The Digital Economy Contents

5Regulation and compliance

38.Successful innovation can lead to the introduction of new technology which can disrupt traditional ways of doing business. This, in turn, can give innovators a competitive edge, creating wealth and employment, and will also help the Government to achieve its productivity targets. As with the invention of the steam engine and the development of the internet, innovation has happened through history, disrupting business and society in its wake. Disruption can require a review of regulation and compliance. This can include a debate over different types of regulation: whether there should be top-down regulation, centralised regulation, self-regulation, or indeed any regulation at all.

39. In this chapter, we explore the way in which digital advances have pushed at the limits of current regulations, and the ways in which regulation can be used as an enabler, allowing businesses to grow and increase productivity. How the Government tackles regulation and compliance is important because of the increasing number of disruptive businesses appearing, and the likely future impact of technological change, which will inevitably test regulatory frameworks further.

The challenge from ‘disruptive’ technologies

40.Disruptive technologies ‘disrupt’ the accepted means of delivering a service, which in turn bring tension between disruptors and those businesses being disrupted. We heard from businesses that could be described as disruptors, such as Hassle, Uber, Airbnb and Amazon. Uber, described as “a software company, a smartphone app, and licensed as a private hire operator”,45 disrupts the London Hackney carriage model and the existing private hire operators. Hassle, an on-demand cleaning platform, is a technology-disrupting third-party agency, using technology to link cleaners directly with customers.46 Airbnb is a global online travel marketplace, but its representative, Patrick Robinson, denied it was a disruptor, as it was not disrupting existing models, but instead creating competition and a new kind of experience for the tourist; the ability to stay in someone’s home is not the same as staying in a hotel.47

41.The tension between so-called disruptors and disruptees is keenly felt when it comes to regulation. Often digital disruptor businesses do not have to follow the same regulation and compliance as incumbent businesses that are being disrupted, which can be seen as giving the new disruptor an unfair competitive advantage. For example, Airbnb providers are not bound by health and safety regulations of hotels. Ufi Ibrahim, CE of the British Hospitality Association, spoke of platforms’ ability to “facilitate those who are operating as pseudo-hotels, for example, in all but name to effectively go about being able to provide services without complying with law and safety for consumers”.48

42.However, given the accelerating pace of technological change, current disruptive technologies can themselves be disrupted. For example, platforms such as Uber or Airbnb require intermediaries, who charge (often high) processing fees, but blockchain-based technology platforms link the provider and consumer direct with each other, thereby making the intermediary redundant. For example, we heard from Brhmie Balarim that La’Zooz is being seen as a competitor to Uber, and Loconomics is emerging as a competitor to TaskRabbit.49 The fact that disruptive technologies are inevitably evolving, and the pace of change is accelerating, means that it is crucial that public policy is ‘future-proofed’ as far as possible, to ensure that the need for constant regulatory reform is minimised.


43.Regulation should be based on agreed principles, and also flexible enough to adjust to disruption. It should, in our view, put the interests—in terms of quality, choice, cost and safety—of the consumer first, although not at the expense of employment rights. It should encourage innovation, new and existing players, choice and competition, in different sectors of the economy, regardless of the means of delivery or the infrastructure.

44.There is a risk that regulation always lags behind technology and is seen as being in “catch-up” mode. It should not seek to inhibit innovation or to protect business models that might be challenged by disruptive technologies or by digital business models. Indeed, it would be ludicrous to try to hold back the tide of technology. Not only is this impossible, it runs the risk of undermining this country’s future competitiveness and wealth-creation capacity. Similarly, it must ensure that the legal avoidance of regulation is not the sole or primary source of competitive advantage; regulation must ensure fairness, to ensure that new disruptive businesses are not unfairly or unreasonably excluded from certain safeguards such as health and safety regulations.

45.The Government has, in general, taken a hands-off approach to regulation, wanting to stimulate growth of the digital economy. For example, the Government’s efforts to stimulate and support innovation—announced in March 2016—include Innovate UK offering businesses £30,000 each to develop digital solutions that will help people share assets, resources, time and skills.50 The Minister told us that the imposition of analogue regulations on a digital disruptor should not be done, if it is only to protect an existing industry: “The mindset of the Government should be, ‘How do we help this business to thrive and grow to the benefit of the consumer?’ rather than, ‘How do we stop this business because it is disrupting established industries?’”51 We think that this approach is the right one.

