what happened in the European Commission. There was a whole programme they were going to do in terms of trying to lobby on the Digital Markets Act, but it became public and it backfired massively. The Commission said, “Oh, we’re not going to speak to any of you in that sort of forum; we’re going to do it in a very clear fashion.”
I see this a lot, because I have been fighting this a long time. You will see institutions, education bodies and units that have been put up and that are sponsored by big tech. You will listen to what they are saying, and you are going, “Where did you get that from?” They go, “Oh, we’ve done all this research and evidence,” but it’s baloney. You get underneath it, and you are like, “That is not based on facts. That is based on you basically touting what they want you to tout.”
So, yes, I would be really suspicious of what these companies have to say. They have been on the biggest gravy train in history; they do not want to get off it. So they will say whatever it takes to try and obfuscate and persuade and stop this type of activity happening, because they know that the game is up.
Mark Buse: By publicly available numbers, and we obviously believe that the spending far outpaces that, Google, Apple, Microsoft and Amazon have spent well in excess of $300 million in the last two years on advertising alone against anti-trust change. They have spent another huge amount of money on direct lobbying, as well as on public relations efforts and so on around these issues, in the context of the US alone. They have been very strong on that and I do think, as somebody who used to work in Congress, that it has proven effective in slowing anything from occurring in the US.
As was said, if you have an assured pot of income coming in—if you are Apple and Google, in the store—every day that you can keep your walled garden intact is a good day, because even if the Bill passes tomorrow, companies like us are going to have to convince users to try something different. We believe we can drive users to alternatives by lowering price, and there are a lot of dynamics around that. However, in many cases, it is still going to be difficult to pull users out of that walled-off system that has been created.
Richard Stables: To add to what Mark has just said, when they were trying to pass the legislation in the US, there was one month where these companies spent $30 million on TV advertising. They specifically went to a couple of places where there were either Senate or congressional races happening and said exactly what I said earlier, which was, “Amazon Prime will stop working and your Google Maps will stop working.” It is just madness. I remember speaking to Senators and Congressmen, explaining to them that that is just rubbish and asking them to look at what is happening with the DMA in Europe. Amazon has not switched off its Amazon Prime and is never going to, and Google Maps works fine. They will do whatever it takes. I do not think they will try that in the UK, because they have recognised that parliamentarians are—well, they will not. I will not fill that; you can answer that yourselves. But they will try other, subtle things, and the most subtle one of all is innovation and investment. It is the absolute opposite of what they say.
Mary Kelly Foy
Q
Tom Fish: You certainly cannot blame the companies for wanting to put their points across to politicians who are potentially radically transforming their markets. I certainly echo the point about being wary of supposed bodies that represent small businesses in these areas. If you receive views from those types of organisation, think carefully about who they are really speaking for.
The one thing I would add is that knowing that those big companies will be lobbying hard is why companies such as Gener8 and others are willing to take the risk to speak out publicly and share our experience, because it is just so important that you hear both sides of the argument.
Kevin Hollinrake
Q
You are a very successful company. You own plenty of brands—Plenty Of Fish, as well as Tinder and the like. What do you make of the argument that, actually, far from inhibiting investment, these companies have encouraged investment by giving you a platform that can access lots of customers around the world?
Mark Buse: We do not deny, first, that what they have created is revolutionary and, secondly, that they should be paid for their intellectual property and their ongoing work. We have always stated that we support their ability to recoup and to profit off of this. There is no issue on that for Match. What causes us so much concern is that they make their decisions arbitrarily in a black box, with no transparency.
If you look at Tinder’s algorithm and Uber’s algorithm, they operate, at the base level, almost identically. We connect two strangers in real time for the purpose of a date. Uber connects two strangers in real time for the purpose of a ride. Uber does not own the car and it does not employ the driver; we encourage you to use an Uber, to not meet somebody in a dark alley in their car. Essentially, it works the same. Yet, on Uber, Uber pays nothing. We and our users have to only use Apple or Google and have to pay 30%. So there is a fundamental problem here.
Some of that is just due to a historical anomaly back when there was a competitive marketplace, but that competitive marketplace no longer exists. Again, we think this Bill gives flexibility, in that it does not have the CMA declare these companies as regulated utilities. Recently, a Minister in the Netherlands said that he believes Apple and Google should be treated like regulated utilities, such as a bank. That is not for me to decide; it is up to parliamentarians to decide. We would have concerns about that, just for precedent, but we think this Bill balances that and creates a flexible marketplace where, as long as Apple and Google are treating entities in a fair and transparent manner, they are entitled to earn profit.
Kevin Hollinrake
Q
Mark Buse: Absolutely. It has hampered it in an actual way, in that 30% of the money we should bring in goes to Apple and Google. To put it into context, we do a little over $3 billion a year in revenue. Last year we paid Apple and Google around $700 million, which we could be investing in employees, research and lowering prices. The question is, $700 million for what? What are we paying for? Are we subsidising Uber? We would say yes, in fact we are. What do our users get from that? To show you how the stores recognise the value, Apple buys ads within the app store search for Tinder. We do not buy ads for Tinder; Apple buys ads for Tinder. You might ask why. It is because Apple knows that the average user of an online dating product will have four or five different dating apps on their phone—us and all our competitors—and will bounce back and forth between them all non-stop. That is just the way the user behaviour is. Once you meet somebody, you do not use any of them, so it is a high-churn business.
With Tinder being the most well-known brand, Apple knows that if it can convince a 19-year-old to open a Tinder account, that 19-year-old will also then open a Bumble account, an OkCupid account, a Grindr account or whatever. Apple knows that they are going to start subscribing to all of them, so that is all free money. The system is already built. Uber is using it, Walmart is using it and Tesco is using it, but 16% of the companies are paying the extra 30%, which is subsidising all of this and enriching Google and Apple’s profits, so there are issues there.
The Chair
Minister Scully, do you want to come in on any of the points that have been made?
Paul Scully
Q
Tom Fish: I certainly am aware that other companies I have spoken to are reluctant to speak out publicly about the issues they face and the concerns they have. They are concerned about the risk that they might be penalised in the search engine, the app store or the marketplace. I will not name them, naturally, but those concerns are real. From my perspective, there is no choice. Unless this Bill is introduced, and the regime comes through and starts to address these issues, we will not be able to reach out for potential and the markets that we want to operate in will not be open and accessible. From our perspective, there is really no choice but to take this step.
Paul Scully
Q
Tom Fish: Exactly.
Richard Stables: I could give a bit of colour to that. When we started being hit by Google, we thought that it was just us. Eventually we realised that the whole market was suffering. We started talking to the commission. We were absolutely paranoid. We said, “Don’t tell Google because we think we might get the traffic back. If they know that we’re talking to you, that’s going to hurt us.” Eventually, they hurt us so much that it did not matter. I have spoken to so many firms—big firms as well as small firms—that have turned around and said, “We’re really glad about what you’re doing. I can’t come out and say this.” The power that these companies have is phenomenal. Companies can literally be put out of business overnight if one of these companies decides that that is what is going to happen.
Mark Buse: They believe in retribution. When we tried to offer Korean citizens in Korea a discounted price, Apple, instead of rejecting our app build, put every app build on hold. If you are not familiar with the concept of a build, it is where you update and change your app. You always get messages on your phone saying, “You need to update.” For 35 days, Apple froze every app build for every brand that we have that operates anywhere around the globe. We were unable to bring new products out, but more importantly we had bug fixes in all those builds. We have white-hat hackers: people we pay to show us what is wrong. We learned bug fixes internally. There were people who could not use the product right.
All those bug fixes sat on hold, so for UK citizens using our products, with no connection to Korea, those fixes did not take place for 35 days because Apple refused to let us move any builds. When we withdrew the build that would have given us the right to use alternative payment authorities, Apple then approved everything within 72 hours.
Tom Fish: On that point, it is important not always to get drawn into a polarised debate on these issues. It is not necessarily black and white—that big tech is good or evil. You can be a supporter of the Bill and the new regime without wanting to break up big tech. All that I am really asking for is a bit more scrutiny, oversight and transparency where obvious conflicts of interest exist.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Mark Buse: We believe that the relationship should be between us and the customer—that Apple should not intermediate between us and the customer. Then we will, rightly, have the responsibility to ensure that there are not subscription traps or any other issues around subscription. At this point, generally what happens is that we are still blamed but the subscription is actually with Apple. We do not think that in an ideal world it should necessarily be just us. If some of our users want to subscribe via Apple, we are more than happy to let them use our service and continue to subscribe through Apple. If they believe that that is a safer, more private way to do it, great. We want to bring as many people as possible into our business. It is not about excluding; it is about different ways to include.
Andy Carter
Q
Mark Buse: It is a historical anomaly. When the store was created, in a brilliant move by Steve Jobs, he needed to get companies to build apps. Apps did not exist. People my age were bombarded with commercials. The slogan for Apple was, “There’s an app for that.” Apps have become the way we use our phones because they make it easier. He had to go to all these physical companies and say, “Build me an app. I’ll put it on the phone.” The Walmarts and Tescos of the world said, “We want people coming into our stores. Why on earth would we want them not to, and to use the app?”
What Jobs did, again because he was a brilliant man, is say, “Look—it won’t cost you anything. In essence, it will just increase sales. It’s you-branded. It’s yours. You operate it.” That is why apps are distinct. Uber had just come on to the scene and was the hottest thing going. It went into New York and into London—some would argue illegally, not abiding by the rules. What happened is that Jobs—you can see this from various biographies and public court documents—said to Uber, “Come into the store, but because you’re a digital product, and the whole idea of the walled garden is that they hold on to your digital data, you’re going to have to pay 30%.” Uber said, “No. We won’t do it.” Because the store was nascent and Uber was popular, Jobs said, “You know what? Go into the store anyway. It’s fine. I won’t make you pay.”
Match at the time was a fledgling, super-small company, and our business was not big and growing because there was a lot of stigma around online dating at the time. People thought that if you cannot meet a date in real life, in person, you go to the online dating world. Now online dating is the No. 1 way that people meet in the UK. More relationships start online than in any other way. In the LGBTQ community, over 70% of all relationships start online. The market has changed. If the store was being created today, our market power might enable us to say, “Don’t include us in that.”
Andy Carter
Q
Tom Fish: Largely speaking. The one issue that I raised in my written submission was a small concern around a degree of ambiguity regarding operating systems. It is critical that operating systems can be designated with strategic market status. Half the potential interventions that have been talked about for opening up markets will not be possible if you cannot designate operating systems. This is just a plea really to insert the words “operating systems” as an example. It will not cost anything, but it will solve a lot of problems.
The Chair
Thank you. I am sorry that we have run out of time. On behalf of the Committee, I thank our witnesses.
Ordered, That further consideration be now adjourned. —(Mike Wood.)
Energy Bill [ Lords ] (Tenth sitting)
Thursday 15th June 2023
(11 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 June 2023 - (15 Jun 2023)
The Committee divided: - Ayes: 6 / Noes: 7 - Question accordingly negatived.
The Chair
Before we begin, although officially Members have to go through me to take their jackets off, I am happy to say that everyone can have it off today—you all have my permission to remove your jackets. Hansard colleagues would be grateful if Members would email speaking notes to hansardnotes@parliament.uk. As usual, please switch electronic devices to silent. Tea and coffee are not permitted, but there is ample water.
Clause 221
Interpretation of Part 10
Question proposed, That the clause stand part of the Bill.
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
It is a pleasure to serve yet again under your chairmanship, Dr Huq. The clause—the final clause in part 10—simply sets out the interpretation of terms used in the clauses on the energy savings opportunity scheme, which we discussed at length on Tuesday. It also explains where provisions fall within devolved competence for the purposes of this part of the Bill.
Dr Alan Whitehead (Southampton, Test) (Lab)
Welcome to the Chair again, Dr Huq; it is a pleasure to serve under your chairmanship. The clause concerns just the interpretation of previous clauses—I am sure that they are great interpretations and will go down in history as such—and I have no comments on it.
Question put and agreed to.
Clause 221 accordingly ordered to stand part of the Bill.
Clause 222
General objective
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause marks the start of part 11, which concerns core fuel sector resilience. By “core fuels” we mean the essential liquid and gaseous fuels used for transport and other purposes, whether derived from crude oil or renewable transport fuels.
Ensuring resilience and security of supply for such fuels has become even more critical given the change that we are experiencing in the energy sector globally. Although renewable technologies are making inroads—electric cars, for example, are of growing importance—core fuels still account for more than 95% of the energy used for transport, and over 1.5 million households use heating oil or liquefied petroleum gas for heating. The Government are determined to reduce our dependence on fossil fuels, but that will take time, and it will be a challenging time for the industry.
Analysis by His Majesty’s Government has shown that there are already single points of failure in the fuel system that are critical to regional fuel supply, and those risks require better management. Recent events, such as covid-19, the tanker driver shortages of 2021 and protest activities at oil terminals, have demonstrated the level of risk to fuel supplies. It is therefore a responsible approach for the Government to take powers to ensure that fuel supplies remain secure.
Existing powers are available to Ministers under the Energy Act 1976; however, those are essentially reactive and may be used only when a disruption to fuel supplies is an actual or threatened emergency. The purpose of these measures is to enable us to mitigate risks before they develop into actual disruptions to supply.
Risk management is at the heart of these measures. Not all risks can be eliminated, but a resilient system is more likely to withstand shocks and to recover from them faster. The Government seek to strengthen the resilience of the sector, now and through the net zero transition, and to proactively minimise and address risks that could cause disruption to the supply of fuel.
Clause 223 provides clarification on the scope of the powers and who they can be applied to. The intention is to cover all the critical operators in the supply chain for core fuels, including refiners, infrastructure operators, suppliers, hauliers and wholesalers. The clause sets out which products are considered core fuels, including conventional transport fuels from oil—such as petrol, diesel and jet—heating oil, liquefied petroleum gas and renewable transport fuels.
