Digital markets bill threatens Rishi Sunak’s ‘science and tech superpower’

Prime Minister Rishi Sunak has emphasised the need to make the United Kingdom a ‘science and technology superpower’. But a Bill currently before Parliament puts that under threat, according to a new paper from the free market think tank Institute of Economic Affairs (IEA) and the International Center for Law and Economics (ICLE).

The Digital Markets, Competition and Consumers Bill (DMCC) gives the UK’s Competition and Markets Authority (CMA) powers to tackle alleged anticompetitive practices in digital markets.

The CMA is being given much more discretionary powers than the European Union’s equivalent regime, the Digital Markets Act, which narrowly specifies a relatively limited number of interventions for a limited set of companies.

The CMA can decide who it regulates, potentially impacting any large UK firm, including 530 companies that employ 3.9 million people. The CMA will have broad powers to design bespoke interventions for each regulated entity without needing to prove that consumers will benefit. Firms that fail to comply could face fines of up to 10 per cent of global turnover.

“In practical terms, this could mean new products will not be developed in the UK and that new features could be delayed or not introduced for British users, as firms seek to minimise the risk of falling afoul of the new regime and incurring hefty fines and stringent remedies,” the authors, Matthew Lesh from the IEA and Dirk Auer and Lazar Radic from the ICLE, warn.

The regime could mean Google being prevented from highlighting its maps service for users’ convenience because of restrictions on self-preferencing. Apple could be required to reduce the security of iMessage by making it interoperable with other messaging services. Meta could be prevented from launching new products like Threads, the Twitter/X competitor, because of limits on bolstering ‘strategic significance’.

The CMA is being given new digital market powers despite growing concerns that its harsh enforcement approach is scaring away tech investment. The CMA was criticised after blocking Microsoft’s acquisition of Activision Blizzard, a decision now under review after authorities approved the deal with conditions in the likes of the EU, and China, Japan.

The paper also raises concerns about the Bill’s ‘judicial review’ standard. Decisions under the new regime will only be contestable on procedural grounds, rather than courts considering the substance of the CMA’s decisions. The paper’s authors argue that this will make it difficult to correct regulatory mistakes under the new regime, a particular concern as the CMA is being given extensive new powers.

The paper notes that other competition regimes, including the United States, European Union, and even China, allow merits reviews. It also quotes Sir Jonathan Jones, former head of the Government Legal Service, and Verity Egerton-Doyle, who warn the lack of full merits review will turn the CMA into ‘legislator, investigator and executioner.’

The paper concludes that ‘the best solution may very well be to withdraw it from parliament’ while also suggesting amendments. These include allowing the merits of the CMA’s decisions to be reviewed by courts, narrowing and clarifying the scope of the CMA’s new powers, and requiring it to prove consumer harm before intervening.

Rt Hon Sir Robert Buckland KBE KC MP, former Justice Secretary, writes in a Foreword:

“…This important paper from the Institute of Economic Affairs and the International Center for Law & Economics analyses the Bill and discusses many of the issues I and other Parliamentarians have been highlighting to colleagues in Government. Whilst well intentioned, this Bill would grant substantial powers to the new Digital Markets Unit, risking an overreach in regulation without the necessary checks and balances.

“One area of particular concern is the proposed Judicial Review mechanism for appeals, rather than one based on merit. By not allowing appellants to question the rights and wrongs of a decision affecting them, but only its legality, the DMU would be given free rein to make unchallengeable decisions that affect large swathes of the economy.”

Richard Fuller, Member of Parliament for North East Bedfordshire, said:

“This paper from the IEA and ICLE is a reminder of how easily Parliament can hand regulators sweeping powers over key sectors of the economy that influence our nation’s economic growth. At a time of growing disquiet about the performance of our regulators it is clear that Parliament is failing to hold them to account adequately.

“Digital markets surely are crucial for our growth and competitive forces will best drive that growth in the interests of all consumers. The Competition and Markets Authority is the right regulator but, as this paper makes clear, the powers being delegated to the CMA are too broad, too ill-defined and too restrictive to challenge. Parliament still has time to reshape the legislation to help promote competition, innovation and growth. This paper shows what needs to be done.”

Stephen Hammond, Member of Parliament for Wimbledon, said:

“The UK must remain a world leading economy in research, science and technology in 21st century. The powers proposed for the Competition and Markets Authority in the Digital Markets and Competition Bill represent significant increase in regulatory without proper accountability. Regulation must be there to protect consumers, however the proposed measures do not enhance consumer choice.

“The new European Union Digital Markets Act more clearly defines powers and requirements, the DMCC should be revised to ensure the CMA’s role and powers are tightly defined. The Government should rethink this legislation and to find an alternative to the Digital Markets Unit which should support, rather than stifle, British tech innovation.”

Lord Sandhurst KC, Chair of Research, the Society of Conservative Lawyers, said:

“This powerful paper from the IEA and the ICLE identifies potential serious unintended consequences for a successful thriving enterprise economy in the UK if the Digital Markets, Competition and Consumers Bill is enacted in its present form. New untested powers will be exercised by agency staff and may foster unhealthy lobbying by competitors and inhibit research, innovation and investment to the detriment of consumers. Agency decisions will only be open to challenge on process grounds under the judicial review standard. The courts will not assess whether the CMA was ‘right’. The authors explain why these matters and the range of powers to intervene are novel and thus require more not less oversight.”

Dirk Auer, paper co-author and Director of Competition Policy at the ICLE, said:

“The DMCC Bill is one of the world’s most far-reaching attempts to regulate digital markets. The extremely broad and forgoes critical procedural safeguards to expediate regulatory enforcement against large tech firms. This is nowhere clearer than in the lack of meaningful oversight afforded to courts. Unfortunately, this heavy-handed approach risks chilling tech investments in the UK.”

Lazar Radic, paper author and Senior Scholar for Competition Policy at the ICLE, said:

“The UK’s DMCC ignores important tradeoffs inherent to the extensive prohibitions and obligations it contemplates, such as the privacy and security implications of requiring ‘interoperability’ or the convenience to users of ‘self-preferencing’. Furthermore, the bill’s breadth and some of its features, such as the ‘final offer mechanism’ backstop enforcement power, represent a fundamental incursion on freedom of contract as they effectively grant the CMA the ability to override businesses’ product design decisions, act as a quasi-price regulator, and, ultimately, reshape markets.

“By granting such extreme executive powers to the CMA without sufficient oversight, the DMCC marks a worrying departure in British governance from free markets and the rule of law in favour of expansive regulatory discretion.”

Matthew Lesh, paper author and Director of Public Policy and Communications at the IEA, said:

“The CMA are being given extreme powers without accountability. They will be able to designate companies and tell them how to operate without legal recourse on the underlying merits. This is a recipe for disaster for tens of millions of British users. It goes much further than the EU’s regime, the Digital Markets Act, risking the scaring away of investment and the loss of innovative features and products.”