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September 20, 2023

The Digital Competition and Consumers Bill threatens to wrap UK tech in red tape 

The UK's Digital Competition and Consumers Bill threatens to impose stringent and unnecessary new regulations on businesses pursuing "digital activities."

By Lazar Radic

The UK has long prided itself as an attractive destination for investors and a hub for innovation. This is no small part due to the country’s sensible and proportionate, evidence-based approach to regulation, which focuses on correcting market failures. But a new bill currently in Parliament risks undermining Britain’s status as a regulatory role model, as well as Rishi Sunak’s ambition to turn the UK into a “science and technology superpower.” The Digital Competition and Consumers Bill (DMCC) takes its inspiration from the EU’s Digital Markets Act. The DMCC would give the Competition and Market Authority’s (CMA) expansive new powers to prohibit or compel conduct in digital markets, with potentially far-reaching implications for consumers, investment, innovation, and the country’s overall competitiveness. 

Competition & Markets Authority logo. The new DMCC Bill is proposing to give the regulator expansive new powers.
According to the IEA’s Lazar Radic, unnecessary new powers are being granted to the UK’s Competition & Markets Authority. (Photo by Iljanaresvara Studio / Shutterstock)

To be fair, the UK approach is in some ways an improvement on the EU’s. For example, the DMCC would allow the CMA to tailor appropriate interventions to specific products and services. Without sufficient guardrails, however, this could easily become a double-edged sword. 

The bill’s definition for what constitutes a “digital activity,” however, is so broad that the regime could potentially capture more than 500 large firms across Britain, including supermarkets, retailers, banks, insurance firms, telecommunications companies, and pharmaceutical makers—to name just a few. The broad discretion the CMA would be granted could let it effectively swallow the entire economy.

The CMA will be able to intervene on a vast number of grounds. Anything that enhances the “strategic market status” of a company that meets what are some extremely low thresholds may qualify as a valid reason for intervention. This would seemingly drag ordinary business conduct that promotes competition—such as internal growth, efficiencies, or product improvements that boost sales—into the DMCC’s crosshairs. There is a substantial risk that the CMA could use its new powers to stifle completely benign behaviour that benefits consumers. 

A DMCC power grab

Furthermore, while the CMA would not have to prove consumer harm before prohibiting or compelling certain conduct, targeted companies do have to show consumer benefits if they want to escape the regulatory regime’s prohibitions or obligations. This amounts to “innovation by permission”, where companies are essentially barred from changing the design of their products unless they can prove to the regulator that such changes are both “indispensable and proportionate” to the realisation of the claimed consumer benefits. They would also have to show that those benefits outweigh any “actual or likely” detrimental impact on competition. 

In practice, such a high bar will often prove impossible to clear, even in those instances where firms’ behaviour benefits consumers. 

Moreover, the bill only allows for a narrow judicial review standard, instead of a full merits review. In other words, courts are not allowed to check if the CMA was “right” in reaching its decision, only if it followed the correct procedure. This is extremely ill-advised, considering the sweeping, untested powers the CMA would be granted to intervene in a range of markets—in many of which the authority currently lacks any sectoral experience. This is bad for everyone involved, not just large digital platforms but also many other firms who may want to seek legal recourse.  

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The high levels of uncertainty and regulatory risk the bill would create could turn the UK into a tech turn-off. It could also harm consumers: new products and innovations may not see the light of day, as the CMA’s Digital Markets Unit uses its new toolbox to prohibit beneficial conduct, largely unchecked by the courts. 

In theory, the CMA could use its newfound powers in a proportionate and wise manner—zeroing in on harmful conduct and minimising false positives. But without the appropriate guardrails, limiting principles, and requirements to show harm before intervening, the system rests entirely on the regulator’s goodwill, expertise, and self-imposed restraint. However, experience tells us that regulators rarely impose limitations on their powers where courts and the law do not. 

The government could improve the legislation by narrowing the types of interventions, ensuring it covers a small number of firms, requiring the CMA to show consumer harm before intervening and imposing full merits review on their decisions. These changes could go a long way to reassure investors and innovators that Britain is still playing to its historic strengths as a regulatory leader, and that, despite no longer being a part of the EU, it remains one of the most attractive places in Europe to invest and innovate. 

Read more: The Digital Markets Bill has potential – if well-funded

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