Oral evidence - Online Platforms and the EU Digital Single Market

Members present

Lord Whitty (Chairman)

Lord Aberdare

Baroness Donaghy

Lord Freeman

Lord German

Lord Green of Hurstpierpoint

Lord Liddle

Lord Mawson

Baroness Noakes

Baroness Randerson

Lord Wei

________________________

Examination of Witnesses

Hon Ed Vaizey MP, Minister of State for Culture and the Digital Economy, Departments for Business, Innovation and Skills and Culture, Media and Sport, and Baroness Neville-Rolfe DBE CMG, Parliamentary Under-Secretary of State for Intellectual Property and Government Spokesperson, Departments for Business, Innovation and Skills and for Culture, Media and Sport

Q181 The Chairman: Good afternoon. Sorry to keep you waiting. The last session was slightly interrupted by a vote in the House of Lords of some significance.

Hon Ed Vaizey MP: I thought the Addison Lee cab had arrived late. That is normally what happens.

The Chairman: Thank you very much for appearing here—it is the second time recently for Mr Vaizey. We have two Ministers who both represent both departments, which is the kind of joined-up government we like to see. You know the background to this. Perhaps I can kick off with a question that is more in an industrial policy context and then move on to other aspects. Mr Vaizey said in the last session that the UK’s policy on digital was neither ‘dirigiste’ nor ‘laissez-faire’. Apart from the European overtones of that, can you tell us what the policy is for encouraging large-scale or serious competitors that are UK-based or Europe-based within the digital market? We have been told that Europe has produced 40 tech unicorns, many of which are British and most of which are in the finance technology sector. But we have also heard that outside that, most of those companies that were European-based were bought up by American companies or have relocated to the US in some cases. Do the Government have a view on whether we should be encouraging more European competitors to the large US-owned platforms or whether we should at least be resisting the acquisition of European-based companies by those large platforms?

Hon Ed Vaizey MP: Thank you, Chairman, for the opportunity to answer the first question. The answer could be quite lengthy because it covers quite a lot of ground—the whole issue of how we support the growth of tech companies in the UK. We can start from the basis that the UK is probably the best place in Europe to start and grow a tech company; that has certainly been the Government’s ambition and we have done that in a number of ways. I would highlight Tech City, which I was initially sceptical about in 2010 when it started. But Tech City has worked on a range of levels. First—this is not to be dismissed—it has acted as a beacon for investment. It has acted as a calling card, if you like, to say that the UK is interested in and supportive of tech. That kind of approach has also been developed in other areas. We have seen the trade body Innovate Finance created to support FinTech—again supported very much by the Chancellor. Sharing Economy UK is something else that says that the UK is open to innovative and disruptive companies. That is point one.

Also, you have seen how Tech City has developed. It is not just Silicon Roundabout—a small, hipster area in east London populated by men in beards and braces. It is about more than that; it is about clusters all over the UK. We now have Tech North as well. It is about the Future Fifty programme, where we work closely with 50 growing companies and take an activist approach in supporting them and giving them the advice and help they need to grow in the UK and hopefully float. You could add in skills, where, again, we have taken initiatives. You could add in future gazing, such as our investment in 5G research, the internet of things, and the digital economy catapult, which allows small businesses to try out, particularly in data, what they are doing. All of that works.

Where I go a bit off piste and off script, if you like, is on scale-up. I think that scale-up is a great challenge. To a certain extent, I am philosophical about this. Fundamentally, when we say, “Can we create a Google in this country? Can we create Silicon Valley?”, the answer is, “Yes, we can”. I think that we already have Silicon Valley. Yes, we can create a Google. Certainly, by the way, the digital single market, which I am sure we will talk about later, will be very important to that. But, fundamentally, when you say that companies are going to the US or are being acquired by the US, you are talking about large-scale investment—and at the moment, I do not think that we have the same wall of money that exists in Silicon Valley. The Government can intervene in that with things such as the British Business Bank. There is certainly a very benign tax regime, particularly for scale-ups with the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme. And things will change, because we have seen, with the growth of the unicorns—in fact, the lion’s share of the unicorns is here—that the investment climate is changing. It helps to get ahead of the game. You mentioned that a lot of them are financial companies. Establishing particular sectoral expertise, such as FinTech, where people will naturally gravitate and therefore the money will come, will help as well.

Perhaps Lucy would like to add to that.

Q182 Lord Green of Hurstpierpoint: The online platforms that we took evidence from told us that they are in furious competition with each other, that they also compete with businesses in related markets and, furthermore, that the technology is a rapidly evolving scenario in which a dominant competitive position, if it were to exist for a while, would not last—hence there is no particular public policy concern. When you look at the facts, of course, you have some very large, dominant players. You have Google with 90% of the search engine market, at least in western Europe—and as an aside, Allegro dominating the eastern European market in a similarly extreme fashion. You have Amazon both supplying its own products and acting as a platform for its competitors and their products. On the face of it, that creates an obvious risk that the dominant position will become an exploitative one. Should the Government be concerned about all this?