Dr Whitehead
We have reached an important part of the Bill, concerning core fuel sector resilience. As the Minister stated, we need to ensure that our core fuel supplies are not cut or interrupted by external circumstances, that we have resilience in our supplies, and that we can be assured at all times that petroleum and so on is getting to and from refineries, and to where it is supposed to go. The Minister has reflected already on past disruption to fuel supplies, which hon. Members will recall. It is understandable that we wish to be assured that supplies are secure.
The Minister also stated that we have powers already to ensure that, where disruption takes place, action can be taken to secure resilience. However, these measures on the principle of core fuel resilience go further than that. As the Minister says, this is about trying to anticipate potential disruption and problems as far as core fuel sector resilience is concerned, and then providing the Government with powers to respond proactively, rather than reactively, to the anticipated issues.
I suggest that one needs to be very careful in how one drafts something for that purpose. I assume that what we do not want, although perhaps the Government do, is to get into the situation in the film “Minority Report”, quite a while ago, in which the lead actor, who happens to be Tom Cruise—not that I regularly watch Tom Cruise films—
Dr Whitehead
Oh, all right. We can have a debate about whether Tom Cruise makes good films or not, but I think the general consensus would be no. The point about that film is that he was, as I recall, a detective who had to go round anticipating crimes before they were committed. Indeed, he did not just anticipate crimes—I think my hon. Friend the Member for Bristol East is looking this up on her iPad—
Kerry McCarthy (Bristol East) (Lab)
I have no idea what you are talking about. I am not sure I have ever seen it.
Dr Whitehead
In that film, people were profiled in case they might commit crimes in later life, and they were arrested well before they could commit a crime, or because their profile suggested that they might do so in the future. That is the problem that we may come across with these clauses.
As we will unpack when we come to later clauses, the way the Bill is drafted puts the onus on suppliers and the owners of undertakings that relate to possible disruptions to do “anything”—that is the word in the Bill —to secure core sector resilience. As we will see, if the people in those sectors fail or fall short of doing “anything”, there are penalties: they can be imprisoned, and they can be fined at the discretion of the Secretary of State.
I am interested to hear what the Minister has to say about that, but it seems to me that that gets rather close to the “Minority Report” line about anticipating offences and, as it were, taking people out before they have committed an offence. Furthermore, it puts an enormous onus on the people carrying out those activities to do things that perhaps ought to be for the Government to undertake and enforce, as the Minister said earlier, at the time that a disruption takes place. It could be said that these clauses are about anticipatory activity. The Government quite properly have powers under previous environmental legislation to deal with disruption.
Clause 222 sets out the general objective for core fuel sector resilience and states that the Secretary of State’s functions must be exercised with a view to
“ensuring that economic activity in the United Kingdom is not adversely affected by disruptions to core fuel sector activities, and…reducing the risk of emergencies affecting fuel supplies.”
That is a very wide brief.
Andrew Bowie
I do not want to stray into Captain Mainwaring and Lance Corporal Jones territory, but I think we have been delving into the realms of fantasy. Just for the record, I should state that Tom Cruise is a fine actor and director. The “Top Gun” films, the “Mission: Impossible” series, “Jerry Maguire” and “Minority Report” are all excellent films that I enjoy watching, and Tom Cruise does a very good job acting in them.
The hon. Gentleman is right to mention the existing powers, but those are reactive; we are seeking to be proactive in order to mitigate the risk to the supply of fuel. Some of us—I was still at school—remember the fuel crisis of 1999 under the last Labour Government. Of course, we would not like to see anything like that happen again. There have been disruptions more recently, and we need to take action to mitigate them.
The power in part 11 allows the Government to regulate the sector, but the intention is to have an effective power to preserve fuel supply for end users. A narrower power would risk missing the next unexpected event, and we would end up with an extensive list of possible risks and actions, which we do not want. The hon. Gentleman is right to say that, in most circumstances, the sector acts voluntarily. However, we must remember that such companies are commercial entities and will always act in their interest. Therefore, it is the Government’s role to ensure that there is a protection in place nationally to support the supply of fuel and ensure that this essential service continues for the British people.
Question put and agreed to.
Clause 222 accordingly ordered to stand part of the Bill.
Clause 223 ordered to stand part of the Bill.
Clause 224
Directions to particular core fuel sector participants
Dr Whitehead
I beg to move amendment 116, in clause 224, page 191, line 17, at end insert—
“(9) The Secretary of State may not issue directions to core fuel sector participants that are in contravention of the Trade Union and Labour Relations (Consolidation) Act 1992.”
This amendment sets in legislation the need for the Secretary of State to act in accordance with the Trade Union and Labour Relations (Consolidation) Act 1992 when dealing with core fuel sector participants.
Dr Whitehead
The amendment is, I hope, germane to the general picture that I have painted of the purport of part 11, which places an onus on companies and those engaged in core fuel sector activity to undertake activity—quite often anticipatory activity—that will ensure that the Government’s aims for core fuel sector resilience are achieved.
We saw in clause 223 the range of activities that are envisaged as being covered by part 11: storing oil, handling oil, the carriage of oil or renewable transport fuel by sea or inland water, transporting oil by road or rail, conveying oil or fuel by pipes, processing or producing oil or renewable transport fuel, and so on. That covers a huge range of industrial concerns, companies and undertakings, and all those companies and undertakings will effectively be bound by clause 224. That means that those companies and undertakings can have directions given to them to do various things, on a substantial anticipatory basis, that are necessary for core fuel sector resilience.
Clause 224(4) states:
“If the Secretary of State considers that there is a significant risk of disruption to, or a failure of, continuity of supply of core fuels, the Secretary of State may direct a person to whom this section applies to do anything in relation to the person’s relevant activities or assets which the Secretary of State considers necessary or expedient for the purpose of…reducing the risk, or…reducing the potential adverse impact of the disruption or failure.”
That is not a very closely specified list of things that the participants in core fuel sector resilience—those people who are doing all those activities—may be directed to do. The Secretary of State can direct those companies to do “anything”.
The amendment seeks to clarify one particular area of what “anything” might mean. The clause could be construed as saying that, in doing “anything”, the Secretary of State could assume—again, on an anticipatory basis as far as core fuel sector resilience is concerned—that the companies concerned may or should start to infringe the rights of their employees in relation to employees’ activities in those companies. That is a pretty wide-ranging power. It suggests that, if it is thought that there might be disruption, the onus is on the companies to take actions that might infringe other established provisions in our legal system in order to carry out what the Secretary of State directs them to do in relation to resilience.
From the structure of the clause, it certainly looks as though the Secretary of State might assume—again, at arm’s length—that those companies could, for example, take actions in relation to their employees not because the employees had done something, but because they might do something in the future that affects core fuel sector resilience and therefore means that the companies would be in breach of the Secretary of State’s directions. Of course, the things that might be done include the company’s employees exercising their trade union rights. As we set out in our amendment, those rights are established by the Trade Union and Labour Relations (Consolidation) Act 1992, which governs and regulates the sort of actions that are reasonable for employees to undertake in respect of their trade union and workplace rights. We do not think they should be thrown away on the basis of an anticipatory direction requiring companies to do things in relation to the Secretary of State’s concerns about fuel sector resilience.
I can see the pretty good labour relations with those engaged in fuel sector resilience, which exist in most circumstances in the sector, turning into very bad relations if there is a sort of undefined onus on the companies, at the direction of the Secretary of State, to do something— anything—about something that may or may not happen. Even though there are rules and regulations governing the companies’ relations with their employees, the temptation—in fact, the rational response—will be for them to say to the trade union representatives, “We are going to make sure you cannot exercise your rights in our firm because we are worried that we might fall under this direction in the future.” If an employer were to do that, even though nothing had happened but something might happen in the future, that would be a guaranteed way to break down labour relations, and might quite possibly precipitate the sort of crisis that the Minister is seeking to deal with on an anticipatory basis.
It is therefore conceivable that the very existence of these arrangements could precipitate crises of fuel sector resilience rather than prevent them. I think all hon. Members would agree that we would not be very happy to have that on the statute book, so we want to add a clear understanding that the Secretary of State’s directions should not imply or direct that the companies should act in contravention of the 1992 Act. That is an attempt to clear up a little this series of very vague and far-reaching powers and arrangements.
The amendment would not, of course, impede the force of the Secretary of State’s directions to ensure that the companies involved in core fuel sector resilience are doing everything they can to ensure resilience, but it would framework the circumstances under which they and the Secretary of State act so that the anticipatory arrangements are within reasonable bounds. I am sure the Minister will see the force of the issue: we may conceivably make anticipatory arrangements into real arrangements if we are not careful about how we go about it. I therefore think that the amendment is a protection not just for those who are employed in core fuel sector resilience areas, but for their employers and for the Secretary of State, such that what the Secretary of State is anticipatorily doing has some clear boundaries as far as what that activity may mean.
Olivia Blake
It is a pleasure to serve under your chairship, Dr Huq. I should say that I am a member of the GMB union.
I rise to support the amendment, which is very reasonable and is an attempt to help the Minister. I am sure he will stand up and say that the Secretary of State would never knowingly try to give directions in contradiction to the measure that we have tabled, but the point of the amendment is to get that on the statute book and make it clear to the industry, and those who are employed in it, that that safety net would be there, because “anything” is a very broad word, as outlined by the shadow Minister, my hon. Friend the Member for Southampton, Test.
There have been great relationships within the industry for many years, and as it is such a critical industry when it comes to health and safety, the working rights of those employed in it are critical to maintaining that safety. I hope the Minister will look on the amendment kindly and understand the reasons for it.
Andrew Bowie
The powers in the clause are important to ensure resilience and address disruption in the core fuel sector. I thank the hon. Member for Southampton, Test for his amendment and reassure him, and the hon. Member for Sheffield, Hallam, that the powers are not intended to interfere with any rights to industrial action or any other employee rights. The Government have maintained a good working relationship with the industry over the years and aim to be aware of proposed industrial actions and to work collaboratively, as we have in the past, to understand the impact and potential mitigations for the risks that might arise.
Clause 224 enables directions to be issued for particular purposes only: to improve and maintain resilience, to restore continuity of supply or to reduce the risk or impact of a disruption. In a situation in which a proposed industrial action is assessed to cause a significant risk of disruption, the direction power could be used to ask core fuel sector participants to make contingency plans to mitigate the risk. It is not intended to cut across the rights in the legislation that the hon. Members have highlighted.
I emphasise that the Government will always seek a voluntary solution in the first instance before issuing a direction and, of course, we believe that industry participants will have a chance to make representations before a direction is made and to appeal a direction when issued. I therefore ask that the hon. Member withdraw his amendment.
Kerry McCarthy
Will the Minister clarify what he means by “industry participants”?
Andrew Bowie
Industry participants would be companies, the industry as a whole, trade union bodies and so on. They are absolutely part of the entire process and, of course, if any of them had an issue with the direction being issued, they would have the right to appeal such a decision.
Clause 224 gives the Secretary of State the power to issue directions for the purpose of maintaining or improving core fuel resilience or to recover from or reduce the risk of a disruption to continuity of core fuel supplies. The past few years have demonstrated that the resilience of the core fuel sector needs to improve significantly. We have seen queues at pumps and stock-outs at petrol stations more often than we should. The supply of fuel remains critical to the operation of the country’s economy and essential services.
The individual companies in the supply chain are flexible and manage their own risks. In extreme cases that are out of these companies’ control, it is likely that they can declare force majeure, meaning that because of the extenuating circumstance, they will not be held liable for their failure to perform contractual obligations. It is therefore crucial that the Government have the power to direct key players in the sector to take actions necessary to manage the risk of disruption to fuel supply that could arise.
The clause gives the Secretary of State the power to issue a person carrying on core fuel sector activities, or a facility owner in the core fuel supply sector, with a direction in three different circumstances. The first is to maintain or improve resilience. It is important to note that this power can be used only if the Secretary of State considers that insufficient progress has been made by the proposed recipient to take the steps necessary to address the issue.
A direction can also be issued to restore continuity of supply or to reduce a significant risk of disruption to supplies. Such directions can be issued without waiting for the sector to make progress voluntarily, given the impact that a disruption or significant risk might have on the public. A direction will be issued only if circumstances mean that it is not practicable to make regulations. That could be because of the urgency of the issue or because of the number of cases—if they are not sufficiently numerous to justify making regulations.
A direction can be issued only to persons carrying on core fuel sector activities in the course of a business with capacity in excess of 500,000 tonnes or to a facility owner if the facility has capacity in excess of 20,000 tonnes. That will cover refineries, terminals, pipeline operators and hauliers when a disruption associated with an individual company could have a significant impact on the continuity of supply of core fuels in our United Kingdom. The direction might be to take an action or to stop the recipient doing something that could have an adverse impact on the resilience of the sector. There is a requirement to provide written notice to the recipient and the reason for the direction, so the sector should be reassured that the recipient will be duly informed and will have the opportunity to make representations regarding such a decision.
The power is designed to cover a broad range of scenarios, because the range of conceivable risks is wide and inevitably uncertain. For that reason, we are unable to provide guidance as to the circumstances in which the power will be used. However, I emphasise that His Majesty’s Government intend to work with industry on a voluntary basis whenever possible and that the power can be considered as only a backstop power where a voluntary approach is not effective.
Clause 225 sets out the procedure to be followed before issuing a direction. The recipient of the direction must be given a written notice that sets out the proposed direction, the reason why the direction is being issued and when the direction is intended to come into effect. They will also get an opportunity to make written representations in respect of the proposed direction.
Given that directions will relate to sites covered by regulations for the control of major accident hazards, it is also appropriate that the relevant competent authorities —such as, in England, the Health and Safety Executive and the Environment Agency—are consulted to ensure that the direction does not inadvertently compromise safety. There is also provision to consult other persons whom the Secretary of State deems appropriate. The Secretary of State will consider any representations from the recipients, or those authorities, when deciding whether to issue the direction.
