Below is a selection of recent key developments and relevant trends affecting Retail.
Digital Single Market Directive (DSM) Copyright Directive
Copyright is a key pillar of the EU DSM reform programme. If adopted, the Copyright Directive will introduce controversial changes for online platform providers and press publishers. Qualifying content-sharing platforms could be liable for copyright infringements arising from user-generated content. Furthermore, these platforms will be obliged to proactively monitor user-generated content for copyright breaches using content-recognition technology. Another controversial proposal (dubbed as a “link tax”) would enable publishers to demand paid-licenses from platforms like Google News when they share news snippets or articles from other sites. The draft Directive has been approved by the EU Parliament at first instance, which will have to ultimately approve it after further closed-door negotiations between stakeholders.
GDPR eight months on
During its implementation in May 2018, the General Data Protection Regulation (GDPR) caused severe headaches for businesses that process consumer data. Having now been in force for almost eight months, what kind of an impact has the legislation had on businesses?
According to data acquired from the Information Commissioner’s Office, in the year from September 2017 to 2018 the average financial penalty levied for a data breach has doubled from £73,000 to £146,000. The total value of penalties also rose 24% from £4m to nearly £5m.
Despite the above, many companies could still be non-compliant. According to data collected by the Ponemon Institute in April 2018, 40% of surveyed companies expected to achieve compliance only after the GDPR came into force (even with an average compliance budget of $13m). This shows that many companies were behind on their GDPR preparations a month before the deadline, and still could be non-compliant.
Business rates and pop-up stores
Business rates have become a thorny issue for traditional retailers in recent times, exacerbated by the fact that online retailers pay significantly less than their bricks-and-mortar counterparts. The government has made some steps to address this in the 2018 Autumn Budget, giving a temporary one-third cut to retailers in smaller premises (with a rateable value of up to £51,000). There are also proposals for a new Digital Services Tax that would tax the sales of large digital companies in the UK, including retailers.
This is all welcome news. However, many commentators suggest not enough is being done and larger retailers, who have arguably suffered the most in recent years, are being offered nothing. A 2.4% increase in inflation is expected to add an additional £186m to retail business rates in April 2019.
Plastic packaging tax
In the 2018 Autumn Budget, the government announced an intention to introduce a Plastics Tax, which is projected to come into force in April 2022. The tax will apply to the production and import of plastic packaging that does not contain at least 30% recycled plastic.
The government is also intending to reform the Packaging Producer Responsibility System with a view to increasing producers’ responsibility for the costs of their packaging waste, including plastics. The new system would encourage producers to innovate on their packaging and make it easier to recycle, while penalising those using packaging that is difficult to recycle.
The initiatives above are still subject to consultation in the near future.
Draft Finance Bill due to come into force
Retailers will have to consider the tax implications once the Draft Finance Bill comes into force. Expected later this year, the Bill will have significant impact on property disposals (Capital Gains Tax, Corporation Tax and Stamp Duty Land Tax) and benefits-in-kind (company cars and expenses). Some provisions are proposed to apply retrospectively.
Collateral warranties: know your rights
Collateral warranties provide a direct contractual link between parties and for example, allow a retailer to make a claim against a building contractor under the warranty if it later discovered the contractor's work was defective. A recent High Court judgment held that the beneficiary of a particular warranty could not bring its claim later than could have been brought under the underlying building contract. As details of the building contract are not usually clear from the collateral warranty itself it is important for beneficiaries (such as retailers) to ascertain the extent (and duration) of both the collateral warranty in question and the underlying contract to understand the value of the collateral warranty.
High Fat, Salt and Sugar (HFSS) Foods
HFSS advertising remains very much on the regulatory agenda, with the Committee of Advertising Practice conducting a review on its non-broadcast food advertising rules 12 months after them having come into effect. The review closed on 31 July 2018 and whilst the results have not yet been published there seems have been a significant increase in the number of adjudications in this area, with brands such as KFC, Burger King and McDonald’s all having been reprimanded by the Advertising Standards Authority (ASA). An interesting development in November 2018 was the ASA's reversal of its previous decision against Kellogg's. The ASA eventually found that an advert for Coco Pops Granola was not "synonymous with" the Coco Pops brand generally and so was not considered a HFSS advert.
On the political front Sadiq Khan, the Mayor of London, has also announced a ban on the advertising of “junk food” on the London transport system (including the Underground and buses) from 25 February 2019 onwards. The Department of Health has also announced plans for the introduction of new rules preventing stores from displaying unhealthy food at checkouts or including it in buy‑one-get-one-free deals.