Baroness Neville-Rolfe: Shall I come in? The general point I would make in response to that is that to deal with a fast-changing market we need a fast-changing competition system. I have always been a huge fan of strong competition authorities both nationally and at EU level. The evidence is that consumers can switch platforms and that they can and do use more than one platform at a time. The OECD found that consumer switching has a low cost and that the level of new consumers entering the market is high, which is providing dynamic competitive pressure. This high level of dynamism and certainty means that leading players may face more competitive pressure at first than you think. So you have seen a succession in this dynamic process over time as new disrupters come along. You may feel that there are some platforms that are unassailable, but we know from the history of innovation that things can change very quickly. So it is crucial to judge the effects of each situation individually and carefully before intervening too strongly.

The current competition framework to my mind provides appropriate tools. It is interesting that you have seen recently not only CMA action—for example, its review of the cloud and various other things—but also Commissioner Vestager, the new Competition Commissioner, extending the inquiry into Google, with more energy than under the previous Commissioner. She has also set an e-commerce study in train. I always worry about regulation generally, and—to answer your question about whether I am dirigiste or laissez-faire—if you can avoid regulation but have strong competition law that tackles the over-mighty when they get over-mighty but also allows a good degree of growth and new innovators, that is often the best way.

Lord Green of Hurstpierpoint: Given that a widespread understanding of the way in which the competition process works, at both national and Brussels level, is that it can be long and time-consuming, are there mechanisms that you would favour to enable the competition approach to be brought to bear much more speedily on emerging issues of the kind that we have seen in certain areas of the online platform market, where, if you leave it to the full paraphernalia of Brussels, by the time a settlement has finally been reached several years down the road, the plaintiff has gone out of business?

Baroness Neville-Rolfe: As I say, the current system has advantages and disadvantages. On the whole, it is reasonably fit for purpose, but slowness is the big problem. Your study is extremely timely, because we are now looking at the digital single market and the 16 chapters that were published as headings in May. Certainly, in the evidence that we put in through the Prime Minister’s non-paper, we were clear that competition authorities tend to be the way forward in this sort of area, but we need to try to do something about slowness, both in decisions and in the whole process in which people appeal to the court and so on. That is different from bringing in a lot of dirigiste regulation, trying to do whack-a-mole, when the trouble is that there will be new problems coming along.

Lord Mawson: I just wonder what you think the limits to government are. In my experience—I have spent a lot of my life doing innovation—government can be a bit of a nuisance. It jumps on the bandwagon but never gets the idea. Prime Ministers and others promote all these things for five minutes and then they are on to the next thing. When you are running these real things, that makes it even more difficult in practice. What are the limits of government in relation to these pieces of innovation?

Baroness Neville-Rolfe: What I would say—and Ed may want to come in—is that I rather agree with you. This is way beyond today’s brief, but I have always been keen on the enforcement of existing rules—this goes back to comments that I made on competition—rather than necessarily bringing in a whole load of new ones. Equally, the case for doing what we have done on goods in the single market, which I think has been one of the most positive things to have come out of the EU in the last 30 to 40 years, for the digital single market, which is the latest opportunity, is urgent. We know that that could add 3% to EU GDP, according to the European Parliament. This is not only in the UK—where we have very strong creative industries and a very strong ICT sector—so that we would exploit the opportunity, but also in other Member States. They would benefit a lot, too, so there would be a win-win.

Hon Ed Vaizey MP: I echo your wise words, Lord Mawson, that the Government never get any credit for not doing anything. Politicians only get credit when they act, but there is certainly a case for praising politicians when they do not act. In terms of our view of the tech economy and how we want to help the digital market, I think that we act in a relatively judicious fashion. You can break it into different areas of action. One is building the digital infrastructure that every business now needs. Another is skills, where government has a role in ensuring that our schools, colleges and universities are providing students with the skills that they will need. Again, working closely with business, the point about partnership is important. In the 21st century, you cannot design courses in a silo or ivory tower. Competition regulation is very important as well. It should be timely and effective but also have a strong element of certainty—what businesses hate is uncertainty.

Just to go slightly off piste again, in the regulator that I deal with most often, Ofcom, I think that we have a very impressive and effective regulator that stands tall among all the media regulators around the globe. A relatively benign corporate tax environment—I am sure that you will want to ask about certain other aspects of the tax situation—with low and certain taxes is also a good thing. I am taking a long time to come to the other point, which is that when we talk about issues to do with the sharing economy—I mentioned FinTech—the Government can act as an enabler by saying, “This is an important sector, so come to us and tell us what is getting in the way”. That has been very much the attitude with Tech City and many Ministers in this Government, who say to the new economy, “What is holding you back? Can the Government clear a route for you?”

Q183 Baroness Donaghy: A number of figures in the United States have accused the European Union of pursuing competition cases for protectionist reasons. However, Alex Chisholm from the Competition and Markets Authority said that Commissioner Vestager was very clear that competition enforcement was independent and that her record was a “testament to her objectivity and independence”. Is DG Competition’s pursuit of competition cases against some US firms political in your view? If not, does the perception worry you, and what should be done about that?

Baroness Neville-Rolfe: I am very glad that you asked that, Lady Donaghy. I think it is right that DG Competition investigates competition concerns in the EU regardless of nationality. If you look back at history, it has got much better at that. We are absolutely committed to the independent enforcement of competition law, as I am sure Alex Chisholm told you. That is clearly set out in the competition framework and reflects the treaties, which try to be independent on competition as well. Sometimes that is quite unpopular—for example, on state aids. It is also good that the competition authorities clearly set out the basis for their decisions. Any perception of a lack of independence is wrong. To my mind, it has to be tackled by transparency about the judgments and about the relationship between politicians and competition authorities. That is extremely important.