Clause 226 sets out the consequences for failing to comply with a direction. There could be severe impacts to the security of supply if there is non-compliance. It is therefore essential that there are criminal as well as civil sanctions to deter businesses from failing to comply. The offences set out in this clause are criminal offences and they serve as a deterrent measure so that they can provide credibility to the direction power.
The clause sets out both summary and indictable offences for either imprisonment or a fine, or both. The severity of the offence will determine whether it will be a summary conviction or a conviction on indictment. There has always been a history of compliance in the sector. Our hope is that the provisions will be a strong deterrent to future non-compliance and that businesses will realise that it is cheaper and more responsible to comply.
Dr Whitehead
I put what I hoped was a fairly reasoned case for amendment 116. I understand what the Minister has said about the circumstances in which directions would be given and the aim of working on a voluntary and collegiate basis with the industry and ensuring that things proceed, as far as possible, on a voluntary basis. However, the circumstances about which we are talking may tempt the Government to remove themselves from that principle. The Minister may say that is his aim, but I always think that we have to legislate for the worst circumstances, not the best.
It would be a good idea to have the requirement in the amendment in the part of the Bill that talks about directions. I am not particularly satisfied by what the Minister has said about how the clause will work generally and would like a Division on the amendment, because we want it on the record that we think it is important. It is not because we wish to undermine the Bill’s progress in any way, but the amendment relates particularly to what the Minister said about the circumstances under which he thinks directions should or should not be made. We may discuss some of those things in the debates on other clauses as they come up, but at this point I wish to press the amendment to a Division.
Question put, That the amendment be made.
Andrew Bowie
The aim of the clause is similar to that of the power of direction in clause 224, which is to maintain or improve core fuel resilience or to counteract a fuel-supply disruption or its potential adverse impact. The regulation-making power is designed to be used when a larger class or category of operators and owners need to be directed to take certain actions. The clause may also be used to direct action by smaller businesses and operators such as petrol stations.
Before making any regulations under the clause, the competent authorities for health and safety and environmental protection must be consulted. Subsection (8) sets out that regulations made under the clause will be subject to the affirmative procedure because the potential interference to businesses if the powers are used means that it is only reasonable that Parliament has a say on how the powers are exercised. The powers to make regulations can also make non-compliance with the regulations a criminal offence because of the potential impact of any failure to act. I therefore commend to the Committee this great clause of this great Bill.
Dr Whitehead
The clause further underlines what I said about this part as a whole. It relates to the powers of the Secretary of State to make regulations and to the circumstances in which those regulations may be made. As hon. Members will have read, subsection (4) states:
“If the Secretary of State considers that there is a significant risk of disruption to, or a failure of, continuity of supply of core fuels, the Secretary of State may by regulations require persons of a class or description specified in the regulations to do anything in relation to their relevant activities or assets which the Secretary of State considers necessary or expedient for the purpose of…reducing the risk, or…reducing the potential adverse impact of the disruption or failure.”
Once again, we have the word “anything”, which should trouble considerably hon. Members in Committee and, rather more so, the employees and companies involved in core fuel activity.
What discussions and consultations has the Minister had with the industry involved in the resilience of the core fuel sector? What was the response, formally or informally, to the provisions that the Secretary of State will be enabled to put in place under this clause? Did the sector react favourably or unfavourably to the clause? If it reacted unfavourably, was anything done about further discussion with the companies involved—or, by the way, the trade unions at those particular companies—to address such concerns?
If the Minister is proceeding without such a consultation, that rather calls into question what he has said in the past about the good relationship with the industry. Bearing in mind that the Minister and the Secretary of State are asking the industry to do some potentially onerous things—we cannot get more onerous than “anything”—it would be of relevance to the Committee to hear, whether now or in future, what employees and companies think about it. How easy do they think it will be possible to make arrangements that comply with the directions? After all, as we will come to, it is a question not just of their being subject to the directions, but of them actually going to prison if they do not get it entirely right—rather an important point for employers to consider when responding to the clause. If the Minister has useful information to convey to the Committee, that would be helpful to our considerations.
Andrew Bowie
Happily, the Government and the industry have ongoing positive relations, and open dialogue and discussion on multiple issues. The Secretary of State and the relevant Minister in the Department for Energy Security and Net Zero meet the sector regularly. We have conducted extensive discussions with the industry on the issue over several years. Indeed, as far back as 2017 there was a consultation on this matter, which had heavy industry engagement, so I hope that that allays the fears of the hon. Gentleman and sets his mind to rest.
Question put and agreed to.
Clause 227 accordingly ordered to stand part of the Bill.
Clause 228
Power to require information
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 228 introduces a power for the Secretary of State to require information from individuals or companies in the core fuels supply sector. It will enable the Government to have an accurate picture regarding the resilience of the sector.
Currently, the Government rely on the sector to voluntarily provide the information necessary to assess, mitigate and respond to any disruption to the core fuels sector. Although most companies comply with requests, some do so only partially and there is a lack of consistency in the quality of some information collected. There is a risk that that leaves the Government unprepared and unable to assess a situation that might impact security of supply.
Clause 228 will apply to operators with throughput in excess of 1,000 tonnes, which encompasses the majority of key sector players. The type of information requested can vary given the circumstances. It may include information around site infrastructure, operations, supply capacity and volume supplied.
The notice to require information specifies the way that the information must be provided, ensuring that the quality of information provided is consistent. The Secretary of State must notify the proposed recipient of the notice in advance to allow them to make representations, and must consider any such representations before deciding whether to issue such a notice.
Clause 229 places a duty to report a notifiable incident and outlines a clear protocol for businesses to inform the Government, should they identify or suspect a potential risk of disruption. It is expected that businesses should be required to report only a notifiable incident relating to an incident that disrupts or causes failure to—or, indeed, creates a significant risk of the same—the continuity of supply of core fuels.
Guidance is currently being developed, following engagement with industry representatives, to set out the parameters for incident reporting. Examples of the sorts of incidents or risks that might be included are physical and operational issues with infrastructure, industrial action and insolvency. The duty is imposed on core fuel sector players with throughput in excess of 500,000 tonnes, such as refineries, major oil terminals and oil hauliers, but that list can be expanded through regulations.
Clause 229 also permits the Secretary of State to seek further information from the person who has reported the incident. That will aid the Government in identifying supply issues before they develop into emergency situations and in taking appropriate action when necessary. The Secretary of State must notify the proposed recipient of the notice in advance to allow them to make representations and must consider any such representations before deciding whether to issue a notice.
Clause 230 creates an offence where there has been a failure to comply with the requirement to provide information when notice has been given to do so. It also creates an offence when there has been a failure to report incidents and a failure to provide further information about a reported incident on request. The Secretary of State has the right to request information from the sector by written notice for the purpose of ensuring resilience. Failure to comply with those requirements without reasonable excuse means that an offence has been committed. Similarly to clause 226, the offences are criminal offences and are designed to act as a deterrent.
Clause 231 allows the Secretary of State by regulation to require information to be provided at specified intervals. The Government currently conduct periodic reviews of resilience in the system through a voluntary approach. The current reporting scheme does not provide sufficiently detailed information to allow the Government to understand fully the risks and capabilities of the sector, and the voluntary nature of the approach carries the risk that the industry could stop providing the information needed at any time, without notice.
The provision of information at specified intervals—for example, annually—will allow the Government to monitor the supply chain, anticipate pinch points in the system and identify any potential issues. The information provided will then be used by the Government to better monitor resilience and to support decision making in relation to determining whether further action, such as issuing a direction, should be taken. Much like other clauses in this part, there are powers to create criminal offences relating to non-compliance with any regulations.
Clause 232 sets out the circumstances in which the Secretary of State may disclose information provided under clauses 228, 229 or 231 to any Government Department or devolved Administration for the purposes of maintaining sector resilience or restoring a disrupted supply, or, if necessary, for the purpose of a criminal proceeding. The clause does not give the Government the right to contravene the Data Protection Act or certain limits under the Investigatory Powers Act 2016.
Clause 233 sets out that His Majesty’s Revenue and Customs has the power to disclose information to the Secretary of State solely for the purpose of facilitating the Secretary of State’s functions relating to core fuel sector resilience. HMRC currently collects data from core fuels operators on the volume of fuel sold to customers, which provides information on their market share and is important in the assessment of their resilience. The power would allow HMRC to disclose that information when needed for the purpose set out in the clause. That will help to ensure that the Department has a robust and reliable understanding of the state of fuel supply and resilience across the sector and can take appropriate action if needed.
The power is important in ensuring that the Government do not seek the same information from the sector twice, and helps to reduce any administrative burden imposed by His Majesty’s Government. It is also worth noting that protections are in place to prevent the disclosure of information if it breaches provisions under Data Protection Act and certain parts of the Investigatory Powers Act 2016. I commend the clauses to the Committee.
Dr Whitehead
I have no further comments on the clauses; we are happy for them to proceed.
Question put and agreed to.
Clause 228 accordingly ordered to stand part of the Bill.
Clauses 229 to 233 ordered to stand part of the Bill.
Clause 234
Appeal against notice or direction
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause sets out the appeal options available to a person who has been issued with either a notice under clause 224 or, under clauses 228 and 229 respectively, a notice to provide information or a notice to provide further information about a reported incident. I commend the clause to the Committee.
Dr Whitehead
I think I come under the category of “anyone else”, Dr Huq.
I may be wrong, but the clause appears to be about appeals against a notice or direction that relates not just to the immediate clauses we have discussed but in particular to clause 227, on the power to make regulations and, as I have said previously, direct
“persons of a class or description specified in the regulations to do anything in relation to their relevant activities”.
If we set that against clause 234, on the authority to undertake an appeal against a direction, it is noticeable that an
“appeal to the First-tier Tribunal against the direction or notice”
can be made on the ground that the decision is
“based on an error of fact...is wrong in law, or...is unfair or unreasonable”.
Does the Minister consider that the extremely vague wording of the requirement to do “anything” could give rise to a lot of income for lawyers, shall we say? Employers could go along to a tribunal and say, “We were required to do ‘anything’ but do not think that is particularly fair or reasonable under the circumstances, because we could not understand what ‘anything’ constituted.” Employers may be under a direction to do things that they are not clear about and, indeed, that could require them to do something they consider to be directly against the interests of the companies they run and, indeed, the broader question of good relations and so on in respect of energy sector resilience.
Andrew Bowie
I thank the hon. Gentleman for his question. His mention of lawyers of course brought to mind another very good Tom Cruise film: “A Few Good Men”. I believe that members of this Committee, unlike what was said in that film, can handle the truth. That is why I am pleased to say that the Government will ensure that any notice given to a person will be based on discussions with the company in question and give them time to make progress to resolve the issue. Given our preference for a voluntary approach, we do not expect a high number of directions in the first place.
Safeguards such as issuing a draft notification and seeking representations from the recipients before making a decision will ensure that decisions are not disproportionate, which I know the hon. Member for Southampton, Test is worried about, or unfair. For that reason, the number of appeals is expected to be extremely low.
Question put and agreed to.
Clause 234 accordingly ordered to stand part of the Bill.
Clause 235
False statements etc
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
Clause 235 creates an offence of knowingly making a materially misleading or false statement when providing information or giving further information about a reported incident. It is important that the information received from the sector under the information powers is as accurate as it can be, given the potential detrimental impact of false information. If a business knowingly provides false or misleading information, that will be considered an offence, which is subject to criminal and/or civil penalties. That also applies to any other statement made to the Secretary of State under this part of the Bill.
Clause 236 sets out the scope of offences that can be made under the regulation powers and how they are punishable. Non-compliance with regulations such as those made under clauses 227 and 231 could seriously impact the Government’s ability to assure the continuity of fuel supply. Therefore, it is of the utmost importance to have the ability to create offences as a deterrent to potential future breaches.
Clause 237 sets out a requirement to seek the consent of the Secretary of State or the Director of Public Prosecutions in England and Wales before proceedings may be brought for offences under this part of the Bill. For Northern Ireland, there is a requirement to seek the consent of the Secretary of State or the Director of Public Prosecutions for Northern Ireland.
Clause 238 sets out that when an offence has been committed by a body corporate or a Scottish partnership with the consent or neglect of an officer or partner, the officer or partner will also be held to have committed an offence and can be prosecuted accordingly. That includes directors and managers, or people acting in that capacity. That will ensure that seniors are encouraging compliance and considering the impact of decisions, as they may be held accountable for non-compliance.
Question put and agreed to.
Clause 235 accordingly ordered to stand part of the Bill.
Clauses 236 to 238 ordered to stand part of the Bill.
Clause 239
Enforcement undertakings
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider that schedule 18 be the Eighteenth schedule to the Bill.
Andrew Bowie
The clause sets out the civil sanctions available to Government as an alternative to prosecution when the Secretary of State has reasonable grounds to suspect that one of the listed offences has been committed. Civil sanctions are effective in ensuring compliance, allow flexibility and are much more cost-effective for Government, industry and taxpayers.
The Government have had a consistently strong relationship with the sector, as I have said, and we do not expect compliance or support to diminish. Enforcement undertakings have been used successfully as a main form of enforcement by environment agencies and the Health and Safety Executive, so there is precedent. Given the impact of non-compliance, it is important to have these provisions as well as criminal sanctions, so that proportionality and severity can be assessed, and the right sanction applied.
Schedule 18 places an obligation on Government to have a procedure in place for entering into an enforcement undertaking. It encourages transparency on the part of the Government by requiring the procedure to be published so that both parties are clear on what is needed. It includes a process to make changes to the procedure and puts safeguards in place to ensure that consultation has been carried out before the changes are made and published. It allows variation of the terms of the enforcement undertaking provided that both parties agree in writing.
Schedule 18 also states that a compliance certificate must be issued when the Secretary of State is satisfied that there has been compliance with the undertaking, and it sets out the process for that. The Secretary of State may treat a person as having failed to comply with an undertaking and revoke any compliance certificate where inaccurate, incomplete or misleading information has been provided. A person has the power to appeal decisions regarding the refusal or revocation of compliance certificates on the grounds that the decision is based on an error of fact, wrong in law, unfair or unreasonable, or wrong for any other reason.
