Contribution
My Lords, this statutory instrument forms a key part of the regulatory framework underpinning the Online Safety Act 2023, a significant and necessary piece of legislation that forms part of my party’s legacy in government. I am very proud of the small contribution that I made to its passage through your Lordships’ House. That Act’s core aim is to make the online world safer, particularly for children and vulnerable users—an aim that all of us in this Committee support fully.
That said, let me make a brief point; it does not go directly to this instrument but it is, I think, a point worth making. I am concerned by how controversial the Bill seems to have become in certain quarters—indeed, much more controversial than it deserves to be. Part, though not all, of that is perhaps due to the previous Secretary of State’s rather aggressive rebuttal of some of the claims made about it. So I express my hope and wish that the new Secretary of State will be more emollient in his debate in order to carry people with him, because it is so important that the public come along with the Bill.
This instrument sets out how Ofcom will calculate the qualifying worldwide revenue of regulated service providers. As the Minister has outlined, this matters for two reasons: first, to determine Ofcom’s fees and, secondly, to establish maximum penalties for breaches of up to 10% of global revenue or £18 million, whichever is higher.
Most notable, of course, is the use of worldwide revenue as the basis for both fees and penalties. Although this ensures consistency and deters underreporting, the concern was raised during the public consultation that it can prove disproportionate for providers with only limited UK operations. I hope that, when he comes to speak, the Minister can give a bit more clarity on this point. Has a formal assessment been carried out in this specific area? What safeguards exist to prevent excessive penalties in cases of genuine error?
There is also the question—the noble Lord, Lord Stevenson of Balmacara, set this out clearly so I will not go into it much—of the interpretation of terms such as “just and reasonable”, particularly in revenue apportionment and currency conversion. Consistent application will of course be critical. How will disagreements be resolved and what guidance will providers receive?
I would also be grateful for clarification on Regulation 4(3)(b), which refers to
“parts where search content may be encountered (in the case of search services and combined services)”.
Ofcom has indicated that both “search” and “user to user” can include the functionality of AI chatbots. I am pleased that it has clarified this point but, if that is so, it raises an important issue: in cases where an entity is to be fined for an unsafe AI chatbot, which service is considered referable? Is it the chatbot service itself, or is the chatbot to be considered an amalgam of a user-to-user service and a search service?
If it is to be just the chatbot service—these are, of course, increasingly being used as search services—many of them generate very little revenue. In fact, AI is frequently loss making for many of the large organisations operating in this space. Could their qualifying worldwide revenue, at least as defined, be negative in such cases? If so, how would that be treated under the regime?
Of course, we welcome the exemption for services with under £10 million in UK referable revenue—we feel that that is a sensible threshold—but are the Government willing to review it if evidence shows that it is deterring legitimate or public interest platforms from entering or remaining in the UK market?
These regulations are a necessary step. They must be implemented fairly, not just for the global giants but for those trying to do the right thing. In closing, I thank the Minister for stepping in at short notice to guide us through this—it was no doubt a not wholly welcome surprise. I hope that the Government will have plans in place to monitor the regime’s impact actively and closely to ensure that Ofcom’s guidance is transparent and consistent and that they will remain open to adjusting thresholds or definitions if unintended consequences should arise.