Q184 Lord Aberdare: Can I ask you specifically about price parity clauses, whereby hoteliers, for example, are required by online travel agent services, such as Booking.com and Expedia, not to offer lower prices than are available through their platforms? The British Hospitality Association told us that these were an abuse of a dominant position, because they prevent competition in many ways. Public authorities in France and Germany have taken action to ban them. What is your view on whether these platforms are a matter of concern and anti-competitive?

Baroness Neville-Rolfe: My view is that this is quite a difficult one. The point is a reasonable one to make. The CMA, as far as I know, has not looked at this issue, but it is very much the type of issue that it often shines light on to. I do not know whether you asked them the same question as you are asking me. Clearly, there is benefit from platforms—TripAdvisor and so on—spreading common data across the market and allowing consumers to be able to check things out, but the parity rate clauses, on the face of it, are something that people ask questions about. But the argument of the platforms is that these things can be highly beneficial in that they spread consumer benefit. I am sorry that that is a bit of an unhelpful answer, but we have good competition authorities at both EU level and UK level and this is the sort of thing that they look at from time to time, rightly.

Q185 Lord Freeman: Good afternoon. My question relates to smaller businesses. Some of those who have given evidence to us, either in writing or before us, have told us about the difficulty in pursuing redress against dominant platforms. I am sure that the Committee would appreciate your comments on three aspects: the perceived difficulty of costs, the slow processes and the potential retaliation from the dominant platforms. Would it help if there were interim measures to speed up enforcement by the regulators? Secondly, is there any way in which the costs of objecting or complaining can be reduced? Finally, is there any way in which protection for the complainants can be improved?

Baroness Neville-Rolfe: Ed may want to say something about Ofcom. Generally, I think I have already said that we are keen to speed up the process of competition decisions—I think that is one of the things that comes through—and to mitigate the effect, particularly on small business, of the long time it takes to make decisions. This could include looking at changes to interim measures. You can have interim injunctions, but things such as ombudsmen and mediation can be a quicker way of people getting solutions. But if people, especially small businesses, have concerns, they need to talk to the competition authorities. We have been working—we debated this during the small business Bill that we have been involved in—on making sure that the regulators think about small business first and the small business angle in going about their business: that is, helping them and helping the infrastructure needed for innovation and growth, whilst obviously encouraging the benefits of all the innovation that they bring in, which feeds through to consumers. The need to protect complainants needs to be balanced with proper evidence and giving people the right to defend themselves, which I think the competition authorities are actually quite good at, although this goes back to slowness—slowness is a problem.

Lord Green of Hurstpierpoint: That sounds like an agreement that the use by the competition authorities of interim measures and other such techniques would be helpful, but I think I heard you say that it was up to the small business to go and complain to the authorities about the way things are working out. Would it not be a reasonable proposition to say that the Government should direct—if that is the right word—the competition authorities to look for appropriate interim measures? In this context, we should note that the French and Americans already do this, and that the German Monopolkommission has recommended that the Bundeskartellamt does so as well. So we would not be alone.

Baroness Neville-Rolfe: I am not on top of the very interesting German and French parallels; it sounds as though you have studied them. Obviously we are coming at this on small businesses in a slightly different way in that we are bringing in a number of measures, including a Small Business Commissioner, who will look at late payment, which is going through Parliament at the moment. We have also encouraged, through the work that we have done on good regulation, each of the regulators to “think small first”, , which involves them talking to small business and going out and being more proactive. You can always look at new legislative measures—ombudsmen, mediation—but there are a lot of different ombudsmen and mediators out there already, and I am not sure that you would want to bring a new one in for the competition authorities. My impression, as someone who was on the other side, is that they are actually very keen to get the small business view and that small business complaints are given a high degree of attention in market and other merger inquiries and so on, because they are keen to make sure that they are doing the right thing.

Lord Liddle: Do you not think that the issues in the digital online platform area are special in two respects? The first is that the technology moves very quickly. The second is that the big players such as Google really are big and have enormous resources at their command in terms of expensive lawyers, public relations campaigns, lobbying activities—goodness knows what—whereas some small trade association that is worried about the application of parity clauses or whatever is really in a hopeless situation, at both national and European level. I think it is even worse at European level, actually.

Baroness Neville-Rolfe: You are right to ask the question. We have a system that is independent. It is geared to concern about market entry, innovation and switching. For me, switching, which we have not mentioned, is incredibly important. You can see from the work that we have been doing on the sharing economy how important switching is, and it is also very important in the CMA inquiries that are going on into energy and banking. My general concern is that it is important to keep this independence, and I worry slightly about the direction of travel. Vestager is looking at Google. I do not think that we in the EU did ourselves a great service under the previous Commission by allowing the Google case to go on for such a long time without remedies having been proceeded with. My hope and expectation is that this time round things will be different.

Q186 Lord Aberdare: Relating to switching, one issue seems to be that switching is not seen as an option by the hoteliers, for example. Their only access to the market is through a very dominant—it is not actually one platform, it is a number of platforms, all owned by the same body, which I cannot remember the name of. Booksellers have expressed a similar concern about Amazon. There is the added thing, which Baroness Neville-Rolfe will be familiar with, that the small firms cannot afford to upset their only access to the market: on the one hand they do not have the option to switch, and on the other hand they do not feel that they have the option to complain. They feel a bit stuffed and have made that position quite clear to us.

