Communications Act (e-Commerce) (EU Exit) Regulations 2020

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Communications Act (e-Commerce) (EU Exit) Regulations 2020.

My Lords, these regulations were laid in both Houses on 24 September. They seek to end the direct effect of article 3 of the e-commerce directive, also known as the country of origin principle, on Sections 120 to 124 and 128 to 131 of the Communications Act 2003; otherwise, it would become retained EU law after the transition period. These sections refer to the regulation of premium-rate services and nuisance calls respectively. The country of origin principle is an EU internal market measure designed to facilitate digital trade among businesses in the European Economic Area. It would not be appropriate to retain this measure in UK legislation beyond the end of the transition period.

These regulations do not create new policy. Rather, they are a technical measure to fix failures of retained EU law arising from the withdrawal of the United Kingdom from the EU. This intervention is essential to ensure that UK rules can be effectively enforced at the end of the year. The primary impact of these regulations is that they will allow a UK regulator, the Phone-paid Services Authority, to enforce its code of practice against online service providers based in the European Economic Area. Currently, article 3 of the e-commerce directive inhibits the exercising of its powers under Sections 120 to 124 of the Act against European Economic Area businesses. The regulations will also allow Ofcom to enforce rules under Sections 128 to 131 of the 2003 Act. Article 3 of the e-commerce directive currently inhibits it from enforcing these rules on the misuse of electronic communications and services against European Economic Area businesses. This change will ensure quicker regulatory action and more efficient user redress. UK regulators will be able to enforce UK laws for the protection of UK consumers.

I also bring to the attention of the Committee the reports of the European Statutory Instruments Committee in the House of Commons and the Secondary Legislation Scrutiny Committee in the House of Lords, and thank them for their work. I would like to address the Secondary Legislation Scrutiny Committee’s wish to discuss wider costs to UK business as a result of the UK becoming a third country in relation to the e-commerce directive. It is worth reiterating that these regulations have very limited bearing on UK businesses. UK businesses will be out of scope of the country of origin principle as a result of our leaving the European Union transition period at the end of December, not as a result of these regulations. Rather, these regulations ensure that European Economic Area businesses will come within the scope of UK rules, which they would not do unless we brought in these changes.

Of course, the loss of the country of origin principle as a result of leaving the EU also means that UK businesses will be newly in scope of certain European Economic Area laws from which they were previously exempt. We expect that the impact on UK business will be relatively low. The scope of the directive is narrow, and we do not expect regulatory regimes to be markedly different in the UK compared with other European Economic Area states. Depending on the nature of the online service, many UK businesses may already be compliant with relevant EEA laws and they will need to make little or no immediate changes to be compliant from 1 January 2021.

My Lords, I thank the Minister for her clear introduction to this short debate. The reason for these regulations is straightforward: when the transition period ends—and that time is frighteningly near—UK businesses in the communications industry will no longer be able to trade in EEA countries, relying on the fact that they comply with UK regulations. These regulations do not change that. They determine that companies from the EEA will no longer be able to rely on their compliance regimes to give them access to UK customers. Instead, they will have to comply with UK regulations. This means that they will have to master the regulations that apply in one more regime. Unfortunately, UK businesses will potentially have to comply with many different regimes in order to carry on trading with the EEA countries.

The Minister assures us that the cost to UK businesses will be minimal. But I wonder whether she can reassure us as to how that conclusion was reached. I understand that there was no consultation about the regulations and no impact assessment was conducted. I know that time is short but, if we are being told that costs will be minimal, we need to know what that is based upon.

Last month, the Minister for Media and Data, John Whittingdale, said reassuringly that

“we do not expect the regulatory regimes to be markedly different in the UK in comparison with other EEA states.”—[Official Report, Commons Delegated Legislation Committee, 20/10/20; col. 4.]

My noble friend the Minister has just repeated this. Those who, like me, regret the decision not to retain membership of the single market would surely shake their head at this comment. Given the expectation of such regulatory alignment in a growing sector, why is this country so set against this principle? It would have allowed continued membership of our most important trading bloc.

My Lords, the ending of the country of origin principle on access to the EEA digital internal market in e-commerce is, I am afraid, the inevitable consequence of our regrettable decision to leave the EU and not to seek to stay in the internal market.

I agree with everything the noble Baroness, Lady Wheatcroft, said. I also want to draw attention to paragraph 12 of the Explanatory Memorandum relating to impact. It says:

“A full Impact Assessment has not been prepared for this Statutory Instrument because there is a low level of impact per business. A De-Minimis Assessment showed that ... there were annual time-saving benefits to certain UK businesses”.