Dr Whitehead
I am a little puzzled by what the Minister has said previously about the extent to which there has been consultation and discussion with industry and employers in this area. The Committee needs to be clear that he is now advocating Ministers undertaking enforcement of directions that, as we have discussed, apparently have sanctions, certainly for conviction on indictment, of imprisonment for a term not exceeding two years—or 12 months in Scotland and six months in Northern Ireland, given the respective general limits in magistrates courts.
In other words, we are discussing sanctions on employers—one might say that is an interesting turnaround from sanctions on employees—that could lead to their being imprisoned for a time. That appears to be disproportionate to what is suggested as far as enforcement undertakings are concerned, in particular in view of the arrangements that we have already agreed on regarding the circumstances of a direction and the situation that an employer may or may not find him or herself in as far as trying to comply with those directions is concerned.
Certainly, were I an employer or a company engaged in this area, I might well say to the Minister or the Secretary of State: “Yes, we understand that you may be placing on us particular actions in relation to anticipated disruption, but we would be pretty unhappy if failure to comply with a direction, which might not be entirely in our own hands as a company, could result in us as the directors going to prison for two years.” I would not like that to be a consideration were I a director of such a company.
I am therefore a little surprised, because either those companies have perhaps not read the detail of the Bill—although this bit has been around long enough—or the Government simply have not drawn their attention to it, or consulted them, or discussed the circumstances under which such exist. Have the Government just conjured up these important undertakings and the penalties attached to them as a list in the Bill, or was it the result of iterative discussions with the industry as to what is and is not proportionate for the industry?
Andrew Bowie
I do not wish to go over the same ground in too much detail, but a consultation took place in 2017 and an open discussion and debate continues with the industry on this and many other issues. I know the hon. Gentleman speaks with the best of intentions, but he did mention the detail of the Bill, and it is in that detail that there is a choice to enforce either criminal offences or civil sanctions. In many cases, it is in the interests of both parties and the public to use civil penalties to guarantee enforcement, and that would be appropriate. However, there will be cases in which criminal offences are better for enforcement. The Department will consult on guidance and sanctions, which are also subject to parliamentary scrutiny after Royal Assent, so we will have another chance to debate this. The best way to avoid a sanction or, indeed, going to prison is not to break the law.
Dr Whitehead
That’s what Tom Cruise says. [Laughter.]
Question put and agreed to.
Clause 239 accordingly ordered to stand part of the Bill.
Schedule 18 agreed to.
Clause 240
Guidance: criminal and civil sanctions
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
I have to say that I never thought we would be debating Tom Cruise at such length. Clause 240 sets out the Government’s duty to publish guidance on the criminal and civil sanctions associated with the offences listed in this part of the Bill. The purpose of the guidance is to set out the approach to enforcement for offences I set out earlier. The guidance will provide clarity and further information on how offences will be enforced and what actions the Secretary of State may take. The clause sets out the process that the Secretary of State must follow before they can publish guidance around criminal and civil sanctions. That includes consultation requirements and to lay a draft of the proposed guidance before both Houses of Parliament in line with clause 241.
Clause 241 states that the guidance cannot be issued until 40 days after the day on which it is laid in both Houses, or the later of the two days if laid in the Houses on different days. It is certainly not a “Mission: Impossible”.
Question put and agreed to.
Clause 240 accordingly ordered to stand part of the Bill.
Clause 241 ordered to stand part of the Bill.
Clause 242
Financial assistance for resilience and continuity purposes
Andrew Bowie
I beg to move amendment 22, in clause 242, page 203, line 35, leave out from beginning to “financial” in line 1 on page 204 and insert—
“The Secretary of State may, with the consent of the Treasury, provide”.
This amendment ensures consistency with the approach taken in clauses 103 and 134 in relation to powers to provide financial assistance. It does not alter the substantive effect of clause 242(1).
Andrew Bowie
The amendment ensures consistency with the approach taken in clauses 103 and 134 in relation to powers to provide financial assistance. Clause 242 sets out the financial assistance power, which is intended to be used when direct financial intervention is considered the most appropriate way to preserve resilience or secure continuity of core fuel supply. Such financial intervention is to be strictly for the resilience of the core fuel sector and for securing or maintaining the continuity of fuel supply, for which the Government currently do not have explicit powers.
Dr Whitehead
I hear what the Minister says. It is certainly a balanced approach that the power should be used only in exceptional circumstances, and is not a general bail-out or financial handout. I still have some residual concerns about the way the clause was originally worded. As a result of the amendment, it is to be worded marginally differently. The explanatory statement states that the amendment
“does not alter the substantive effect of clause 242(1).”
I am reminded of the following statement by an analytical philosopher whose name escapes me:
“A difference which makes no difference is no difference at all.”
I did not get a clear answer when we talked about clauses 103 and 134. The Minister moved an amendment to clause 103 to take out the words
“out of money provided by Parliament”,
leaving the clause to state that financial assistance may be provided in general. Is there a difference to clause 242 as a result of this similar amendment? If the Government may draw on moneys that have not been provided by Parliament for the purpose of financial assistance, where are they likely to come from, and what controls would Parliament have?
The present wording of clause 242 provides control, inasmuch as if moneys are provided by Parliament, Parliament has the ability to scrutinise and account for them. If removing that element of the clause gives rise to moneys provided not by Parliament but by, say, the Government of Kazakhstan, might that not worry us a little, or is there no need to worry because the Government’s ability to raise money by non-parliamentary means is tempered by other things?
Andrew Bowie
There is absolutely nothing for the hon. Gentleman to worry about. That is what I say in response to his question on parliamentary oversight and ensuring that there is scrutiny of where the money comes from. We are currently in the process of agreeing a protocol with the Energy Security and Net Zero Committee. We propose that the Secretary of State will write to the Chair of the Committee to notify them of instances where the Department has provided financial assistance under the power, so there will be parliamentary scrutiny throughout the process. I am reliably informed that this is a consistent point with respect to Bill drafting.
Amendment 22 agreed to.
Clause 242, as amended, ordered to stand part of the Bill.
Clause 243
Power to amend thresholds
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause contains a power for the Secretary of State to amend or modify the threshold for capacity in excess of which these measures can be applied. Capacity refers to the tonnage of oil that the operator has handled in the previous calendar year. This would not change the person to whom the powers under this part could apply.
The core fuel sector is dynamic, and our net zero goals may change the landscape of the sector in the future. We therefore need to future-proof the legislation to account for potential changes that may occur in the sector such that the thresholds may need to be changed over time. It is important to stress that any regulations made under the power are subject to the affirmative procedure.
Dr Whitehead
I have no particular comments on the clause, although my hon. Friend the Member for Bristol East has reminded me that the philosopher was William James.
The Chair
Fastest finger first—Kerry McCarthy.
Question put and agreed to.
Clause 243 accordingly ordered to stand part of the Bill.
Clause 244
Interpretation of Part 11
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause identifies several key terms that are used throughout part 11, and lets readers know which sections contain the corresponding definitions. It is therefore intended solely as an aid in interpretation.
Dr Whitehead
I have no comments other than that the word “anything” does not appear in the definitions. That is a minor observation.
Question put and agreed to.
Clause 244 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)
Digital Markets, Competition and Consumers Bill (Fourth sitting)
Thursday 15th June 2023
(11 months 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 15 June 2023 - (15 Jun 2023)
The Chair
Q
Kelli Fairbrother: I am Kelli Fairbrother. I am the co-founder and CEO of xigxag.
Christian Owens: And I am Christian Owens. I am the founder and executive chairman of Paddle.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
I know that both of your businesses are players in the digital market sector. It would be useful to understand, with some illustrative examples, how the current market dominance of a few large tech companies affects how you do your business, and how it has perhaps affected how you have been able to innovate and the costs of innovation. Perhaps we can hear from Ms Fairbrother first?
Kelli Fairbrother: I lead an independent business based in Cornwall that is challenging the incumbents’ dominance of digital books, which we believe have not been innovated on in decades. Our aim is to create an exceptional digital book experience that keeps young people engaged in books, makes books more accessible to the one in five people who struggle with traditional reading, and saves the 320 million or so books that end up in landfill every year.
The challenge that we face as a fast-growing, innovative business is that Apple and Google use their dominant positions in the mobile device and mobile app ecosystem as a means of forcing themselves into transactions between us and our customers. They do that to us in two ways: they force us to distribute our apps through the app stores, then, because we are distributed through the app stores, they force us to use their in-app payment services when we want to enable our customers to buy in-app, which is clearly the most obvious way in which customers would expect to transact with us, as we are an app-led business. They also prevent us from using alternative providers such as Paddle, which is a great UK business that we would love to use.
The challenge that that creates is that, by forcing us to use their in-app payment systems, they charge us about five to 10 times more than we would pay in the free and fair online payments ecosystem—we would be paying about 3%, versus the 15% to 30% they charge—and they pay us our own revenue at least a month late. That is our own revenue—
Seema Malhotra
Q
Kelli Fairbrother: For example, the revenue that I earned on 1 January this year I did not earn back from Apple until 9 March. By comparison, on average, online payments are paid to us in about seven days on a regular basis. The fees are effectively allocating all of the costs and generating excess profits from a minority of people who use the system to deliver digital content and services, which happen to compete with Apple and Google’s content services businesses. The behaviour you see in the market is the result of this behaviour. Companies either need to charge more for in-app purchase or they force customers on to a web experience to redeem their content in the app.
You heard earlier from Match explaining the difference between Uber and Match. It is the same. If I were selling physical books, I would not be subject to a 30% tax, even if I were selling them through the app, so that is interesting. As a very early-stage business, this hit to our margin and our cash flow is especially precarious. As you can imagine, it makes it difficult to access investment, especially in what is a very difficult fundraising environment at the moment.
The other thing we observe is that, as a non-subscription-based business, the app stores are not really fit for purpose for our needs. Up until about a month ago, we were allowed to choose—we have a catalogue of 50,000 titles—from approximately 90 price points, from 99p up to about 1,000. Our customers receive invoices that say, “Audiobook: £7.99”. They do not give them any more detail, which makes it difficult to know which books they have bought and which books they are trying to return. We do not control returns.
Seema Malhotra
Q
Kelli Fairbrother: In the receipts, yes, that is correct. I cannot merchandise—what we would call merchandise—or allocate the receipt to a particular title that the person bought to allow for the ability to reconcile transactions. It is not possible on Apple. Again, it is not fit for purpose. The way that the system works is that it is delivering you a receipt that says, “Audiobook: £7.99”. Those are the limitations of the system. Any discussion of it being a competitive product is quite misleading.
They offer us no control over our returns. Although there is some ability to control returns through the Apple system, it is difficult to understand exactly the process by which we are allowed to challenge returns. My co-founder is among the best in the world of digital media tech, a former director of production technology at ITV, and he is constantly frustrated by the limitations of the app store APIs. We get very little visibility into the transactions from Apple and Google. Our model for in-app payment where we sell these multiple thousands of different products is terribly supported by Apple and Google. We believe that it is either unintentionally—through neglect—unsupported, or intentionally, trying to force our customers to be on a subscription model.
Seema Malhotra
I will have to move on.
Christian Owens: I started Paddle about 11 years ago to help small software companies and developers to sell their products internationally. Today, we do that for around 5,000 businesses, a number of which are based in the UK. We provide payment services. We help those businesses to take payments all around the world and to pay local taxes and be compliant with the various regulations of wherever it is they sell.
For the last 10 years we have had constant inbound from our customers—who we support by processing payments and paying their taxes for them online for the web or desktop-based version of their products—saying, “Why can’t I use Paddle for my iOS or Android app?” We have tried on numerous occasions to figure out a solution to that, but we are simply prevented, on the basis of the terms and conditions of the app stores, from allowing those developers to process transactions via any mechanism that is not controlled by Apple and Google. For us, we are explicitly prevented from competing. I have no problem if Apple or Google build a better solution than us—that should win. Today, we are not even allowed to try.
The Parliamentary Under-Secretary of State for Science, Innovation and Technology (Paul Scully)
Q
Kelli Fairbrother: We are monitoring, on our own side, the transactions to be able to control entitlements, because we actually have to control the rights of the books for individuals who have purchased them. The risk for us is that a lack of ability to reconcile at the level of an individual transaction actually puts us at a degree of risk, in terms of our ability to manage the 100% accuracy of what we have delivered. The other interesting thing that happens, on the returns side, is that a customer could read the entire book and go to Google and get a return. I am only getting informed of that after the fact; I cannot really challenge the fact that the return was probably invalid. That is another example.
Paul Scully
Q
Kelli Fairbrother: I think the internet is global, and there are plenty of options out there. We are not convinced that we are not sending our own customers to Apple and Google, as an example. Customers are finding us, and they are being forced into particular ways to buy. Yes, there might be some benefit, but I am not convinced that the global internet would not provide me that same benefit and do it in a more competitive way.
Paul Scully
Q
Christian Owens: We have been doing this for 11 years, exclusively for digital products and for software companies; we have worked with thousands around the world and sell billions of pounds worth of digital and software products a year. This is something that we are very familiar with. Really, one of the main reasons that companies come to Paddle is so they can do that in a compliant manner. With the nature of digital commerce being so international, and dealing with various regulations and things like this around the world, coming to a trusted third party that is able to navigate all of those things for you—but, in our instance, do so in a way that is economically viable for these businesses—is what we have been doing for the last 10 years.
We have a tried and tested solution that has been working, and that many millions of consumers have used over the last 10 years. It is just that we are prevented from selling in this single medium.
Paul Scully
Q
Christian Owens: Absolutely.
Paul Scully
Q
Kelli Fairbrother: We think the Bill is a great first start. We think that it will give the digital markets unit the powers to move quickly. We would love to see timelines around the conduct requirements built in. We think this is a great opportunity for the UK to take a leading role in creating a free and fair ecosystem in the mobile space.