Hon Ed Vaizey MP: Just because a large company is a digital company does not mean that the competition rules should not apply. Baroness Neville-Rolfe alluded to her previous employer. Before the advent of the internet giants, the kind of debate that we tended to have about dominance was about the supermarkets versus small independent retailers. There are a number of ways—

Lord Aberdare: Amazon pointed out how much smaller it was than Tesco.

Hon Ed Vaizey MP: Perhaps Baroness Neville-Rolfe will want to elucidate from her own experience, but as a case study there are things such as the Groceries Code. There are codes of practice that you can use to negotiate with large companies about how they treat their suppliers. When you are talking about TripAdvisor, you are talking about hotels; when you are talking about Amazon, you are talking about publishers—although it is worth remembering that quite a few of those publishers are big enough to fight a good fight, as it were.

I think there are three elements underlying the points in your question. One is: is there anything the Government can do in terms of codes of conduct and engagement? Certainly we have worked in the past with, for example, the ISPs on protecting children from adult content. Baroness Joanna Shields is carrying on some work that I initiated on the kind of abuse that people receive on social media and whether we can get the social media companies to react more quickly. Of course there is scope for government to engage on a voluntary level. Secondly, there is the almost philosophical question of whether the competition authorities have caught up with the digital age. To a certain extent, I think they have. As I think Lord Liddle was saying, it moves so quickly. We have been dealing with supermarkets for 20 years, but suddenly you have these new very big players that have risen very quickly. Thirdly, there are counterarguments. I am not here to be an advocate for big tech, as it were, but I am sure that such companies would argue that they provide a platform that generates a great deal of wealth for the companies that use those services, whether the hoteliers or the small businesses that benefit from Google or people who sell products on Amazon or eBay.

Going back to Lord Mawson’s point about regulation and interference, Germany is a classic example of where quite a complex environment for data protection has led to a very complicated situation. There is a balance to be struck. The two learnings that I will take from the tone of the questioning are, first, that the competition authorities should perhaps address the issue of whether they are speedy enough and open enough to the small business person as against the big business; and, secondly, whether government can do more to engage on a more voluntary level on some of the issues as they arise.

The Chairman: This issue has not really been finally dealt with in relation to the Groceries Code and so forth, but do you think there is a need for measures to protect complainants in small companies?

Hon Ed Vaizey MP: Protect them from what?

The Chairman: From abuse by the dominant platforms that they virtually have to use as a gateway to the ultimate market.

Hon Ed Vaizey MP: I would not answer that question in relation to a specific issue, because that would lead me into dangerous territory. However, on the point about co-regulation versus self-regulation, I would say, alluding to my earlier answer and again picking up slightly on what Lord Mawson said, that, as a general point in this tech world, some of these issues arise very quickly. We were not talking about abuse on social media three or four years ago, but now it is all-pervasive. So there is an element of the need for a debate about where government can interact with tech companies on a voluntary basis, first, in order to get a quick solution, and, secondly, to have that solution be a flexible solution, but I do not want that comment, which you have led me into, to be seen in any way as denigrating the competition authorities, which I think do a very good job. Everyone who is involved in the competition process is entitled to due process, which is why, to a certain extent, these processes take a very long time. Certainly I would be relaxed about a debate about where government might co-operate with tech companies on some issues that are seen as causing concern in civic society, if you like.

Baroness Neville-Rolfe: I have had good experience in talking to the search engines about intellectual property and the issue that illegal sites were jumping up on the first page and encouraging the consumer to go into them, and that the autocomplete system, where you put in a word, sent you straight off to the illegal sites. Actually, Google changed the algorithm as a result, so that no longer happens now when you go to the front page, and Yahoo is doing the same. It is not perfect; these things are difficult. Of course, if you can persuade the companies that such voluntary action is in their interests, the advantage is that you can move with speed. We know that the digital single market has lots of opportunity, but it will take time to get this through the political process and the European Parliament and to get it implemented in individual Member States.

The Chairman: Indeed. I think, Lord Mawson, that we have probably covered your question.

Q187 Lord Mawson: I was just going to add another turn to it.

I will pick up on your last point, Baroness Neville-Rolfe. Some things may be legal, but one wonders whether they might also be quite destructive to lots of small SMEs. My point is that large bureaucracies find it easy to talk to large bureaucracies. One notices how quickly Permanent Secretaries can transfer from government into very large businesses, but when, having spent a bit of time in this field, you look at their skillset, it is certainly not SMEs; they probably would not survive in one. Is there a risk that UK authorities are failing to respond adequately to concerns, particularly of SMEs? Can they really get under the skin of SMEs? Are the skills there? How do we make sure that the knowledge of what an SME is is in the government systems? It often feels to me that government and large bureaucracies talk German, and SMEs talk French. It is quite a different language and quite a different beast.