For businesses which offer services to the EEA but not the UK, the Government estimate an annual time-saving benefit of circa £0.5 million. This is pretty breathtaking stuff, as I hope to demonstrate. The Government say that this is because they will no longer have to comply with UK legislation, as well as with the domestic legislation of the EEA state where the service is received. This is looking at it very much from the wrong end of the telescope. The Explanatory Memorandum goes on to say that for all businesses in scope:

“This will result in a small annual net direct cost to business of £0.6m over 10 years. Transition costs refer to the cost incurred by businesses when adjusting to new legislation, in this case the time that organisations will have to take to familiarise themselves with this new legislation.”

In their guidance on the e-commerce directive after the transition period, the Government say:

“The eCommerce Directive applies to ‘information society services’. These are defined as any service that is normally provided: for payment, including indirect payment such as advertising revenue … ‘at a distance’ (where customers can use the service without the provider being present) … by electronic means, and … at the individual request of a recipient of the service. This covers the vast majority of online service providers, for example online retailers, video sharing sites, search tools, social media platforms and internet service providers.”

My Lords, I am grateful to the Minister for her very full introduction to this SI, which is much appreciated, and I thank her and her staff for offering the chance to talk over some of the issues the SI raises in a meeting earlier this week.

The noble Baroness, Lady Wheatcroft, picked up on a number of points, which I will not repeat, but I want to draw out a little further the question of the asymmetry of this SI. As she says, the main beneficiary appears to be Ofcom, and it is a pretty marginal benefit in the sense that it will no longer have to clear, in-country, issues raised by UK companies which have concerns about the way services brought into the UK are being regulated under the country of origin principle. As she pointed out, this seems a rather mixed blessing in some ways. It may well have been freed from the obligation, but the companies themselves will have to do the tracking around and chasing if they have an issue they want to raise in, as has been pointed out, any of the 27 countries with which they used to be able to deal on a relatively simple basis. The Explanatory Memorandum is a bit coy about this but the position is fairly clear, given the very wide range of organisations and companies—online retailers, video sharing sites, search tools, social media platforms and internet service providers—that will be caught by the provision.

Secondly, the main users of the process provided for under this SI are charities. The figures suggest that a number of charities, such as Red Nose Day, rely heavily on people phoning in their donations. Regarding the impact assessment, I cannot believe that some adjustment will not need to be made by bodies that are reliant on such forms of generating income. If the Phone-paid Services Authority does not have the necessary authority to deal with this issue, how on earth will such bodies cope if things go wrong? We have also heard about scams. I am anxious that the Minister deals with this issue when she responds.

I thank all noble Lords who spoke for their contributions on these regulations. I will start with some points that I will respond to in writing. I do not have with me information on the exact timing of the recruitment process for the chair of Ofcom, but I will find that out and share it with your Lordships. I will also write on some of the broader issues raised by the noble Lord, Lord Stevenson, such as spectrum management, roaming and net neutrality. He may also have raised one or two other points, but I will make sure that I address those ones in full.

All noble Lords, including the noble Baroness, Lady Wheatcroft, questioned the impact of the SI and the Government’s assessment of it. A number of elements lead us to be confident in our assessment. First, the figures we have received from the primary regulator, the Phone-paid Services Authority, on derogation requests it receives from EEA states that wish to enforce their legislation against UK-based companies are very low. Double figures have not been reached in any given year, which suggests limited situations where a UK-based business has not complied with requirements similar to those in the 2003 Act when operating within the EEA.

Secondly—this perhaps touches on some of the issues raised by the noble Lords, Lord Clement-Jones and Lord Stevenson—because the scope of this directive is narrow, the current exemptions to which UK businesses have access apply to very few rules governing online activities. They do not apply to areas such as tax, certain gambling activities, personal data covered by GDPR, or legal requirements relating to goods. The noble Lord, Lord Stevenson, is absolutely right about the use made by charities of premium phone lines. However, the overall scope is very restricted. We also believe that there is unlikely to be marked divergence in regulatory regimes in the UK compared to the EEA in the coming years.

On the number of businesses that these regulations might impact, we estimate that approximately 75,000 UK businesses that provide services to one or multiple EEA-area states have the potential to fall within their scope. The figure for premium-priced phone services is 12,000, which is within that 75,000 estimate. I stress that no exact data exists, but these are the best estimates the Government have. I hope that goes some way to addressing the valid points that your Lordships raised.

Motion agreed.

The Grand Committee stands adjourned until a convenient point after 3.45 pm. I remind Members to sanitise their desks and chairs before leaving the room.

Sitting suspended.

My Lords, the hybrid Grand Committee will now resume. Some Members are here in person, respecting social distancing, others are participating remotely, but all Members will be treated equally. I must ask Members in the Room to wear a face covering except when seated at their desk, to speak sitting down, and to wipe down their desk, chair and any other touch points before and after use. The time limit is one hour.