Christian Owens: I have nothing to add.
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I have no further questions.
Vicky Ford (Chelmsford) (Con)
Q
Kelli Fairbrother: Yes. It is interesting, because there are differences between the two ecosystems. Whereas I do get transaction-level data from Google, for example, I do not get it from Apple. Apple moved first to lower the price points from 30% to 15%, and Google took at least another six or 12 months after Apple moved to create that small business tier. Generally, they seem to be both on this path of using their dominant market positions to extract as much value from me. The question I would love to hear Google answer when they come in later is that these are our customers; my customers are also your customers. I just do not really understand why, if you can see that there is actual consumer harm happening, you are not working yourselves to address it.
Vicky Ford
Q
Christian Owens: I would not want to say that that is definitely happening. I think it is rather coincidental that within six to eight weeks of any price change happening in one ecosystem, it tends to happen in the other, as mentioned with the small business tier of 15%, with the subscription tier after one year also reducing to 15%. It does seem that way.
Vicky Ford
Q
Kelli Fairbrother: I am afraid that I am not a lawyer on the depth of confidentiality. From our side, we would love to see a little bit more transparency in the consultation process, so if there is action being taken by the DMU, we would love to make sure that we are being consulted if it affects our area. I am not sure I have a strong opinion on the confidentiality piece itself.
Vicky Ford
Q
Christian Owens: No, not any specific details on this.
Seema Malhotra
Q
Kelli Fairbrother: It is absolutely critical that judicial review is the standard that is used, because I think we have seen time and time again, in markets all around the world, that when Governments act, Apple and Google do their best to try to get around the work that is being done. They lawyer up—they have millions to spend on appeals slowing things down—and there really is a sense of urgency. This is existential for a lot of small app developers, so we would really urge that the Bill passes, it is not watered down and it passes without delay and without dilution, I think we would say.
Christian Owens: I agree.
Andy Carter (Warrington South) (Con)
Q
Andy Carter
I was interested in what you said about the cost of transactions. You suggested 3%. Where does that figure come from?
Kelli Fairbrother: Because of the constraints that Apple and Google put on us, we built a website, and on our website we use Stripe integration. The Stripe fees come out at about 3% to 4%, and it pays us every seven days. Again, this is where you can see competition; in the online payments ecosystem, there is healthy competition. Then you compare that with the app store monopolies and the control that it exerts over payments. The terms and conditions say that I am not allowed to use a prohibited payment method—for example, Christian is a prohibited payment method. That is not a free and fair ecosystem.
Andy Carter
Q
Christian Owens: We take the action that Apple and Google are taking, in terms of processing a transaction. We do this for thousands of companies outside the realms of the app store. The average price that a business will pay us will be somewhere in the region of 5%, and we are able to provide all the same services. We do payment processing. We are able to pay local sales taxes. We are able to deal with fraud. We review, with a human, every product that we sell before we sell it to ensure consumer safety. We are able to do all that in a profitable way by charging 5% on transactions.
Andy Carter
Q
Kelli Fairbrother: For our site, because of the 15%, we tend to break even on most of our transactions—on a transactional basis. So for us, there actually is not a great deal of room, because we also pay the content providers. The challenge that we have at the moment is that we are trying to raise investment and look as investible as possible. The reason why we built the website is that we were given a really difficult decision: should we force people into a web-based experience, to try to regain the margin that we have lost, or should we raise our prices? For us, it may not be that you will see this immediately delivered back to the customer. For us, the position is that we are going to continue to deliver an exceptional experience to the customer and we are going to be able to afford to do that. That is the crux of it for us.
Andy Carter
Q
Christian Owens: In its current form—as it is now—this is a very good Bill, and I really encourage it to go through without being watered down any further. It is great as it stands; it is a great start. I think that it is going to allow small businesses in this country to be more competitive and not be giving away a third of their revenue, effectively, to Apple and Google.
Kelli Fairbrother: I agree.
Paul Scully
Q
Kelli Fairbrother: It is regular in the sense that the company takes a month of data and then pays me a month and some days later. So it happens every month, but it is happening every month on a timeline that is, again, at least five times as long as what I would be getting—using Stripe as an example.
The Chair
I thank our witnesses for giving evidence today. We will move on to the next panel. Thank you very much.
Examination of Witness
Tom Morrison-Bell gave evidence.
The Chair
Thank you very much for coming, and welcome. We will now hear oral evidence from Tom Morrison-Bell, Government affairs and public policy manager at Google. We have until 2.45 pm. Could the witness please introduce himself for the record?
Tom Morrison-Bell: I am Tom Morrison-Bell. I am a public policy manager at Google, and I work on a range of competition and media policy issues.
Seema Malhotra
Q
Tom Morrison-Bell: Thank you for the question. Let me just take a step back and look at how search and this question fit in with the current regime. A huge amount of consumer benefit comes from products such as Google Search. By and large, Google’s products are free, and there are also paid services that support around 700,000 small businesses in the UK. If you look at the financial aspects of search—so, advertising—the revenues generated are in a very small subsection of that. The market might be e-commerce or retail, for example, rather than general search. If you look at retail—people will place an ad next to a keyword such as “buy trainers”—you will see in the market that most retail searches do not start on Google Search. Also, advertising revenues on other e-commerce platforms are growing much faster than Google. So it is important to understand it specifically: yes, there is a general search engine, but in the case of markets, that can often be a different story.
Seema Malhotra
Q
Tom Morrison-Bell: With respect, I do believe that Google is one of the most innovative companies and largest investors in innovation. Between 2018 and 2022, Google spent $145 billion on research and development. That includes amazing stuff that happens here in the UK. For example, Google DeepMind, which is probably the world’s foremost artificial intelligence research institute, is based here and is solving incredible problems such as protein folding.
Seema Malhotra
Q
Tom Morrison-Bell: Yes, I can. I am happy to touch on some of those issues with regard to the Bill. As you will have heard by now, the Bill gives very extensive powers to the DMU that will be highly discretionary and very open-ended. That is how the Bill has been drafted. In Google’s case, those will be powers to direct how complex products are designed, and critically the regime will be forward-looking rather than backward-looking, which is how traditional competition policy works. As I have said, Google’s products and services drive a huge amount of consumer benefit in the UK, and these markets are fast-moving and complex.
With the Bill specifically, our key point is that in relation to products that provide a substantial amount of consumer benefit, that are innovative and that are complex, it is important that these very open-ended powers for the regulator have appropriate checks and balances. I wanted to bring to the Committee three specific areas in which we think the Bill can be strengthened. I am sure that you will have heard about these in other sessions.
First, I think there are strong grounds for making sure that the appeals standard is aligned with that in the Competition Act 1998, which is appeal on the merits as opposed to judicial review. Secondly, the Bill should ensure that consumer benefits can appropriately be considered by the regulator in the regime by adding a bit more coherence to the way the countervailing benefits exemption is constructed. Thirdly, one of the really innovative things that is designed to drive the Government’s ambition of ensuring that it is a speedy regime with innovation at its heart is this idea of a participative approach, whereby all parties involved in the market are encouraged into dialogue with the regulator.
One thing that the Bill provides for is for private cases to be brought before the digital markets unit has found any breach of a requirement on a firm. If that is the case, we think it is important that the digital markets unit is given the opportunity to make the decision first. Otherwise, there is a risk of the courts deciding something and the digital markets unit deciding something else, so that we end up with potentially conflicting compliance requirements on regulated firms.
Seema Malhotra
Q
I want to come back to a specific point. You have talked about consumer benefit, and I think we all see the consumer benefit that can and does come from the innovation of Google. However, given your dominance and market power, do you accept that the way in which Google works with other companies is actually contributing to consumer harm as well?
Tom Morrison-Bell: As a general statement, no: I would not agree with that, straight up. We deliver huge amounts of consumer benefit. There are numerous areas where we are and have been in dialogue with the CMA. We really want to continue to be able to deliver that.
Seema Malhotra
Q
Tom Morrison-Bell: Well, I think there are some things to unpack. For example, payment systems have been mentioned. We have agreed commitments with the CMA—I believe they are out to market testing at the moment—on offering a range of payment systems. When it comes to app stores, 99% of app users pay 15% or less on fees. There are important details here.
Paul Scully
Q
Tom Morrison-Bell: Generally speaking, Google is estimated to provide around £55 billion of economic activity a year in the UK, as a starting figure. We have multiple products. It depends where you look. Workspace is our productivity suite, with word processing and similar, and is estimated to have saved 600 million hours for workers around the UK through more effective communication and speedier software. As I have said, tools like search and maps are free, and they also support businesses across the country to be more effective. That drives £55 billion in economic activity.
There is also our Play store. Android is open source and a free operating system that is available free to mobile device manufacturers, and they can make their own versions. That has substantially driven down the cost of handsets around the world and has been a huge contributor to making sure that people can have access to the internet at lower rates. The Play store itself is estimated to support about 240,000 developer jobs in the UK alone. That drives revenues for them of about £2.8 billion. Across the board, there is substantial benefit.
Paul Scully
Q
Tom Morrison-Bell: There are two things there. First, what is most important about the regime is that consumers are at the heart of it, and that it is for the regulator, with the powers that it is given, to make the assessments as to whether practices are pro-consumer or not.
What we also think is important is that on one side we have very large and open-ended powers, with products and markets that drive a lot of consumer benefit, and on the other a need for more robust checks and balances to ensure that consumers really are at the heart of the regime. In a sense, it is less about what company X says about company Y than about the coherence of a regime to ensure that consumers are at its heart and that the Government’s ambition for driving innovation without blanket requirements on firms or unduly burdensome regulation is realised.
Paul Scully
Q
Tom Morrison-Bell: Of course. There are two questions about appeals to address. One is speed, which I will come to, and the other is why there are good, principled reasons for that being the right standard.
As I said, the Competition Act has appeal on the merits as the appeal standard. These interventions are much more akin to what the Competition Act does. In both 2013 and 2019, the Government consulted on whether to lower the threshold in the Competition Act to judicial review. In both cases, it was decided not to do so. Indeed, in 2013, the competition appeal tribunal itself made a submission that that would not be appropriate, because it had seen cases overturned or sent back to the CMA.
Furthermore, in recent weeks, an interesting paper by the former head of the Government Legal Service, Sir Jonathan Jones, appeared as a law article. He said specifically with regard to the DMU that, with those very open-ended powers on the one side, the current proposals—his quote, not ours—give rise to “concerns about due process”, because of the imbalance. There are strong and principled reasons why.
There is also the speed point, which needs to be addressed. That is in line with the regime and, as when we worked on the Privacy Sandbox, we want this to be a speedy regime, to accelerate it. We have shown good will in real examples of how we have tried to make that participative approach work. But there are other existing regimes in which, by and large, the CMA is given time limits to which it has to respond. That is evident in gas or electricity prices, postal services, civil aviation, parts of financial services, parts of water and numerous other precedents in the UK of time-limited appeals. There is, however, scope to ensure that we end up with consumers at the heart. It is important—these are complex products—that at the end of the day we are able to have a system in which someone can scrutinise whether the decisions are right or wrong for consumers and companies. It is not just about whether due process has been followed.
Kevin Hollinrake
Q
On innovation, we are keen that you continue your R&D spend and innovate. Is there anything in the Bill that will make you think twice about innovation? We asked other witnesses and they cannot see any issue, but some concerns have been raised with us. Do you feel that you might have to talk to the regulator or CMA before you develop a new product? Is that a rational concern that you have?
Tom Morrison-Bell: The Privacy Sandbox is probably the best example of perhaps any company, as far as I am aware. That is the only model to date that could be a bit like the participative approach. That is a really good example of where we were able to come to the regulator to say, “Look, when it comes to competition, there are trade-offs. In this case, it is privacy, with us phasing out cookies, with competition, because maybe you have to use different Google advertising technologies.” We would like the competition authority and the privacy authority to make sure that both their concerns are met before we roll things out. That is good, because it prevents costly roll-outs that might have to be rolled back, and regulators are aware, consumers have clarity and other businesses in the ecosystem have clarity as well. It is true that that required numerous months of consultation with the regulator, but I think there is the opportunity for the participative approach to work well. Again, because you have this open-ended and flexible system, it is important that there are checks and balances in place.
Kevin Hollinrake
Q
Tom Morrison-Bell: No. We are really committed to the UK, which is a special market for us. We employ 6,500 people here. But those checks and balances are important to make sure that you know that your decision is right or wrong, not just whether due process has been followed.
Anna Firth (Southend West) (Con)
Q
Tom Morrison-Bell: With respect, I think that if you look at the broader Play system as a whole, 99% of all users of the Play store—those developers—pay 15% or less on their fees. By and large, the fees are staggered. That means that companies that make less money get to enjoy the benefits of the ecosystem in the same way as larger companies, which may pay larger fees.
On the payments point specifically, we are in discussions with the CMA, as I said. There are two different billing models, which are being agreed on and are out for market testing, so there is ongoing discussion in a constructive way with the CMA that will bring forward those two new payment methods.
Anna Firth
Q
Tom Morrison-Bell: I do not think we do. This is what the CMA process is going to yield: something called user choice billing or developer choice billing. In developer choice billing, developers can pick their billing system; with user choice billing, it is users who have the choice.
Anna Firth
Q
Tom Morrison-Bell: It is being reformed. The developers will have those choices, and those choices are being scrutinised by the CMA to make sure that they are good for consumers, that they are good for companies like the ones you mentioned, and that they are appropriate in the ecosystem.
Vicky Ford
Q
Tom Morrison-Bell: I think there are a few things to unpack there. With respect, the Kelkoo case refers to the Google Shopping case with the European Commission. The remedy that was agreed by the European Commission as the competition authority was rolled out by Google in 2017, around 60 days after the finding was heard. The appeals are still going on, because there are different points of law that are being considered, but the remedy—
Vicky Ford
Q
Tom Morrison-Bell: But, importantly, the remedy that was agreed by the Commission has been in place for six years. That is not necessarily going to change if the points of law change. The remedy has been in place for that time, and the courts considered the opinions of various different complainants and Google as part of that appeal process.