Baroness Neville-Rolfe: I have some sympathy with your point, having chaired an SME as well as worked for some major companies. The issues are very different. Just making sure that you have the working capital from the bank and dealing with trading standards, for example, is quite problematic. There is a cultural point, which we obviously discussed during the passage of the Enterprise Bill. I think that the Small Business Commissioner, who we need to hire in the next year to 18 months, is going to be a useful new figure in the landscape. I also think that the directions we are giving to regulators in various different ways to take fuller account of small businesses and to make sure that they have a proper conversation with them are important steps. We should all be getting out and about visiting small businesses, especially those of us who are privileged enough to be government Ministers or government officials.

The Chairman: We are going to switch now from business concerns to consumer concerns.

Q188 Lord Liddle: We have heard evidence of high switching costs for consumers from some online platforms. What is your expectation of how the General Data Protection Regulation, if it comes to fruition, will help this situation? What do you think can be done to ease switching?

Hon Ed Vaizey MP: I think it is your turn to answer this. What did we prepare beforehand?

Baroness Neville-Rolfe: I think I have already said a few things about consumer switching, which I will not repeat. The data protection regulations—which of course are not agreed; they are very much in their closing stages in the European Parliament and Brussels—will obviously relate to the ownership of data. It will be important and interesting to see how those pan out in detail and how we implement them. I think they partially address the concerns. The other way you get better switching is through competition policy, as we have already discussed, and through encouraging the sharing economy, which we have not discussed in any detail. There are all these different dynamics, all of which are disruptive forces, and having been a student of history I believe that the disruption of the new technologies, whether it is moving from stage coaches to trains or moving onto the internet, is highly positive for the consumer. Clearly you need some data protection regulations to make sure that there is no abuse, but actually I worry more that they will end up very burdensome for small business, which is the last thing that we want.

The Chairman: Mr Vaizey, I gather that you are the Data Protection Minister. Do you have any views on this?

Hon Ed Vaizey MP: I think Baroness Neville-Rolfe is responsible for it, but I would make a number of points. First, we are very pleased that DCMS has got data protection out of the clutches of the Ministry of Justice. It is an important part of joining up policy between the department that is broadly responsible for the digital economy and data protection, because they are very closely linked. I certainly think that the interminable data protection regulation that is being discussed in Brussels ad infinitum and that may or may not conclude in the next few weeks should make data portability easier.

When I met my opposite number in France, Axelle Lemaire, I was interested to hear that they are putting forward a Bill that will make it mandatory to be able to port your personal data—this, again, is a focus on small businesses—particularly your emails, and so on, between platforms. We should look at what the French legislation says and see what it can do. The argument against is always that it is very difficult to achieve; it is another regulation and burden on business, albeit likely on quite large businesses, and the technical formats might not be appropriate for making it easy.

Again, to slightly step back and talk about general principles, when we talk about consumers switching we are always saying, “Here are established services that consumers depend on on your mobile phone. We have made great pushes against any objections from mobile operators about technical difficulties. You can port your telephone number from one provider to another”. To a certain extent, that keeps companies honest and competitive.

Similarly, I see nothing wrong in principle when you are talking about a digital world where your data is going to be in the cloud. If you are running an SME where your clients’ details and a lot of your files and so on are in the cloud, you should be able in principle to switch from one provider to another with as much ease as possible. That is something that we as a Government have to look at and debate in the coming months.

Baroness Neville-Rolfe: To finish on the data protection regulation, it will give consumers more control over how their data is to be used, but the technical feasibility and cost of platforms for providing data in a suitable format need to be considered. If the cost is too high, perversely that becomes a barrier to entry. You have these tensions in innovative areas. You want to move forward and you want to protect the consumer but you want to make sure that the real friend to the consumer—new ideas, innovation and competition—is coming through, and that new regulations do not stop that.

Q189 Lord Wei: We have struggled to engage UK-based consumer organisations in this inquiry, partly because they do not feel equipped to engage with what is a very complex and technical area. Overall, do you think that UK consumers are adequately protected in their dealings with online platforms—how these platforms use their data or how safe their data is from hacking, or even just their general business practices, which may not always be transparent to consumers, in the absence of consumer champions from the non-digital sphere, such as Which?

Baroness Neville-Rolfe: My perception is that consumer groups in the UK are strong—their Brussels equivalents are perhaps less strong—and expert in consumer protection. In addition to the sorts of things we have been talking about in the digital area, particularly data protection, there is a whole panoply of existing legal protections, which we have tried to get better understood since we put the Consumer Rights Act through Parliament. There is the consumer rights directive and the unfair commercial practices directive, and of course platforms have to act in accordance with professional diligence in relation to unfair commercial practices engaged in by other traders on the platform. There may be some cases where the toolkit is not being correctly applied, and consumer groups have a role to play there. They could also do a bit more in terms of the conversation we have just been having about how you open up markets and encourage innovation because of the benefits that that brings. We all sit on our mobile phones and our—I probably should not call it an iPad—

Hon Ed Vaizey MP: Tablets.

Baroness Neville-Rolfe: I have an iPad. I have had it for years.

Hon Ed Vaizey MP: If this was the BBC, you would have to say tablet.

Baroness Neville-Rolfe: I would be in trouble. There has been a lot of benefit there. Of course, new disruptions may be different. I am planning to encourage the consumer groups—I now have a few more links with them in some of the areas I have been given, at both DCMS and BIS—to help us move forward and to be a champion for the consumer at the EU level, because people do not always think about these points.

