A regulatory bonfire risks the UK losing control of its competition regime
Britain ended 2022 as Europe’s tech hub. With more unicorns than any other European nation and Britain’s tech firms attracting more investment than any of its neighbours’, the UK is best placed to challenge the tech hegemony of Silicon Valley and Beijing.
But having thrown off the yoke of the European Union and choosing to develop its own separate competition regime, the government risks trashing the UK’s stellar record with a regulatory bonfire.
Despite the UK’s current success, competition regulations need an overhaul. Overreaching EU regulations would soon require iPhones to come fitted with lightning chargers and Samsung mobiles to carry the Apple App Store. Such unnecessarily complex standards burden companies and frustrate consumers and should clearly be consigned to the dustbin. But a total overhaul – or regulatory bonfire, as Rishi Sunak has promised – would create unintended consequences that would challenge the UK’s predominant position in the European tech space.
The government is expected to imminently publish a competition bill which is expected to take a machete to the recently published EU Digital Markets Act and build an entirely different regime for the UK. Out go the civil-code-based specific prohibitions contained in the EU Digital Markets Act (where the iPhone charges rule will come from) and instead it will be based on a more flexible common law approach. This is a good move and adds an England and Wales common law thread into an area that has taken the shape of a European civil law style approach.
The EU competition regime is largely based on the notion that the behaviour itself, rather than its effect on competition, should be the subject of its legislative ire. Its list of prohibited behaviours will automatically entangle tech companies in its web and potentially fine them up to 10% of their global revenue. This means that these listed behaviours could result in large fines for tech companies, even if what they are doing has no discernible impact on competition in that market.
There are some benefits to this. Firstly, it does create something called legal certainty. These companies know what the law is. It is simple, so their ability to comply should be more straightforward. Secondly, it makes the law more legitimate and less open to challenge due to the importance of legal certainty as a doctrine throughout EU law.
It does, however, run into significant issues. The predominant one I have already mentioned; not all these behaviours are anti-competitive in effect. The second is far more noteworthy. Lawmakers today are making legislation which could be applied to markets and to technologies that currently don’t exist. Artificial intelligence was not a major industry a decade or so ago; smartphones – now dominating our lives in every imaginable way – did not exist before Steve Jobs launched the iPhone in 2007. What other technologies lie around the corner that we cannot fathom today? Will an inflexible legal code cope with their impact on the market?
So, the UK should bin these specific prohibitions. However, the bill must also be cognisant of the UK’s leading role in the European tech sector and seek to ensure that its new regime does not inadvertently encourage the tech industry to pack up and move to Brussels, Paris, or Frankfurt.
Despite many Brexiteers wanting to believe that the UK exists in a silo, entirely independent of international markets and our neighbours across the Channel, the UK and its economic performance is closely tied to Europe. If the UK applies a less restrictive approach than Brussels, but ultimately a regime that exists within the confines of EU law (companies could comply with the UK law by simply complying with the EU law) then it risks losing control of its competition policy.
If the UK radically diverges but companies can easily comply with both regimes by simply complying with the EU regime, then London will have little ability to create effective policy to nudge the tech industry in the direction it wants. The EU could change their rules to influence the market how they wish, but with the UK’s light touch, by complying with the new EU rules, they remain UK-compliant. The power to nudge the market – despite Brexit – would remain in Brussels.
Even more significantly, if the UK does not exist within the confines of the EU regime, perhaps creating a new and highly complex regulatory landscape, then the EU regime with its legal certainty and easier compliance (albeit more restrictive), will encourage the next generation of unicorns to set up shop in the EU. That will be especially risky for post-Brexit Britain’s fortunes if the EU learns to invest in its tech industry.
The dominance of the UK in the tech industry is largely not the result of our regulatory regime, but of the soft power of the UK, the influence of the anglosphere and the infrastructure we have for these companies to develop. It is relatively easy for a successful UK-based company to take its products to the United States, Australia, Canada and the English-speaking world where the largest profits are likely to be had.
This, along with public and private investment in tech – which remains far higher than in the EU – has enabled us to steal a march on our neighbours; not our competition regime which, as the UK bill is not yet published, remains in lock step with EU law.
The UK, freed from the EU, has the opportunity to make sensible policy choices where it disagrees with the view of Brussels. A regulatory conflagration across tech competition law would not be a sensible policy choice and the government must be wary not to damage the UK’s current tech dominance with overzealous trigger-happy Brexit bonfires