46.The House of Lords Select Committee on the European Union published “Online platforms and the digital single market” in April 2016, advised against the creation of a platform-specific regulatory regime, arguing instead that “to protect consumers and to ensure that market power is not abused, we recommend that existing regulators should be vigilant in these markets”.52 We agree that regulation should ensure that reasonable protection is either given or offered to individuals working in or using business models based on digital or disruptive technologies. It is right, for example, that customers have clear evidence and reassurance that Uber drivers and their cars have been checked fully, and that accommodation booked through Airbnb has adequate insurance.53


47.A major characteristic of the digital economy’s model is the reliance on customer feedback. Debbie Wosskow, founding Chair of Sharing Economy UK, spoke of eBay as “the granddaddy of the sharing economy”, which has relied on strangers giving a rating in a review, which is “as good as an inspector”.54 Bad customer feedback means that bad businesses are cut out of the market, and good businesses are good at compliance, when it comes to issues such as safety and security.55

48.One issue that the Government should explore is compliance responsibilities for platforms themselves. For example, Ufi Ibrahim from the British Hospitality Association, told us that some hosts on Airbnb’s platform are flouting the planning rules in London that restrict the renting of homes for more than 90 days a year, and that “40% of the listings on Airbnb at the moment are what we would term professional landlords operating multiple properties, rather than, as dictated by the short letting regulations, homeowners, for example, providing a room or an entire property just for a few weeks of the year”.56

49.Brhmie Balaram, senior researcher at the RSA and author of “Fair Share: Reclaiming power in the sharing economy” reiterated this point, stating that platform providers should be encouraged to take a greater role in meeting necessary standards, to alleviate the risks posed to the public and to allow innovation uninhibited.57 We believe that platforms should have greater responsibility in ensuring that regulatory requirements are adhered to. Given that they have the technology at their disposal, this should not be an onerous responsibility.

50.We recommend that the Government sets out clearly its key objectives for the regulation of disruptive change. Our view is that they should promote productivity, innovation, and customer choice and protection. The Department for Business, Innovation and Skills must be at the forefront of the regulation debate, with BIS Ministers initiating cross-Whitehall co-ordination with colleagues from relevant Departments to explore the regulatory opportunities that exist within the digital framework, and to ensure that regulations are in place to take account of new technology.

51. A major characteristic of the digital economy’s model is the reliance on customer feedback. We recommend that the Government explore ways in which compliance solutions can be developed, to ensure a more collaborative approach to regulation that involves users and providers.

52.We recommend that the Government should study ways in which platforms providers could themselves become key players in the regulatory framework, ensuring that users are complying with current regulations, in order to reduce the risks posed to the public. This issue should be addressed specifically in the Digital Strategy.

53.Workers using the platforms should be entitled to reasonable employment conditions, and should not vulnerable to exploitation, and we will be returning to this topic in greater detail when we carry out our inquiry into the future world of work in the autumn of 2016.

45 Q 69 [Andrew Byrne]

46 Q 99 [Alex Depledge]

47 Q 247 and Q 248

48 Q 250

49 Q 383, Brhmie Balarim. La’Zooz is a blockchain-managed ridesharing app, where the currency, La’Zooz, is generated through ‘proof of movement’ (from Douglas Rushkoff, “Throwing rocks at the google bus”, p222), and Loconomics takes no commission from their revenue, but providers of services pay a monthly fee that give them access to the platform and funds its marketing and operations. Any profits are reinvested into the company or shared with the providers, based on the hours they have booked through the platform (from ‘Locavesting’, December 2015).

51 Q 490, the Minister of State for Culture and the Digital Economy, Ed Vaizey MP.

52 The House of Lord’s Select Committee on the European Union, “Online platforms and the digital single market April 2016.

53 Q 73 [Andrew Byrne]; Q 25 [Patrick Robinson].

54 Q 388.

55 Q 139 [Alex Depledge]; Q 385 [Brhmie Balaram].

56 Q 249

57 Brhmie Balaram, Fair Share: reclaiming power in the sharing economy, RSA, January 2016.

© Parliamentary copyright 2015

15 July 2016