Hon Ed Vaizey MP: It is fascinating that they did not feel that they could come and talk to you. I deal a lot with Which?, which likes nothing better than sticking it to the mobile phone companies, for example. It goes back to the point about the very fast-emerging economy, where even consumer rights organisations, which are very familiar with the traditional players—utilities and so on—do not feel that they can grapple with the platforms. That is something that they should feel comfortable tackling.

Going back to another point I made earlier about co-operation between government and the tech companies, another area in which we could make progress is terms and conditions. You get these very complex terms and conditions. I signed up to some this morning, to an unnamed provider, on my tablet in order to update my software—I do not have a clue what I signed up to. People have to be told, partly by government and partly by consumer rights organisations, about the principles. Having said that, consumers are relatively tech-savvy. People do understand the quid pro quo of what happens when you give up your data—that potentially they will get a better and more bespoke service. But we in this Government have never reneged on the fundamental principle that it is your data and that you should have a say in how it is used.

Lord Wei: Given that we know that traditional competition processes take time and it is cumbersome to try to adapt that, on the point about creating too much regulation, is there scope to harness innovative consumer movements, almost to stimulate innovation in that area, in a voluntary way to pioneer some interim measures? One suggestion that came up in the inquiry was that when a big company in the internet sector is fined, those fines could be used to stimulate consumer groups—perhaps some kind of catalyst process or prize, even. For example, many consumers will know through terms and conditions that their data is taken, but they do not necessarily know that some of the big platforms are much more extreme than others about what that data can be used for. There are no tools that are voluntary or widely used by consumers. That innovation is not happening as much, perhaps.

Hon Ed Vaizey MP: That is an excellent point. I cannot be drawn on whether fines could be used to fund any work, but the point about the place of the consumer organisations in leading a public debate on the relationship between the consumers and the platform is a very good one. I will not criticise them in any way because they do a fantastic job—certainly the ones I deal with—in holding companies to account. I observe merely that, yes, to a certain extent they are relatively silent in this arena, and no doubt there are opportunities for them to make a mark there.

The Chairman: You may have noted that we had Addison Lee here before you came in. Lord Mawson has a question relating to that.

Q190 Lord Mawson: Although people differ on how the regulatory symmetry between the taxi trade and Uber should be addressed, there appears to be a consensus that the current situation is not particularly fair or sustainable. What do you think should be done? What is your assessment of the Commission’s initial approach to the collaborative economy as set out in its single market strategy?

Hon Ed Vaizey MP: I think I have used Uber twice, which is why I still have a 5.0 rating as a good passenger. But I am very stuck in my ways, so I tend to hail a black cab or get the Tube. But I still fall down on the side of Uber in the debate. I know that all sorts of issues have been raised in the press, but this is a company that has brought innovation to the sector. I do not know whether you asked Addison Lee whether it now has an app because of Uber or whether the app was always part of its business development plan.

Lord Aberdare: It has had one since 2009.

Hon Ed Vaizey MP: Oh, okay, I stand corrected. I do not remember being made aware of an Addison Lee app until a few months ago. Uber will certainly stimulate innovation and change in that sector. I think it would be the wrong approach to try to put in regulations that make it harder for Uber to operate. It should be the other way round. There are clear principles, obviously, when you are thinking about a minicab firm—the safety of the passenger, the roadworthiness of the car, the qualifications of the driver, and so on—but, broadly speaking, rather than put roadblocks in the way of Uber, one should think about removing roadblocks for those that want to compete with Uber.

I am extremely pleased with the Commission’s initial approach to the sharing economy. It is very important that it is raising it as an issue because it shows that it is taking this new sector seriously. In our non-paper in the lead-up to the Commission’s papers, we wanted the sharing economy addressed, we wanted clarification of the existing legislation, and we wanted the Commission to look at existing legislation to make it fit for the digital age. Baroness Neville-Rolfe may want to add to that.

Baroness Neville-Rolfe: I wanted to mention the Commission. The digital single market is going on now. We also had proposals on the single market on 28 October. This is germane to that area, as I think Mr Vaizey was saying. Encouraging switching is also important, which we discussed earlier. But I also wanted to make a non-bureaucratic point about the nature of innovation. Having taken a lot of Uber cars in LA in the summer, because my son was getting married there, I was struck by how it cut down the amount of time that was taken because it is so efficient. I thought the rating system was amazing, and that is being introduced elsewhere.

Hon Ed Vaizey MP: What is your rating?

Baroness Neville-Rolfe: Not as high as yours.

Hon Ed Vaizey MP: Do you have a different rating in the US from the one you have in the UK?

Baroness Neville-Rolfe: My children told me that I must always stay at at least 4 or 5 or the Uber cars would stop coming. What I love about the innovation of the platform is that you get the trickle-down into other sectors as other sectors copy those very things. For example, when I did supermarkets, our innovations trickled down into convenience stores, which are now much more vibrant than they used to be because they were able to copy the techniques, the IT and so on. We are beginning to get some good sharing companies in the UK. There is Liftshare, which I rather like. It is in Norwich, and you share a lift to work. There is Hassle, which provides cleaners. There is Love Home Swap, which is the British version of Airbnb. There is a serious point: these small companies bring in improvements in efficiency, which others copy and which help the growth of innovation.