Sugar taxation and advertising of “junk food”
After the introduction of the Soft Drinks Levy (ie sugar tax) in April 2018, the government is now looking at introducing an additional Levy to target sugary confectionery. Public Health England announced plans to introduce the Levy in October 2018, with the tax stated to take effect sometime in 2020. The Soft Drinks Levy is also planned to be extended to milk-based drinks, including milkshakes and yoghurts.
Linking to the HFSS piece above the Food Advertising (Protection of Children from Targeting) Bill was also proposed in UK Parliament to prevent the marketing and advertising of food that does not meet certain nutritional requirements from being targeted at children. This Bill has since been withdrawn, but this does not mean that the government will not re-address this in the future.
Potential legal protections for consumers of insolvent retailers
The government is to consider new laws and other potential measures to protect consumers that have prepaid for, but not received, goods from a retailer that becomes insolvent.
Some common forms of consumer prepayment include internet orders, gift cards/vouchers and money paid into savings clubs (such as Christmas savings clubs).
There are no concrete timelines beyond the government confirming that its consultation will take place in 2019.
The consultation forms part of the government's 'Modern Industrial Strategy' to make markets fairer for all (see note on the Consumer White Paper below for more information).
Publication of the government's 'Consumer White Paper'
In April 2018, the government published its 'Consumer Green Paper' on "Modernising Consumer Markets" the purpose of which was to "seek views on a range of issues in relation to modern consumer markets" against the backdrop of its aim to create "a UK business environment that is powered by new technologies, shaped by competition and contestability, where the best businesses of all sizes can thrive and where consumers can get high quality goods and services at the lowest possible prices."
The Green Paper included looking at markets which are not working fairly for consumers (part of the government's Modern Industrial Strategy is to make markets fairer to all).
The government is due to publish its Consumer White Paper next year (but hasn't said when). This should be of material interest to all retailers because a 'White Paper' is generally seen as a statement of government policy (whereas a 'Green Paper' often takes the form of a consultation with several potential policy alternatives).
Given the government's statements in respect of providing new legal protections for consumers of insolvent retailers we anticipate that legislative change in certain areas is likely to follow.
New ePrivacy Regulations
Following on from the last edition of Retail Compass, the draft ePrivacy Regulation has been postponed further. While the draft Regulation was initially intended to be simultaneously introduced with the GDPR (May 2018), it is now expected to come into force in late-2019 or 2020. The Regulation will be further deliberated at an EU Transport, Telecommunications and Energy Council meeting on 7 June 2019.
The draft Regulation focuses on the privacy of users' electronic communications. Critically it will now apply to almost all services with a communication element, rather than only traditional communication service.
It will regulate activities such as: direct marketing; website audience measurement; the transmission of communications across devices and browsers; and cookies and online tracking devices.
Also the draft Regulation proposes enforcement mechanisms mirroring the GDPR, with potential fines of up to the higher of €20m (EUR) or 4% of global annual turnover.
How the ASA plans to make its impact online over the next five years
In November 2018, the Advertising Standards Authority (ASA) launched its five-year strategy titled 'More Impact Online'. The new strategy shows a clear intention by the ASA to regulate current and emerging forms of online advertising more strictly, with technology, greater collaboration with platforms and process simplification all being core features.
Particularly, the ASA will tackle the perception that online is a 'Wild West' (ie wrought with consumer-targeted scams, fake news and data breaches). The ASA will also improve its own approach to dealing with non-compliant online advertisers, which has previously been likened to playing a game of 'whack-a-mole', by seeking further cooperation with platforms and utilising technology (AI / machine learning / algorithms) to proactively combat non-compliant online advertising e.g. by using algorithms to proactively search the web to identify non-compliant adverts which may breach the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing (CAP Code).
Government launches The Good Work Plan
Following the 2017 Taylor Review (an independent review of rights and labour laws), in December 2018 the government published its plans on the future strengthening of the UK labour market (The Good Work Plan). This has been done with a view to maintaining competitiveness post-Brexit. This ties in with the UK's Labour Market Enforcement Strategy also published in December 2018.
The Good Work Plan seeks to tackle many aspects of the labour market, including:
- A commitment to maintain workers' rights after leaving the EU, and further strengthening them;
- Enabling workers to request more stable work contracts through new legislation, to seek clarity on their employment status, and outright banning the use of zero hours contracts;
- Establishing a new labour market enforcement agency to protect workers and their rights; and
- Improving the quality of work, making it fairer and more decent for all workers.
The government has not yet given an indication as to when these changes will come into force.
Previously published in Retail Compass New Year edition.