Vicky Ford
Q
Tom Morrison-Bell: The Commission’s inquiry process has been going on for two years, rather than a legal process.
Vicky Ford
Q
Tom Morrison-Bell: The proposed participative approach in the UK is different from how the competition system works in Europe.
The Chair
Order. I am afraid that that brings us to the end of the time allocated for this session. On behalf of the Committee, may I thank our witness for giving evidence today?
Ordered, That further consideration be now adjourned. —(Mike Wood.)
Energy Bill [ Lords ] (Eleventh sitting)
Thursday 15th June 2023
(11 months ago)
Public Bill CommitteesRead Full debate Energy Act 2023 View all Energy Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 June 2023 - (15 Jun 2023)
The Committee divided: - Ayes: 5 / Noes: 7 - Question accordingly negatived.
The Parliamentary Under-Secretary of State for Energy Security and Net Zero (Andrew Bowie)
I beg to move amendment 135, in clause 245, page 206, line 13, leave out from “wind” to end of line 18 and insert “activity” means—
(a) the planning, construction, operation or decommissioning of offshore wind electricity infrastructure, or
(b) the identification of an area for activity within paragraph (a) (whether or not any particular offshore wind electricity infrastructure is in contemplation).”
This amendment widens the definition in clause 245 to cover the identification of an area for offshore wind development. The amendment also changes the definition to “relevant offshore wind activity”.
The Chair
With this it will be convenient to discuss the following:
Amendment 164, in clause 245, page 206, line 18, at end insert—
“(c) any development listed in Section 66 of the Marine and Coastal Access Act 2009 that is connected to the construction, operation, maintenance or decommissioning of a generating station within paragraph (a).”
This amendment would extend the fast-track consenting process for offshore wind to supporting marine development necessary to support the offshore wind project.
Government amendments 136 and 137.
Clause stand part.
Government amendments 138 to 141.
Clause 246 stand part.
Government amendments 142 to 145.
Clause 247 stand part.
Government amendments 146 to 152.
Amendment 166, in clause 248, page 210, line 7, leave out paragraph (i).
This amendment, together with Amendment 167, would remove the ability to disapply certain environmental protections when making regulations relating to the assessment of the environmental effects etc of relevant offshore wind projects.
Amendment 167, in clause 248, page 210, line 12, leave out subsection (5).
See explanatory statement to Amendment 166.
Amendment 165, in clause 248, page 211, line 38, at end insert—
“(10A) When making regulations under this section the appropriate authority must have regard to the particular importance of furthering the conservation and enhancement of biodiversity.
(10B) The appropriate authority—
(a) may make regulations under this section only if satisfied that the regulations do not reduce the overall level of environmental protection or the level of protection for individual sites and species, and
(b) before making regulations under this section, must publish a statement explaining why it is so satisfied.
(10C) Before making regulations under this section, the appropriate authority must seek advice from persons who are independent of the authority and have relevant expertise.
(10D) A statement published under subsection (10B)(b) must include an explanation relating in particular to protection provided by—
(a) the Marine and Coastal Access Act 2009, the Marine Act (Northern Ireland) 2013 or the Marine (Scotland) Act 2010 (as the case may be),
(b) the Conservation of Habitats and Species Regulations 2017,
(c) the Conservation (Natural Habitats, &c.) Regulations 1994 or the Conservation (Natural Habitats, etc.) Regulations (Northern Ireland) 1995 (as the case may be), and
(d) the Conservation of Offshore Marine Habitats and Species Regulations 2017.”
This amendment would apply certain conditions to the making of regulations relating to the assessment of the environmental effects etc of relevant offshore wind projects.
Government amendment 153.
Clause 248 stand part.
Government amendments 154 and 155.
Clause 249 stand part.
Government amendment 156.
Clause 250 stand part.
Andrew Bowie
What a pleasure it is to serve under your chairmanship yet again, Mr Gray, as we plough on through this immense Bill.
Clause 245 is the first in a series of clauses relating to offshore wind infrastructure projects that will provide new approaches to delivering compensatory measures for environmental impacts and speed up and simplify the consenting process for offshore wind projects. They will do all that while continuing to protect and enhance our marine environment. The clause sets out some key definitions for the purposes of the subsequent new clauses relating to offshore wind infrastructure projects.
I will now briefly set out the Government amendments tabled last week. Government amendments 136 and 137 define “offshore wind electricity infrastructure” to ensure the offshore wind clauses capture all infrastructure in the UK marine area used or intended for use in connection with an offshore wind farm.
Government amendments 135 and 138 to 156 widen the definition of “relevant offshore wind activity” in clause 245 to cover the identification of an area for offshore wind development. That ensures all the clauses relating to offshore wind infrastructure projects apply to offshore wind spatial plans, as well as to individual projects. The amendments also change the definition to “relevant offshore wind activity”.
Clause 246 will allow strategic compensatory measures to be used to fulfil duties under the habitats regulations, the Marine and Coastal Access Act 2009 and the Scottish and Northern Irish equivalents. That should speed up decision making on offshore wind farm development consents while protecting and enhancing our marine environment. For some offshore wind projects, all feasible options to avoid, reduce or mitigate adverse impacts on protected habitats and species will be exhausted. Where that happens, the public authority must satisfy itself that sufficient compensatory measures for these impacts are secured before granting development consent.
The devolved Governments are responsible for consenting to some offshore wind projects in their areas. These provisions ensure that the appropriate public authority can consider applying strategic compensatory measures to offshore wind projects.
Clause 246 will enable public authorities to use strategic compensatory measures that have already been delivered or will be delivered in the future to fulfil their compensation obligations. As strategic compensatory measures could be delivered away from the site affected by the development, the Government are committed to working with devolved Administrations to agree how to manage such measures with cross-border implications.
Clause 247 enables the establishment, operation and management of one or more marine recovery funds. It allows the Secretary of State to delegate functions connected with the marine recovery fund, including to a public authority under a devolved Administration. It is our intention to delegate the functions necessary for devolved Governments to operate their own funds as appropriate. That will mean their marine recovery fund may deliver compensatory measures for the projects they consent. It will be an optional route for offshore wind developers or plan promoters to discharge requirements on them to compensate for damage to a marine protected site.
The Department for Environment, Food and Rural Affairs is leading work with the offshore wind industry and other stakeholders to develop a library of ecologically robust and commercially feasible strategic compensation measures. The marine recovery fund will deliver only measures that have been approved through this process. That will help to reduce time spent considering compensatory measures during the consenting process. It provides a mechanism to deliver approved compensatory measures strategically, using financial contributions from one or more developers or plan promoters.
Clause 248 will help speed up the consenting process for offshore wind projects. It will allow the habitats regulations assessment and marine conservation zone assessment processes to be adapted and streamlined. These changes will apply to offshore wind development in the UK marine area only. The clause will enable the modification of existing, and the creation of new, legislation for the assessment of the environmental effects on protected sites caused by the development of offshore wind. We intend to make regulations that ensure that environmental protection of protected sites is addressed earlier in the pre-application planning process. That should speed up the consenting process by providing greater certainty and reducing statutory nature conservation body resource spent on examination of well-understood mitigations.
The powers also allow for the development of guidance to outline how assessments of the effects on protected sites should be undertaken. We also intend to make regulations that provide clarity on compensatory measures, which should make it easier for developers and regulators to offset damage to protected sites, and to secure such solutions at an earlier stage.
Clause 248 will also allow the Government to consider enabling developers to provide broader compensatory measures, rather than so-called like-for-like measures, that improve wider marine ecosystems but are not targeted at specific impacted habitats, species or protected areas. I must emphasise, however, that a broader approach should be considered only where like-for-like measures are not the most effective compensation. We intend for consent decisions to remain subject to advice from statutory nature conservation bodies.
Clause 249 will help to maintain consistency in environmental assessment processes across the United Kingdom marine protected areas network. To balance that with our offshore wind ambition, we recognise the importance of engaging relevant parties on those important issues. Clause 249 will therefore ensure that the Government and the devolved Administrations work closely with each other, as well as with statutory nature conservation bodies and marine regulatory bodies, on any changes to the process, and consult on issues relevant to their waters. In addition to clause 245, clause 250 sets out some key definitions for the clauses relating to offshore wind infrastructure in this chapter.
With that, Mr Gray, I beg to move that clause 245 and Government amendment 135 stand part of the Bill.
The Chair
That is not quite actually what the Minister should be moving. The Minister is moving amendment 135, proposed to clause 245, as on the amendment paper; the question is that the amendment be made. The Minister does not move clause stand part. I move stand part; the Minister doesn’t.
Dr Alan Whitehead (Southampton, Test) (Lab)
As the Minister has said, we are making progress with this enormous Bill, part of which is the enormous clause 245 and everything that goes with it. Hon. Members will see that Mr Gray has undertaken a difficult task in accommodating these clauses, which cover various factors, and a considerable number of amendments in a single group for debate. I am afraid that that means that a considerable amount of unpacking is necessary, so I hope that hon. Members will forgive me for spending a little time doing so.
To put the Government and Opposition amendments in context, I will reflect briefly on how part 12 seeks to better incorporate in planning arrangements a combination of circumstances relating to offshore wind electricity generation. The reason for that is to ensure that those planning arrangements proceed much more efficiently, including by reducing the time spent getting consent for offshore wind developments. It also proposes bringing a number of other things into the zone—I will give one or two examples in a moment—in order to make the offshore wind planning process much more holistic, as opposed to current approach of wind farm by wind farm, and device by device. It is about making sure that the process can be carried out much more efficiently by speeding it up and redefining it. We must also try to ensure—and we will come to this in a moment—that we take a balanced approach towards speeding up the process, by considering environmental and conservation issues both offshore and in the North sea.
Various clauses in this group deal with different aspects of what we are trying do with offshore wind. Hon. Members will see that both the Bill and the Government amendments suggest doing so via particular routes. The purport of the Government amendments, as far as I understand them, is mainly to ensure that issues wider than just wind farms are included in the whole planning discussion.
Government amendment 136 states that “offshore wind electricity infrastructure” means
“a generating station, in the UK marine area, that generates electricity…or infrastructure, in the UK marine area, used or intended for use in connection with—
(i) an offshore wind generating station, or
(ii) the conveyance of electricity generated by an offshore wind generating station.”
That includes not just the generating stations themselves, but the cables, wires and other arrangements going to and from the stations, including to the point where they are landed onshore.
That is particularly important, given that it is inevitable—indeed, this should have been the case a long time ago—that offshore generation will be undertaken not by point-to-point arrangements with cables to individual wind farms, but by cabling systems that will, for instance, connect wind farms with nodal points to collect their power at sea and then convey that power via one common cable, perhaps to a particular landing station, as opposed to our current point-to-point arrangements.
The development of a grid highway in the North sea—or, indeed, in the Celtic sea—will be integral to the future operation of those wind farm arrangements. It is, therefore, quite proper that that should be considered in the overall planning arrangements. Government amendment 136 allows for that and also very helpfully states in its explanatory statement that it also covers bootstraps. I am sure that everybody knows what a bootstrap is. In a sense it has nothing to do with offshore wind. It is actually an interconnector cable that is anchored at one point on the shore—on land in the UK—and conveys a high-voltage current, via the seabed, to another land point, particularly to get around constraints of onshore cabling congestion.
Katherine Fletcher (South Ribble) (Con)
While I understand the argument that the hon. Gentleman is trying to prosecute, surely we should not let the perfect be the enemy of the good. We are talking about how to sensibly protect the environment while establishing a broader regime for offshore wind, which has huge benefits for the environment. Can he understand that what he proposes might tip the balance towards making the perfect the enemy of the good?
Dr Whitehead
The hon. Member makes a valid point. Certainly, we do not want to effectively veto the development of offshore wind by putting restrictions on it place by place, scheme by scheme, in such a way that those schemes cannot go ahead. However, the North sea and the Celtic sea, for example, are very large places. They have a great many sites that can be used for offshore wind development in a perfectly good and environmentally conscientious way, which allows for enhanced development to take place without trashing the marine environment. The issue is not whether we make the best the enemy of the good, but how we pursue the good in tandem with environmental considerations, while not stopping the progress of that enhanced development.
Katherine Fletcher
I am grateful to the hon. Gentleman for giving way again, and I will make this my last intervention. He has just described offshore wind as trashing the marine environment. I really do not think that we can leave that on the record. In fact, we could highlight the good about offshore wind development. One of the most destructive marine practices is bottom trawling, which is made much more difficult with wind turbines in place. Once installed, wind turbines actually create nursery environments for the marine life that I was so fortunate to study at university.
Dr Whitehead
The hon. Member would be absolutely right again, had I said that offshore wind was trashing the environment. I think that when we get the record back we will see that I said, “so that we can proceed without trashing the environment.”
Dr Whitehead
Okay. What I was trying to convey—perhaps I did not do so in quite the pellucid way I might have—was what we want to achieve with offshore wind development. As I have said, the Opposition are committed, along with the Government, to a huge increase in offshore wind, which we think can be achieved, most importantly, while taking proper note of the environmental considerations that surround those sites. As the hon. Member for South Ribble says, in the right places and under the right circumstances offshore wind can be, in the end, a substantial enhancement of the underwater habitat and environment.
Kerry McCarthy (Bristol East) (Lab)
I think my hon. Friend made it perfectly clear that some places are appropriate for offshore wind and some are not because of the nature of the marine environment. Does he share my concerns about existing protections? A lot of marine protected areas are described as little more than “paper parks” because they are not achieving what they are meant to. We need to enhance the protections for those designated areas. Just as in some places it is appropriate to fish and in others not, we ought to respect the fact that in some areas, marine protection has to be the No. 1 priority.