Lord Mawson: I think that is all true, but there are lots of unknowns about this because it is all very new technology. It is clear that the internet is the organising principle of our age. It is clear that that is going on, and none of us fully understands the implications. It is also true that we are sharing our data with all sorts of people out there, but to a very large degree our data is going to be held in California. Things are going to sit in certain places. Financial institutions, for example, sit in London. It is whether we can feel that comfortable giving all that information to a group of people in another country. The internal logic is that we are sharing it, but they are not going to share it with anyone else.

Hon Ed Vaizey MP: Do not lose sight of the fact that any company that operates in this country or in Europe is subject to our data protection regulations, so they are not able to do stuff with your data that a British company could not do. In terms of the row over safe harbour, it is important that we understand the benefits and importance of being able to transmit data across the Atlantic. Europe is now working very hard to try to find a solution, on the back of the European court’s judgment. I think what underlines your question, Lord Mawson, is that it is really important to take seriously people’s concerns about data. It is really important not to just dismiss them or to somehow think that they are scaremongering or out of date. While people recognise the benefits of giving up their data, as I said earlier, it is really important that they feel their data is secure, that it will not be used in an inappropriate way, that it is used anonymously, and so on. The data protection regulations are there to protect them. They are an important layer of regulation.

Lord Aberdare: I have a question about Uber that rather surprised me. Apparently because it is not based in the UK, it is able to end up paying a lower rate of VAT than competing companies. That is potentially worrying, if they are competing on different terms. There is a VAT initiative in the digital single market. Whether that will help to sort this out, I do not know. Is that something you are aware of?

Hon Ed Vaizey MP: There was the change to the VAT rules, which a lot of small businesses found quite onerous, but it was intended to address the anomaly that you could base yourself in Luxembourg and sell to the UK consumer, charging a 5% VAT rate, when your UK-based competitors were having to charge 20%. So you now have to pay the VAT rate of the country in which the consumer is resident, although, as you might imagine, that results in significant complications for small businesses that want to trade across borders.

Lord Aberdare: It sounds as if it is more the other way round: that if Uber is based in Luxembourg—I do not know if it is—it is therefore able to charge a much lower rate.

Hon Ed Vaizey MP: We would have to look at that specific example on your behalf, Lord Aberdare. But as you know from the Chancellor’s announcement on what quickly became known as the Google tax, which I think was in the 2015 Budget before the election, he is going to crack down on what he regards as artificial tax structures, where the amount of money made in a country is somehow removed from the tax base. It is called a diverted profits tax and it is meant to counter some of these aggressive tax practices. It is not a situation of which we are unaware, and it is clearly highlighted by companies that can trade easily across borders.

Baroness Neville-Rolfe: On VAT in particular, one of the proposals we put into our non-paper on the digital single market was to look at VAT anomalies, to make sure that the single market could work. Obviously, tax is a very difficult area and not in our departments’ purview, but one of the very annoying things is that if you try to export to Denmark online you have to register for VAT. You might have turnover of £30,000 a year—so under the UK system you are outside VAT—but if you want to set up a small business with Denmark, you end up having to register for VAT. This is the sort of anomaly that has come about as a result of the reforms that came in. You do get these anomalies and it is really important for Member States to work together to try to sort them out so that one can actually move forward.

Lord Aberdare: I think that is in the digital single market plan: you only have to register in on place.

Baroness Neville-Rolfe: That is what we want. There is not much on that in the current bundle of proposals that came forward this week, but I am confident that as we see more of the 16 headings, more work will be done on VAT.

Lord Green of Hurstpierpoint: I would like a very quick clarification on that before I move on to my question. There is a difference between the Chancellor’s initiative in the last Budget on diverted profits taxes and the VAT problem. They are completely separate problems.

Hon Ed Vaizey MP: Indeed. I was simply making the point—extrapolating from Lord Aberdare’s question—that the issue of what people deem to be the unfair tax advantages of some of these tech companies is a kind of running sore. So I was extrapolating from the VAT point and then highlighting the Chancellor’s initiative on the Google tax—partly because it was in my brief and I wanted to get it in.

The Chairman: We were going to end on that. We may still.

Q191 Lord Green of Hurstpierpoint: Moving on to an omnibus question about the Commission and its approach to the digital single market, you as a Government have said as a general point that you want Commission initiatives to be evidence-based. Do you believe that the consultation it has launched regarding online platforms will provide a sound basis of evidence for deciding how to proceed? If the outcome of that consultation were a conclusion that there were problems that required regulation, would you be open to that, or is there a rather more deeply rooted in-principle objection to regulation in this environment?

Hon Ed Vaizey MP: I take two or three approaches to the digital single market. One is that I am encouraged by the Commission’s approach. I think that the two Commissioners—Commissioner Ansip and Commissioner Oettinger—are very impressive. I have to say that I thought that the previous Commissioner, Neelie Kroes, was also very effective, and I had a good working relationship with her. They are asking the right questions and addressing the right issues. It is important to welcome that. They are working to a punchy timetable, and that is good, too. They are coming forward with initiatives. Some companies in the sector think they are moving too quickly, but I would rather they moved quickly than slowly. Having said that, it is quite clear that we are entitled to say, without wishing to appear difficult to the Commission, that, first, it is important that there is evidence to support intervention in any area; and, secondly, it would not surprise you to learn that our instinct is if you do not have to regulate, you should not regulate. We will take each paper as it comes. We put in an ambitious non-paper at the beginning of the year and we want the Commission to be ambitious and we want to have this debate. Lucy, you do a lot of work on this.

