25 October 2023

Unaccountable regulators must not be allowed to strangle innovation and investment


A backlash has emerged against the government’s Digital Markets and Competition and Consumers Bill (DMCC).

The proposals to give the CMA powers to regulate ‘Big Tech’ are facing increasing criticism over concerns about accountability. Former justice secretary Sir Robert Buckland KC has warned that the ‘Bill would grant substantial powers to the new Digital Markets Unit, risking an overreach in regulation without the necessary checks and balances’.

A major sticking point is over the use of the Judicial Review standard, which limits appeals to procedural matters. This practically means deference to the regulator, who could get their facts and analysis wrong but still prevail due to correct process. The government is reportedly considering changing this to a full merits review, as is the case in similar regimes in the European Union, the United States and even China.

This may sound technocratic. It’s easy to imagine eyes glossing over the finer details of competition policy. But this debate is fundamental: will Britain be governed by a quangocracy or accountable rulemaking?

The Bill gives the CMA the power to decide who to regulate, design bespoke interventions for each company, and issue multi-billion pound fines for a compliance failure. Sir Jonathan Jones KC, the government’s former chief legal adviser, and Verity Egerton-Doyle have warned that this will make the CMA ‘effectively legislator, investigator and executioner.

As I discussed in a recent report for the IEA and ICLE, the CMA’s decisions under this regime could significantly impact digital services and investment in the British economy. There is a risk that overstepping could discourage companies from launching products in the UK – like Meta recently withholding Threads from the European Union over their equivalent laws.

The CMA could threaten user privacy and security if, for example, an effort to make messaging services like Apple’s iMessage interoperable with third parties go wrong. We could even see a repeat of the Microsoft/Activision fiasco. Microsoft’s Brad Smith warned that the CMA’s initial decision to reject the acquisition of the game maker had made the UK a less attractive place to invest compared to the EU.

Sarah Cardell, the chief executive of the CMA, recently pushed back against proposals to change the appeals standard under the DMCC. In the process, the CMA is throwing away their role as an impartial regulator and becoming an active player in the political process. This is perhaps understandable, who wants their homework to be marked by an external judge?

Nevertheless, it is clearly in the public interest that an organisation making major decisions impacting an important and highly dynamic sector does not make mistakes. A lack of accountability will not just not just hurt ‘Big Tech’ companies, but also challenger firms that could also be disappointed by the CMA’s rulings.

The government originally justified the limited appeals standard on the basis that the CMA would have the necessary expertise and consult widely – but since the regime is entirely novel, this unquestioning faith in regulatory infallibility is misplaced. It is also inconsistent with everything this government has said about reigning in the power of regulators.

The other argument is that a full merits review would allow Big Tech companies to bamboozle the regulator. That is, there would be power imbalances as the tech companies would be able to hire expensive lawyers. However, the notion that the lawyers would be able to outsmart the regulator in front of an impartial judge reveals a fundamental lack of confidence in the CMA’s ability to argue its case. The CMA is also no small fish; its annual budget is over £110 million and is growing to reflect their new powers.

The final concern is that in the context of fast-moving digital markets, a speedy judicial process is necessary and a full merits review would be too slow. But the speed, to a large extent, will be determined by the urgency of the CMA and the judicial process. Analysis from Linklaters suggests that a full merits review can actually be on average over 200 days faster than a judicial review, as it does not require a decision to be sent back to the CMA for reconsideration, allowing the judicial authority to make the final decision.

The government is on the cusp of creating an entirely novel and expansive set of powers and giving the regulator extensive discretion without directly scrutinising its decisions. Their decisions could have large impacts on innovation and investment. There is a real risk that the CMA could make mistakes, just like anyone else. The very least the government can do is change the Bill so that a single regulator does not have near-unlimited discretion.

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Matthew Lesh is Director of Public Policy and Communications at the Institute of Economic Affairs

Columns are the author's own opinion and do not necessarily reflect the views of CapX.