Dr Whitehead
My hon. Friend is quite right. She will no doubt be thinking back to the Marine and Coastal Access Act 2009, which started to develop exactly the concept that she sets out—that there are right and wrong places for development. There are places that we should seriously ensure are protected as much as possible—marine conservation zones—and it would be really quite a sin to put development on those. There are also places where there are known marine traffic routes, and siting an offshore wind farm right in the middle of a major offshore traffic route would not be a good idea either. There are other areas where the communications required for offshore wind farms could themselves be subject to environmental considerations, and those need to be taken into account too.
After the 2009 Act was passed, a number of marine conservation areas were supposed to be set up. Many of them have not been, and those that were have not had the level of policing and enforcement that they should have had.
Kerry McCarthy
As Labour left government, we had plans for an ecologically coherent network of, I think, 113 marine conservation zones. Does my hon. Friend share my disappointment that we are now 13 years on and still far from achieving that? It is important that we do not go backwards on the issues that we are discussing today. Obviously, we need to go forwards, but going backwards would be even worse than remaining in the same place.
Dr Whitehead
My hon. Friend is right again, and she recalls the exact number of conservation zones, which had escaped my memory. We might say that if we had those marine conservation zones in place now, we would be much clearer today about exactly what we will be doing as far as planning in the North sea and Celtic sea is concerned.
Lyme Bay fairly near me, which should be a marine conservation zone—I am not sure that it is—has cold-water coral features, and it would be quite lethal to those formations were we to develop offshore activities there. That is why that zone should be protected. Other areas further down—
The Chair
Order. I am reluctant to interrupt the hon. Gentleman because he is a great expert on these matters and I greatly enjoy his expositions. However, marine conservation zones do not come into this part of the Bill. If he could tether his remarks to the question of offshore wind, they might be more within scope.
Dr Whitehead
Yes. I think, Mr Gray, you are drawing an analogy between floating offshore wind and tethered offshore wind and saying that I should restrict my remarks to tethered offshore wind rather than free-floating.
Dr Whitehead
Indeed. I will endeavour to tether my remarks to the offshore wind in the North sea that we are thinking about.
What I was trying to get clear is not that Labour Members want to restrict unnecessarily or negatively the development of offshore wind—we want it to go ahead as quickly as possible and on as many sites as possible in the North sea—but that we want it go ahead on the basis of a proper regime that ensures that we equate environmental protection with the development that goes ahead. We are not at all sure that the compensation principle, which appears to be applied here substantially, is the best way to do that.
Amendment 164 very much goes along with what the Government have now put in their own amendment, so amendment 164 is probably pretty redundant. It seeks to bring in a more holistic picture of what it is to develop offshore activities and would, according to our explanatory statement,
“extend the fast-track consenting process for offshore wind to supporting marine development necessary to support the offshore wind project.”
The Minister might want to comment, but I think that is pretty much covered by the Government’s amendments, so I am happy about that.
Amendments 165 to 167 get rather more to the heart of what I have been talking about. Clause 248, which concerns the assessment of environmental effects, allows the Minister by regulation, among other things, to switch off a number of environmental protections—I will not read them all out because it would take a very long time—that are already in place and replace them with the compensation arrangement. We do not think it is right that those protections should be switched off, and with amendments 166 and 167 we seek to switch off the switching off. Amendment 166 would leave out subsection (4)(i), which refers to
“any relevant Habitats Directive rights,”
and amendment 167 would switch off subsection (5), which lists the provisions set out in subsection (4)(i)(i). As I said, it is a long list of sections of Acts and regulations that very much underpin marine environmental protection.
Having done that, we want to replace those provisions with a positive alternative, set out in amendment 165. As I said, we want the appropriate authority to
“have regard to the particular importance”—
I emphasise “have regard”—
“of furthering the conservation and enhancement of biodiversity.”
The amendment also states that the appropriate authority
“may make regulations under this section only if satisfied that the regulations do not reduce the overall level of environmental protection or the level of protection for individual sites and species, and…before making regulations under this section, must publish a statement explaining why it is so satisfied.”
The amendment would also require the appropriate authority to
“seek advice from persons who are independent of the authority and have relevant expertise,”
and to
“include an explanation relating in particular to protection provided by”
measures such as the Marine and Coastal Access Act, the Conservation of Habitats and Species Regulations 2017 and the Conservation (Natural Habitats, &c.) Regulations 1994. The positive alternative we have put forward is that the Secretary of State should have regard to all those things.
As underlined by the brief exchange between myself and the hon. Member for South Ribble, I mean not that the environmental regulations have a veto on progress, but that the Secretary of State should have regard to them and should make regulations that are compatible with them as far as possible. If they are not compatible, the Secretary of State needs to provide a good explanation as to why, and the circumstances under which that projected development has gone ahead. The development arrangements should work with provisions such as the Marine and Coastal Access Act, rather than against them. That is a much more sensible way to proceed, with a combination of proper and rapid planning consideration and proper environmental protection.
As the hon. Member for South Ribble said, the ultimate outcome should be one where we have a settled marine environment, which is beneficial overall. That includes, for example, the additional assistance that fish conservation may receive from wind farms being in particular places, allowing species to flourish and expand out of the range of fishing vessels, under the shelter of the turbines and so on. The possibility of producing a beneficial outcome overall for marine environments as a result of our trying to develop these new sources of low-carbon power need not be an oppositional activity. It is not a zero sum game; we can have the two together. We think our amendments set out the right way of doing that.
I look forward to the Minister defending the alternative way, as set out in the clauses. The extent of what he has to say will determine whether we decide to divide on any of the amendments. It is important that we get this right together. Ideally, the Minister would come at least some way towards encompassing our alternative method, rather than that which is presently set out in the clauses.
Alan Brown (Kilmarnock and Loudoun) (SNP)
It is a pleasure to serve under your chairmanship, Mr Gray. You must be delighted to have the Thursday afternoon shift this week. I agree with the Government amendments on the expansion of definitions and capturing other infrastructure required to facilitate service offshore wind generation, especially given the scale of the build-out still required and the renewable energy offshore wind targets that we want to see.
I agree with the principles of strategic compensation for adverse environmental effects in clause 246. Such considerations have been a stumbling block for Berwick Bank offshore wind farm, for example, so having regulations that provide clarity on environmental considerations and possible compensation for other projects is certainly welcome. The key test will be whether sufficient clarity is provided and workable. If we want to deploy renewable energy at a much quicker rate to achieve cheaper bills and eliminate reliance on fossil fuels, we need to be able to look at the environmental impacts in the round and come to sensible, balanced solutions. That means creating environmental equivalence or improvements elsewhere by implementing solutions away from sites if it is deemed that they cannot mitigate the environmental impacts of the site of infrastructure construction.
I have one word of caution; I may not be quite as concerned as the shadow Minister, the hon. Member for Southampton, Test, but we need to ensure that these regulations and processes do not become an avenue or vehicle for developers to choose a much easier, cheaper financial solution for them, rather than looking at all avenues to mitigate the environmental impacts at the construction sites. It is critical that robust analysis is undertaken by the relevant regulatory bodies. I realise that subsection (4) is not intended to ensure that everything is looked at and worked through to the nth degree, but we need to ensure that that analysis is not overlooked in the dash for renewable energy and that no shortcuts are taken that allow developers to choose an easy financial solution.
I turn to clause 247. I am sure the Minister is aware that the Scottish Government have concerns that the clause gives the Secretary of State the powers to operate a marine recovery fund in Scottish waters without the consent of Scottish Ministers. Indeed, the Secretary of State will have the powers to completely bypass the Scottish Government and appoint another person or authority, and that is replicated for other devolved Administrations. I understand that the Minister has had ongoing discussions with Gillian Martin MSP—the Energy Minister at the Scottish Government—and other officials on these matters, but as far as I know nothing has been agreed yet. That is why I tabled amendments 176 to 180 to outline my thoughts and put down a marker. Clearly, my amendments were not selected for debate and cannot be voted on, given when they were submitted, but they put down a marker. There is still a window in which the Minister can come to some sort of agreement with the Scottish Government on amendments. It would be good if he could provide the Committee an update on how close we are to a solution. Some form of amendment is still required to subsection (8) in that regard.
There may be issues with clause 247(4), which gives the Secretary of State broad regulation-making powers that could be used in a highly prescriptive manner to direct Scottish Ministers as to how they determine that a compensation condition has been discharged. Again, it should not have been too controversial to agree a way forward. That should be done with the consent of Scottish Ministers before implementation.
I hope that the Minister will acknowledge the collegiate working with the Scottish Government and officials. Nobody is trying to being awkward or territorial for the sake of it, nor are they trying to introduce arbitrary red lines. That is why we are giving the Government a bit more time, rather than pushing votes and extending the debate on this; we are trying to find a collegiate way forward. Again, I hope the Minister can give some insight about a solution with regards to subsection (4).
Finally, in relation to devolution, clause 247(9) allows the Secretary of State to cancel functions that Scottish Ministers have consented to under that clause, which seems anomalous. Again, I am looking for some sort of compromise to protect devolved functions in that regard.
Clause 248 does not provide sufficient certainty that Scottish Ministers will retain consenting functions in the Scottish offshore region or waters beyond 12 nautical miles. I understand that the Scottish and UK Governments have discussed this, but what is the timescale for a possible agreement? I believe that the Scottish Government have suggested draft amendments, so what is the UK Government’s view on them?
Subsections (7) and (8) of clause 248 are too broad. They could alter executively devolved powers and fundamentally shift existing arrangements for the consenting and licensing of offshore wind projects in the Scottish offshore region. Does the Minister appreciate those concerns, and does he have a plan to resolve the situation?
Olivia Blake (Sheffield, Hallam) (Lab)
It is a pleasure to serve under your chairship again, Mr Gray.
I declare an interest, given that we are now talking about renewables: my husband is a company secretary of an organisation called Sheffield Renewables, which is a community benefit society that funds, develops, owns and operates renewable energy systems in Sheffield. Although I hope that Sheffield will not become the coastline—if we do everything right so that vast swathes of east Yorkshire, including Selby, are not under water—I thought that it would be prudent for me to declare that interest at this stage.
As a former shadow Minister for nature, this part of the Bill strikes a chord with me. There are things to welcome in the clauses, but I share some of the concerns that have been outlined by my hon. Friend the Member for Southampton, Test. In fact, I agree with the words of an Environment Audit Committee report in relation to the development of offshore wind: we should
“be extremely sensitive to biodiversity considerations given the obvious risks of disrupting important habitats”.
That is important because the Bill represents an attempt to tackle not only the carbon crisis, but the nature crisis. What is bad for one is bad for the other, so it is important that we bear biodiversity in mind with every step we take through the Bill, not least because nature is a massive carbon sink. The UK already faces massive nature depletion—we have has some of the worst nature depletion in Europe—so it is right that we debate how the Bill takes such considerations into account.
I fear that clause 248 provides wide powers to ignore habitat regulations, marine Acts and general duties around assessment, which is problematic. There is also something of a misalignment between some of the wording in the Bill and that in the Environment Act 2021. When that Act seeks to alter habitat regulations, there are a lot of caveats, and it might be worth the Minister considering whether it would be right to have those caveats in the Bill, given that both measures represent Government policy and strategy.
I hope that the Bill does not conflict with 13 by 2030, which we have had a conversation about, and the protection of marine areas. I also hope that we will discuss protections. I particularly support our amendments 166 and 167, because it is important to have that switch-off or death switch, I suppose—I am trying to think of a way of phrasing it. We need to keep those protections in place where we can. If we allow ourselves to be deluded into thinking that the impact on the environment off-sea will not affect us, we are really missing the point. It would have been nice if there had been a reference to blue carbon in the Bill. Obviously, that has not materialised—I understand why, because the Bill is predominantly to do with energy—but we are missing measures in that space as well.
It is incredibly important that the Minister considers amendment 165, particularly as it outlines some of my concerns about the Bill’s alignment with the Environment Act. It is quite clear that the Bill could do more to ensure that environmental protections exist and that we are not cutting our nose off to spite our face with some of our activity.
Andrew Bowie
I thank the hon. Members for Southampton, Test, for Kilmarnock and Loudoun, and for Sheffield, Hallam for their comments.
The hon. Member for Kilmarnock and Loudoun made some pertinent points, and I understand his concerns around consult and consent throughout the Bill, especially in regard to consent for licences for offshore wind, but I would just say that negotiations are ongoing. There has been very good discussion and work between UK and Scottish Government officials. That is all part of the wider legislative consent motion negotiations, which are ongoing, so I cannot go into the specifics of each case that he mentioned. There are ongoing discussions about these specific clauses with the Scottish Government. By the time of Report and Third Reading, we will hopefully—well, certainly—have more to say about how those discussions have proceeded.
I turn to the comments made by the hon. Members for Southampton, Test and for Sheffield, Hallam—we are seeing so much of each other that perhaps we are becoming hon. Friends. I understand the concerns around whether marine protected areas will be substantial enough to protect the areas of sea that we are discussing. Now that we have established the MPA network and it is substantially complete, DEFRA is working very quickly— as we speak—to implement management measures to deliver protections in the marine environment.
We heard a question of whether we are just watering down the environmental assessment process and if we will cause further damage. Absolutely not—I give my guarantee. The Government are committed to the environmental protection of the marine environment, and developers and the relevant public authorities will continue to be required to undertake environmental assessments ahead of consent being given. That will ensure that developments are located where there are low environmental sensitivities and where impacts can be avoided, reduced or mitigated; or, where that is not possible, that suitable compensatory measures are identified early in the processes. I hope that that addresses some of hon. Members’ concerns.
I thank the hon. Member for Southampton, Test for tabling amendment 164, because it is important. We recognise the importance of extending the fast-track consenting process to offshore wind, as he recognised. We have proposed a substantial amendment with the Bill’s offshore wind environmental improvement package. The Government will support accelerated offshore wind deployment and reduce consenting time while protecting the marine environment, all of which the hon. Member was calling for. His amendment is therefore sadly redundant, as he said, so I hope that he will find it within himself not to press it.