Baroness Neville-Rolfe: I would add only that it is interesting how many consultation papers they have actually issued. They are not moving straightaway to proposed regulations in this area. Almost every couple of weeks we get another unexpected consultation asking us 90 quite difficult questions, which is very good because the evidence base is being developed. That is important.

The other point I was going to make if I had an opening statement was about the importance of talking to other Member States. You have helpfully quoted some good French and German examples, which I am going off to have a look at, but I have used quite a lot of foot leather going around the EU talking both to the leaders in digital—the Estonians, the Danes and the Swedes—but also obviously to the Germans and the French, who do not always agree but have made quite a lot of progress on digital. The internet knows no boundaries, so it is exceptionally important to try to get like-minded states together. We managed to produce a letter from 17 like-minded states on all aspects of the single market, including services, but the strongest bit of it was on the digital single market.

The Chairman: We have a question about tax. We may have touched on some of this before.

Q192 Baroness Donaghy: When representatives from Google came to see us, they said that from Google’s perspective it pays an awful lot of tax in the US. Would you like to say a bit more about this Google tax and the extent to which these companies are correctly obeying tax rules or abusing the system, and what is being done to address the abuse? This seems to be one of the things that irritate newspapers and the public. Will the Google tax which the Chancellor is talking about be sufficient to overcome these irritations?

The Chairman: Do you think there is a degree to which these digital companies find it easier to, as it is said, aggressively minimise their tax internationally than companies that perhaps have more fixed assets?

Hon Ed Vaizey MP: We have had a row only recently with what was called Kraft but which now has some unpronounceable new name, like the popstar formerly known as Prince. It is called something like Movendi.

Baroness Neville-Rolfe: Mondelez.

Hon Ed Vaizey MP: Mondelez—that is it. Apparently, it pays no tax either. It has a lot of fixed assets, which you will find in almost any newsagent you go into. It is an issue that irritates people; it irritates newspapers and it irritates the public. That is why the Chancellor wanted to act on it. Well, it was not just because the newspapers were irritated by it; I think all of us would like to see people pay appropriate levels of tax. Clearly companies such as Google, and indeed Mondelez, are paying tax according to the regulations as they now exist. These kinds of international tax regulation have been around for decades and it takes a long time to change them. That is why the Chancellor came up with his approach of the diverted profits tax. I do not want to make too many errors in trying to describe it, but in effect if the tax arrangements are so clearly meant to divert taxes away from the tax base in the UK, the Treasury can intervene. It has been in place since April 2015, which is quite recent, so I think it is too soon to tell what impact it will have. It does, however, show the Chancellor’s intention to act in this area where he thinks it is appropriate.

Q193 The Chairman: Baroness Neville-Rolfe subtly hinted earlier that I had failed to give the opportunity to make an opening statement. We are now at the end of the proceedings. Is there anything in your carefully prepared opening statements that your offices have given you that you think you should register before we finalise this, or anything else that you wish to add?

Hon Ed Vaizey MP: We both had fawning opening statements designed to put you in a good mood, so it is slightly pointless to make them after the event. Looking at platforms is very important. The Googles and Amazons of the world are clearly now major players in our economy and major players as far as consumers are concerned, so my earlier analogy with supermarkets is valid in the sense that their working practices should come into play and be debated because they affect so many consumers. Clearly, politicians should not stray too far into competition regulation, because quite rightly that is independent of politicians and people are entitled to due process without undue political interference.

I took Lord Wei’s point—but forgot to pay tribute to your work in consumer affairs, Lord Whitty—that there is scope for some of our consumer rights organisations to get involved in this debate. Government does not want to legislate unnecessarily, and there is scope for co-operation between government and tech companies on some consumer-facing issues if we think we can make rapid progress and come up with solutions that help consumers. We will obviously be very interested in this Committee’s conclusions and findings, and we will certainly take them seriously and integrate them into both our domestic approach to tech platforms and the wider debate within the European Union.

Baroness Neville-Rolfe: I only wanted to repeat the tribute that Mr Vaizey made to you, Lord Whitty, because of the work that you did on consumers, which I well remember. There is a tradition in the House of Lords of having objective, rigorous reports—

Hon Ed Vaizey MP: And in the Commons.

Baroness Neville-Rolfe: —that are often very influential. You could not have got your timing better, with the digital single market discussion getting going across Europe and various proposals coming through, so you will be there at the beginning influencing the debate.

The next chapter for me is the digital single market. If we get it right, consumers will enjoy greater choice, lower prices, more mobility and better public services, and businesses will thrive, innovate, drive growth and create jobs. But the issue is urgent; if we do not act now to shape the global digital environment, the EU could get left behind. So we need to take advantage of a potential digital market of 500 million people and remember that 79% of UK consumers sometimes shop online, which is far more than in other Member States. With our large e-commerce shopping sector and our creative industries, we are well placed to benefit and to help our friends and relations in Europe also to take advantage of this disruptive but innovative opportunity.

The Chairman: Thank you very much indeed. That was a very useful session for us. Thanks for being so forthcoming, and thanks for more or less singing from the same hymn sheet. It is nice to know.