I turn to amendment 165. The Government are committed to ensuring high standards of environmental protection and the offshore wind environmental improvement package seeks to ensure that the acceleration of offshore wind can be delivered in a way that continues to protect the environment and to meet our ambitious net zero targets. Through the offshore wind environmental improvement package, we intend to enable the environmental protection of protected areas to be addressed sufficiently early in the pre-application planning process to inform adequate and ecologically robust mitigation and compensatory measures. That in turn should improve the quality of the information coming into the examination stage of an application. The package will enable the Government to improve environmental assessments for offshore wind projects to ensure that we have a consenting system that works for our marine environment.
The new powers to amend environmental assessments will enable us to consider moving away from the EU’s case law and interpretation of these measures, and to tailor the approach to the United Kingdom’s circumstances, while maintaining important environmental protections. Development consent decisions will also remain subject to advice from DEFRA’s statutory nature conservation bodies.
The amendment would impose a requirement on the appropriate authority to seek independent advice before making regulations under clause 248, but clause 249 already requires the appropriate authority, before making such regulations, to consult statutory nature conservation bodies and such other persons as they consider appropriate.
Andrew Bowie
Clause 251 enables the Secretary of State to make regulations for the purpose of setting our arrangements for emergency planning and response to marine oil pollution incidents. Currently, the emergency oil pollution planning and response regime applies to offshore oil and gas activities as well as harbours and onshore handling facilities. In recognising the energy transition and progress towards net zero, the clause will enable a pollution planning and response regime for emerging offshore technologies such as offshore carbon dioxide storage, combustible gas storage, and hydrogen production and storage.
Similar to offshore oil and gas activities, emerging technologies such as offshore hydrogen production and storage will require infrastructure such as subsea pipelines, surface installation and wells. Infrastructure of that kind may act as a pathway to causing oil pollution in the marine environment during its installation, operation or indeed decommissioning stage. Persons responsible for such infrastructure will be required to have an emergency plan in place.
In recognising the importance of ensuring that such a plan remains valid and effective, provisions may be made in relation to the implementation, maintenance and review of such a plan. Reporting requirements of any marine oil pollution incident may also be set out under the clause. Such regulations may provide for the circumstances in which a report must be prepared, and by whom and to whom such a report must be submitted. The content and format of such a report may also be set out in regulations.
To ensure compliance with emergency marine oil pollution planning and response requirements, the clause makes provision for allowing the inspection of infrastructure to take place. An example of the types of provision such regulations can make is provided in the clause. Regulations may make provision for the meaning of any terms or expressions used, for how functions can be conferred on any person, for the charging of fees in relation to matters set out in regulations, for the management of information, for criminal offences and civil sanctions, and for the purpose of securing compliance with the requirements set out in regulations. Criminal offences may not be punishable with imprisonment, nor shall any civil penalty exceed the sum of £50,000. Regulations that contain aspects in relation to the creation of new criminal offences or revisions to existing criminal offences, the imposition of civil penalties or the setting of a civil penalty amount shall be subject to the affirmative procedure.
Clause 252 enables the Secretary of State to make regulations for the purpose of ensuring consideration of implications for sites designated for protected habitats and species when making decisions in relation to offshore oil and gas activities. Such activities include emerging technology types, such as hydrogen production and storage. As with the existing regime, regulations may be made to make provision for obtaining consent from the Secretary of State prior to undertaking a geophysical survey in relation to the activities mentioned.
Furthermore, the regime will be enhanced by an ability to attach conditions to consents, to ensure that the potential impact of such activities is minimised. For activities that are linked to specific licences issued by the North Sea Transition Authority—the NSTA—for reserved matters, or to a licence issued by Scottish Ministers for devolved matters, regulations may provide that the activity cannot be granted a specified licence without a habitats assessment being undertaken by either the Secretary of State or a Scottish Minister.
Subsection (4) contains a power to enable regulations that provide for directions to be given. Where it becomes apparent that an offshore activity has or may have an adverse effect on a relevant site, the power will enable the Secretary of State to give directions to the consent holder to take mitigating steps. That also applies where the deterioration or disturbance of habitats or species within an offshore site could be significant in relation to the conservation objectives of the relevant site. The consent holder will have to comply with any direction issued.
This delegated power may be used only when the Secretary of State considers that it contributes to the protection of relevant sites, to ensure continued high standards of environmental protection. The meaning of the term “relevant site” is to be set out in regulations, but it is intended to be framed in a way that encapsulates sites designated under other UK regulations for protected habitats and species. Further examples of how the powers in the clause may be exercised are provided for in the clause.
Regulations may make provision for the meaning of any terms or expressions used, for how functions can be conferred on any person, for the revocation of survey consents, for the charging of fees in relation to matters set out in regulations, for the management of information, for criminal offences and civil sanctions, and for the purpose of securing compliance with the requirements set out in regulations. As with clause 251, criminal offences committed under clause 252 may not be punishable with imprisonment or a fine exceeding the statutory maximum, nor shall any civil penalty exceed the sum of £50,000.
In recognising the nature of the provisions included in the clause, regulations shall be subject to the affirmative procedure. I beg to move that clause 251 stand part of the Bill.
The Chair
Technically, the Minister does not actually move clause stand part. I move clause stand part; the Minister merely speaks to the debate. However, I am being a bit picky, just for the sake of it. Does the shadow Minister wish to take part?
Dr Whitehead
Yes, Mr Gray, I intend to take part—briefly, the Committee will be relieved to hear. As the Minister has mentioned, the clause concerns the development of new forms of activity in the North sea that might be seen as analogous to those involving oil and gas, but are actually not. However, the activities might share quite a lot of infrastructure and other things, so it is appropriate that the arrangements for responding to such circumstances are analogous to the arrangements for oil and gas.
This part of the Bill is very different from the last one, in that it tries to ensure that developments go ahead in a safe and reasonable way, that we have plans in place should there be problems, and that those plans are based substantially on the plans that are in place already for oil and gas. That is my understanding of the clause, and I hope the Minister can confirm that. Other than that, I do not have anything much to say about clause 251, which seems sensible for the future.
It is noted that in clause 252, on the effects on habitats of offshore oil or gas activities—new things such as carbon capture and storage—no one is switching anything off in that area, which is also something that the Opposition support.
Question put and agreed to.
Clause 251 accordingly ordered to stand part of the Bill.
Clause 252 ordered to stand part of the Bill.
Clause 253
Charges in connection with abandonment of offshore installations
Question proposed, That the clause stand part of the Bill.
Andrew Bowie
The clause amends existing powers to allow for the making of a charging scheme in respect of decommissioning functions, under part 4 of the Petroleum Act 1998, to charge for regulating decommissioning of offshore oil and gas. The decommissioning of offshore oil and gas installations and pipelines on the United Kingdom continental shelf, or UKCS, is regulated through the 1998 Act, and the responsibility for ensuring that the requirements of that Act are complied with rests with my Department.
Owners of oil and gas installations and pipelines are required to decommission their offshore infrastructure at the end of a field’s economic life. The current powers allow us to charge for regulating offshore oil and gas decommissioning activity at only two fixed points in the regulatory process. The existing charging framework is no longer fit for purpose. Currently, the Government are unable to recover the full costs of undertaking the regulatory functions from industry, leaving the taxpayer liable for the shortfall. Furthermore, the current regime is too inflexible and will be unable to recover the full costs of decommissioning the offshore carbon storage infrastructure of the project.
Clause 253 will amend the 1998 Act to allow for the establishment of a new charging regime for activity related to the regulatory functions for the decommissioning of offshore oil and gas installations. The clause will also make amendments to future-proof the cost recovery mechanism in line with the “polluter pays” principle of environmental law, as already established. Maximising our cost recovery will enable us to ensure a sufficiently resourced regulator. That will ensure that we do not cause the industry to delay decommissioning projects, which would adversely affect the industry’s contributions to reducing emissions and achieving their net zero ambitions.
Further details of the new charging regime, including how it works and what rates will be charged, will be set out in the scheme itself, which will be established administratively and then published. The charging scheme is intended to be in line with other charging schemes operating for complex regulatory functions within my Department and elsewhere across the Government.
Dr Whitehead
I have a question on clause 253, which makes provision for decommissioning where, clearly, the decommissioning of new forms of offshore installation cannot be undertaken. When the well is exhausted—obviously there is not a well to exhaust under these circumstances—the decommissioning has to be under other circumstances. An example would be when the carbon capture and storage site has been agreed to be full, and is capped off.
On traditional oil and gas decommissioning, there are provisions for sanctions on companies that have responsibility for decommissioning but do not actually carry out the decommissioning. Does that carry across to the new forms of offshore activity? Or should there be legislation to ensure that when someone is up for decommissioning, they really do it and do not abdicate their responsibility? That is not just a question of charging; it is a question of responsibility for the future.
Andrew Bowie
In answer to the hon. Gentleman’s important question, it is the intention, through this regulation and the existing regulations, that those who are responsible follow through with their commitments to decommission—the “polluter pays” principle has been well established. Nothing in this regulation would stand in the way of that. Nor, we hope, would it put barriers in the way of that. What the regulation seeks to achieve is a new updated charging regime to enable the decommissioning to take place in such a way and in such a fashion that it does not leave the taxpayer liable for any shortfall from the operator who is liable for the decommissioning of an asset in the North sea.
Question put and agreed to.
Clause 253 ordered to stand part of the Bill.
Clause 254
Model clauses of petroleum licence
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 19 be the Nineteenth schedule to the Bill.
Clause 255 stand part.
Andrew Bowie
Currently, the North Sea Transition Authority can only retrospectively challenge a change in control of a petroleum production licence. Clause 254 will allow the NSTA to consider a proposed change of control of a petroleum production licensee before it takes place, to ensure that the governance, technical and financial capability of a licensee in possession of a such a licence remains appropriate.
Companies that wish to drill and extract petroleum must do so under a petroleum production licence granted by the NSTA to the licensee under the Petroleum Act 1998. Prior to issuing these licences, the NSTA satisfies itself that the prospective licensee company and any parent company are fit to hold the licence and will meet their obligations.
At times during the life of a licence it may be the case that the ownership and control of a licensee should pass to a new parent company or person. An undesirable change of control could undermine investor confidence in the commercial environment, making the United Kingdom continental shelf a less attractive place for investment. The NSTA is currently able to take remedial action to a change of control of a licence holder only after such a change has occurred. This is seen by both the NSTA and industry as being inefficient and of limited effectiveness in preventing harms, both to wider industry and the Government.
Clause 254 sets out the amendments that schedule 19 will make to the model clauses in the Petroleum Licensing (Production) (Seaward Areas) Regulations 2008 and the Petroleum Licensing (Exploration and Production) (Landward Areas) Regulations 2014. The changes will introduce new before-the-event powers for the NSTA regarding the change of control of a licensee in possession of current and future seaward or landward petroleum production licences. The clause also sets out how provisions inserted into a petroleum production licence by schedule 19 may be altered or deleted.
Schedule 19 amends existing legislation to replace the current after-the-event powers in relation to a change of control of petroleum production licensees with powers intended to apply before a change of control has taken place. The schedule has a similar effect to that which schedule 6 has in relation to carbon storage licensees.
The schedule will introduce a requirement for licensees to apply in writing to the NSTA for consent to a change of control at least three months before the planned date of the change. Following receipt of an application, the NSTA may give unconditional or conditional consent, or refuse consent to the proposal. Conditions imposed may be financial and/or relate to the timing of the change of control and/or relate to the performance of activities permitted by the licence.
In the case of conditional consent or refusal, the NSTA must give the licensee the opportunity to make representations and must consider those representations. The NSTA must decide an application within three months of receiving it, unless it writes to interested parties to notify them of a delay in its decision making. The NSTA’s decision on an application and any conditions must be given in writing.
The schedule also introduces amendments in respect of the NSTA’s powers of revocation and partial revocation of a licence, intended to replace the existing after-the-event powers with before-the-event powers. The NSTA will be able to revoke a licence if its prior consent has not been obtained for a change of control. The NSTA will therefore be able to regulate the suitability of petroleum production licensees in a more robust and timely manner. This will reduce risk and boost confidence in a sector that will play a key part in helping the UK to achieve its net zero goals.
Clause 255 introduces information-gathering powers in relation to a change or potential change of control of a petroleum production licensee in the same way that clause 101 does for carbon storage licensees. Currently, the NSTA does not have information-gathering powers to assist it in considering a change of control in respect of a petroleum production licensee. In some instances, the NSTA is therefore limited in conducting proper due diligence to determine whether a change of control of a licensee is undesirable.
Clause 255 will allow the NSTA to request that a relevant company or person provide it with any information it may require in exercising its functions in relation to a change or potential change of control of a licensee. The information will help the NSTA to consider the financial and technical capability, operational and commercial plans, and governance and fitness of the licensee in relation to its proposed controlling entity. This will provide the NSTA with the necessary information to appropriately consider an application for consent, or when considering whether to revoke a licence where a change of control has occurred without consent.
Information that would be protected from disclosure or production in legal proceedings on grounds of legal professional privilege or, in Scotland, confidentiality of communications is not included under clause 255.
Dr Whitehead
I do not have much to say about the detail of the clauses, inasmuch as they appear to be sensible measures, but I gently point out to the Minister that when he presented the clauses he referred repeatedly to the NSTA as the authority, but of course the NSTA does not exist other than as a trading name. Indeed, clause 254 specifically mentions the Oil and Gas Authority, which is of course the real name of the organisation, as opposed to its trading name. We will come to that later in our deliberations, but I highlight to the Minister that issue or problem, which may be germane to his thoughts when we get to that discussion. Other than that, I have no issue with the substance of the clauses.
Andrew Bowie
We have already debated this matter in Committee and I am sure that we will come back to it in greater detail. Of course, when I refer to the North Sea Transition Authority I am, legally speaking, referring to the Oil and Gas Authority.
Question put and agreed to.
Clause 254 accordingly ordered to stand part of the Bill.
Schedule 19 agreed to.
Clause 255 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Joy Morrissey.)